ArthroCare Reports 39 Percent Revenue Growth and 90 Per Cent Increase in Pre-Tax Income in Third Quarter; Company Invests In Growth Strategy.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)--Oct. 29, 2001 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 ) today reported that in the third quarter of 2001, ended September September: see month. 29, pretax income pretax income Reported income before the deduction of income taxes. Pretax income is sometimes considered a better measure of a firm's performance than aftertax income because taxes in one period may be influenced by activities in earlier periods. increased 90 percent to $4.0 million compared with $2.1 million in the third quarter of 2000. Total third quarter revenues reached $21.9 million in 2001, compared with $15.7 million posted in the same quarter of last year. Third quarter product sales increased 32 percent to $19.7 million compared with $14.9 million in the third quarter of 2000. Net income was $2.6 million, or $0.11 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, for the third quarter and $7.8 million, or $0.33 per diluted share, for the first nine months of the current year, with an effective tax rate of 36 percent. For the first nine months of 2001, pretax income was $12.2 million compared with $9.6 million in the comparable year-ago period. The company posted total revenues of $64.6 million and product sales of $57.5 million in the first nine months of 2001, compared with $50.6 million and $47.8 million, respectively, for the comparable period of the previous year. During the third quarter, all business units performed as expected. 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. represented approximately 84 percent of product sales, with 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 ) surgery and 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 sales contributing approximately 9 percent and 6 percent of product sales, respectively. International sales reached 22 percent of product sales, an especially strong performance for a summer quarter. "It was a busy quarter on all fronts for ArthroCare," 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. "We are pleased with our ability to deliver strong operational results while investing aggressively to execute the next phase of our growth strategy. Our goal is to grow the company to maximize long-term Long-term Three or more years. In the context of accounting, more than 1 year. long-term 1. Of or relating to a gain or loss in the value of a security that has been held over a specific length of time. Compare short-term. potential while continuing to deliver strong bottom line results." Corporate Developments In the third quarter, ArthroCare invested in strategic initiatives in all operational areas to position the company for continued growth. -- The company formed a new division, ArthroCare ENDO, to develop and market products for general surgery, including gynecology and urology. -- The company was granted Food and Drug Administration (FDA) 510 (k) clearance to market Coblation(R)-based products for open, laparoscopic, and endoscopic approaches to general and gynecological surgery, including 21 specific surgical indications. -- ArthroCare introduced five new Coblation-based disposable surgical devices, including a Coblation-based Plasma Forceps(TM), for initial commercialization in the open, laparoscopic and endoscopic general surgery and gynecology markets. -- The FDA granted ArthroCare clearance to market its Coblation(R)-based EVac(TM) disposable surgical devices specifically for use in tonsillectomy and adenoidectomy procedures. ArthroCare is now promoting the EVac Plasma Wands specifically for Coblation Assisted Tonsillectomy (CAT), a procedure for the complete or partial removal of tonsil and adenoid tissue. -- ArthroCare introduced a next-generation Coblation-based disposable scalpel for neurosurgery procedures. The unique design of the Dissector NeuroWand, which provides aggressive ablation and coagulation, is optimized for cranial procedures to improve access to tissue and visualization when using an operating microscope. -- In arthroscopy, ArthroCare released the DiamondVac device, an aggressive new arthroscopic surgical tool with enhanced suction capability. -- The company announced expanded FDA clearance to market its products in approximately 160 specific orthopedic procedures, which represents the broadest array of specific indications cleared for any company marketing radio frequency surgical equipment for arthroscopic and orthopedic applications. -- The company implemented two initiatives to secure its long-term facility requirements, signing a long-term lease at favorable rates on a new headquarters building in Sunnyvale, California, and signing a lease and breaking ground on a manufacturing facility in Costa Rica. ArthroCare believes this off-shore manufacturing facility has the potential to improve the company's gross product margins and reduce the company's tax rate over the next few years. -- In the second quarter, ArthroCare's Board of Directors appointed two additional members to the Board, Peter L. Wilson and Tord Lendau. In the third quarter, John S. Lewis, a founding member of ArthroCare's Board of Directors, and an active private investor, resigned from the Board to devote more time to his other endeavors. The company appreciates the contributions made by Mr. Lewis during his tenure as a director. Business Outlook The following statements are based on current expectations on October October: see month. 29, 2001. These statements are forward-looking for·ward-look·ing adj. Concerned with or making provision for the future: forward-looking educators; a forward-looking corporate plan. Adj. 1. , 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 overall business outlook for the fourth quarter and fiscal year 2001 is unchanged. The company intends to comment on the business outlook for fiscal 2002 later in the quarter. ArthroCare will hold a conference call with the financial community at 9:00 a.m. Eastern/6:00 a.m. Pacific time today. The call will be simultaneously webcast on the company's website, www.arthrocare.com and on www.ccbn.com and will remain posted through November 9, 2001. A telephonic replay of the conference call can be accessed by dialing 800/633-8284 and entering passcode number 19900829. About Arthrocare ArthroCare's products allow surgeons to operate with a high level of precision and control, limiting 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. tissue. The company's products operate at lower temperatures than traditional electrosurgical or laser surgery tools and enable surgeons to remove, thermally treat, or sculpt sculpt v. sculpt·ed, sculpt·ing, sculpts v.tr. 1. To sculpture (an object). 2. To shape, mold, or fashion especially with artistry or precision: soft tissue and to seal bleeding vessels. ArthroCare is a medical device company that develops, manufactures and markets products based on its patented Coblation technology. ArthroCare's soft-tissue surgery systems consist of a controller unit and an assortment assortment /as·sort·ment/ (ah-sort´ment) the random distribution of nonhomologous chromosomes to daughter cells in metaphase of the first meiotic division. as·sort·ment n. of single-use 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 that are specialized spe·cial·ize v. spe·cial·ized, spe·cial·iz·ing, spe·cial·iz·es v.intr. 1. To pursue a special activity, occupation, or field of study. 2. for specific types of surgery. The company believes its Coblation technology can replace the multiple surgical tools traditionally used in soft-tissue surgery with one multi-purpose surgical system. Coblation technology is applicable across many soft-tissue surgical markets. The company's strategy includes applying its patented Coblation technology to a broad range of soft-tissue surgical markets, including arthroscopic surgery Arthroscopic Surgery Definition Arthroscopic surgery is a procedure to visualize, diagnose, and treat joint problems. The name is derived from the Greek words arthron, which means joint, and skopein, which means to look at. , 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. , ear, nose and throat surgery, spinal surgery, neurosurgery neurosurgery /neu·ro·sur·gery/ (noor´o-sur?jer-e) surgery of the nervous system. neu·ro·sur·ger·y n. Surgery on any part of the nervous system. , general 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 surgery (including open and laparoscopic Laparoscopic A minimally-invasive surgical or diagnostic procedure that uses a flexible endoscope (laparoscope) to view and operate on structures in the abdomen. Mentioned in: Obstetrical Emergencies approaches), and various cardiology cardiology Medical specialty dealing with heart diseases and disorders. It began with the 1749 publication by Jean Baptiste de Sénac of contemporary knowledge of the heart. Diagnostic methods improved in the 19th century, and in 1905 the electrocardiograph was invented. applications. The company's website is www.arthrocare.com. 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 expectations regarding trends in newly commercialized markets, the company's belief that certain surgical products and procedures will enhance achievement of the company's long-term potential, the sustainability of growth rates Growth Rates The compounded annualized rate of growth of a company's revenues, earnings, dividends, or other figures. Notes: Remember, historically high growth rates don't always mean a high rate of growth looking into the future. in certain markets, the affect of anticipated government regulatory clearances, 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, 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 over reimbursement Reimbursement Payment made to someone for out-of-pocket expenses has incurred. , 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 30, 2000 and the 10-Q for the quarter ended June 30, 2001. 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 plans.
ARTHROCARE CORPORATION
Condensed Consolidated Balance Sheets
(In thousands)
September 30, December 31,
2001 2000
ASSETS (unaudited)
Current assets:
Cash, cash equivalents,
and available-for-sale
securities $ 69,865 $ 68,038
Accounts receivable, net 19,956 16,209
Inventory 12,828 13,702
Deferred income taxes 9,558 9,558
Prepaid expenses and
other current assets 1,715 1,679
-------- --------
Total current assets 113,922 109,186
Property and equipment, net 10,416 9,469
Related party receivables 1,205 1,205
Other assets 290 242
Deferred income taxes 1,584 1,584
Available-for-sale securities 12,750 18,776
-------- --------
Total assets $140,167 $140,462
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,381 $ 2,658
Accrued liabilities 5,550 4,549
Deferred income taxes 5,683 1,327
Deferred revenue -- 825
-------- --------
Total current
liabilities 15,614 9,359
Long-term liabilities 48 4,758
-------- --------
Total liabilities 15,662 14,117
-------- --------
Stockholders' equity 124,505 126,345
-------- --------
Total liabilities
and stockholders'
equity $140,167 $140,462
======== ========
ARTHROCARE CORPORATION
Condensed Consolidated Statements of Operations
(In thousands, except per share data; unaudited)
For the Three For the Nine
Months Ended Months Ended
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2001 2000 2001 2000
Revenue:
Product sales $ 19,652 $ 14,914 $ 57,526 $ 47,761
Royalties,
fees and other 2,287 823 7,075 2,865
-------- -------- -------- --------
Total revenue 21,939 15,737 64,601 50,626
Cost of
product sales 7,522 6,042 21,390 19,343
-------- -------- -------- --------
Gross profit 14,417 9,695 43,211 31,283
-------- -------- -------- --------
Operating expenses:
Research and
development 1,973 2,016 5,869 5,612
Sales and marketing 9,930 5,605 26,492 16,062
General and
administrative 1,426 1,334 3,756 3,534
-------- -------- -------- --------
Total operating
expenses 13,329 8,955 36,117 25,208
-------- -------- -------- --------
Income from
operations 1,088 740 7,094 6,075
Interest and
other income, net 2,961 1,388 5,103 3,562
-------- -------- -------- --------
Income before income
tax provision 4,049 2,128 12,197 9,637
Income tax (benefit)
provision 1,458 (4,895) 4,402 (4,439)
-------- -------- -------- --------
Net income* $ 2,591 $ 7,023 $ 7,795 $ 14,076
======== ======== ======== ========
Basic net
income per share* $ 0.12 $ 0.32 $ 0.35 $ 0.64
======== ======== ======== ========
Diluted net
income per share* $ 0.11 $ 0.29 $ 0.33 $ 0.60
======== ======== ======== ========
Shares used in
computing basic
net income per
share 22,477 22,066 22,428 21,882
======== ======== ======== ========
Shares used in
computing diluted
net income per
share 23,860 24,172 23,503 23,440
======== ======== ======== ========
* Net income for the nine months ended September 30, 2000 excludes
the cumulative effect of a change in accounting principle relating to
SAB 101.
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