Alere Inc. Announces Second Quarter 2014 Results

WALTHAM, Mass., Aug. 4, 2014 /PRNewswire/ -- Alere Inc. (NYSE: ALR), a global leader in rapid diagnostics and health information solutions, today announced its financial results for the quarter ended June 30, 2014.

Namal Nawana, Interim Chief Executive Officer and Chief Operating Officer of Alere said, "The second quarter was a period of significant transition for Alere.  With the recently announced change in leadership, we are now narrowing our focus on our global leading rapid diagnostic business and pursuing opportunities with the highest potential for value creation. This new strategic direction will center on Alere's core strengths in rapid diagnostics and our focus areas of infectious and cardiometabolic disease and toxicology, which will enhance our ability to deliver more consistent and improved financial results. Alere's Board and management team are committed to determining the best allocation of resources to drive growth and shareholder value creation."

Financial results for the second quarter of 2014:

  • Net revenue of $737.9 million for the second quarter of 2014, compared to $764.0 million for the second quarter of 2013.  Non-GAAP adjusted net revenue was $738.3 million for the second quarter of 2014, compared to $764.6 million for the second quarter of 2013.
  • Net loss of $55.0 million attributable to common stockholders of Alere Inc., and respective net loss per diluted common share of $0.67 for the second quarter of 2014, compared to net loss of $65.9 million attributable to common stockholders of Alere Inc., and respective net loss per diluted common share of $0.81 for the second quarter of 2013.
  • Non-GAAP adjusted net income per diluted common share of $0.42 for the second quarter of 2014, compared to non-GAAP adjusted net income per diluted common share of $0.64 for the second quarter of 2013.
  • Net product and services revenue from our Professional Diagnostics segment was $578.1 million in the second quarter of 2014, compared to net product and services revenue of $599.6 million in the second quarter of 2013. Non-GAAP adjusted net product and services revenue from our Professional Diagnostics segment was $578.4 million in the second quarter of 2014, compared to non-GAAP adjusted net product and services revenue of $600.2 million in the second quarter of 2013.  Recent Professional Diagnostics acquisitions contributed $8.4 million of incremental net revenue, compared to the second quarter of 2013, offset by a $6.8 million decrease in net revenue related to our 2013 disposition of Spinreact.
  • U.S. influenza, meter-based Triage products and mail-order diabetes revenues were $5.1 million, $16.2 million and $33.0 million, respectively, for the second quarter of 2014, compared to $2.0 million, $19.3 million and $56.2 million, respectively, for the second quarter of 2013.
  • Excluding the impact of the change in U.S. influenza revenues and the impact on revenues from the U.S. meter-based Triage product sales, currency-adjusted organic growth in our Professional Diagnostics segment was negative 5.0%. This growth rate was adversely impacted by the decrease in reimbursement rates that became effective on July 1, 2013 for our U.S. mail-order diabetes business.  Excluding revenues from our U.S. mail-order diabetes business and considering the flu and Triage adjustments, the currency-adjusted organic growth rate for the second quarter of 2014 was 0.4% for the remainder of our Professional Diagnostics segment.
  • The 0.4% adjusted organic growth rate for our Professional Diagnostic segment for the second quarter of 2014, adjusted for the impact of the U.S. influenza, meter-based Triage products and mail-order diabetes revenues as noted above, reflects a 4.1% decrease in adjusted U.S. revenues, compared to the second quarter of 2013, offset by a 4.3% increase in adjusted net revenues from our international business.  The 4.1% decrease in the U.S. business principally reflects a continued weakness in utilization in our professional business during the quarter, coupled with the impacts of a recall of INRatio2 test strips during the quarter.
  • Net product and services revenue from our Health Information Solutions segment was $125.8 million in the second quarter of 2014, compared to $134.8 million in the second quarter of 2013 and $123.7 million in the first quarter of 2014, as a result of the weak contracting season that we experienced during the second half of 2013.
  • Gross margin was 46.1% of net revenue in the second quarter of 2014, compared to 50.3% in the second quarter of 2013.  Non-GAAP adjusted gross margins, which exclude from cost of net revenue amortization of acquisition-related intangibles, stock-based compensation expense, restructuring charges, and non-cash charges associated with acquired inventory, was 48.4% of non-GAAP adjusted net revenue in the second quarter of 2014, compared to 52.8% in the second quarter of 2013. The lower gross margin in the current period principally reflects reduced mail-order diabetes reimbursement rates noted above, as well as revenue and cost of sales charges of approximately $7.5 million incurred in the quarter in connection with the INRatio2 recall and a recall of Alere Triage BNP Tests for Beckman Coulter Immunoassay Systems.
  • Operating expenses consisting of research and development and selling, general and administrative expenses were $348.0 million for the second quarter of 2014, compared to $340.1 million for the second quarter of 2013.  Also included in operating expenses during the second quarter of 2014 was a $0.6 million loss associated with the disposition of a component of our Alere Informatics business.  Non-GAAP adjusted operating expenses, which exclude amortization of acquisition-related intangibles, restructuring charges, stock-based compensation expense, acquisition-related fair value, compensation-related contingent consideration charges and acquisition and disposition costs and the loss on disposition were $255.0 million for the second quarter of 2014, or 34.5% of non-GAAP adjusted net revenue, compared to $260.0 million, or 34.0% of non-GAAP adjusted net revenue, for the second quarter of 2013.  During the second quarter, we initiated a workforce reduction which will reduce combined operating expenses by approximately $21.3 million annually and which had an impact on current quarter expenses of approximately $2.1 million.
  • Free cash flow for the second quarter of 2014 was a negative $7.6 million, reflecting cash flow from operations of $19.3 million, offset by capital expenditures of $26.9 million.  Cash flow from operations during the quarter was adversely impacted by the payment of $9.1 million of severance charges associated with a workforce reduction, $6.2 million of payments associated with costs incurred related to planned dispositions and $16.7 million of contingent purchase price payments in excess of acquisition date accruals.  Additionally, cash flow from operations for the second quarter reflects the payment of $49.6 million of semiannual interest payments on Senior and Senior Subordinated Notes.  Free cash flow for the second quarter of 2013 was a negative $0.8 million, reflecting cash flow from operations of $27.7 million, offset by capital expenditures of $28.5 million.
  • Non-GAAP EBITDA for the second quarter of 2014 was $110.2 million, which reflects adjustments to add back non-interest related restructuring charges of $15.8 million, $0.1 million of acquisition-related costs and $11.6 million of costs associated with potential business dispositions.  Non-GAAP EBITDA for the second quarter of 2013 was $166.6 million, which reflects adjustments to add back non-interest related restructuring charges of $8.0 million and $0.4 million of acquisition-related costs.  Adjusted non-GAAP EBITDA, which reflects adjustments to add back restructuring, acquisition, disposition and proxy related costs, totaled $623.7 million for the twelve-month period ended June 30, 2014, compared to $639.7 million for the twelve-month period ended June 30, 2013, which reflects adjustments to add back restructuring and acquisition related costs.
  • Debt, net of cash and restricted cash held to secure debt ("net debt"), was $3.38 billion as of June 30, 2014, compared to net debt of $3.56 billion as of June 30, 2013.  Our net debt to adjusted non-GAAP EBITDA ratio was 5.4x as of June 30, 2014, compared to 5.6x as of June 30, 2013.

The Company's GAAP results for the second quarter of 2014 exclude $0.4 million of revenue associated with acquired software license contracts that are not recognized due to business combination accounting rules and include $66.5 million of amortization, $15.9 million of restructuring charges, $0.1 million of acquisition-related costs recorded in accordance with ASC 805, Business Combinations, $16.8 million of expense recorded for fair value adjustments to acquisition-related contingent consideration, $11.6 million of costs associated with potential business dispositions, $0.4 million of interest expense recorded in connection with fees paid for certain debt modifications, a $0.6 million loss associated with the disposition of a component of our Alere Informatics business, $0.6 million in compensation charges and $0.1 million of related interest accretion associated with acquisition-related contingent consideration obligations, offset by the reversal of $1.1 million of stock-based compensation expense.  The Company's GAAP results for the second quarter of 2013 exclude $0.6 million of revenue associated with acquired software license contracts that are not recognized due to business combination accounting rules and include amortization of $79.3 million, $8.1 million of restructuring charges, $4.7 million of stock-based compensation expense, $0.4 million of acquisition-related costs recorded in accordance with ASC 805, Business Combinations, $5.3 million of expense recorded for fair value adjustments to acquisition-related contingent consideration, $0.8 million of interest expense recorded in connection with fees paid for certain debt modifications, $0.5 million in compensation charges and $0.2 million of related interest accretion associated with acquisition-related contingent consideration obligations, a $0.7 million charge associated with the write-up to fair market value of inventory acquired in connection with the acquisition of Epocal Inc., $35.6 million of expense associated with the extinguishment of debt and a $5.1 million non-cash write-off of an investment, offset by a $8.1 million bargain purchase gain in connection with our acquisition of the Liberty business.

Detailed reconciliations of the non-GAAP financial measures presented in this release to the most directly comparable financial measures under GAAP, as well as a discussion regarding these non-GAAP financial measures, are included in the schedules to this press release.

The Company will host a conference call beginning at 8:30 a.m. (Eastern Time) today, August 4, 2014, to discuss these results, as well as other corporate matters.  During the conference call, the Company may answer questions concerning business and financial developments and trends and other business and financial matters.  The Company's responses to these questions, as well as other matters discussed during the conference call, may contain or constitute material information that has not been previously disclosed.

The conference call may be accessed by dialing (877) 443-4809 (domestic) or (412) 902-6615 (international) and asking for Alere Inc.  A webcast of the call can also be accessed via the Alere website at http://www.alere.com/us/en/about/investor-relations/events.html, or directly through the following link: http://www.videonewswire.com/event.asp?id=100178.

A replay of the call will be available approximately one hour after the conclusion of the call and will remain available for a period of seven days following the call.  The replay may be accessed by dialing (877) 344-7529 (domestic) or (412) 317-0088 (international) and entering replay code 10050325.  The replay will also be available via online webcast at http://www.videonewswire.com/event.asp?id=100178 or via the Alere website at http://www.alere.com/us/en/about/investor-relations/events.html for a period of 60 days following the call.

Additionally, reconciliations to non-GAAP financial measures not included in this press release that may be discussed during the call will also be available at the Alere website (http://www.alere.com/us/en/about/investor-relations/events.html) under the Earnings Calls and Releases section shortly before the conference call begins and will continue to be available on this website.

For more information about Alere, please visit our web site at http://www.alere.com.

Alere's global leading products and services, as well as its new product development efforts, focus on infectious disease, toxicology, cardiology and diabetes.  Alere is headquartered in Waltham, Massachusetts.

Alere Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(in thousands, except per share amounts)










Three Months Ended June 30, 




2014


2013







Net product sales and services revenue


$               731,339


$               759,120

License and royalty revenue


6,604


4,865


Net revenue


737,943


763,985

Cost of net revenue


398,025


379,498


      Gross profit


339,918


384,487


      Gross margin


46%


50%







Operating expenses:






Research and development


37,430


40,500


Selling, general and administrative


310,609


299,583


Loss on disposition


638


-


      Operating income 


(8,759)


44,404

Interest and other income (expense), net


(49,532)


(91,390)


 Loss before provision (benefit) for income taxes 


(58,291)


(46,986)

Provision (benefit) for income taxes


(6,611)


17,867


 Loss before equity earnings of unconsolidated entities, net of tax 


(51,680)


(64,853)

Equity earnings of unconsolidated entities, net of tax


2,087


4,551

Net loss


(49,593)


(60,302)


Less: Net income attributable to non-controlling interests


62


267

Net loss attributable to Alere Inc. and Subsidiaries


(49,655)


(60,569)








Preferred stock dividends


(5,309)


(5,309)







Net loss available to common stockholders


$               (54,964)


$               (65,878)








Basic and diluted net loss per common share


$                   (0.67)


$                   (0.81)













Weighted average shares - basic and diluted


82,648


81,311







Alere Inc. and Subsidiaries

Condensed Consolidated Statements of Operations 

(in thousands, except per share amounts)










Six Months Ended June 30,




2014


2013







Net product sales and services revenue


$           1,442,749


$           1,494,305

License and royalty revenue


11,816


8,929


Net revenue


1,454,565


1,503,234

Cost of net revenue


763,408


754,490


      Gross profit


691,157


748,744


      Gross margin


48%


50%







Operating expenses:






Research and development


76,129


81,954


Selling, general and administrative


597,209


591,897


Loss on disposition


638


-


      Operating income 


17,181


74,893

Interest and other income (expense), net


(96,854)


(149,259)


 Loss before benefit for income taxes 


(79,673)


(74,366)

Benefit for income taxes


(16,528)


(19,004)


 Loss before equity earnings of unconsolidated entities, net of tax 


(63,145)


(55,362)

Equity earnings of unconsolidated entities, net of tax


7,439


7,485

Net loss


(55,706)


(47,877)


Less: Net income attributable to non-controlling interests


170


242

Net loss attributable to Alere Inc. and Subsidiaries


(55,876)


(48,119)








Preferred stock dividends


(10,559)


(10,559)







Net loss available to common stockholders


$               (66,435)


$               (58,678)








Basic and diluted net loss per common share


$                   (0.81)


$                   (0.72)







Weighted average shares - basic and diluted


82,518


81,255







 

Alere Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(in thousands)






June 30,


December 31,


2014


2013

ASSETS




CURRENT ASSETS:




Cash and cash equivalents

$            398,802


$            361,908

Restricted cash

10,268


6,373

Marketable securities

802


858

Accounts receivable, net

537,605


548,729

Inventories, net

368,153


364,185

Prepaid expenses and other current assets

189,696


190,361

Total current assets

1,505,326


1,472,414





PROPERTY, PLANT AND EQUIPMENT, NET

541,873


545,164

GOODWILL AND OTHER INTANGIBLE ASSETS, NET

4,733,568


4,835,004

RESTRICTED CASH - NON-CURRENT

28,886


29,370

DEFERRED FINANCING COSTS AND OTHER ASSETS, NET

181,012


178,862

Total assets

$        6,990,665


$         7,060,814





LIABILITIES AND STOCKHOLDERS' EQUITY




CURRENT LIABILITIES:




Short-term debt and current portions of long-term debt and capital lease obligations

$              69,496


$               55,967

Other current liabilities

599,621


617,219

Total current liabilities

669,117


673,186





LONG-TERM LIABILITIES:




Long-term debt and capital lease obligations, net of current portions

3,737,834


3,787,195

Deferred tax liabilities

293,150


329,249

Other long-term liabilities

221,782


188,336

Total long-term liabilities

4,252,766


4,304,780





TOTAL EQUITY

2,068,782


2,082,848

Total liabilities and equity

$        6,990,665


$         7,060,814





 

Alere Inc. and Subsidiaries

Reconciliation to Non-GAAP Adjusted Operating Results

(in thousands, except per share amounts)






Three Months Ended June 30,


2014


2013

Reconciliation to Non-GAAP Adjusted Operating Income (1)




Operating income (loss)

$                  (8,759)


$                  44,404





Adjustment related to acquired software license contracts 

373


592

Amortization of acquisition-related intangible assets

66,349


79,158

Restructuring charges 

15,830


8,044

Stock-based compensation expense

(1,122)


4,677

Compensation charges associated with acquisition-related contingent consideration obligations

581


580

Acquisition-related costs

49


426

Fair value adjustments to acquisition-related contingent consideration

16,779


5,258

Non-cash charge associated with acquired inventory

-


711

Costs associated with potential business dispositions

11,600


-

Loss on disposition

638


-

Non-GAAP adjusted operating income

$                102,318


$                143,850






Three Months Ended June 30,


2014


2013

Reconciliation to Non-GAAP Adjusted Net Income(1)




Net loss available to common stockholders

$                (54,964)


$                (65,878)





Adjustment related to acquired software license contracts 

373


592

Amortization of acquisition-related intangible assets

66,369


79,240

Restructuring charges 

15,938


8,106

Stock-based compensation expense

(1,122)


4,677

Compensation charges associated with acquisition-related contingent consideration obligations

581


580

Acquisition-related costs

49


426

Fair value adjustments to acquisition-related contingent consideration

16,779


5,258

Non-cash charge associated with acquired inventory

-


711

Costs associated with potential business dispositions

11,600


-

Interest expense recorded in connection with fees paid for certain debt modifications and the termination of our senior secured credit facility

364


810

Interest accretion associated with acquisition-related compensation charges

98


160

Non-cash write-off of an investment 

-


5,110

Bargain purchase gain associated with the  acquisition of the Liberty business

-


(8,062)

Expense associated with extinguishment of debt

-


35,604

Income tax effects on items above

(21,092)


(12,768)

Loss on disposition

638


-

Non-GAAP adjusted net income available to common stockholders

$                  35,611


$                  54,566









Net loss per diluted common share

$                    (0.67)


$                    (0.81)

Non-GAAP adjusted net income per diluted common share

$                       0.42


$                       0.64





Weighted average shares - diluted

82,648


81,311

Non-GAAP adjusted weighted average shares - diluted

87,453


95,207





(1) In calculating "non-GAAP adjusted operating income" and "non-GAAP adjusted net income", the Company excludes (i) certain non-cash charges, including amortization expense and stock-based compensation expense, (ii) non-recurring charges and income, and (iii) certain other charges and income that have a significant positive or negative impact on results yet do not occur on a consistent or regular basis in its business.  In determining whether a particular item meets one of these criteria, management considers facts and circumstances that it believes are relevant.  Management believes that excluding such charges and income from operating income and net income or loss allows investors and management to evaluate and compare the Company's operating results from continuing operations from period to period in a meaningful and consistent manner.  Due to the frequency of their occurrence in its business, the Company does not adjust operating income or net income or loss for the costs associated with litigation, including payments made or received through settlements.  It should be noted that "non-GAAP adjusted operating income" and "non-GAAP adjusted net income" are not standard financial measurements under accounting principles generally accepted in the United States of America ("GAAP") and should not be considered as an alternative to operating income and net income or loss or cash flow from operating activities, as a measure of liquidity or as an indicator of operating performance or any measure of performance derived in accordance with GAAP. In addition, all companies do not calculate non-GAAP financial measures in the same manner and, accordingly, "non-GAAP adjusted operating income" and "non-GAAP adjusted net income" presented in this press release may not be comparable to similar measures used by other companies.

 

Alere Inc. and Subsidiaries

Reconciliation to Non-GAAP Adjusted Operating Results

(in thousands, except per share amounts)






Six Months Ended June 30,


2014


2013

Reconciliation to Non-GAAP Adjusted Operating Income (1)




Operating income 

$                  17,181


$                  74,893





Adjustment related to acquired software license contracts 

792


1,235

Amortization of acquisition-related intangible assets

132,822


155,025

Restructuring charges 

23,045


11,936

Stock-based compensation expense

4,582


8,800

Compensation charges associated with acquisition-related contingent consideration obligations

1,003


1,270

Acquisition-related costs

370


1,322

Fair value adjustments to acquisition-related contingent consideration

21,329


16,276

Non-cash charge associated with acquired inventory

-


1,172

Costs associated with potential business dispositions

14,560


-

Loss on disposition

638


-

Non-GAAP adjusted operating income

$               216,322


$                271,929






Six Months Ended June 30,


2014


2013

Reconciliation to Non-GAAP Adjusted Net Income(1)




Net loss available to common stockholders

$               (66,435)


$                (58,678)





Adjustment related to acquired software license contracts 

792


1,235

Amortization of acquisition-related intangible assets

132,860


155,229

Restructuring charges 

23,278


12,053

Stock-based compensation expense

4,582


8,800

Compensation charges associated with acquisition-related contingent consideration obligations

1,003


1,270

Acquisition-related costs

370


1,322

Fair value adjustments to acquisition-related contingent consideration

21,329


16,276

Non-cash charge associated with acquired inventory

-


1,172

Costs associated with potential business dispositions

14,560


-

Loss on disposition

638


-

Interest expense recorded in connection with fees paid for certain debt modifications and the termination of our senior secured credit facility

728


1,762

Interest accretion associated with acquisition-related compensation charges

193


160

Non-cash write-off of an investment 

-


5,110

Bargain purchase gain associated with the  acquisition of the Liberty business

-


(8,062)

Expense associated with extinguishment of debt

-


35,767

Income tax effects on items above

(50,950)


(74,823)

Non-GAAP adjusted net income available to common stockholders

$                  82,948


$                  98,593









Net loss per diluted common share

$                    (0.81)


$                    (0.72)

Non-GAAP adjusted net income per diluted common share

$                      0.97


$                       1.16





Weighted average shares - diluted

82,518


81,255

Non-GAAP adjusted weighted average shares - diluted

87,150


95,071





(1) In calculating "non-GAAP adjusted operating income" and "non-GAAP adjusted net income", the Company excludes (i) certain non-cash charges, including amortization expense and stock-based compensation expense, (ii) non-recurring charges and income, and (iii) certain other charges and income that have a significant positive or negative impact on results yet do not occur on a consistent or regular basis in its business.  In determining whether a particular item meets one of these criteria, management considers facts and circumstances that it believes are relevant.  Management believes that excluding such charges and income from operating income and net income or loss allows investors and management to evaluate and compare the Company's operating results from continuing operations from period to period in a meaningful and consistent manner.  Due to the frequency of their occurrence in its business, the Company does not adjust operating income or net income or loss for the costs associated with litigation, including payments made or received through settlements.  It should be noted that "non-GAAP adjusted operating income" and "non-GAAP adjusted net income" are not standard financial measurements under accounting principles generally accepted in the United States of America ("GAAP") and should not be considered as an alternative to operating income and net income or loss or cash flow from operating activities, as a measure of liquidity or as an indicator of operating performance or any measure of performance derived in accordance with GAAP. In addition, all companies do not calculate non-GAAP financial measures in the same manner and, accordingly, "non-GAAP adjusted operating income" and "non-GAAP adjusted net income" presented in this press release may not be comparable to similar measures used by other companies.

 

Alere Inc. and Subsidiaries



Selected Consolidated Revenues by Business Area (1)



(in thousands)

















Professional Diagnostics Segment










% Change


% Change



Q2 2014


YTD 2014



Q2 2013


YTD 2013


Q2 14 v. Q2 13


YTD 14 v. YTD 13

Infectious disease

$                  165,641


$                  329,671



$                  157,706


$                  347,550


5%


-5%

Toxicology

164,677


316,574



165,884


314,933


-1%


1%

Cardiology

101,783


223,416



118,436


233,369


-14%


-4%

Diabetes

51,227


101,948



74,905


124,988


-32%


-18%

Other (1)

94,750


167,802



82,666


157,385


15%


7%


Professional diagnostics net product sales and services revenue (1)

578,078


1,139,411



599,597


1,178,225


-4%


-3%

License and royalty revenue

5,292


10,504



4,165


8,029


27%


31%


Professional diagnostics net revenue

$                  583,370


$              1,149,915



$                  603,762


$              1,186,254


-3%


-3%





























Health Information Solutions Segment










% Change


% Change



Q2 2014


YTD 2014



Q2 2013


YTD 2013


Q2 14 v. Q2 13


YTD 14 v. YTD 13

Condition and case management

$                    48,527


$                    97,846



$                    52,578


$                  106,704


-8%


-8%

Wellness

23,534


48,484



27,230


53,530


-14%


-9%

Women's & children's health

24,324


46,539



29,256


58,336


-17%


-20%

Patient self-testing services

29,430


56,614



25,711


50,412


14%


12%


Health information solutions net revenue

$                  125,815


$                  249,483



$                  134,775


$                  268,982


-7%


-7%















(1) Revenues are presented in accordance with generally accepted accounting principles and exclude an adjustment of $0.4 million and $0.8 million, and $0.6 million and $1.2 million related to acquired software license contracts which were not recognized during the three and six months ended June 30, 2014 and 2013, respectively, due to business combination accounting rules.



 



Alere Inc. and Subsidiaries



Reconciliation of Operating Income (Loss) to Non-GAAP Adjusted Operating Income (Loss)







(in thousands)


















For the Three Months Ended June 30, 2014

Operating Segment


Professional Diagnostics


Health Information Solutions


Consumer Diagnostics


Corporate


Total












Net revenue 


$          583,370


$          125,815


$             28,758


$                      -


$          737,943

Adjustment related to acquired software license contracts(1)


373


-


-


-


373

Non-GAAP adjusted net revenue


$          583,743


$          125,815


$             28,758


$                      -


$          738,316












Operating income (loss) 


$             11,516


$             (4,247)


$               4,627


$          (20,655)


$             (8,759)

Adjustment related to acquired software license contracts(1)


373


-


-


-


373

Amortization of acquisition-related intangible assets


57,339


8,836


174


-


66,349

Restructuring charges 


11,144


631


-


4,055


15,830

Stock-based compensation expense


-


-


-


(1,122)


(1,122)

Compensation charges associated with acquisition-related contingent consideration obligations


581


-


-


-


581

Acquisition-related costs


-


-


-


49


49

Fair value adjustments to acquisition-related contingent consideration


15,579


1,000


-


200


16,779

Costs associated with potential business dispositions


11,600


-


-


-


11,600

Loss on disposition


638


-


-


-


638

Non-GAAP adjusted operating income (loss)


$          108,770


$               6,220


$               4,801


$          (17,473)


$          102,318












Non-GAAP adjusted operating income (loss) as % of Non-GAAP adjusted net revenue


18.6%


4.9%


16.7%




13.9%












(1) Estimated revenue related to acquired software license contracts that was not recognized during the second quarter of 2014 due to business combination accounting rules.



























For the Three Months Ended June 30, 2013

Operating Segment


Professional Diagnostics


Health Information Solutions


Consumer Diagnostics


Corporate


Total












Net revenue 


$          603,762


$          134,775


$             25,448


$                      -


$          763,985

Adjustment related to acquired software license contracts(1)


592


-


-


-


592

Non-GAAP adjusted net revenue


$          604,354


$          134,775


$             25,448


$                      -


$          764,577












Operating income (loss) 


$             72,896


$          (11,759)


$               3,404


$          (20,137)


$             44,404

Adjustment related to acquired software license contracts(1)


592


-


-


-


592

Amortization of acquisition-related intangible assets


67,968


10,732


458


-


79,158

Restructuring charges 


1,740


6,304


-


-


8,044

Stock-based compensation expense


-


-


-


4,677


4,677

Compensation charges associated with acquisition-related contingent consideration obligations


580


-


-


-


580

Non-cash charge associated with acquired inventory


711


-


-


-


711

Acquisition-related costs


-


-


-


426


426

Fair value adjustments to acquisition-related contingent consideration


4,330


1,028


-


(100)


5,258

Non-GAAP adjusted operating income (loss)


$          148,817


$               6,305


$               3,862


$          (15,134)


$          143,850












Non-GAAP adjusted operating income (loss) as % of Non-GAAP adjusted net revenue


24.6%


4.7%


15.2%




18.8%












(1) Estimated revenue related to acquired software license contracts that was not recognized during the second quarter of 2013 due to business combination accounting rules.














Comments:











In calculating "adjusted operating income (loss)" in the schedule presented above, the Company excludes from operating income (loss) (i) certain non-cash charges, including amortization expense and stock-based compensation expense, (ii) non-recurring charges and income, and (iii) certain other charges and income that have a significant positive or negative impact on results yet do not occur on a consistent or regular basis in its business.  In determining whether a particular item meets one of these criteria, management considers facts and circumstances that it believes are relevant.  Management believes that excluding such charges and income from operating income (loss) allows investors and management to evaluate and compare the Company's operating results from continuing operations from period to period in a meaningful and consistent manner.  Due to the frequency of their occurrence in its business, the Company does not adjust operating income (loss) for the costs associated with litigation, including payments made or received through settlements.  It should be noted that "adjusted operating income (loss)" is not a standard financial measurement under accounting principles generally accepted in the United States of America ("GAAP") and should not be considered as an alternative to operating income (loss) as an indicator of operating performance or any measure of performance derived in accordance with GAAP. In addition, all companies do not calculate non-GAAP financial measures in the same manner and, accordingly, "adjusted operating income (loss)" presented in this schedule may not be comparable to similar measures used by other companies.












Reference should also be made to the Company's financial results contained in our earnings press release respective to the periods presented in this schedule, which include a more detailed discussion of the adjustments to the GAAP operating results presented above.

 



Alere Inc. and Subsidiaries



Reconciliation of Operating Income (Loss) to Non-GAAP Adjusted Operating Income (Loss)







(in thousands)


















For the Six Months Ended June 30, 2014

Operating Segment


Professional Diagnostics


Health Information Solutions


Consumer Diagnostics


Corporate


Total












Net revenue 


$         1,149,915


$             249,483


$               55,167


$                         -


$         1,454,565

Adjustment related to acquired software license contracts(1)


792


-


-


-


792

Non-GAAP adjusted net revenue


$         1,150,707


$             249,483


$               55,167


$                         -


$         1,455,357












Operating income (loss) 


$               62,842


$             (10,967)


$                  6,875


$             (41,569)


$               17,181

Adjustment related to acquired software license contracts(1)


792


-


-


-


792

Amortization of acquisition-related intangible assets


114,624


17,735


463


-


132,822

Restructuring charges 


15,447


3,448


-


4,150


23,045

Stock-based compensation expense


-


-


-


4,582


4,582

Compensation charges associated with acquisition-related contingent consideration obligations


1,003


-


-


-


1,003

Non-cash charge associated with acquired inventory


-


-


-


-


-

Acquisition-related costs


-


-


-


370


370

Fair value adjustments to acquisition-related contingent consideration


21,040


(11)


-


300


21,329

Costs associated with potential business dispositions


14,560


-


-


-


14,560

Loss on disposition


638


-


-


-


638

Non-GAAP adjusted operating income (loss)


$             230,946


$               10,205


$                  7,338


$             (32,167)


$             216,322












Non-GAAP adjusted operating income (loss) as % of Non-GAAP adjusted net revenue


20.1%


4.1%


13.3%




14.9%












(1) Estimated revenue related to acquired software license contracts that was not recognized during the first six months of 2014 due to business combination accounting rules.



























For the Six Months Ended June 30, 2013

Operating Segment


Professional Diagnostics


Health Information Solutions


Consumer Diagnostics


Corporate


Total












Net revenue


$         1,186,254


$             268,982


$               47,998


$                         -


$         1,503,234

Adjustment related to acquired software license contracts(1)


1,235


-


-


-


1,235

Non-GAAP adjusted net revenue


$         1,187,489


$             268,982


$               47,998


$                         -


$         1,504,469












Operating income (loss) 


$             132,736


$             (25,652)


$                  5,684


$             (37,875)


$               74,893

Adjustment related to acquired software license contracts(1)


1,235


-


-


-


1,235

Amortization of acquisition-related intangible assets


132,261


21,770


994


-


155,025

Restructuring charges 


3,129


8,807


-


-


11,936

Stock-based compensation expense


-


-


-


8,800


8,800

Compensation charges associated with acquisition-related contingent consideration obligations


1,270


-


-


-


1,270

Non-cash charge associated with acquired inventory


1,172


-


-


-


1,172

Acquisition-related costs


-


-


-


1,322


1,322

Fair value adjustments to acquisition-related contingent consideration


11,393


4,383


-


500


16,276

Non-GAAP adjusted operating income (loss)


$             283,196


$                  9,308


$                  6,678


$             (27,253)


$             271,929












Non-GAAP adjusted operating income (loss) as % of Non-GAAP adjusted net revenue


23.8%


3.5%


13.9%




18.1%












(1) Estimated revenue related to acquired software license contracts that was not recognized during the first six months of 2013 due to business combination accounting rules.














Comments:











In calculating "adjusted operating income (loss)" in the schedule presented above, the Company excludes from operating income (loss) (i) certain non-cash charges, including amortization expense and stock-based compensation expense, (ii) non-recurring charges and income, and (iii) certain other charges and income that have a significant positive or negative impact on results yet do not occur on a consistent or regular basis in its business.  In determining whether a particular item meets one of these criteria, management considers facts and circumstances that it believes are relevant.  Management believes that excluding such charges and income from operating income (loss) allows investors and management to evaluate and compare the Company's operating results from continuing operations from period to period in a meaningful and consistent manner.  Due to the frequency of their occurrence in its business, the Company does not adjust operating income (loss) for the costs associated with litigation, including payments made or received through settlements.  It should be noted that "adjusted operating income (loss)" is not a standard financial measurement under accounting principles generally accepted in the United States of America ("GAAP") and should not be considered as an alternative to operating income (loss) as an indicator of operating performance or any measure of performance derived in accordance with GAAP. In addition, all companies do not calculate non-GAAP financial measures in the same manner and, accordingly, "adjusted operating income (loss)" presented in this schedule may not be comparable to similar measures used by other companies.












Reference should also be made to the Company's financial results contained in our earnings press release respective to the periods presented in this schedule, which include a more detailed discussion of the adjustments to the GAAP operating results presented above.

 

Alere Inc. and Subsidiaries

Reconciliations to Non-GAAP Adjusted P&L Categories

(in thousands)








Three Months Ended
June 30, 2014


Three Months Ended
June 30, 2013









Net revenue 


$                           737,943


$                           763,985

Adjustment related to acquired software license contracts 


373


592

Non-GAAP adjusted net revenue


$                           738,316


$                           764,577






Cost of net revenue


$                           398,025


$                           379,498

Less adjustments:





Amortization of acquisition-related intangible assets


(16,443)


(17,102)

Restructuring charges 


(292)


(729)

Stock-based compensation expense


(285)


(278)

Non-cash charge associated with acquired inventory


-


(711)

Non-GAAP adjusted cost of net revenue


$                           381,005


$                           360,678






Non-GAAP adjusted gross profit


$                           357,311


$                           403,899








Three Months Ended
June 30, 2014


Three Months Ended
June 30, 2013









Research and development 


$                             37,430


$                             40,500

Less adjustments:





Amortization of acquisition-related intangible assets


(1,184)


(1,216)

Restructuring charges 


(3,031)


(645)

Stock-based compensation expense


1,811


(783)

Non-GAAP adjusted research and development


$                             35,026


$                             37,856








Three Months Ended
June 30, 2014


Three Months Ended
June 30, 2013









Selling, general and administrative


$                           310,609


$                           299,583

Less adjustments:





Amortization of acquisition-related intangible assets


(48,722)


(60,840)

Restructuring charges 


(12,507)


(6,670)

Stock-based compensation expense


(404)


(3,616)

Compensation charges associated with acquisition-related contingent consideration obligations


(581)


(580)

Acquisition-related costs


(49)


(426)

Fair value adjustments to acquisition-related contingent consideration


(16,779)


(5,258)

Costs associated with potential business dispositions


(11,600)


-

Non-GAAP adjusted selling, general and administrative 


$                           219,967


$                           222,193








Three Months Ended
June 30, 2014


Three Months Ended
June 30, 2013




Loss on disposition


$                                   638


$                                       -

Loss on disposition


(638)


-

Non-GAAP adjusted loss on disposition


$                                       -


$                                       -













Three Months Ended
June 30, 2014


Three Months Ended
June 30, 2013









Interest and other income (expense), net


$                           (49,532)


$                           (91,390)

Less adjustments:





Restructuring charges 


108


62

Interest expense recorded in connection with fees paid for certain debt modifications and the termination of our senior secured credit facility


364


810

Interest accretion associated with acquisition-related compensation charges


98


160

Non-cash write-off of an investment 


-


5,110

Bargain purchase gain associated with the  acquisition of the Liberty business


-


(8,062)

Expense associated with extinguishment of debt


-


35,604

Non-GAAP adjusted interest and other income (expense), net


$                           (48,962)


$                           (57,706)








Three Months Ended
June 30, 2014


Three Months Ended
June 30, 2013









Provision (benefit) for income taxes


$                             (6,611)


$                             17,867

    Add:  Income tax effects on Non-GAAP adjustments


21,121


12,783

Non-GAAP adjusted provision for income taxes


$                             14,510


$                             30,650








Three Months Ended
June 30, 2014


Three Months Ended
June 30, 2013









Equity earnings of unconsolidated entities, net of tax


$                                2,087


$                                4,551

Less adjustments:





Amortization of acquisition-related intangible assets


150


150

Income tax effects on items above


-


-

Non-GAAP adjusted equity earnings of unconsolidated entities, net of tax


$                                2,237


$                                4,701






 

Alere Inc. and Subsidiaries

Reconciliations to Non-GAAP Adjusted P&L Categories

(in thousands)








Six Months Ended

June 30, 2014


Six Months Ended

June 30, 2013









Net revenue


$                1,454,565


$                1,503,234

Adjustment related to acquired software license contracts 


792


1,235

Non-GAAP adjusted net revenue


$                1,455,357


$                1,504,469






Cost of net revenue


$                    763,408


$                    754,490

Less adjustments:





Amortization of acquisition-related intangible assets


(33,079)


(36,272)

Restructuring charges 


(1,167)


(1,352)

Stock-based compensation expense


(572)


(510)

Non-cash charge associated with acquired inventory


-


(1,172)

Non-GAAP adjusted cost of net revenue


$                    728,590


$                    715,184






Non-GAAP adjusted gross profit


$                    726,767


$                    789,285








Six Months Ended

June 30, 2014


Six Months Ended

June 30, 2013









Research and development


$                      76,129


$                      81,954

Less adjustments:





Amortization of acquisition-related intangible assets


(2,349)


(2,498)

Restructuring charges 


(3,031)


(645)

Stock-based compensation expense


620


(1,530)

Non-GAAP adjusted research and development


$                      71,369


$                      77,281








Six Months Ended

June 30, 2014


Six Months Ended

June 30, 2013









Selling, general and administrative


$                    597,209


$                    591,897

Less adjustments:





Amortization of acquisition-related intangible assets


(97,394)


(116,255)

Restructuring charges 


(18,847)


(9,939)

Stock-based compensation expense


(4,630)


(6,760)

Compensation charges associated with acquisition-related contingent consideration obligations


(1,003)


(1,270)

Acquisition-related costs


(370)


(1,322)

Fair value adjustments to acquisition-related contingent consideration


(21,329)


(16,276)

Costs associated with potential business dispositions


(14,560)


-

Non-GAAP adjusted selling, general and administrative 


$                    439,076


$                    440,075








Six Months Ended

June 30, 2014


Six Months Ended

June 30, 2013




Loss on disposition


$                            638


$                                -

Loss on disposition


(638)


-

Non-GAAP adjusted loss on disposition


$                                -


$                                -








Six Months Ended J

une 30, 2014


Six Months Ended

June 30, 2013









Interest and other income (expense), net


$                    (96,854)


$                  (149,259)

Less adjustments:





Restructuring charges 


233


117

Interest expense recorded in connection with fees paid for certain debt modifications and the termination of our senior secured credit facility


728


1,762

Interest accretion associated with acquisition-related compensation charges


193


160

Non-cash write-off of an investment


-


5,110

Bargain purchase gain associated with the acquisition of the Liberty business


-


(8,062)

Expense associated with extinguishment of debt


-


35,767

Non-GAAP adjusted interest and other income (expense), net


$                    (95,700)


$                  (114,405)








Six Months Ended

June 30, 2014


 Six Months Ended

June 30, 2013 









Benefit for income taxes


$                    (16,528)


$                    (19,004)

    Add:  Income tax effects on Non-GAAP adjustments


51,008


74,844

Non-GAAP adjusted provision for income taxes


$                      34,480


$                      55,840








Six Months Ended

June 30, 2014


Six Months Ended

June 30, 2013









Equity earnings of unconsolidated entities, net of tax 


$                         7,439


$                         7,485

Less adjustments:





Amortization of acquisition-related intangible assets


298


301

Income tax effects on items above


-


-

Non-GAAP adjusted equity earnings of unconsolidated entities, net of tax


$                         7,737


$                         7,786






 

Alere Inc. and Subsidiaries

Reconciliation of Net Loss to Non-GAAP EBITDA

(in thousands)






 Three Months Ended 


 Six Months Ended 


June 30, 2014


June 30, 2014





Net Loss (1) 

$                 (49,593)


$                 (55,706)





Adjustment related to acquired software license contracts

373


792

Income tax benefit

(6,611)


(16,528)

Depreciation and amortization

98,040


196,274

Interest, net

51,680


103,339

Non-cash stock-based compensation expense

(1,122)


4,582

Non-cash fair value adjustments to acquisition-related contingent consideration

16,779


21,329

Loss on disposition

638


638





Non-GAAP EBITDA

$                110,184


$                254,720









(1) Net loss for the three months and six months ended June 30, 2014 includes non-interest related restructuring charges of $15.8 million and $23.0 million, $0.1 million and $0.4 million of acquisition costs and $11.6 million and $14.6 million of costs associated with potential business dispositions, respectively, which have not been added back for purposes of computing Non-GAAP EBITDA.


Reconciliation of Cash Flow from Operating Activities to Free Cash Flow

(in thousands)







Three Months Ended


Six Months Ended


June 30, 2014


June 30, 2014





Cash flow from operating activities 

$                 19,259


$             125,167

Capital expenditures

(26,890)


(54,430)





Free cash flow

$                  (7,631)


$               70,737





 

SOURCE Alere Inc.



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