Integra Lifesciences Holdings Corp 10-Q for FY2020 Q1

Integra Lifesciences Holdings Corp (IART)

10-Q 2020-05-07 For: 2020-03-31

Added on April 11, 2026

About this 10-Q

Integra Lifesciences Holdings Corp filed this 10-Q on May 7, 2020, covering the quarter ended March 31, 2020 (FY2020 Q1).

Headline figures

Quarter ended March 31, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $354.32M; down 1.5% from $359.69M a year earlier
Net income: $9.18M; down 72.0% from net income of $32.76M a year earlier
Diluted EPS: $0.11; down 71.1% from $0.38 a year earlier

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Delaware			51-0317849
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION)			(I.R.S. EMPLOYER IDENTIFICATION NO.)

1100 Campus Road			08540
Princeton	,	New Jersey	(ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)



TITLE OF EACH CLASS	TRADING SYMBOL	NAME OF EACH EXCHANGE ON WHICH REGISTERED
Common Stock, Par Value $.01 Per Share	IART	Nasdaq Global Select Market



Large accelerated filer	☒	Accelerated filer	☐

Non-accelerated filer	☐	Smaller reporting company	☐

Emerging growth company	☐



	Page Number
PART I. FINANCIAL INFORMATION

Item 1. Financial Statements	4

Condensed Consolidated Statements of Operations and Comprehensive Income/Loss for the three months ended March 31, 2020 and 2019 (Unaudited)	4

Condensed Consolidated Balance Sheets as of March 31, 2020 and December 31, 2019 (Unaudited)	5

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2020 and 2019 (Unaudited)	6

Condensed Consolidated Statements of Changes in Shareholder's Equity for the three months ended March 31, 2020 and 2019 (Unaudited)	7

Notes to Unaudited Condensed Consolidated Financial Statements	8

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	29

Item 3. Quantitative and Qualitative Disclosures About Market Risk	42

Item 4. Controls and Procedures	42

PART II. OTHER INFORMATION

Item 1. Legal Proceedings	43

Item 1A. Risk Factors	43

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	46

Item 4. Mine Safety Disclosures	46

Item 5. Other Information	46

Item 6. Exhibits	46

SIGNATURES	47

Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT



	Three Months Ended March 31,
	2020			2019
Total revenue, net	$	354,324		$	359,690
Costs and expenses:
Cost of goods sold	133,476			128,912
Research and development	20,816			18,321
Selling, general and administrative	165,952			174,870
Intangible asset amortization	6,977			5,279
Total costs and expenses	327,221			327,382
Operating income	27,103			32,308
Interest income	2,570			2,428
Interest expense	(17,752		)	(13,149		)
Other income(expense), net	(479		)	3,236
Income before income taxes	11,442			24,823
Provision (benefit) for income taxes	2,262			(7,933		)
Net income	$	9,180		$	32,756

Net income per share
Basic	$	0.11		$	0.38
Diluted	$	0.11		$	0.38

Weighted average common shares outstanding (See Note 13):
Basic	85,188			85,343
Diluted	85,892			86,258
Comprehensive income (loss) (See Note 14)	$	(19,007	)	$	21,520



☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



	March 31, 2020			December 31, 2019
ASSETS
Current assets:
Cash and cash equivalents	$	357,712		$	198,911
Trade accounts receivable, net of allowances of $6,652 and $4,303	245,546			275,296
Inventories, net	338,082			316,054
Prepaid expenses and other current assets	67,332			67,907
Total current assets	1,008,672			858,168
Property, plant and equipment, net	335,903			337,404
Right of use asset - operating leases	95,890			94,530
Intangible assets, net	1,014,227			1,031,591
Goodwill	951,554			954,280
Deferred tax assets, net	2,330			12,623
Other assets	38,989			14,644
Total assets	$	3,447,565		$	3,303,240
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of borrowings under senior credit facility	$	—		$	45,000
Current portion of lease liability - operating leases	12,964			12,253
Accounts payable, trade	97,061			113,090
Contract liabilities	4,860			4,772
Accrued compensation	55,630			79,385
Accrued expenses and other current liabilities	75,970			76,809
Total current liabilities	246,485			331,309
Long-term borrowings under senior credit facility	1,018,032			1,198,561
Long-term borrowings under securitization facility	98,500			104,500
Long-term convertible securities	460,159			—
Lease liability - operating leases	100,328			97,504
Deferred tax liabilities	24,221			36,553
Other liabilities	158,037			118,077
Total liabilities	2,105,762			1,886,504
Commitments and contingencies (Refer to Note 16)
Stockholders’ equity:
Preferred stock; no par value; 15,000 authorized shares; none outstanding	—			—
Common stock; $0.01 par value; 240,000 authorized shares; 89,104 and 88,735 issued at March 31, 2020 and December 31, 2019, respectively	889			887
Additional paid-in capital	1,240,455			1,213,620
Treasury stock, at cost; 4,294 shares and 2,865 shares at March 31, 2020 and December 31, 2019, respectively	(202,506		)	(119,943		)
Accumulated other comprehensive loss	(104,588		)	(76,402		)
Retained earnings	407,553			398,574
Total stockholders’ equity	1,341,803			1,416,736
Total liabilities and stockholders’ equity	$	3,447,565		$	3,303,240



	Three Months Ended March 31, 2020
	Common Stock			Treasury Stock					Additional Paid-In Capital			Accumulated Other Comprehensive Loss			Retained Earnings			Total Equity
	Shares	Amount		Shares		Amount			Additional Paid-In Capital			Accumulated Other Comprehensive Loss			Retained Earnings			Total Equity
	(In thousands)
Balance, January 1, 2020	88,735	$	887	(2,865	)	$	(119,943	)	$	1,213,620		$	(76,401	)	$	398,573		$	1,416,736
Net income	—	—		—		—			—			—			9,180			9,180
Other comprehensive loss, net of tax	—	—		—		—			—			(28,187		)	—			(28,187		)
Issuance of common stock through employee stock purchase plan	13	—		—		—			694			—			—			694
Issuance of common stock for vesting of share based awards, net of shares withheld for taxes	357	2		10		476			(3,217		)	—			—			(2,739		)
Share-based compensation		—		—		—			3,781			—			—			3,781
Share repurchase and equity component of the convertible note issuance, net	—	—		(135	)	(7,632		)	42,538			—			—			34,906
Accelerated shares repurchased	—	—		(1,304	)	(75,407		)	(16,961		)	—			—			(92,368		)
Adoption of Update No. 2016-13	—	—		—		—			—			—			(200		)	(200		)
Balance, March 31, 2020	89,105	$	889	(4,294	)	$	(202,506	)	$	1,240,455		$	(104,588	)	$	407,553		$	1,341,803



	Three Months Ended March 31, 2019
	Common Stock			Treasury Stock					Additional Paid-In Capital			Accumulated Other Comprehensive Loss			Retained Earnings		Total Equity
	Shares	Amount		Shares		Amount			Additional Paid-In Capital			Accumulated Other Comprehensive Loss			Retained Earnings		Total Equity
	(In thousands)
Balance, January 1, 2019	88,044	$	880	(2,881	)	$	(120,615	)	$	1,192,601		$	(45,443	)	$	348,373	$	1,375,796
Net income	—	$	—	—		—			—			—			32,756		32,756
Other comprehensive loss, net of tax	—	$	—	—		—			—			(11,236		)	—		(11,236		)
Issuance of common stock through employee stock purchase plan	17	$	—	—		$	—		716			$	—		$	—	$	716
Issuance of common stock for vesting of share based awards, net of shares withheld for taxes	243	$	2	12		506			(5,629		)	—			—		(5,121		)
Share-based compensation	—	$	—	—		—			4,119			—			—		4,119
Balance, March 31, 2019	88,304	$	882	(2,869	)	$	(120,109	)	$	1,191,807		$	(56,679	)	$	381,129	$	1,397,030



	Preliminary Valuation as of March 31, 2020		Weighted Average Life
	(Dollars in thousands)
Cash	$	90
Other current assets	751
Property, plant and equipment	159
Deferred tax assets	1,535
Intangible assets:
CerebroFlo developed technology	20,100		15 years
Enabling technology license	1,980		14 years
Goodwill	27,600
Total assets acquired	52,215

Accounts payable, accrued expenses and other liabilities	2,926
Contingent consideration	13,100
Deferred tax liabilities	5,305
Net assets acquired	$	30,884



Contract Asset
Contract asset, January 1, 2020	$	8,680
Transferred to trade receivable of contract asset included in beginning of the year contract asset	(8,680		)
Contract asset, net of transferred to trade receivables on contracts during the period	7,944
Contract asset, March 31, 2020	$	7,944

Contract Liability
Contract liability, January 1, 2020	$	11,946
Recognition of revenue included in beginning of year contract liability	(1,291		)
Contract liability, net of revenue recognized on contracts during the period	1,691
Foreign currency translation	(147		)
Contract liability, March 31, 2020	$	12,199



	Three Months Ended March 31, 2020		Three Months Ended March 31, 2019
	(amounts in thousands)
Neurosurgery	$	184,943	$	179,520
Instruments	46,497		55,048
Total Codman Specialty Surgical	231,440		234,568

Wound Reconstruction and Care	72,267		74,963
Extremity Orthopedics	21,472		22,685
Private Label	29,145		27,474
Total Orthopedics and Tissue Technologies	122,884		125,122
Total revenue	$	354,324	$	359,690



	Codman Specialty Surgical			Orthopedics and Tissue Technologies			Total
	(In thousands)
Goodwill at December 31, 2019	$	653,500		$	300,780		$	954,280
Foreign currency translation	(1,867		)	(859		)	(2,726		)
Goodwill at March 31, 2020	$	651,633		$	299,921		$	951,554



	March 31, 2020
	Weighted Average Life	Cost		Accumulated Amortization			Net
	(Dollars in thousands)
Completed technology	19 years	$	881,856	$	(225,350	)	$	656,506
Customer relationships	12 years	221,193		(123,896		)	97,297
Trademarks/brand names	28 years	103,472		(29,190		)	74,282
Codman tradename	Indefinite	163,680		—			163,680
Supplier relationships	27 years	34,721		(18,304		)	16,417
All other⁽¹⁾	4 years	10,787		(4,742		)	6,045
		$	1,415,709	$	(401,482	)	$	1,014,227



	Three Months Ended March 31,
	2020			2019
OPERATING ACTIVITIES:
Net income	$	9,180		$	32,756
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	29,151			27,093
Deferred income tax benefit/provision	5,068			(6,843		)
Share-based compensation	3,750			4,083
Amortization of debt issuance costs and expenses associated with debt refinancing	4,246			1,357
Accretion of bond issuance discount	2,529			—
Loss on disposal of property and equipment	374			367
Change in fair value of contingent consideration and others	(1,051		)	194
Changes in assets and liabilities:
Accounts receivable	28,301			(13,705		)
Inventories	(26,236		)	(12,048		)
Prepaid expenses and other current assets	4,683			(12,949		)
Other non-current assets	3,000			(628		)
Accounts payable, accrued expenses and other current liabilities	(40,235		)	5,387
Contract liabilities	338			(188		)
Other non-current liabilities	(2,284		)	4,608
Net cash provided by operating activities	20,814			29,484
INVESTING ACTIVITIES:
Purchases of property and equipment	(16,519		)	(16,086		)
Acquired in-process research and development	(5,000		)	—
Proceeds from note receivable	—			245
Proceeds from sale of property and equipment	34			35
Net cash used in investing activities	(21,485		)	(15,806		)
FINANCING ACTIVITIES:
Proceeds from borrowings of long-term indebtedness	113,200			67,200
Payments on debt	(344,200		)	(57,400		)
Purchase of option hedge on convertible notes	(104,248		)	—
Proceeds from convertible notes issuance	575,000			—
Proceeds from sale of stock purchase warrants	44,562			—
Payment of debt issuance costs	(20,264		)	—
Purchases of treasury stock	(100,000		)	—
Proceeds from exercised stock options	2,303			1,750
Cash taxes paid in net equity settlement	(4,348		)	(6,157		)
Net cash provided by financing activities	162,005			5,393



	March 31, 2020		December 31, 2019
	(In thousands)
Finished goods	$	217,078	$	201,870
Work in process	53,624		48,333
Raw materials	67,380		65,851
Total inventories	$	338,082	$	316,054



Fiscal Quarter		Maximum Consolidated Total Leverage Ratio

First fiscal quarter ending after the Closing Date through June 30, 2022		5.00 to 1.00
September 30, 2022 through June 30, 2023		4.50 to 1.00
September 30, 2023 and the last day of each fiscal quarter thereafter		4.00 to 1.00


i.	the Eurodollar Rate (as defined in the amendment and restatement) in effect from time to time plus the applicable rate (ranging from 1.00% to 1.75%), or


(1)	At March 31, 2020 and December 31, 2019, all other included IPR&D of $1.0 million, which was indefinite-lived.


1.	the weighted average overnight Federal funds rate, as published by the Federal Reserve Bank of New York, plus 0.50%



Quarter Ended March 31, 2020	Principal Repayment
	(In thousands)
Remainder of 2020	$	—
2021	33,750
2022	45,000
2023	61,875
2024	67,500
2025	669,375
	$	877,500



Hedged Item	Current Notional Amount		Designation Date	Effective Date	Termination Date	Fixed Interest Rate		Estimated Fair Value
								Liabilities
3-month USD LIBOR Loan	50,000		February 6, 2017	June 30, 2017	June 30, 2020	1.834	%	$	(48	)
1-month USD LIBOR Loan	100,000		February 6, 2017	June 30, 2017	June 30, 2020	1.652	%	(233		)
1-month USD LIBOR Loan	100,000		March 27, 2017	December 31, 2017	June 30, 2021	1.971	%	(2,024		)
1-month USD LIBOR Loan	150,000		December 13, 2017	January 1, 2018	December 31, 2022	2.201	%	(7,467		)
1-month USD LIBOR Loan	150,000		December 13, 2017	January 1, 2018	December 31, 2022	2.201	%	(7,388		)
1-month USD LIBOR Loan	100,000		December 13, 2017	July 1, 2019	June 30, 2024	2.423	%	(8,475		)
1-month USD LIBOR Loan	50,000		December 13, 2017	July 1, 2019	June 30, 2024	2.423	%	(3,994		)
1-month USD LIBOR Loan	200,000		December 13, 2017	January 1, 2018	December 31, 2024	2.313	%	(16,279		)
1-month USD LIBOR Loan	75,000		October 10, 2018	July 1, 2020	June 30, 2025	3.220	%	(10,186		)
1-month USD LIBOR Loan	75,000		October 10, 2018	July 1, 2020	June 30, 2025	3.199	%	(10,165		)
1-month USD LIBOR Loan	75,000		October 10, 2018	July 1, 2020	June 30, 2025	3.209	%	(10,185		)
1-month USD LIBOR Loan	100,000		December 18, 2018	December 30, 2022	December 31, 2027	2.885	%	(9,453		)
1-month USD LIBOR Loan	100,000		December 18, 2018	December 30, 2022	December 31, 2027	2.867	%	(9,855		)
Total interest rate derivatives designated as cash flow hedge	$	1,325,000						$	(95,752	)



	Fair Value as of
Location on Balance Sheet ⁽¹⁾:	March 31, 2020		December 31, 2019
	(In thousands)
Derivatives designated as hedges — Assets:
Prepaid expenses and other current assets
Cash Flow Hedges
Interest rate swap⁽²⁾	$	—	$	12
Cross-currency swap	5,065		5,032
Net Investment Hedges
Cross-currency swap	8,164		7,952
Other assets
Cash Flow Hedges
Interest rate swap⁽²⁾	—		—
Cross-currency swap	—		—
Net Investment Hedges
Cross-currency swap	26,307		3,465
Total derivatives designated as hedges — Assets	$	39,536	$	16,461

Derivatives designated as hedges — Liabilities:
Accrued expenses and other current liabilities
Cash Flow Hedges
Interest rate swap⁽²⁾	$	19,793	$	6,635
Cross-currency swap	74		101
Other liabilities
Cash Flow Hedges
Interest rate swap⁽²⁾	75,959		38,522
Cross-currency swap	1,117		5,440
Net Investment Hedges
Cross-currency swap	9,109		2,772
Total derivatives designated as hedges — Liabilities	$	106,052	$	53,470


⁽¹⁾	The Company classifies derivative assets and liabilities as non-current based on the cash flows expected to be incurred within the following 12 months.


⁽²⁾	At March 31, 2020 and December 31, 2019, the notional amount related to the Company’s interest rate swaps were $1.3 billion and $1.3 billion, respectively.



	Balance in AOCL Beginning of Quarter			Amount of Gain (Loss) Recognized in AOCL			Amount of Gain (Loss) Reclassified from AOCL into Earnings			Balance in AOCL End of Quarter			Location in Statements of Operations
	(In thousands)
Three Months Ended March 31, 2020
Cash Flow Hedges
Interest rate swap	$	(45,145	)	$	(51,651	)	$	(1,043	)	$	(95,753	)	Interest expense
Cross-currency swap	177			5,907			(182		)	6,266			Other income (expense), net
Net Investment Hedges
Cross-currency swap	10,229			18,897			2,180			26,946			Interest income
	$	(34,739	)	$	(26,847	)	$	955		$	(62,541	)
Three Months Ended March 31, 2019
Cash Flow Hedges
Interest rate swap	$	619		$	(15,891	)	$	1,406		$	(16,678	)	Interest expense
Cross-currency swap	(6,190		)	7,473			5,178			(3,895		)	Other income (expense), net
Net Investment Hedges
Cross-currency swap	(632		)	10,221			2,327			7,262			Interest income
	$	(6,203	)	$	1,803		$	8,911		$	(13,311	)



	March 31, 2020
	(In thousands, except lease term and discount rate)
ROU assets	$	95,890

Current lease liabilities	$	12,964
Non-current lease liabilities	100,328
Total lease liabilities	$	113,292

Weighted average remaining lease term (in years):
Leased facilities	12.5
Leased vehicles	1.7

Weighted average discount rate:
Leased facilities	5.2		%
Leased vehicles	2.4		%



	March 31, 2020
	(In thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	3,229

ROU assets obtained in exchange for lease liabilities:
Operating leases	$	5,808



	Related Parties		Third Parties		Total
	(In thousands)
2020	$	222	$	10,334	$	10,556
2021	296		13,018		13,314
2022	296		14,198		14,494
2023	296		11,658		11,954
2024	296		11,022		11,318
Thereafter	1,429		91,026		92,455
Total minimum lease payments	$	2,835	$	151,256	$	154,091
Less: Imputed interest					40,799
Total lease liabilities					113,292
Less: Current lease liabilities					12,964
Long-term lease liabilities					100,328



	Gains and Losses on Derivatives			Defined Benefit Pension Items			Foreign Currency Items			Total
	(In thousands)
Balance at January 1, 2020	$	(26,625	)	$	(9,709	)	$	(40,067	)	$	(76,401	)
Other comprehensive loss	(20,577		)	(68		)	(6,813		)	(27,458		)
Less: Amounts reclassified from accumulated other comprehensive loss	729			—			—			729
Net current-period other comprehensive loss	(21,306		)	(68		)	(6,813		)	(28,187		)
Balance at March 31, 2020	$	(47,931	)	$	(9,777	)	$	(46,880	)	$	(104,588	)


•	The Orthopedics and Tissue Technologies segment includes such offerings as skin and wound repair, bone and joint fixation implants in the upper and lower extremities, bone grafts, and nerve and tendon repair products.



Three Months Ended March 31, 2020	Contingent Consideration Liability Related to Acquisition of Arkis (See Note 2)			Contingent Consideration Liability Related to Acquisition of Derma Sciences		Location in Financial Statements
	Long-term			Long-term
Balance as of January 1, 2020	$	14,210		$	230
Payments	—			—
Loss from change in fair value of contingent consideration liabilities	(1,051		)	—		Research and development
Balance as of March 31, 2020	$	13,159		$	230


•	Reduced cash compensation for all other employees through reduced commissions, reduction in hours, and/or furloughs


•	Hiring freeze, elimination of overtime, cessation of third-party services and temporary contractor relationships


•	Significant reduction in capital expenditures and discretionary spending including travel, events and marketing programs



			Payments Due by Calendar Year
	Total		Remaining 2020		2021-2022		2023-2024		Thereafter
	(In millions)
Revolving Credit Facility (1)	$	150.0	$	—	$	—	$	—	$	150.0
Term Loan	877.5		—		78.8		129.3		669.4
Securitization Facility (1)	98.5		—		98.5		—		—
Convertible Debt (4)	575.0		—		—		—		575.0
Interest (2)	91.1		15.6		39.6		34.4		1.5
Employment Agreements (3)	0.7		0.7		—		—		—
Operating Leases	154.2		10.6		27.8		23.3		92.5
Purchase Obligations	1.0		0.6		0.4		—		—
Other	4.4		1.0		0.7		1.6		1.1
Total	$	1,952.4	$	28.5	$	245.8	$	188.6	$	1,489.5



(1	)	The Company may borrow and make payments against the revolving credit portion of its Senior Credit Facility and Securitization Facility from time to time and considers all of the outstanding amounts to be long term based on its current intent and ability to repay the borrowing outside of the next twelve-month period.
(2	)	Interest is calculated on the term loan portion of the Senior Credit Facility based on current interest rates paid by the Company. [As the revolving credit facility and Securitization Facility can be repaid at any time, no interest has been included in the calculation.]
(3	)	Amounts shown under Employment Agreements do not include compensation resulting from a change in control.
(4	)	On February 4, 2020, the Company issued $575.0 million aggregate principal amount of its of 0.5% Convertible Senior Notes due 2025 (the "2025 Notes"). The 2025 Notes will mature on August 15, 2025 and bear interest at a rate of 0.5% per annum payable semi-annually in arrears, unless earlier converted, repurchased or redeemed in accordance with the terms of the Notes. See Note 6, Debt, for the details on the 2025 Notes.


•	provide significantly more clinical evidence to bring new products to market and even to keep existing products on the market;