Kinetic Concepts Q1 2010 Earnings Call Transcript

Kinetic Concepts Q1 2010 Earnings Call Transcript
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Kinetic Concepts (KCI)

Q1 2010 Earnings Call

April 27, 2010 8:30 am ET

Executives

Cathy Burzik - Chief Executive Officer, President, Executive Director, Chairman of Technology Committee and Interim President of Global VAC

Adam Rodriguez - Vice President of Business Development & Investor Relations

Michael Genau - Global President of Active Healing Solutions

Martin Landon - Chief Financial Officer, Principal Accounting Officer and Executive Vice President

Analysts

Matthew Miksic - Piper Jaffray Companies

Shawn Bevec - Susquehanna Financial Group

Jayson Bedford - Raymond James & Associates

Michael Matson - Wells Fargo Securities, LLC

Gregory Brash - Sidoti & Company, LLC

Paul Choi - Caris & Company

Tao Levy - Deutsche Bank AG

Presentation

Operator

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Good morning, my name is Andrea, and I will be your conference operator today. At this time, I would like to welcome everyone to the KCI First Quarter 2010 Earnings Call. [Operator Instructions] Thank you. I would now like to turn the call over to Mr. Adam Rodriguez, Vice President of Business Development and Investor Relations. Sir, you may begin.

Adam Rodriguez

Thank you, and welcome to the KCI First Quarter 2010 Earnings Conference Call. Today, we will review the results that were announced in our press release earlier this morning. Today's webcast and conference call will include prepared remarks by Cathy Burzik, our President and Chief Executive Officer; and Marty Landon, our Chief Financial Officer. We are also joined by other selected members of our senior leadership team. If you have not received a copy of KCI's earnings release, it is currently available on our corporate website at www.kci1.com. A replay of this webcast will be made available on our website shortly after conclusion of the call.

Our conference call this morning will include forward-looking statements about our business, including guidance on future plans, revenues and earnings. These statements are based on our current expectations and are subject to a number of risks and uncertainties, which could cause actual results to differ from our expectations. More information about potential risk factors may be found in our filings with the SEC. Also, quarterly and full year results discussed in this call may reflect adjustments to revenue for changes in foreign currency exchange rates or adjustments to expenses related to the LifeCell acquisition and other significant costs incurred during the periods discussed. Please refer to the non-GAAP reconciliation of these metrics contained in our earnings release issued this morning.

I would now like to turn the call over to Cathy Burzik, President and Chief Executive Officer of Kinetic Concepts.

Cathy Burzik

Thank you, Adam, and good morning, everyone. We appreciate your joining us to discuss our first quarter 2010 results. On today's call, I will cover key developments in the quarter and then review the performance of our three core businesses, including comments on strategic initiatives. Marty Landon will review financial results, and then we will conclude with the question-and-answer session.

As discussed in 2009, we look on 2010 as a critical year of transition and of investment. Transition to novel, negative pressure-based products in our Active Healing Solutions or AHS franchise, an investment in building our AHS operations in Japan and our LifeCell operations in EMEA.

For the first quarter, total revenue of $486 million increased 3.3% from Q1 '09 on a reported basis. Reflecting seasonality and consistent with 2010 guidance for a revenue growth of 3% to 5%. Earnings per diluted share increased 30% to $0.74 versus $0.57 in the prior year period on a reported basis, or 10% on an adjusted non-GAAP basis. Again, consistent with our business plan and full year adjusted non-GAAP EPS guidance of 8% to 12%, and reflective of the significant investments we are making to drive the long-term outlook.

Clearly, a major development in the quarter was a decisive victory in our U.S. patent trial with Smith & Nephew. In which a jury decided unanimously in KCI's favor. We are pleased with the validity in infringement finding and the affirmation that represents of our Intellectual Property Right of the patent process itself and the protection it afford to those who truly innovate and commercialize important technologies. That in our case, benefit millions of patients each year. We are now pursuing an injunction and remain confident in our efforts. While the trial was a victory, we continue to be focused with great resolve on innovation, global expansion, diversification and organizational readiness.

Turning now to some first quarter highlights, including strong growth in LifeCell, now operating at a record revenue level and a solid 19% year-over-year growth rate and reflecting better performance that comes from better supply, as anticipated. Performance of our AHS EMEA business, which despite severe market dynamics and open competition shows penetration and growth. A favorable reimbursement decision in Japan, enabling our successful launch into the second largest medical device market in the world. We are off to a very good start there and see the broader Asian market as a true opportunity.

Achievement of several innovation goals, which with the resources we devoted, it's highly rewarding to witness given the evolution of our differentiated products portfolio. Progress with our global business transformation or GBT, cost savings and operational efficiencies and effectiveness aimed at making us a more nimble competitor. And finalization of our business unit structure, supporting our movement to a stronger, more customer-focused company. We also experienced continued challenges in our AHS business in the U.S. particularly in the post-acute market. While our global AHS business grew 1.1% as reported versus the prior year period, our growth was hindered by the slowdown in the demands for V.A.C. Therapy in the U.S. post-acute market, which we began to experience last year and are experiencing year-to-date.

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