0001557939-14-000066.txt : 20141104 0001557939-14-000066.hdr.sgml : 20141104 20141104101014 ACCESSION NUMBER: 0001557939-14-000066 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20141104 ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20141104 DATE AS OF CHANGE: 20141104 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Acelity L.P. Inc. CENTRAL INDEX KEY: 0001557939 STANDARD INDUSTRIAL CLASSIFICATION: SURGICAL & MEDICAL INSTRUMENTS & APPARATUS [3841] IRS NUMBER: 981022387 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 333-184233-14 FILM NUMBER: 141191755 BUSINESS ADDRESS: STREET 1: 12930 IH 10 WEST CITY: SAN ANTONIO STATE: TX ZIP: 78249 BUSINESS PHONE: 2102556898 MAIL ADDRESS: STREET 1: 12930 IH 10 WEST CITY: SAN ANTONIO STATE: TX ZIP: 78249 FORMER COMPANY: FORMER CONFORMED NAME: Centaur Guernsey L.P. Inc. DATE OF NAME CHANGE: 20120911 8-K 1 a2014q38-kearningsrelease.htm 8-K 2014 Q3 8-K Earnings Release


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 8-K

CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report: November 4, 2014
Commission File Number: 333-184233-14



ACELITY L.P. INC.
(Exact name of registrant as specified in its charter)


Guernsey
 
98-1022387
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
 
12930 West Interstate 10
San Antonio, Texas               
 
78249
(Address of principal executive offices)
 
(Zip Code)

Registrant's telephone number, including area code: (210) 524-9000
Centaur Guernsey L.P. Inc
(Former name or former address, if changed since last report)


Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2.):
¨
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
¨
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
¨
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
¨
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))








Item 2.02. Results of Operations and Financial Condition
Acelity L.P. Inc. is reporting its financial results for the three and nine months ended September 30, 2014. The report is attached hereto and incorporated herein by reference.
The information in this Item, including Exhibit 99.1, is being furnished, not filed. Accordingly, the information set forth in this Item will not be incorporated by reference into any registration statement filed by Acelity L.P. Inc. under the Securities Act of 1933, as amended, unless specifically identified therein as being incorporated therein by reference.

Item 9.01. Financial Statements and Exhibits
(d) Exhibits
The following exhibits are filed with this Form 8-K:
Exhibit No.
 
Description
99.1
 
Acelity L.P. Inc. Third Quarter and First Nine Months Financial Results for 2014










SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
ACELITY L.P. INC.
(REGISTRANT)
 
 
 
 
Date: November 4, 2014
 
By:
/s/ Brian Busenlehner
 
 
Name:
Brian Busenlehner
 
 
Title:
Authorized Signatory






EXHIBIT INDEX
Exhibit No.
 
Description
99.1
 
Acelity L.P. Inc. Third Quarter and First Nine Months Financial Results for 2014





EX-99.1 2 a9912014q3earningsrelease.htm ACELITY L.P. INC. THIRD QUARTER AND FIRST NINE MONTHS FINANCIAL RESULTS FOR 2014 99.1 2014 Q3 Earnings Release


    
FOR MORE INFORMATION, CONTACT:
Investors
News Media
Nathan Speicher
Mike Barger
Office: (210) 255-6027
Office: (210) 255-6824
nathan.speicher@acelity.com
mike.barger@acelity.com

ACELITY L.P. INC. REPORTS THIRD QUARTER AND
FIRST NINE MONTHS FINANCIAL RESULTS FOR 2014


-  Third quarter 2014 worldwide Acelity L.P. Inc. (“Acelity”) revenue of $488.7 million, up 10.9% from the prior-year period as reported and 11.1% from the prior-year period on a constant currency basis

- Third quarter 2014 loss from continuing operations of $1.8 million compared to a loss from continuing operations of $398.3 million for the prior-year period

-  Third quarter 2014 total Adjusted EBITDA from continuing operations1 of $194.1 million compared to $191.5 million for the prior-year period


Highlights of the third quarter and nine months ended September 30, 2014

Acelity revenue for the third quarter of 2014 was $488.7 million, up from the prior-year comparable period by 10.9% as reported and 11.1% on a constant currency basis. Our loss from continuing operations for the third quarter of 2014 was $1.8 million compared to $398.3 million in the prior-year period. Adjusted EBITDA from continuing operations were $194.1 million for the third quarter of 2014, compared to $191.5 million in the prior-year period.

Acelity revenue for the nine months ended September 30, 2014 was $1.4 billion, up from the prior-year comparable period by 8.7% as reported and 8.8% on a constant currency basis. Our loss from continuing operations for the nine months ended September 30, 2014 was $200.9 million compared to $503.6 million in the prior-year period. Adjusted EBITDA from continuing operations were $519.0 million for the nine months ended September 30, 2014, compared to $525.2 million in the prior-year period.

“We achieved a number of important milestones as a Company this quarter. We launched our new brand, Acelity, which unites the three businesses under one banner and will help drive tangible improvements for our customers and employees. We achieved organic growth in our NPWT business for the first time since 2011 and grew core product volumes for the fifth consecutive quarter. Our emerging markets and focus products are growing strongly and the evidence supporting our product efficacy continues to mount,” said Joe Woody, President and Chief Executive Officer.


Financial Position

Total cash at September 30, 2014 was $224.9 million. During the first nine months of 2014, Acelity generated cash of $105.0 million from operations, used cash of $61.8 million in investing activities and used cash of $21.3 million in financing activities.

As of September 30, 2014, total long-term debt outstanding was $4.86 billion and our Net Leverage Ratio2 was 6.2x.







Acquisition of Systagenix

In the fourth quarter of 2013, we closed the acquisition of Systagenix, an established provider of advanced wound therapeutics products. Financial results of Systagenix are included within our consolidated financial statements for the period subsequent to the acquisition date. Combining Systagenix's advanced wound dressings with our KCI wound care business and innovation pipeline will enable us to create additional value for customers by providing more complete solutions for patients and clinicians.

Transfer of SPY® Elite System Marketing and Distribution Rights

On October 29, 2014, LifeCell Corporation entered into an agreement with Novadaq® Technologies Inc. (“Novadaq”) to transfer all marketing and distribution rights to the SPY® Elite System from LifeCell to Novadaq, effective November 30, 2014. In connection with the transfer, the parties agreed to terminate various distribution agreements entered into between 2010 and 2011. The U.S. agreement for the core fields of plastic, general, and gastrointestinal surgeries was set to expire in November 2015. The termination agreement provides for a one-time payment of $4.5 million to LifeCell on November 30, 2014 and the repurchase of existing inventory. LifeCell has agreed to provide limited transition services to Novadaq through year end. In connection with the transfer, the parties have also resolved all legal disputes between them.

Company Structure

Acelity is a non-operating holding company whose business is comprised of the operations of wholly owned subsidiaries that commercialize our advanced wound therapeutics and regenerative medicine products. Our advanced wound therapeutics business is conducted by KCI and its subsidiaries, including Systagenix, and our regenerative medicine business is conducted by LifeCell. Acelity is controlled by investment funds advised by Apax Partners and controlled affiliates of Canada Pension Plan Investment Board and the Public Sector Pension Investment Board and certain other co-investors.  Unless otherwise noted in this report, the terms “we,” “our” or “Company,” refer to Acelity and its subsidiaries, collectively.

Non-GAAP Financial Information

Within this document, we have presented 1) Adjusted EBITDA from continuing operations, as defined in our senior secured credit agreement and 2) supplemental revenue data to exclude the impact of foreign currency fluctuations on a non-GAAP basis.

These non-GAAP financial measures do not replace the presentation of our GAAP results. We have provided this supplemental non-GAAP information because it may provide meaningful information regarding our results on a basis that better facilitates an understanding of our results of operations which may not be otherwise apparent under GAAP. Management uses this non-GAAP financial information, along with GAAP information, for reviewing the operating results of its business segments and for analyzing potential future business trends. In addition, we believe some investors may use this information in a similar fashion. A reconciliation of certain GAAP selected financial information for the periods presented to the non-GAAP selected financial information provided is included herein.


1Adjusted EBITDA from continuing operations excludes the operations of our previously divested TSS business and the impact of merger-related expenses, foreign currency gains or losses, business optimization expenses and other expenses specified in the reconciliation within this release.

2 The Net Leverage Ratio represents Net Debt divided by Consolidated EBITDA for the last twelve months. Net Debt consists of total indebtedness including capital leases and other financing obligations, less cash and cash equivalents up to the greater of$300.0 million or 40% of Consolidated EBITDA for the last twelve months. Consolidated EBITDA, as defined in our senior secured credit agreement, represents Adjusted EBITDA from continuing operations plus "run rate" cost savings and a pro forma adjustment related to EBITDA of Systagenix for the pre-acquisition period beginning October 1, 2013, which is not included in our condensed consolidated financial statements.






ACELITY L.P. INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(dollars in thousands)
(unaudited)

 
Three months ended September 30,
 
Nine months ended September 30,
 
2014
 
2013
 
% Change
 
2014
 
2013
 
% Change
Revenue:
 
 
 
 
 
 
 
 
 
 
 
Rental
$
190,465

 
$
191,041

 
(0.3
)%
 
532,258

 
569,449

 
(6.5
)%
Sales
298,186

 
249,520

 
19.5

 
869,103

 
719,675

 
20.8

Total revenue
488,651

 
440,561

 
10.9

 
1,401,361

 
1,289,124

 
8.7

 
 
 
 
 
 
 
 
 
 
 
 
Rental expenses
84,744

 
85,746

 
(1.2
)
 
257,574

 
273,479

 
(5.8
)
Cost of sales
86,314

 
66,151

 
30.5

 
251,923

 
181,707

 
38.6

Gross profit
317,593

 
288,664

 
10.0

 
891,864

 
833,938

 
6.9

 
 
 
 
 
 
 
 
 
 
 
 
Selling, general and administrative expenses
163,176

 
152,053

 
7.3

 
510,122

 
518,478

 
(1.6
)
Research and development expenses
15,879

 
17,961

 
(11.6
)
 
51,602

 
56,140

 
(8.1
)
Acquired intangible asset amortization
47,918

 
45,116

 
6.2

 
147,361

 
139,123

 
5.9

Wake Forest settlement

 

 

 
198,578

 

 

Impairment of goodwill and intangible assets

 
443,400

 

 

 
443,400

 

Operating earnings (loss)
90,620

 
(369,866
)
 

 
(15,799
)
 
(323,203
)
 
(95.1
)
 
 
 
 
 
 
 
 
 
 
 
 
Interest income and other
23

 
217

 
(89.4
)
 
245

 
1,279

 
(80.8
)
Interest expense
(104,475
)
 
(101,398
)
 
3.0

 
(308,475
)
 
(315,144
)
 
(2.1
)
Loss on extinguishment of debt

 
(200
)
 

 

 
(2,364
)
 

Foreign currency gain (loss)
9,599

 
(8,738
)
 

 
13,687

 
(11,935
)
 

Derivative instruments gain (loss)
1,630

 
(6,840
)
 

 
(2,670
)
 
3,200

 

Loss from continuing operations before income tax benefit
(2,603
)
 
(486,825
)
 
(99.5
)
 
(313,012
)
 
(648,167
)
 
(51.7
)
Income tax benefit
(766
)
 
(88,519
)
 
(99.1
)
 
(112,075
)
 
(144,543
)
 
(22.5
)
Loss from continuing operations
(1,837
)
 
(398,306
)
 
(99.5
)
 
(200,937
)
 
(503,624
)
 
(60.1
)
Loss from discontinued operations, net of tax

 
(255
)
 

 

 
(2,299
)
 

Net loss
$
(1,837
)
 
$
(398,561
)
 
(99.5
)%
 
$
(200,937
)
 
$
(505,923
)
 
(60.3
)%










ACELITY L.P. INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(in thousands)

 
September 30,
2014
 
December 31,
2013
Assets:
(unaudited)
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
224,905

 
$
206,949

Accounts receivable, net
371,381

 
407,578

Inventories, net
184,590

 
181,567

Deferred income taxes
28,218

 
23,621

Prepaid expenses and other
39,604

 
53,161

Total current assets
848,698

 
872,876

 
 
 
 
Net property, plant and equipment
293,366

 
333,725

Debt issuance costs, net
83,926

 
102,054

Deferred income taxes
30,353

 
31,459

Goodwill
3,378,931

 
3,378,661

Identifiable intangible assets, net
2,429,166

 
2,549,201

Other non-current assets
4,950

 
4,669

 
 
 
 
 
$
7,069,390

 
$
7,272,645

 
 
 
 
Liabilities and Equity:
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
57,575

 
$
50,316

Accrued expenses and other
410,725

 
328,975

Current installments of long-term debt
25,847

 
26,311

Income taxes payable
4,900

 
3,368

Deferred income taxes
28,512

 
2,199

Total current liabilities
527,559

 
411,169

 
 
 
 
Long-term debt, net of current installments and discount
4,830,009

 
4,865,503

Non-current tax liabilities
33,757

 
53,682

Deferred income taxes
859,078

 
1,003,784

Other non-current liabilities
124,542

 
40,432

Total liabilities
6,374,945

 
6,374,570

Equity:
 
 
 
General partner's capital

 

Limited partners’ capital
700,485

 
900,218

Accumulated other comprehensive loss, net
(6,040
)
 
(2,143
)
Total equity
694,445

 
898,075

 
 
 
 
 
$
7,069,390

 
$
7,272,645











ACELITY L.P. INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)

 
Nine months ended September 30,
 
2014
 
2013
Cash flows from operating activities:
 
 
 
Net loss
$
(200,937
)
 
$
(505,923
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
Amortization of debt issuance costs and discount
29,179

 
26,356

Depreciation and other amortization
234,514

 
252,026

Loss on disposition of assets

 
3,189

Amortization of fair value step-up in inventory
6,680

 

Fixed asset and inventory impairment

 
30,259

Impairment of goodwill and intangible assets

 
443,400

Write-off of other intangible assets

 
16,885

Provision for bad debt
11,613

 
5,051

Loss on extinguishment of debt

 
2,164

Equity-based compensation expense
2,966

 
2,046

Deferred income tax benefit
(127,799
)
 
(165,456
)
Unrealized gain on derivative instruments
(9,310
)
 
(5,729
)
Unrealized loss (gain) on revaluation of cross currency debt
(27,559
)
 
8,174

Change in assets and liabilities:
 
 
 
Decrease (increase) in accounts receivable, net
26,065

 
(23,046
)
Increase in inventories, net
(9,275
)
 
(10,498
)
Decrease (increase) in prepaid expenses and other
12,341

 
(17,137
)
Increase in accounts payable
7,402

 
3,273

Increase in accrued expenses and other
161,227

 
68,440

Increase (decrease) in tax liabilities, net
(12,076
)
 
2,021

Net cash provided by operating activities
105,031

 
135,495

 
 
 
 
Cash flows from investing activities:
 
 
 
Additions to property, plant and equipment
(46,760
)
 
(59,868
)
Increase in inventory to be converted into equipment for short-term rental
(3,289
)
 
(8,881
)
Dispositions of property, plant and equipment
2,251

 
1,052

Businesses acquired in purchase transaction, net of cash acquired
(4,613
)
 

Increase in identifiable intangible assets and other non-current assets
(9,351
)
 
(4,273
)
Net cash used by investing activities
(61,762
)
 
(71,970
)
 
 
 
 
Cash flows from financing activities:
 
 
 
Settlement of profits interest units
(1,416
)
 

Distribution to limited partners

 
(1,572
)
Repayments of long-term debt and capital lease obligations
(19,863
)
 
(60,429
)
Payment of debt issuance costs

 
(21,604
)
Net cash used by financing activities
(21,279
)
 
(83,605
)
Effect of exchange rate changes on cash and cash equivalents
(4,034
)
 
(151
)
Net increase (decrease) in cash and cash equivalents
17,956

 
(20,231
)
Cash and cash equivalents, beginning of period
206,949

 
383,150

Cash and cash equivalents, end of period
$
224,905

 
$
362,919






ACELITY L.P. INC. AND SUBSIDIARIES
Reconciliation from GAAP to Non-GAAP
Supplemental Revenue Data
(dollars in thousands)
(unaudited)
 
Three months ended September 30,
 
GAAP % Change
 
Constant Currency % Change (1)
 
2014
 
2013 GAAP
 
 
 
GAAP
 
FX Impact
 
Constant
Currency
 
 
 
Advanced Wound Therapeutics revenue:
 
 
 
 
 
 
 
 
 
 
 
Rental
$
188,843

 
$
173

 
$
189,016

 
$
189,528

 
(0.4
)%
 
(0.3
)%
Sales
188,338

 
650

 
188,988

 
131,351

 
43.4

 
43.9

  Total
377,181

 
823

 
378,004

 
320,879

 
17.5

 
17.8

 
 
 
 
 
 
 
 
 
 
 
 
Regenerative Medicine revenue:
 
 
 
 
 
 
 
 
 
 
 
Rental
1,622

 

 
1,622

 
1,513

 
7.2

 
7.2

Sales
109,848

 
107

 
109,955

 
118,169

 
(7.0
)
 
(7.0
)
  Total
111,470

 
107

 
111,577

 
119,682

 
(6.9
)
 
(6.8
)
 
 
 
 
 
 
 
 
 
 
 
 
Total Revenue:
 
 
 
 
 
 
 
 
 
 
 
Rental
190,465

 
173

 
190,638

 
191,041

 
(0.3
)
 
(0.2
)
Sales
298,186

 
757

 
298,943

 
249,520

 
19.5

 
19.8

  Total
$
488,651

 
$
930

 
$
489,581

 
$
440,561

 
10.9
 %
 
11.1
 %


 
Nine months ended September 30,
 
GAAP % Change
 
Constant Currency % Change (1)
 
2014
 
2013 GAAP
 
 
 
GAAP
 
FX Impact
 
Constant
Currency
 
 
 
Advanced Wound Therapeutics revenue:
 
 
 
 
 
 
 
 
 
 
 
Rental
$
527,449

 
$
450

 
$
527,899

 
$
564,683

 
(6.6
)%
 
(6.5
)%
Sales
537,366

 
328

 
537,694

 
379,843

 
41.5

 
41.6

  Total
1,064,815

 
778

 
1,065,593

 
944,526

 
12.7

 
12.8

 
 
 
 
 
 
 
 
 
 
 
 
Regenerative Medicine revenue:
 
 
 
 
 
 
 
 
 
 
 
Rental
4,809

 

 
4,809

 
4,766

 
0.9

 
0.9

Sales
331,737

 
(77
)
 
331,660

 
339,832

 
(2.4
)
 
(2.4
)
  Total
336,546

 
(77
)
 
336,469

 
344,598

 
(2.3
)
 
(2.4
)
 
 
 
 
 
 
 
 
 
 
 
 
Total Revenue:
 
 
 
 
 
 
 
 
 
 
 
Rental
532,258

 
450

 
532,708

 
569,449

 
(6.5
)
 
(6.5
)
Sales
869,103

 
251

 
869,354

 
719,675

 
20.8

 
20.8

  Total
$
1,401,361

 
$
701

 
$
1,402,062

 
$
1,289,124

 
8.7
 %
 
8.8
 %

(1) Represents percentage change between 2014 non-GAAP Constant Currency revenue and 2013 GAAP revenue.






ACELITY L.P. INC. AND SUBSIDIARIES
Reconciliation from GAAP to Non-GAAP
Selected Financial Information
(dollars in thousands)
(unaudited)

 
Three months ended September 30,
 
Nine months ended September 30,
 
2014
 
2013
 
2014
 
2013
 
 
 
 
 
 
 
 
Net loss
$
(1,837
)
 
$
(398,561
)
 
$
(200,937
)
 
$
(505,923
)
Loss from discontinued operations, net of tax

 
255

 

 
2,299

Interest expense, net of interest income
104,462

 
101,185

 
308,273

 
314,648

Income tax benefit
(766
)
 
(88,519
)
 
(112,075
)
 
(144,543
)
Foreign currency (gain) loss
(9,599
)
 
8,738

 
(13,687
)
 
11,935

Depreciation and other amortization
73,986

 
80,832

 
234,514

 
252,026

Derivative instruments (gain) loss
(1,630
)
 
6,840

 
2,670

 
(3,200
)
Management fees and expenses
1,505

 
1,371

 
3,694

 
4,123

Equity-based compensation expense
863

 
850

 
2,966

 
2,046

Acquisition, disposition and financing expenses (1)
554

 
7,436

 
5,092

 
22,846

Business optimization expenses (2)
16,290

 
18,285

 
54,672

 
68,693

Wake Forest settlement

 

 
198,578

 

Other permitted expenses (3)
10,246

 
452,768

 
35,196

 
500,284

Adjusted EBITDA from continuing operations
194,074

 
191,480

 
518,956

 
525,234

Adjusted EBITDA from discontinued operations (4)

 
(340
)
 

 
(350
)
Total adjusted EBITDA
$
194,074

 
$
191,140

 
$
518,956

 
$
524,884

 
 
 
 
 
 
 
 
Adjusted EBITDA from continuing operations as a percentage of revenue
39.7
%
 
43.4
%
 
37.0
%
 
40.7
%

(1) Represents labor, travel, training, consulting and other costs associated with acquisition, disposition and financing activities, such as the acquisitions of Systagenix and Attenuate and the repricing of our senior secured credit facility.
(2) Represents labor, travel, training, consulting and other costs associated exclusively with our business optimization initiatives.
(3) Represents charges for the impairment of goodwill, intangible assets and fixed assets, the write-off of in-process research and development and other intangible assets, amortization of the fair value step-up in inventory and other permitted expenses.
(4) Adjusted EBITDA from discontinued operations includes the (gain) loss from discontinued operations, excluding any related gain or loss on
disposition of assets, adjusted as defined in our senior secured credit agreement.




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