VANCOUVER, March 30, 2012 /PRNewswire/ - Angiotech Pharmaceuticals, Inc. (“Angiotech”) announced that it released its financial results for the fourth quarter ended December 31, 2011. Angiotech also announced that it implemented certain additional business strategy and operational changes during the fourth quarter to drive continued improvements in profitability, operating cash flows and growth of the Company’s most established Medical Device Technology product lines.
Angiotech will host a conference call discussing its fourth quarter financial results on Tuesday April 10, 2012 at 10:00 AM ET (7:00 AM PT). Details regarding the conference call can be found on Angiotech’s website at www.angiotech.com.
Upon the May 2011 completion of proceedings to restructure certain of Angiotech’s debt obligations, Angiotech appointed a new Board of Directors, and made selected changes to its senior management team. Through the balance of 2011, various changes were made to Angiotech’s business and operations. Such changes have improved liquidity, profitability, and financial stability, and established the foundation for continued improvement in 2012 and thereafter, in particular as it relates to Angiotech’s Medical Device Technologies business. Selected highlights from the fourth quarter and year ended December 31, 2011 include:
Revenue. Angiotech’s Medical Device Technology product lines continued to show growth and stability in 2011, despite the business and liquidity challenges relating to Angiotech’s debt restructuring proceedings and reorganization initiatives. Excluding sales of certain products that were discontinued in early 2011, combined sales of all other products in our Medical Device Technologies segment increased by 5% for the year ended December 31, 2011 as compared to 2010. With the most significant challenges and change initiatives being concluded, Angiotech expects that Medical Device Technologies revenue growth may accelerate in 2012 as compared to 2011. Angiotech’s royalty revenue received from licensed technologies also stabilized in the second half of 2011. For the quarter ended December 31, 2011, royalty revenue derived from our partner Boston Scientific’s sales of TAXUS® coronary stent products showed a sequential increase as compared to the immediately preceding quarter, for the first time in 14 quarterly periods.
Adjusted EBITDA and Debt Reduction. For the quarter and year ended December 31, 2011, Angiotech recorded Adjusted EBITDA of $14.8 million and $49.8 million, respectively, which represent increases of 33% in each respective period as compared to the same periods in 2010. In addition, outstanding borrowings under Angiotech’s revolving credit facility were reduced to a nominal amount during the fourth quarter, as compared to total outstanding borrowings under the facility of $22.0 million at the conclusion of Angiotech’s debt restructuring activities in May 2011. As at December 31, 2011, Angiotech’s ratio of Net Debt to last 12 months Adjusted EBITDA was 6.1, and calculated based on annualizing Angiotech’s fourth quarter 2011 Adjusted EBITDA was 5.1, representing significant reductions in total leverage as compared to a ratio of Net Debt to last 12 months Adjusted EBITDA of 14.5 as at December 31, 2010.
Operating Cash Flow and Liquidity. During the fourth quarter ended December 31, 2011, Angiotech recorded $11.3 million in positive operating cash flows. This was the second consecutive quarter during which Angiotech generated positive operating cash flows. This significant improvement in operating cash flows has accompanied other improvements in Angiotech’s total liquidity and capital resources. As at December 31, 2011, Angiotech reported cash and cash equivalents and short term investments of $25.4 million, and total available borrowing capacity of $21.3 million under its revolving credit facility, which represents a significant improvement in total available liquidity as compared to the $35.5 million of cash and cash equivalents and short term investments and nil available borrowing capacity reported upon the completion of the restructuring in May 2011. In addition, on March 12, 2012, due to improved operating results, Angiotech was able to amend its revolving credit facility to increase its borrowing capacity and operating flexibility. These amendments are expected to further improve the Company’s operating flexibility, liquidity and capital resources.
- Business Strategy and Cost Realignment. During the quarter ended December 31, 2011, Angiotech implemented additional changes to its business to emphasize initiatives that generate, or have greater potential to generate, higher near term profitability or profitable revenue growth. As a result, Angiotech has realigned its focus to certain of its most established Medical Device Technology product lines, and implemented a more balanced allocation of its sales, marketing and new product development resources across all product lines. In connection with these changes, in December 2011 Angiotech eliminated its anti-infective product, research and development program and certain other early stage research and development programs, and reduced its research headcount at its Vancouver, Canada facility. In addition, Angiotech also implemented further reductions in certain sales, marketing and administrative personnel. These reductions are expected to better align expense levels with Angiotech’s business model and capital structure, further improve profitability and operating cash flows during 2012 as compared to 2011, and are not expected to have any substantive impact on the Company’s revenue outlook for 2012.
Financial Information
This press release contains financial data derived from the audited consolidated financial statements for the eight months ended December 31, 2011 and year ended December 31, 2010. This press release should, therefore, be read in conjunction with our audited consolidated financial statements and Management’s Discussion and Analysis for the eight months ended December 31, 2011, which were filed on Form 10-K on March 29, 2012 with the United States (U.S.) Securities and Exchange Commission (“SEC”) and posted on the Investor section of our website at www.angiotech.com.
Amounts, unless specified otherwise, are expressed in U.S. dollars. Financial results are reported in accordance with U.S. GAAP unless otherwise noted.
Non-GAAP Financial Information
Certain financial measures in this press release are prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”). In addition, we have presented adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”), which is a non-GAAP financial metric that excludes certain non-cash and non-recurring items. Management uses Adjusted EBITDA to establish operational goals, and believes that this metric may assist investors in evaluating the results of our business and analyzing the underlying trends over time. In addition, our creditors may monitor this metric to measure compliance with certain financial covenants in our lending agreements, or assess the operating and cash flow performance of our business. Investors should consider our non-GAAP Adjusted EBITDA in addition to, and not as a substitute for, or as superior to, financial metrics prepared in accordance with GAAP. A reconciliation of our non-GAAP Adjusted EBITDA to our GAAP-based net income or loss has been included in the appendix to this press release. We have also included explanations about our use of Adjusted EBITDA and a detailed description of the adjustments made.
Fresh Start Accounting
On May 12, 2011 we implemented a recapitalization transaction which, among other things, eliminated our $250 million 7.75% Senior Subordinated Notes due in 2014 and $16 million of related interest obligations in exchange for new common shares in Angiotech (the “Recapitalization Transaction”). In connection with this Recapitalization Transaction, we were required to adopt fresh start accounting in accordance with ASC # 852Reorganization on April 30, 2011 (the “Convenience Date”). As such, material adjustments recorded per the application of fresh-start accounting, which result from the required process of determining an estimated reorganization value by re-valuing all of the Company’s balance sheet assets as of the Convenience Date, were applied to the Company’s May 1, 2011 consolidated balance sheet and the consolidated statements of operations for the four months ended April 2011.
Given that the Recapitalization Transaction and adoption of fresh start accounting resulted in a new entity for financial reporting purposes, Angiotech is referred to as the “Predecessor Company” for all periods preceding the Convenience Date and the “Successor Company” for all periods subsequent to the Convenience Date. However, we believe that the comparison of results from the three and twelve months ended December 31, 2011 versus the three and twelve months ended December 31, 2010 provides the best comparison and analysis of our operating results (see the Consolidated Statements of Operations presented below for the reconciliation of the combined results). Where specific income statement items have been significantly impacted as compared to our historical results; either temporarily (as in the case of Cost of Products Sold) or permanently (as in the case of intangible assets and the associated amortization expense) by the Recapitalization Transaction and fresh-start accounting; we have provided explanations of these non-cash and/or non-recurring adjustments the discussion below.
Upon implementation of fresh start accounting, the estimated reorganization value was allocated to our assets based on their estimated fair values; the deficit, additional paid-in-capital and other comprehensive income balances were eliminated; and debt and equity balances were revalued at their estimated fair values. Our estimated reorganization value was determined in collaboration with an independent financial advisor specifically for the purposes of fresh start accounting. As our estimated reorganization value is inherently subject to significant uncertainties, there is no assurance that the estimates and assumptions used in these valuations will be realized and actual results may differ materially. After the estimated reorganization value was assigned to tangible assets and identifiable intangible assets, the excess of the estimated reorganization value over and above the identifiable net asset values was recorded as goodwill.
For further discussion of fresh start accounting and its impact on historical operating results, please refer to our audited consolidated financial statements and Management, Discussion and Analysis for the eight months ended December 31, 2011 filed on Form 10-K with the SEC on March 29, 2012.
