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Financial Performance & Scoring -- © 2004 Gaskins IPO Desktop/IPOdesktop |
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Updated MONDAY, 2-23 at 10:30 am NYtime |
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. Opening Premium Star Ratings: |
for DesktopPass subscribers |
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. Business Model Rating Criteria |
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A = high growth market, potential leader; B = more competitive market; C='public venture capital' |
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. Calculations |
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. IPO Price to annualized Sales Ratio -- (Price / Sales) |
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Numerator |
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Denominator |
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IPO market capitalization… |
Annualized Sales (last quarter's revenues times 4) |
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(post-IPO # of shares times mid-point of IPO price range) |
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. IPO Price to annualized Earnings (loss) -- (Price / Earnings) |
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Numerator |
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Denominator |
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IPO market cap |
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Annualized Earnings (loss) from the last quarter |
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NAME/symbol |
IPO Mrkt |
Price / |
Price / |
Price / |
Price / |
% offered |
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Cap (mm) |
Sales |
Earnings |
BookValue |
TangibleBV |
in IPO |
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IPOs -- week of February 23 |
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Kinetic Concepts (KCI) |
1800 |
2.3 |
23 |
-10.5 |
-7 |
28% |
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Kinetic Concepts |
KCI, 3-stars, B (see scorecard below) |
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(medical technology company developing advanced wound care and therapeutic surfaces) |
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San Antonio, TX |
2001 |
2002* |
2003* |
Dec Qtr Est |
IPO Mkt |
Price / |
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Revenues (mm) |
456 |
580 |
764 |
200 |
Cap (mm) |
Sales |
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Gross Margin % |
44.5% |
43.4% |
45.0% |
45.0% |
$1,800 |
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Operating Margin |
19.1% |
19.0% |
19.6% |
19.6% |
@$28 |
2.3 |
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Net Income |
24 |
44 |
77 |
20 |
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Net Income % |
5% |
8% |
10% |
10% |
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*excludes litigation settlement income and excludes recapitalization expenses (see below) |
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for the years 2002 and 2003 |
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. Under an antitrust settlement, Hillenbrand Industries, Inc. and Hill-Rom Company, Inc., |
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a wholly-owned subsidiary of Hillenbrand agreed to pay KCI $250.0 million. The initial payment |
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of $175.0 million was paid on January 2, 2003 and a second payment of $75 mm was received |
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December 31, 2003. |
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. The jury in the San Antonio, Texas Federal District Court found that Hillenbrand |
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and Hill-Rom had wrongfully attempted to monopolize the specialty hospital bed market |
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VALUATION RATIOS |
IPO Mrkt |
Price / |
Price / |
Price / |
Price / |
% offered |
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Cap (mm) |
Sales |
Earnings |
BookValue |
TangibleBV |
in IPO |
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Kinetic Concepts (KCI) |
1800 |
2.3 |
23 |
-10.5 |
-7 |
28% |
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SCORECARD |
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Mgt |
Market |
Market Do- |
Proprie- |
Total |
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1-5, 5 is high |
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Growth |
mination |
tary |
rating |
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20 is perfect |
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3 |
2 |
3 |
2 |
10 |
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Business |
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. Products accelerate the wound healing process and/or prevent complications. |
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. From 2000 to 2003, KCI increased revenue at a compound annual growth rate of 29.5% |
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Products |
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> Revenue generation: 75% rentals, 25% sales including disposables |
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> Advanced Wound Care products |
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. Proprietary Vacuum Assisted Closure, or V.A.C., technology -- has been clinically |
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demonstrated to promote wound healing and reduce the cost of treating patients with |
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difficult-to-treat wounds. |
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. V.A.C. dressings are typically changed every 48 hours for non-infected wounds versus |
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traditional dressings which often require dressing changes one or more times per day. |
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> Therapeutic surface products |
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. Including specialty hospital beds, mattress replacement systems and overlays |
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. Designed to address complications associated with immobility and obesity, such as |
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pressure sores and pneumonia |
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Benefits |
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. Wound healing and repair |
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. Immobility treatment |
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. Wound treatment and prevention |
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. Bariatric Care (products designed to accommodate obese individuals) |
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U.S & International |
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U.S. |
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. In 2003 US accounted for 75% of revenue |
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. In the U.S., acute and extended care settings accounted for more than half of domestic revenue |
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. KCI estimates it has penetration into 15% to 20% of the US market based on revenue |
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International |
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. International market not as developed as the US market |
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. Recently, the German and Austrian associations for wound treatment recognized V.A.C. |
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therapy as the therapy of choice for several wound care indications |
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Customers |
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. In the U.S. KCI has relationships with over 3,000 acute care hospitals, over 4,100 extended care |
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facilities and approximately 4,100 home health care agencies and wound care clinics. |
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. During 2002, KCI served 2,100 medium to large hospitals in the United States. |
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. Through its network of 135 U.S. and 82 international service centers, KCI delivers products to |
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major hospitals in the United States, Canada, Australia and most major European countries. |
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Growth plan |
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. Since the fourth quarter of 2000, KCI's growth has been driven primarily by increased revenue |
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from V.A.C. system rentals and sales |
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. Which accounted for 63.1% of total revenue in 2003, up from 54.0% in 2002. |
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. KCI expects V.A.C. growth and the percentage of total revenue from V.A.C. rentals and sales to |
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continue to increase, as it has in each of the last three years. |
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Homecare |
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. The home care market accounted for 43.9% of V.A.C. business and 27.7% of total revenue for 2003 |
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. V.A.C. revenue from the home care setting grew 49.8% in 2003 compared to 2002. |
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. KCI continues to enhance contractual relationships with insurance companies, which have |
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already increased covered lives under contract from fewer than 20 million in mid-2000 to over |
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148 million today. |
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. V.A.C. systems used in the home are reimbursed by government insurance (Medicare and |
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Medicaid), private insurance and managed care organization payers. |
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Worldwide |
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. For 2003, worldwide V.A.C. revenue from the combined acute and extended care settings grew |
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56.9% and V.A.C.. Only a small portion of international V.A.C. revenue comes from home care. |
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. If KCI is able to gain home care reimbursement for V.A.C. therapy with third party payers in Europe |
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and other international locations, KCI believes revenue from the home care market will increase. |
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Intellectual property |
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U.S. |
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. KCI has more than 100 issued U.S. patents relating to existing and prospective lines of |
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therapeutic surfaces and V.A.C. systems. |
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. KCI also has more than 50 pending U.S. patent applications. |
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International |
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. KCI's international patent portfolio (including owned and licensed patents) relating to |
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current and prospective technologies in the field of V.A.C. therapy includes at least 75 issued |
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patents and more than 100 pending patent applications, with protection in Europe, Canada, |
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Australia and Japan. |
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. Most of the V.A.C. patents have an average life of 20 years from the date of filing. |
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. KCI's base V.A.C. patents do not begin to expire until 2013. |
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Competition |
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. Hill-Rom Company, Huntleigh Healthcare, Pegasus Limited. |
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Use of Proceeds |
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> Proceeds to KCI -- $90 million from IPO proceeds plus net after-tax proceeds from the $75 mm |
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antitrust settlement received on December 31, 2003. |
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. A portion will be used to repay debt |
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. $18.7 mm will be used to pay bonuses to executive officers and management |
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> $390 mm to selling shareholders |
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Recapitalization |
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Source of Funds: |
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$205mm: Gross proceeds from the sale of the 73/8% Senior Subordinated Notes Due 2013 |
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$480mm: Borrowings under the new senior credit facility |
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$263.8mm: Gross proceeds from the sale of convertible preferred stock |
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$32.4mm: Tax benefits realized from transaction fees and expenses |
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$37.4mm: Cash on hand |
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Total Source of Funds: $ 1,018.6 mm |
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Use of Funds: |
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$211.1mm: Redemption of 95/8% Senior Subordinated Notes Due 2007 |
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$208.2mm: Repayment of debt under the old senior credit facility |
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$570.3mm: Share repurchase* |
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$29mm: Transaction fees and expenses for the recapitalization |
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Total Use of Funds: $ 1,018.6 mm |
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*repurchase of 30.0 million shares of outstanding common stock and approximately 4.7 million |
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vested stock options at a price equal to $17.00 per share |
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------------------------------- |
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Net result: shareholders |
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. As a group received over $300 mm: $570 mm (share repurchased) less $264mm (convertible |
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stock purchase, converted to stock on the IPO) |
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. Will receive almost $400mm from IPO proceeds |
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. Will retain 78% of KCI, post IPO |
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