Pharmacy News Article

SAN ANTONIO(BUSINESS WIRE) Kinetic Concepts, Inc. (NYSE: KCI):

Third Quarter Highlights

- Worldwide V.A.C. Therapy revenue of $360.6 million, up 2% on a constant currency basis

- North American V.A.C. Therapy revenue of $270.8 million, up 1% from the prior-year period on a constant currency basis

- Regenerative Medicine revenue of $71.8 million, up 17% from the prior-year period

- Therapeutic Support Systems revenue of $72.1 million, down 10% on a constant currency basis

- Diluted earnings per share of $0.91 on a reported basis, $1.08 on a non-GAAP basis adjusted for non-cash acquisition- related items

Kinetic Concepts, Inc. (NYSE: KCI) today reported third quarter 2009 total revenue of $504.4 million, compared to $503.3 million reported for the third quarter of 2008. Total revenue for the first nine months of 2009 was $1.466 billion, up 6% from the prior-year period. Foreign currency exchange movements negatively impacted total revenue for the third quarter and first nine months of 2009 by approximately 1% and 3%, respectively, compared to the corresponding periods of the prior year.

Net earnings for the third quarter of 2009 were $64.6 million, or $0.91 per diluted share, compared to $53.9 million, or $0.75 per diluted share, for the third quarter of 2008, representing increases of 20% and 21%, respectively, from the prior-year periods.

In the third quarter, we delivered revenue and earnings growth despite the impact of ongoing competitive and economic pressures,? said Catherine M. Burzik, President and Chief Executive Officer of KCI. We also made progress in the quarter on several key strategic initiatives. We received regulatory approval for V.A.C. Therapy in Japan, launched our open abdominal therapy system, ABThera^TM, and expanded our manufacturing capabilities in Ireland as we prepare for the launch of exciting new products in 2010.?

Revenue Recap Third Quarter and First Nine Months of 2009 Show Stability

Worldwide revenue from V.A.C. Therapy products was $360.6 million for the third quarter of 2009 and $1.039 billion for the first nine months of 2009, compared to $360.3 million and $1.046 billion, respectively, for the corresponding periods of 2008. Higher unit rental and sales volumes in the period were offset by unfavorable foreign currency exchange rate movements and lower realized pricing. Foreign currency exchange movements unfavorably impacted worldwide V.A.C. Therapy revenue by approximately 1% and 3%, respectively, compared to the third quarter and first nine months of the prior year. On a constant currency basis, the growth in V.A.C. Therapy revenue stemmed from increased market penetration of V.A.C. Therapy, resulting in higher rental and sales unit volumes. North American V.A.C. Therapy revenue of $270.8 million for the third quarter and $791.8 million for the first nine months of 2009 represented increases of approximately 1% compared to the same periods of the prior year due to continued market penetration. Average U.S. rental unit volume during the third quarter and first nine months of 2009 increased approximately 4% and 5%, respectively, over the corresponding periods of 2008, partly offset by a lower average realized price due to unfavorable payer mix, reduced treatment periods and lower Medicare pricing. EMEA/APAC V.A.C. Therapy revenue decreased 1% to $89.7 million for the third quarter and decreased 7% to $247.5 million for the first nine months of 2009 from $90.3 million and $264.6 million, respectively, for the third quarter and first nine months of the prior year. Foreign currency exchange movements unfavorably impacted EMEA/APAC V.A.C. Therapy revenue for the third quarter and first nine months of 2009 by 5% and 12%, respectively, compared to the prior-year periods.

Total revenue from our Regenerative Medicine, or LifeCell, division was $71.8 million and $209.0 million for the third quarter and first nine months of 2009, respectively. Third quarter Regenerative Medicine revenue increased 17% as compared to the same period one year ago. Sales of Strattice, our porcine-based regenerative tissue matrix, generated $23.9 million of total sales in the quarter, or 33% of total Regenerative Medicine revenue for the period.

Worldwide Therapeutic Support Systems (TSS?) revenue was $72.1 million for the third quarter and $217.5 million for the first nine months of 2009, compared to $81.8 million and $250.1 million, respectively for the same periods one year ago, due primarily to lower rental and sales volumes in the United States resulting from the economic downturn and capital constraints on acute care facilities combined with unfavorable foreign currency exchange movements. North American revenue from TSS was $46.5 million for the third quarter of 2009, a 16% decrease from the prior-year period, due primarily to lower hospital census and customer capital constraints. North American TSS revenue for the first nine months of 2009 was $141.8 million, down 15% from the prior year revenue of $167.7 million. EMEA/APAC TSS revenue of $25.5 million and $75.6 million for the third quarter and first nine months of 2009, decreased 4% and 8%, respectively, compared to the corresponding periods of 2008. On a constant currency basis, EMEA/APAC TSS revenue increased 1% for the third quarter and 2% for the first nine months of 2009, compared to the same periods in the prior year.

Total North American revenue was $388.6 million for the third quarter and $1.142 billion for the first nine months of 2009, an increase of 1% and 10%, respectively, from the prior-year periods due primarily to the acquisition of LifeCell in May 2008. Total EMEA/APAC revenue was $115.8 million for the third quarter of 2009 and $324.0 million for the first nine months of 2009, representing decreases of 1% and 7%, respectively, compared to the prior-year periods due primarily to unfavorable foreign currency exchange rate movements. Foreign currency exchange rate movements unfavorably impacted EMEA/APAC revenue by 5% in the third quarter and by 11% in the first nine months of 2009 compared to the prior-year periods.

Profit Margins Improve on Mix and Productivity Initiatives

Gross profit for the third quarter and first nine months of 2009 was $274.9 million and $782.8 million, respectively, representing increases of 8% and 13% from the corresponding periods of the prior year. Gross profit margin was approximately 55% for the third quarter of 2009, an increase of approximately 400 basis points from the same period one year ago. The gross profit margin increase was due primarily to increased field service operations productivity and higher gross margins associated with the Regenerative Medicine business unit.

Third quarter selling, general and administrative (SG&A?) expenses increased approximately $16.4 million, or 15%, over the third quarter of 2008. SG&A increases included higher legal expenses associated with pending litigation matters, higher share-based compensation expense, increased costs associated with the Company's upcoming market entry in Japan, higher marketing expenses related to new product launches and global business transformation initiatives.

Research and development expenses for the third quarter of 2009 increased 13% from the prior-year period to $24.7 million, due in part to increased activity related to the development of our next generation of advanced wound care products. Total research and development expenses represented approximately 5% of revenue for the current period. In July, the Company launched its next innovation for the care of the open abdomen, ABThera, which has received strong clinical reviews in its initial applications.

Other Income/Expense Reflects Continued Deleveraging Progress

Third quarter 2009 interest expense decreased to $25.7 million, from $29.9 million in the same period of the prior year, due to scheduled and voluntary debt payments made over the last twelve months. Long-term debt outstanding as of September 30, 2009 consisted of a senior secured term loan of $800.0 million due 2013 and $690.0 million of 3.25% senior convertible notes due 2015.

During the first quarter of 2009, the Company adopted required accounting standards related to the accounting for certain convertible debt instruments. The standards specify that issuers of such instruments should account separately for the liability and equity components in a manner that reflects the entity's estimated non-convertible borrowing rate at the date of issuance. As a result of the Company's adoption of these standards, we recorded $3.1 million, or $0.05 per diluted share, of additional after-tax non-cash interest expense during the third quarter of 2009. The required retroactive application of these standards also resulted in additional after-tax, non-cash interest expense for the third quarter of the prior year of $2.8 million, or $0.03 per diluted share.

Income Tax Rate

The effective income tax rate for the third quarter and first nine months of 2009 was 29.7% and 31.1%, respectively, compared to 33.0% and 43.8% for the prior-year periods. The high effective income tax rate for the first nine months of 2008 resulted from the impact of non-deductible costs associated with our LifeCell acquisition. The decrease in the effective income tax rate for the third quarter and first nine months of 2009 was due primarily to the favorable resolution of certain tax contingencies during the quarter.

Reconciliation to Adjusted Diluted Earnings per Share

Diluted earnings per share, on a non-GAAP basis, adjusted for certain non-cash acquisition-related expenses and restructuring charges, were as follows:

Financial Position Again Demonstrates Liquidity and Strength

Total cash at quarter-end was $270.1 million, an increase of $22.3 million from year-end 2008. During the third quarter of 2009, the Company made scheduled and voluntary senior credit facility repayments totaling $50.0 million from cash-on-hand. Operating cash flow less net capital expenditures for the first nine months of 2009 was $208.4 million, an increase of $32.5 million, or 18%, from the same period one year ago, due to higher earnings and lower capital expenditures. Total long-term debt outstanding at September 30, 2009 was $1.351 billion on a GAAP-basis, including the discount associated with our adoption of required accounting standards, and $1.490 billion on an economic, or debt-instrument, basis. The long-term debt balances in our condensed consolidated balance sheets reflect the discount associated with applying the estimated non-convertible borrowing rate upon the issuance of the convertible notes. The total discount will accrete over the term of the notes. As of September 30, 2009 and December 31, 2008, these convertible notes had balances of $551.1 million and $536.4 million, respectively, within our condensed consolidated balance sheets.

Outlook

The Company reaffirms the following guidance, based on current information and expectations as of October 21, 2009 (in millions, except per share data):

The revenue guidance reflects our expectation of continued capital constraints in the hospital setting, resulting in a double-digit decline in TSS revenue, combined with slower international V.A.C. Therapy revenue growth due to additional competitive and economic factors.

Non-GAAP Financial Information

Within this document, we have included our results for the third quarter and nine months ended September 30, 2009 along with our outlook on a non-GAAP basis to exclude the impact of the specified non-cash expenses set forth above associated with our acquisition of LifeCell in the second quarter of 2008 and the impact of restructuring charges incurred during the first quarter of 2009 and the fourth quarter of 2008. In addition, we have presented supplemental revenue data on a non-GAAP basis to exclude the impact of foreign currency fluctuations between 2008 and 2009. These non-GAAP financial measures do not replace the presentation of our GAAP results and outlook. We have provided this supplemental non-GAAP information because it may provide meaningful information regarding our results and outlook on a basis that better facilitates an understanding of our expected 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 our GAAP selected financial information for the periods presented to the non-GAAP selected financial information provided is included herein.

Earnings Release Conference Call

As previously announced, we have scheduled an earnings release conference call for 8:30 a.m. Eastern Daylight Time today, Wednesday, October 21, 2009. The dial-in numbers for this conference call are as follows:

This call is being webcast and can be accessed at the Kinetic Concepts, Inc. Web site at http://www.kci1.com/investor/index.asp, by clicking on Webcast Q3 2009 Kinetic Concepts, Inc. Earnings Conference Call. An archive of the web cast will be available until October 20, 2010 at http://www.kci1.com/investor/index.asp.

KCI's business outlook as of today is expected to be available on KCI's Investor Relations web site. KCI does not currently expect to update this business outlook until the release of KCI's next quarterly earnings announcement, notwithstanding subsequent developments. Although KCI undertakes no duty to update its business outlook, KCI may update the full business outlook or any portion thereof at any time.

About KCI

Kinetic Concepts, Inc. (NYSE:KCI), is a leading global medical technology company devoted to the discovery, development, manufacture and marketing of innovative, high-technology therapies and products for the wound care, tissue regeneration and therapeutic support system markets. Headquartered in San Antonio, Texas, KCI's success spans more than three decades and can be traced to a history deeply rooted in innovation and a passion for significantly improving the healing and the lives of patients around the world.

The Company employs approximately 6,600 people and markets its products in more than 20 countries. For more information about KCI and how its products are changing the practice of medicine, visit www.KCI1.com.

Forward-Looking Statements

This press release contains forward-looking statements including, among other things, management's outlook, estimates of future performance, revenue, earnings per share, growth objectives and weighted average shares outstanding. The forward-looking statements contained herein are based on our current expectations and are subject to a number of risks and uncertainties that could cause us to fail to achieve our current financial projections and other expectations, such as changes in the demand for V.A.C. Therapy resulting from increased competition, the seasonal slowing of V.A.C. Therapy unit growth in the fourth and first quarter of each year, changes in payer reimbursement policies and our ability to protect our intellectual property rights. All information set forth in this release and its attachments is as of October 21, 2009. We undertake no duty to update this information. More information about potential factors that could cause our results to differ or adversely affect our business and financial results is included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2008 and in our quarterly reports on Form 10-Q for the quarterly periods ended March 31, 2009 and June 30, 2009, including, among other sections, under the captions, "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." These reports are on file with the SEC and available at the SEC's website at www.sec.gov. Additional information may also be set forth in those sections in our Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2009, which will be filed with the SEC in early November 2009.