ArthroCare's Third Quarter Product Revenues Rise 34 Percent to $28.6 Million; Net Income Grows 225 Percent Year-over-Year with EPS of $0.10.Business Editors/Health/Medical Writers SUNNYVALE, Calif.--(BUSINESS WIRE)--Oct. 22, 2003 ArthroCare(R) Corp. (Nasdaq:ARTC ARTC Arthrocare Corp (stock symbol) ARTC Australian Rail Track Corporation ARTC Air Route Traffic Control ARTC Association de la Recherche Theatrale au Canada ARTC Andean Root and Tuber Crops ), a multi-business medical device company that develops products based on its patented Coblation(R) technology, announced today that in the third quarter ended Sept. 30, 2003, the company reported product revenues of $28.6 million, a 34 percent increase over the $21.3 million recorded in the same quarter of the previous year. Total revenues, which include product revenues and royalties, for the third quarter were $29.4 million, a 32 percent increase over the $22.2 million reported in the third quarter of 2002. The company reported net income of $2.1 million, or $0.10 per diluted share, for the third quarter of 2003, a 225 percent increase over net income of $646,000, or $0.03 per diluted share, reported in the same quarter of 2002.
Q3 SUMMARY TABLE
Q303 Q203 Q302
--------- -------- ---------
Product Sales $28.6 M $28.4 M $21.3 M
License Fees, Royalties and Other
Revenues $881,000 $1.3 M $879,000
Total Revenues $29.4 M $29.7 M $22.2 M
Net Income $2.1 M $2.0 M $646,000
Earnings Per Diluted Share $0.10 $0.09 $0.03
FIRST NINE MONTHS OF 2003 For the first nine months of 2003, total revenues reached $86.3 million compared with $64.4 million in the same period of 2002. The product sales portion of revenue increased to $83.4 million in 2003 compared to $61.3 million in 2002. Net income for the nine-month period was $4.7 million, or $0.21 per diluted share in the current year compared with $2.2 million, or $0.10 per diluted share in the previous year. REVENUE In addition to third quarter product sales of $28.6 million, license fees, royalties and other revenue were $881,000 in the third quarter of 2003 compared to $879,000 in the third quarter of 2002. International sales more than doubled compared to the same period of last year and represented approximately 25 percent of product sales during the quarter. ArthroCare shipped nearly 150,000 disposable devices and more than 1,000 controller units during the quarter. BUSINESS UNIT PERFORMANCE ArthroCare generated strong year-over-year revenue growth in all of its business units during the third quarter. Arthroscopy Arthroscopy Definition Arthroscopy is the examination of a joint, specifically, the inside structures. The procedure is performed by inserting a specifically designed illuminated device into the joint through a small incision. revenue increased 29 percent during the quarter compared with the same period of 2002 and represented 70 percent of total product sales. Excluding the Atlantech(TM) product line, Arthroscopy revenue from Coblation products grew 16 percent over the same period of last year. Atlantech products generated $2.1 million in sales in the third quarter. Sales from the Spine business unit increased 51 percent during the quarter compared to the same period of 2002 and represented 13 percent of product sales. The third quarter increase in ENT ENT ears, nose, and throat (otorhinolaryngology). ENT abbr. ear, nose, and throat ENT ear, nose and throat. ENT Ears, nose & throat; formally, otorhinolaryngology product sales over the comparable period of last year was 74 percent, with ENT sales representing 16 percent of product sales during the quarter. OPERATIONS Gross margin on product sales improved to 68 percent in the third quarter compared to 63 percent in the same quarter of 2002. The year-over-year improvement primarily was driven by the increased volume of product being manufactured at ArthroCare's Costa Rica Costa Rica (kŏs`tə rē`kə), officially Republic of Costa Rica, republic (2005 est. pop. 4,016,000), 19,575 sq mi (50,700 sq km), Central America. facility, which continues to handle all high-volume production for the company. Operating expenses Operating expenses The amount paid for asset maintenance or the cost of doing business, excluding depreciation. Earnings are distributed after operating expenses are deducted. for the third quarter increased 31 percent or $4.3 million compared to the third quarter a year ago and decreased by approximately $1.0 million compared to the second quarter of 2003, primarily due to reduced legal expenses. Research and development, sales and marketing, and general and administrative expenses were all essentially flat as a percentage of product revenue compared to the third quarter of 2002. "The ArthroCare team again produced solid financial results during the third quarter," said Michael A. Baker Michael Allen Baker (Captain, USN, Ret.) is the International Space Station Program Manager for International and Crew Operations, at NASA's Johnson Space Center. He is responsible for the coordination of program operations, integration and flight crew training and support , president and chief executive officer (CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. ) for ArthroCare. "All of our business units continued to generate substantial revenue growth, and the company as a whole made tremendous progress towards executing upon our strategic initiatives. As we begin the final quarter of this fiscal year, we are well-positioned to meet our year-end financial objectives and to enter 2004 with growing momentum." RECENT CORPORATE DEVELOPMENTS -- Two new studies demonstrating the benefits of Coblation tonsillectomy tonsillectomy /ton·sil·lec·to·my/ (ton?si-lek´tah-me) excision of a tonsil. ton·sil·lec·to·my n. Surgical removal of tonsils or a tonsil. were presented at the Annual Meeting of the American Academy The American Academy in Berlin is a non-partisan academic institution in Berlin. It was founded in September 1994 by a group of prominent Americans and Germans, among them Richard Holbrooke, Henry Kissinger, Richard von Weizsäcker, Fritz Stern and Otto Graf Lambsdorff and opened in of Otolaryngology otolaryngology or otorhinolaryngology Medical specialty dealing with the ear, nose, and throat (see larynx, pharynx). The connection of these structures became known in the late 19th century. (AAO AAO American Association of Orthodontists; American Academy of Ophthalmology; American Academy of Otolaryngology; American Academy of Osteopathy. AAO ) held Sept. 21-24, 2003. These large randomized ran·dom·ize tr.v. ran·dom·ized, ran·dom·iz·ing, ran·dom·iz·es To make random in arrangement, especially in order to control the variables in an experiment. studies showed Coblation improves tonsillectomy patients' post-operative outcomes, including reduced post-operative pain, quicker return to normal diet, reduced risk of secondary hemorrhage secondary hemorrhage n. A hemorrhage that occurs after a period of time following an injury or an operation. , less localized swelling and reduced use of post-operative narcotics narcotics n. 1) techinically, drugs which dull the senses. 2) a popular generic term for drugs which cannot be legally possessed, sold, or transported except for medicinal uses for which a physician or dentist's prescription is required. when compared to traditional electrocautery electrocautery /elec·tro·cau·tery/ (-kaw´ter-e) an apparatus for surgical dissection and hemostasis, using heat generated by a high-voltage, high-frequency alternating current passed through an electrode. procedures. -- ArthroCare recently received FDA FDA abbr. Food and Drug Administration FDA, n.pr See Food and Drug Administration. FDA, n.pr the abbreviation for the Food and Drug Administration. clearance and began initial shipments of a new arthroscopy product line-up that offers significantly faster, more efficient and more complete tissue removal for shoulder, anterior cruciate ligament anterior cruciate ligament n. Abbr. ACL The cruciate ligament of the knee that crosses from the anterior intercondylar area of the tibia to the posterior part of the lateral condyle of the femur. , meniscus meniscus /me·nis·cus/ (me-nis´kus) pl. menis´ci [L.] something of crescent shape, as the concave or convex surface of a column of liquid in a pipet or buret, or a crescent-shaped cartilage in the knee joint. and cartilage cartilage (kär`təlĭj), flexible semiopaque connective tissue without blood vessels or nerve cells. It forms part of the skeletal system in humans and in other vertebrates, and is also known as gristle. repair than previously available. Three new ArthroWands -- UltraVAC(TM), Paragon(TM) and MeniVAC(TM) -- the new Atlas(TM) control system, and the Bilok(R) ACL See access control list. 1. ACL - Access Control List. 2. ACL - Association for Computational Linguistics. 3. ACL - A Coroutine Language. A Pascal-based implementation of coroutines. ["Coroutines", C.D. anchor are now being rolled out in the U.S. market. -- ArthroCare released the EVAC EVAC Evacuate/Evacuation/Evacuated EVAC East Valley Astronomy Club (Mesa, AZ) EVAC Emergency Vehicles and Communications (Fargo, ND, USA) EVAC Elmhurst Volunteer Ambulance Corps (Elmhurst, NY) T&A Wand, a third-generation, high-performance device that enables physicians to perform a tonsillectomy and adenoidectomy Tonsillectomy and Adenoidectomy Definition Tonsillectomy and adenoidectomy (T & A) are surgical procedures to remove the tonsils from the back of the mouth or adenoids from the back of the nasal cavity—both are are part of the lymphatic during the same procedure. It is easier to use than ArthroCare's previous tonsillectomy wands and improves the speed at which physicians can perform those procedures. The EVAC T&A is ArthroCare's first device that can be used in stand-alone adenoidectomy procedures. CONFERENCE CALL ArthroCare will hold a conference call with the financial community to discuss these results and its business outlook for Fiscal 2003 and 2004 at 7:30 a.m. ET/4:30 a.m. PT today. The call will be simultaneously Web cast by CCBN CCBN Central Coast Bancorp CCBN Charles County Business Network and can be accessed on ArthroCare's Web site at www.arthrocare.com. The Webcast will remain available through Nov. 5, 2003. A telephonic replay of the conference call can be accessed by dialing 800-633-8284 and entering pass code number 21161352. ABOUT ARTHROCARE ArthroCare Corp. (www.arthrocare.com), headquartered in Sunnyvale, Calif., is a multi-business medical device company that develops, manufactures and markets minimally invasive soft tissue surgical products based on its patented Coblation technology. Coblation uses low-temperature radio-frequency energy to gently and precisely dissolve rather than burn soft tissue, minimizing damage to healthy tissue. ArthroCare targets a multi-billion dollar market opportunity across several medical specialties Medical Specialties See also anatomy; disease and illness; drugs; health; remedies; surgery. adenography the science of the description of glands. — adenographic, adj. , significantly improving surgical procedures Surgical procedures have long and possibly daunting names. The meaning of many surgical procedure names can often be understood if the name is broken into parts. For example in splenectomy, "ectomy" is a suffix meaning the removal of a part of the body. "Splene-" means spleen. and enabling new, minimally invasive procedures Minimally invasive surgical procedures avoid open invasive surgery in favor of closed or local surgery with less trauma. These procedures involve use of laparoscopic devices and remote-control manipulation of instruments with indirect observation of the surgical field through an . ArthroCare's Coblation-based devices have been used in more than two million surgical procedures worldwide. The company has developed and marketed Coblation-based products for arthroscopic, spine/neurologic, ear, nose and throat, cosmetic, urologic, gynecologic gynecologic /gy·ne·co·log·ic/ (gi?ne-) (jin?e-kah-loj´ik) pertaining to the female reproductive tract or to gynecology. and laparoscopic/general surgical procedures, and continues research in other areas. SAFE HARBOR Safe Harbor 1. A legal provision to reduce or eliminate liability as long as good faith is demonstrated. 2. A form of shark repellent implemented by a target company acquiring a business that is so poorly regulated that the target itself is less attractive. STATEMENTS Except for historical information, this press release includes forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. . These statements include, but are not limited to, the company's stated business outlook for fiscal 2003, continued strength of the company's fundamental position, the strength of the company's technology, the company's belief that strategic moves will enhance achievement of the company's long term potential, the potential and expected rate of growth of new businesses, continued success of product diversification efforts, and other statements that involve risks and uncertainties. These risks and uncertainties include, but are not limited to the uncertainty of success of the company's non-arthroscopic products, competitive risk, uncertainty of the success of strategic business alliances, uncertainty over reimbursement, need for governmental clearances or approvals before selling products, and the uncertainty of protecting the company's patent position. These and other risks and uncertainties are detailed from time to time in the company's Securities and Exchange Commission filings, including ArthroCare's Form 10-K Form 10-K A report required by the SEC from exchange-listed companies that provides for annual disclosure of certain financial information. Form 10-K See 10-K. for the year ended December 31, 2002 and the 10-Q for the quarter ended June 30, 2003. Forward-looking statements are indicated by words or phrases such as "anticipates," "estimates," "projects," "believes," "intends," "expects," and similar words and phrases Words and Phrases® A multivolume set of law books published by West Group containing thousands of judicial definitions of words and phrases, arranged alphabetically, from 1658 to the present. . Actual results may differ materially from management expectations.
ARTHROCARE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Three Months Ended Three Months Ended
Sept. 30 June 30 Sept. 30 Sept. 30
2003 2003 Variance 2003 2002 Variance
-------- -------- -------- -------- -------- --------
Revenues:
Net Product
Sales $28,559 $28,401 $158 $28,559 $21,332 $7,227
Royalties,
fees and
other 881 1,300 (419) 881 879 2
-------- -------- -------- -------- -------- --------
Total
revenues 29,440 29,701 (261) 29,440 22,211 7,229
Cost of product
sales 9,066 8,661 (405) 9,066 7,981 (1,085)
-------- -------- -------- -------- -------- --------
Gross profit 20,374 21,040 (666) 20,374 14,230 6,144
-------- -------- -------- -------- -------- --------
Operating
expenses:
Research and
development 3,068 2,607 (461) 3,068 2,188 (880)
Sales and
marketing 11,573 11,519 (54) 11,573 9,011 (2,562)
General and
adminis-
trative 3,289 4,781 1,492 3,289 2,458 (831)
-------- -------- -------- -------- -------- --------
Total
operating
expenses 17,930 18,907 977 17,930 13,657 (4,273)
Income from
operations 2,444 2,133 311 2,444 573 1,871
Interest and
other income,
net 591 697 (106) 591 377 214
-------- -------- -------- -------- -------- --------
Income before
income tax
provision 3,035 2,830 205 3,035 950 2,085
Income tax
provision 941 868 (73) 941 304 (637)
-------- -------- -------- -------- -------- --------
Net income $2,094 $1,962 $132 $2,094 $646 $1,448
======== ======== ======== ======== ======== ========
Basic net income
per share $0.10 $0.09 $0.01 $0.10 $0.03 $0.07
======== ======== ======== ======== ======== ========
Shares used in
computing basic
net income per
share 20,650 20,911 20,650 21,085
Diluted net
income per
common share $0.10 $0.09 $0.01 $0.10 $0.03 $0.07
======== ======== ======== ======== ======== ========
Shares used in
computing
diluted net
income per
share 21,796 21,858 21,796 22,060
Nine Months Ended
Sept. 30 Sept. 30
2003 2002 Variance
--------- --------- --------
Revenues:
Net Product Sales $83,409 $61,329 $22,080
Royalties, fees and other 2,933 3,054 (121)
--------- --------- --------
Total revenues 86,342 64,383 21,959
Cost of product sales 26,325 22,758 (3,567)
--------- --------- --------
Gross profit 60,017 41,625 18,392
--------- --------- --------
Operating expenses:
Research and development 8,321 6,472 (1,849)
Sales and marketing 34,611 26,270 (8,341)
General and administrative 11,982 6,861 (5,121)
--------- --------- --------
Total operating expenses 54,914 39,603 (15,311)
Income from operations 5,103 2,022 3,081
Interest and other income, net 1,636 1,231 405
--------- --------- --------
Income before income tax provision 6,739 3,253 3,486
Income tax provision 2,089 1,064 (1,025)
--------- --------- --------
Net income $4,650 $2,189 $2,461
========= ========= ========
Basic net income per share $0.22 $0.10 $0.12
========= ========= ========
Shares used in computing basic net income
per share 20,908 21,595
Diluted net income per common share $0.21 $0.10 $0.11
========= ========= ========
Shares used in computing diluted net
income per share 21,740 22,514
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