ArthroCare Reports $22.1 Million Total Revenues, $0.06 EPS in Second Quarter; Product Sales of $20.7 Million in Quarter.Business Editors SUNNYVALE Sunnyvale, city (1990 pop. 117,229), Santa Clara co., W Calif., near San Francisco; settled 1849, inc. 1912. A city in Silicon Valley, its many manufactures include semiconductors; machinery and instruments; electrical, electronic, and aerospace products; , Calif.--(BUSINESS WIRE)--July 23, 2002 ArthroCare Corporation (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, said today that in the second quarter of 2002, ended June 29, 2002, the company recorded total revenues of $22.1 million and net earnings of $1.3 million, or $0.06 per diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. share. In the same quarter of 2001, the company reported total revenues of $22.3 million and net income of $3.2 million, or $0.14 per diluted share.
SUMMARY TABLE
Q202 Q102 Q201
Product Sales $ 20.7 M $ 19.3 M $ 18.5 M
License Fees,
Royalties and Other
Revenues $ 1.4 M $ 0.80 M $ 3.8 M
Total Revenues $ 22.1 M $ 20.1 M $ 22.3 M
Net Income $ 1.3 M $ 0.4 M $ 3.2 M
Diluted Earnings Per Share $ 0.06 $ 0.02 $ 0.14
HIGHLIGHTS -- The company continues to expect product sales to increase approximately 20 percent in 2002 compared with 2001. -- The company continues to anticipate improving gross margin on product sales by approximately 4-5 percentage points in 2002 compared with 2001, with continued improvement in the latter half of the year. FIRST SIX MONTHS OF 2002 Total revenues reached $42.2 million compared with $40.3 million in the first six months of 2001. The product sales portion increased to $40.0 million in 2002 from $35.5 million in 2001. Net income for the six-month period was $1.7 million, or $0.07 per diluted share in the current year compared with $5.2 million, $0.22 per diluted share in the previous year. QUARTERLY REVENUE In the second quarter of 2002, product sales were $20.7 million, a 12 percent increase over $18.5 million recorded in the same quarter of the previous year. License fees, royalties and other revenues of $1.4 million in the second quarter of 2002 compares with $3.8 million in the second quarter of 2001. Included in license fees, royalties and other revenues in the prior year period is approximately $3.2 million resulting from the cancellation of an agreement with the company's former cosmetic surgery cosmetic surgery, plastic surgery for cosmetic purposes, such as the improvement of the appearance of the face by removing wrinkles or reshaping the nose. distributor and the recognition of previously deferred revenue. In the second quarter of 2002, the company shipped almost 130,000 disposable disposable Nursing adjective Referring to that which is discarded or disposed of noun An item used in health care-related Pt contact which is discarded after use–eg masks, gloves, gowns, needles, paper products, syringes, wipes. See Biohazardous waste. devices, with average selling prices The average sales price of goods or commodities. Especially used in the retail sector and technology distribution. remaining in the mid- mid- pref. Middle: midbrain. $160 range. ArthroCare's disposable surgical devices have now been used in more than 1.75 million procedures. More than 750 controller units were shipped in the second quarter of 2002. International markets contributed about 15 percent of product sales. BUSINESS UNIT PERFORMANCE All commercialized business units continued to post growth in the second quarter of 2002. 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. sales increased approximately 7 percent compared to the first quarter of this year, with particular strength in the domestic market. The arthroscopy business unit contributed approximately 77 percent to product sales in the second quarter. Sales from the ear, nose, and throat (ENT ENT ears, nose, and throat (otorhinolaryngology). ENT abbr. ear, nose, and throat ENT ear, nose and throat. ENT Ears, nose & throat; formally, otorhinolaryngology ) business unit increased more than 130 percent compared with the same quarter of the previous year, and contributed approximately 12 percent to product sales. The second quarter increase in spinal spinal /spi·nal/ (spi´n'l) 1. pertaining to a spine or to the vertebral column. 2. pertaining to the spinal cord's functioning independently from the brain. spi·nal adj. surgery product sales over the comparable period of last year approached 60 percent with spinal surgery products contributing approximately 9 percent of product sales. OPERATIONS The company's manufacturing operations Manufacturing operations concern the operation of a facility, as opposed to maintenance, supply and distribution, health, and safety, emergency response, human resources, security, information technology and other infrastructural support organizations. stabilized sta·bi·lize v. sta·bi·lized, sta·bi·liz·ing, sta·bi·liz·es v.tr. 1. To make stable or steadfast. 2. in the second quarter and gross margin on product sales reached a record 65 percent. ArthroCare's new 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. manufacturing facility began shipping subassemblies to the Sunnyvale facility in the second quarter and is expected to contribute to gross margin improvement in the second half of the year. 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. were controlled in the second quarter, increasing only 7.1 percent compared with the immediately preceding quarter. The company continued to invest in building a direct sales force, with eight additions during the quarter. The company now has 66 direct sales and management employees in the field. Additionally, this is the first decline in operating expenses as a percent of total revenue since Q2 of 2001, and the decline is expected to continue. "We are pleased with our steady performance in the second 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. "Our arthroscopy business remains strong, and our direct sales strategy in the ENT and spinal surgery markets is delivering good results as those two markets continue to deliver consistent, rapid growth. As we move into the second half of the year, we look forward to commercialization of Coblation technology in the urology urology Medical specialty dealing with the urinary system and male reproductive organs. It traces its origin to medieval lithologists, itinerant healers who specialized in surgical removal of bladder stones. and gynecology gynecology (gīn'əkŏl`əjē), branch of medicine specializing in the disorders of the female reproductive system. Modern gynecology deals with menstrual disorders, menopause, infectious disease and maldevelopment of the markets by our partners, as well as the continued strong performance in our other businesses." RECENT CORPORATE DEVELOPMENTS -- The company continues to expect product sales to increase approximately 20 percent in 2002 compared with 2001. -- The company continues to anticipate improving gross margin on product sales by approximately 4-5 percentage points in 2002 compared with 2001, with continued improvement in the latter half of the year. BUSINESS OUTLOOK The following statements are based on current expectations on July 23, 2002. These statements are forward-looking, and actual results may differ materially. These statements do not include the potential impact of any new businesses or license agreements the company may enter in future periods. The company's business outlook for fiscal 2002 is as follows: -- The company continues to expect product sales to increase approximately 20 percent in 2002 compared with 2001. -- The company continues to anticipate improving gross margin on product sales by approximately 4-5 percentage points in 2002 compared with 2001, with continued improvement in the latter half of the year. ArthroCare will hold a conference call with the financial community at 6:00 p.m. Eastern/3:00 p.m. Pacific time today. The call will be simultaneously Webcast on www.ccbn.com and will remain available through August 3, 2002. A telephonic replay of the conference call can be accessed by dialing 800-633-8284 and entering passcode number 20739371. 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 invasive /in·va·sive/ (-siv) 1. having the quality of invasiveness. 2. involving puncture of the skin or insertion of an instrument or foreign material into the body; said of diagnostic techniques. soft-tissue surgical products based on its patented Coblation technology. Coblation technology uses low-temperature radio-frequency energy to gently and precisely dissolve A Web site design technique borrowed from the film and video industry in which the transition between two Web pages is represented visually by one page fading into another. Also known as a "soft cut," the result is achieved in the HTML coding of the images to gradual pre-determined rather than burn soft tissue, which minimizes damage to surrounding sur·round tr.v. sur·round·ed, sur·round·ing, sur·rounds 1. To extend on all sides of simultaneously; encircle. 2. To enclose or confine on all sides so as to bar escape or outside communication. n. healthy tissue. ArthroCare leverages its Coblation technology to capitalize on Cap´i`tal`ize on` v. t. 1. To turn (an opportunity) to one's advantage; to take advantage of (a situation); to profit from; as, to capitalize on an opponent's mistakes s>. a $2.8 billion 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 many existing 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 . The company has developed and marketed Coblation-based products for arthroscopic, spine/neurologic, ear, nose and throat, cosmetic cosmetic /cos·met·ic/ (koz-met´ik) 1. pertaining to cosmesis. 2. a beautifying substance or preparation. cos·met·ic n. , 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 research continues in additional areas. ArthroCare's Coblation-based devices have been used in more than 1.75 million surgical procedures worldwide. 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 2002, 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 Diversification A risk management technique that mixes a wide variety of investments within a portfolio. It is designed to minimize the impact of any one security on overall portfolio performance. Notes: Diversification is possibly the greatest way to reduce the risk. efforts, the success of the company's strategic business partners in commercializing the company's technology in additional fields, 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 attracting and retaining strategic business alliances, uncertainty over the potential rate of transition to a new manufacturing facility, and the need for governmental clearances or approvals before selling products. 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 29, 2001 and Form 10-Q Form 10-Q See 10-Q. for the quarter ended March 30, 2002. 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. -- Financial statements attached --
ARTHROCARE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
Three Months Ended Six Months Ended
------------------- -------------------
June 30, June 30, June 30, June 30,
2002 2001 2002 2001
--------- --------- --------- ---------
Revenues:
Product sales $ 20,709 $ 18,505 $ 39,997 $ 35,530
Royalties, fees and other 1,386 3,799 2,175 4,788
--------- --------- --------- ---------
Total revenues 22,095 22,304 42,172 40,318
Cost of product sales 7,201 7,213 14,777 13,868
--------- --------- --------- ---------
Gross profit 14,894 15,091 27,395 26,450
--------- --------- --------- ---------
Operating expenses:
Research and development 2,134 2,018 4,284 3,896
Sales and marketing 8,887 7,832 17,259 14,218
General and
administrative 2,305 1,288 4,228 2,330
--------- --------- --------- ---------
Total operating
expenses 13,326 11,138 25,771 20,444
Income from operations 1,568 3,953 1,624 6,006
Interest and other income, net 329 1,082 854 2,142
--------- --------- --------- ---------
Income before income tax
provision 1,897 5,035 2,478 8,148
Income tax provision 607 1,813 816 2,944
--------- --------- --------- ---------
Net income $ 1,290 $ 3,222 $ 1,662 $ 5,204
========= ========= ========= =========
Basic net income per share $0.06 $0.14 $0.08 $0.23
========= ========= ========= =========
Shares used in computing 21,851 22,268 21,842 22,312
basic net income per share
Diluted net income per common
share $0.06 $0.14 $0.07 $0.22
========= ========= ========= =========
Shares used in computing
diluted net income per share 22,769 23,470 22,764 23,480
ARTHROCARE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
June 30, Dec. 31,
SETS 2002 2001
(Unaudited)
----------- ----------
Current assets:
Cash and cash equivalents $ 47,316 $ 41,507
Available-for-sale securities 13,836 26,662
Accounts receivable, net of allowances 18,558 18,567
Inventories 16,038 14,207
Deferred tax asset 4,079 4,079
Prepaid expenses and other current assets 2,487 2,171
----------- ----------
Total current assets 102,314 107,193
Available-for-sale securities 16,349 8,526
Property and equipment, net 15,466 13,068
Related party receivables 1,205 1,205
Deferred tax asset 3,415 3,415
Other assets 304 290
----------- ----------
Total assets $ 139,053 $ 133,697
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,185 $ 3,142
Accrued liabilities 2,827 1,111
Accrued compensation 4,441 3,837
Income taxes payable 1,004 461
----------- ----------
Total current liabilities 11,457 8,551
Deferred rent 80 53
----------- ----------
Total liabilities 11,537 8,604
----------- ----------
Total stockholders' equity 127,516 125,093
----------- ----------
Total liabilities and
stockholders' equity $ 139,053 $ 133,697
=========== ==========
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