Currency Headwinds, Franchise Expenses Lead to Flat Sales at Acelity L.P.

At least the numbers are going up. Albeit slowly.

Acelity L.P. Inc.’s fourth quarter and full-year sales last year were flat, as the San Antonio, Texas-based biotech firm struggled with currency headwinds, debt and an unsettled global economy. Fourth-quarter revenue climbed 0.2 percent to $483.8 million, though growth surged to 3.4 percent on a constant currency basis. Similarly, Acelity’s 2015 sales were comparable to 2014 (swelling merely $834,000) but increased 4 percent on a constant currency basis.

Acelity increased its revenues in the Regenerative Medicine sector by 6.9 percent in the fourth quarter to $116.8 million. Much of that growth was attributed to the company’s breast reconstruction procedures in the United States. Advanced Wound Therapeutics (AWT) sales rose 1.3 percent to $364.2 million, led by solid volume growth in advanced devices. The gains were significantly less robust in the full year (ended Dec. 31), with Regenerative Medicine product sales rising 1.3 percent to $433.8 million and AWT flatlining at $1.42 billion (a 0.1 percent increase).

Executives acknowledged the tepid growth but focused on the (slight) rise in revenue, attributing AWT gains to mid-single digit volume growth globally in advanced devices and strong Prevena sales. Increasing Regenerative Medicine proceeds, on the other hand, were partially offset by a decline in revenue linked to abdominal wall reconstruction procedures.   

“Our strong fourth quarter performance reflects the realization of strategic investments we’ve made in our business and employees to drive sustainable, long-term growth. With five consecutive quarters of organic revenue growth, 2015 marks a pivotal year for Acelity as we continue to execute our strategy,” President/CEO Joe Woody said. “We delivered a solid quarter in both Advanced Wound Therapeutics and Regenerative Medicine, led by continued volume increases in advanced devices as well as double-digit growth in revenue from breast reconstruction procedures. Sales of our expansion products, led by Prevena and Revolve, accelerated in the fourth quarter and continue to diversify our growth profile. We continue to provide value to our customers through focused innovation and an enhanced portfolio of offerings across our business. The solid momentum we generated in 2015 supports our confidence in our ability to sustain long-term growth.”

Loss from continuing operations in Q4 2015 was $15.5 million, as reported on a GAAP basis, compared to $30.9 million for the prior-year period. Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) from continuing operations of $183.5 million, declined 7.5 percent as reported from the prior-year period and was down 5.3 percent on a constant currency basis, achieving an adjusted EBITDA margin of 37.9 percent. Adjusted EBITDA decreased in the fourth quarter primarily due to ithe costs associated with establishing Acelity’s six global franchises. Other contributing factors include increased incentive compensation expense as a result of improved financial performance, partially offset by improved production yields, primarily in its Regenerative Medicine business; as well as expense savings associated with integration and business optimization efforts. Additionally, loss from continuing operations for the fourth quarter of 2015 was negatively impacted by non-cash impairment charges while loss from continuing operations in the prior year period was negatively impacted by the LifeNet litigation jury verdict of $34.7 million recorded in the fourth quarter.

Loss from continuing operations for the year ended Dec. 31, 2015, was $47.7 million, as reported on a GAAP basis, compared to $235 million in the prior year. Adjusted EBITDA from continuing operations for the year ended Dec. 31, 2015, decreased 0.3 percent to $709.7 million from $712.1 million in the prior year and increased 2.3 percent on a constant currency basis. Excluding the impact of foreign exchange movements, adjusted EBITDA for the year increased primarily due to revenue growth, improved production yields, primarily in the Regenerative Medicine business, as well as expense savings associated with integration and business optimization efforts. Additionally, loss from continuing operations for the year was negatively impacted by non-cash impairment charges while loss from continuing operations in the prior year was negatively impacted by the Wake Forest settlement and LifeNet litigation jury verdict.

Total cash at Dec. 31, 2015, was $88.4 million. During 2015, Acelity generated cash of $80.9 million from operations, used cash of $125.3 million in investing activities and used cash of $41.1 million in financing activities. As of Dec. 31, 2015, total long-term debt outstanding was $4.797 billion and our Net Leverage Ratio was 6.5x.