Integra LifeSciences(IART) - 2020 Q1 - Quarterly Report

Financial Performance - Net income for Q1 2020 was $9.2 million, or $0.11 per diluted share, down from $32.8 million, or $0.38 per diluted share in Q1 2019 [179]. - Total revenues for Q1 2020 were $354 million, a decline of 1.5% from $359.7 million in Q1 2019 [183]. - Total revenue for the three months ended March 31, 2020, was $354.3 million, a decrease of 1.0% from $359.7 million in the same period of 2019 [212]. - Domestic revenues decreased to $246.9 million, down from $256.7 million year-over-year, primarily due to the adverse effects of the COVID-19 pandemic [213]. - Codman Specialty Surgical segment revenues were $231.4 million, a decrease of $3.1 million, or 1.3% from the prior year [195]. - Orthopedics and Tissue Technologies segment revenues were $122.9 million, a decrease of $2.2 million, or 1.8% from the prior year [196]. - Gross margin decreased to $220.8 million, or 62.3% of total revenues, down from 64.2% in the same period last year [197]. - Operating expenses decreased by $4.7 million, or 2.4%, to $193.7 million in Q1 2020 compared to $198.5 million in Q1 2019 [198]. - Net cash provided by operating activities was $20.8 million for the three months ended March 31, 2020, down from $29.5 million in the same period of 2019 [215]. Impact of COVID-19 - Revenue decline in Q2 2020 is expected due to the impact of the COVID-19 pandemic, with uncertainty regarding the extent of the impact on surgical procedures [171]. - The estimated revenue impact from the decline in surgical procedures due to COVID-19 was approximately $20 to $25 million in Q1 2020 [183]. - The company expects a more substantial negative impact on Q2 performance due to ongoing restrictions from COVID-19 [183]. - The company anticipates materially lower sales as long as surgeries are deferred due to the COVID-19 pandemic, impacting future revenue forecasts [222]. - The company implemented significant cost-saving measures in response to COVID-19, including reduced executive compensation and a hiring freeze [171]. Research and Development - In 2019, the company launched ten new products across key product franchises, focusing on innovative product development [165]. - The company continues to prioritize investments in R&D and clinical programs despite cost-reduction measures due to COVID-19 [171]. - Research and development expenses increased by $2.5 million primarily due to product development costs related to a new acquisition [199]. Acquisitions and Strategic Initiatives - The Codman Neurosurgery acquisition in 2019 expanded the company's portfolio and established it as a world leader in neurosurgery [164]. - The company is focused on strategic acquisitions and licensing agreements to increase relevant scale in clinical areas [164]. - The Company has an option to acquire Integrated Shoulder Collaboration Inc. for up to $80.0 million, contingent on achieving certain sales thresholds [235]. Financial Obligations and Capital Management - Total contractual obligations as of March 31, 2020, amounted to $1.95 billion, with significant payments due in the coming years [231]. - The Company issued $575.0 million of 0.5% Convertible Senior Notes due 2025, maturing on August 15, 2025 [233]. - The company repurchased 1.4 million shares of common stock during the three months ended March 31, 2020, utilizing $100 million from the offering of Convertible Senior Notes [224]. - The company has $125 million remaining under its share repurchase authorization, with future purchases dependent on cash generation and market conditions [225]. - Capital expenditures for the three months ended March 31, 2020, were $16.5 million, primarily directed to facility expansions and new product development [217]. Tax and Interest Rates - The effective tax rate for Q1 2020 was 19.8%, compared to an effective tax rate of -32.0% in Q1 2019 [204]. - The company expects an effective income tax rate of approximately (14.6)% for the full year, primarily due to a projected pretax loss from the impact of COVID-19 [208]. - Interest expense increased by $4.6 million compared to the same period last year, primarily due to the issuance of Convertible Senior Notes [202]. - A hypothetical 100 basis point movement in interest rates would increase interest income by approximately $3.6 million annually on cash and cash equivalents [245]. - A 100 basis point change in interest rates would impact interest expense on the unhedged portion of the debt by $2.3 million on an annualized basis [247]. Currency and Financial Instruments - The Company is exposed to foreign currency exchange rate risks primarily with respect to transactions in Euros, British pounds, and other currencies [241]. - The Company manages foreign currency exposure through derivative financial instruments, including foreign currency exchange forward contracts [242]. Other Financial Metrics - Cash and cash equivalents increased to approximately $357.7 million as of March 31, 2020, compared to $198.9 million at December 31, 2019 [214]. - The liability for uncertain tax benefits totaled $0.8 million at March 31, 2020 [237]. - The estimated fair value of contingent consideration obligations related to acquisitions was $13.4 million as of March 31, 2020 [234]. - The total notional amount of interest rate swaps in effect as of March 31, 2020 was $900 million [247]. - The Company has excluded future pension contribution obligations from its contractual obligations due to uncertainty in payment amounts and dates [236].