ArthroCare Reports 40 Percent Year-over-Year Revenue Growth for the First Quarter; Earnings Per Share Increases More Than 70 Percent Year-over-Year.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. -- 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 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. surgical products, announced today financial results for the first quarter ended March 31, 2005. First quarter product revenues were $47.8 million, a 39 percent increase over the $34.3 million recorded in the same quarter of the previous year. Total revenues, which include product revenues, license fees and royalties Not to be confused with Royal family. Royalties (sometimes, running royalties) are usage-based payments made by one party (the "licensee") to another (the "licensor") for ongoing use of an asset, most typically an intellectual property (IP) right. , for the first quarter were $49.7 million, a 40 percent increase over the $35.6 million reported in the first quarter of 2004. This revenue growth was positively impacted by ArthroCare's 2004 acquisitions of Opus opus (ō`pəs) [Lat.,=work], in music, term used in cataloging a composer's works, designating either a single composition or a group published together or considered a unit. Medical, and Medical Device Alliance, Inc. and its wholly owned subsidiary Wholly Owned Subsidiary A subsidiary whose parent company owns 100% of its common stock. Notes: In other words, the parent company owns the company outright and there are no minority owners. Parallax parallax (pâr`əlăks), any alteration in the relative apparent positions of objects produced by a shift in the position of the observer. In astronomy the term is used for several techniques for determining distance. Medical, Inc. Excluding the impact of these acquisitions, total revenue growth for the first quarter of 2005 versus the comparable period in 2004 exceeded 20 percent. ArthroCare reported net income of $3.2 million, or $0.12 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 first quarter of 2005, compared to net income of $1.6 million, or $0.07 per diluted share, reported in the same quarter of 2004.
Q1 SUMMARY TABLE
Q105(1) Q404(1) Q104
--------- --------- ---------
Product Sales $47.8 M $40.8 M $34.3 M
License Fees, Royalties and Other
Revenues $1.8 M $1.9 M $1.3 M
Total Revenues $49.7 M $42.7 M $35.6 M
Net Income (Loss) $3.2 M $(34.5 M) $1.6 M
Earnings (Loss) Per Diluted Share $0.12 $(1.52) $0.07
(1) Financials include impact of Opus Medical acquisition.
IMPACT OF OPUS MEDICAL ACQUISITION ArthroCare completed the acquisition of Opus Medical on Nov. 12, 2004. The company estimates the acquisition had the following non-recurring impact on first quarter expenses: --The acquisition added approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. $340,000 in 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. related to the final integration of Opus Medical's general and administrative functions into ArthroCare operations. --An additional transitional cost of approximately $820,000 was incurred during the quarter related to ArthroCare's continued operation of the Opus manufacturing facility in San Juan Capistrano San Juan Capistrano (săn wän kăpĭsträ`nō), city (1990 pop. 26,183), Orange co., S Calif.; inc. 1961. San Juan Capistrano has some manufactures, including aircraft parts, medical apparatus, and boats, but the economy is , Calif. The company will maintain this facility until all Opus manufacturing has been successfully transferred to 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. to ensure an ample supply of product. Combined, the non-recurring Opus-related expenses reduced earnings per share (EPS (Encapsulated PostScript) A PostScript file format used to transfer a graphic image between applications and platforms. EPS files contain PostScript code as well as an optional preview image in TIFF, WMF, PICT or EPSI, the latter being an ASCII-only format. ) by $0.04. REVENUE In addition to first quarter product sales of $47.8 million, license fees, royalties and other revenue were $1.8 million in the first quarter of 2005, compared to $1.3 million in the first quarter of 2004. International sales increased 12 percent compared to the same period last year and represented 22 percent of product sales during the quarter. BUSINESS UNIT PERFORMANCE The Sports Medicine sports medicine, branch of medicine concerned with physical fitness and with the treatment and prevention of injuries and other disorders related to sports. Knee, leg, back, and shoulder injuries; stiffness and pain in joints; tendinitis; "tennis elbow"; and business unit produced year-over-year revenue growth of 44 percent during the quarter ended March 31, 2005 compared with the same period of 2004, and represented 70 percent of total product revenue. Sales in the Spine spine: see spinal column. business unit grew slightly during the first quarter of 2005 compared to the same period in 2004, increased 17 percent during the first quarter compared to the prior quarter, and represented 11 percent of product sales. The first 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 58 percent, with ENT sales representing 19 percent of product revenue during the quarter. This growth continues to be driven by 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. sales in the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. , where ArthroCare estimates Coblation technology was used in approximately 23 percent of all tonsillectomies performed during the first quarter -- an increase of more than 10 percent compared to the year-ago quarter. OPERATIONS Product margin was 68 percent in the first quarter of 2005, compared to 63 percent in the year-ago quarter. Gross margin was 69 percent during the first quarter, compared to 64 percent in the quarter ended March 31, 2004. Operating expenses for the first quarter of $29.2 million represent an increase of approximately $8.5 million versus the comparable period in 2004. First quarter operating expenses included $1.2 million of non-recurring expenses related to the Opus acquisition, and more than $600,000 in non-recurring spending related to the initial implementation of the company's Sarbanes-Oxley internal control compliance program. In addition, ArthroCare ended the first quarter with approximately $23.9 million in cash and cash equivalents, up $2.1 million from the previous quarter. "We had a very strong start to 2005 both strategically and financially," 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 for ArthroCare. "Revenues grew 40 percent year-over-year and all of our business units are operating at or ahead of revenue plans. We also exceeded our profit objective for the quarter despite significant cost overruns Noun 1. cost overrun - excess of cost over budget; "the cost overrun necessitated an additional allocation of funds in the budget" cost - the total spent for goods or services including money and time and labor in our Sarbanes-Oxley program. We look forward to building upon the momentum generated across our entire business this quarter to achieve the financial objectives that we've we've Contraction of we have. we've have set for this year." BUSINESS OUTLOOK The following statements are based on current expectations on May 10, 2005. 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. In addition, the following guidance excludes the impact of non-cash or non-recurring charges related to equity compensation expenses. It does include anticipated depreciation, amortization and other non-recurring expenses related to all ArthroCare acquisitions, including Opus Medical.
ArthroCare's business outlook for fiscal 2005 is as follows:
-- ArthroCare anticipates fiscal 2005 product revenues will grow
by at least 30 percent compared to 2004 revenues. It also
expects sequential revenue growth in all four quarters of 2005
with strong year-over-year comparisons.
-- The company expects sales of its existing Sports Medicine
products to grow by at least 10 percent over 2004
revenues. It also expects sales of Opus Medical products
to grow by at least 50 percent, and the combined revenues
of the Sports Medicine business unit to grow by at least
25 percent.
-- Spine revenues are expected to grow by at least 20
percent.
-- ENT revenues are anticipated to grow by at least 30
percent.
-- ArthroCare also expects an operating margin improvement of 3
percentage points compared with 2004, with 1 percentage point
coming from improvement in gross margin.
-- The company also currently expects its effective tax rate for
2005 to be approximately 25 percent.
-- The company's fiscal 2005 EPS guidance remains unchanged.
ArthroCare expects EPS to develop in line with recent
historical patterns with strong sequential quarter-to-quarter
growth; however, the company expects this pattern to be
accentuated in 2005 by the ongoing integration of the Opus
Medical acquisition.
-- ArthroCare expects EPS to grow more rapidly than revenues with
an assumed share count of 26.5 million following the close of
the Opus Medical acquisition.
ArthroCare's business outlook for fiscal 2006 is as follows:
-- ArthroCare expects fiscal 2006 product revenues will grow by
at least 20 percent compared to 2005 revenues.
CONFERENCE CALL ArthroCare will hold a conference call with the financial community to discuss these results at 4:30 p.m. ET/1:30 p.m. PT today. The call will be simultaneously si·mul·ta·ne·ous adj. 1. Happening, existing, or done at the same time. See Synonyms at contemporary. 2. Mathematics Webcast 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 June June: see month. 10, 2005. A telephonic replay of the conference call can be accessed by dialing 800-633-8284 and entering pass code number 21246532. ABOUT ARTHROCARE Founded in 1993, ArthroCare Corp. (www.arthrocare.com) is a highly innovative, multi-business medical device company that develops, manufactures and markets minimally invasive surgical products. With these products, 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 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 . Many of ArthroCare's products are based on its patented Coblation technology, which uses low-temperature radiofrequency 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 -- minimizing damage to healthy tissue. Used in more than four million surgeries worldwide, Coblation-based devices have been developed and marketed for sports medicine; spine/neurologic; ear, nose and throat (ENT); cosmetic cosmetic /cos·met·ic/ (koz-met´ik) 1. pertaining to cosmesis. 2. a beautifying substance or preparation. cos·met·ic n. ; urologic and gynecologic gynecologic /gy·ne·co·log·ic/ (gi?ne-) (jin?e-kah-loj´ik) pertaining to the female reproductive tract or to gynecology. procedures. ArthroCare also has added a number of novel technologies to its portfolio, including Opus Medical sports medicine and Parallax spine products, to complement Coblation within key indications. 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 2005 and 2006, 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, 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 Reimbursement Payment made to someone for out-of-pocket expenses has incurred. , need for governmental clearances or approvals before selling products, the uncertainty of protecting the company's patent position, and any changes in financial results from completion of year-end year-end also year·end n. The end of a year. adj. Occurring or done at the end of the year: a year-end audit. Noun 1. audit activities. 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 Dec. 31, 2004. 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
March 31, March 31,
2005 2004 Variance
---------- ---------- ----------
Revenues:
Net Product Sales $47,834 $34,292 $13,542
Royalties, fees and other 1,849 1,297 552
---------- ---------- ----------
Total revenues 49,683 35,589 14,094
Cost of product sales 15,477 12,848 (2,629)
---------- ---------- ----------
Gross profit 34,206 22,741 11,465
---------- ---------- ----------
Product Margin 67.6% 62.5%
Gross Margin 68.8% 63.9%
Operating expenses:
Research and development 4,852 3,120 (1,732)
Sales and marketing 18,350 14,033 (4,317)
General and administrative 4,561 3,107 (1,454)
Intangible Amortization 1,458 506 (952)
---------- ---------- ----------
Total operating expenses 29,221 20,766 (8,455)
Income (loss) from operations 4,985 1,975 3,010
Interest and other income (expense),
net (770) 174 (944)
---------- ---------- ----------
Income (loss) before income tax
provision 4,215 2,149 2,066
Net Operating Margin 8% 6%
Income tax provision 1,054 580 (474)
---------- ---------- ----------
Net income (loss) $3,161 $1,569 $1,592
========== ========== ==========
Basic net income (loss) per share $0.13 $0.07 $0.06
========== ========== ==========
Shares used in computing basic net
income (loss) per share 23,916 20,996
Diluted net income (loss) per share $0.12 $0.07 $0.05
========== ========== ==========
Shares used in computing diluted net
income (loss) per share 25,741 22,785
Three Months Ended
Reported Recurring
March 31, Dec. 31 OPUS Dec. 31
2005 2004 Impact 2004 Variance
--------- --------- --------- --------- ---------
Revenues:
Net Product Sales $47,834 $40,823 $(2,906) $37,917 $9,917
Royalties, fees and
other 1,849 1,877 1,877 (28)
--------- --------- --------- --------- ---------
Total revenues 49,683 42,700 (2,906) 39,794 9,889
Cost of product sales 15,477 14,727 (2,241) 12,486 (2,991)
--------- --------- --------- --------- ---------
Gross profit 34,206 27,973 (665) 27,308 6,898
--------- --------- --------- --------- ---------
Product Margin 67.6% 63.9% 67.1%
Gross Margin 68.8% 65.5% 68.6%
Operating expenses:
Research and
development 4,852 3,506 (969) 2,537 (2,315)
Sales and marketing 18,351 16,548 (2,450) 14,098 (4,253)
General and
administrative 4,560 5,228 (446) 4,782 222
Intangible
Amortization 1,458 37,422 (36,836) 586 (872)
--------- --------- --------- --------- ---------
Total operating
expenses 29,221 62,704 (40,701) 22,003 (7,218)
Income (loss) from
operations 4,985 (34,731) 40,036 5,305 (320)
Interest and other
income (expense),
net (770) 381 134 515 (1,285)
--------- --------- --------- --------- ---------
Income (loss) before
income tax provision 4,215 (34,350) 40,170 5,820 (1,605)
Net Operating Margin 8% -80% -1382% 15%
Income tax provision 1,054 176 960 1,136 82
--------- --------- --------- --------- ---------
Net income (loss) $3,161 $(34,526) $39,210 $4,684 $(1,523)
========= ========= ========= ========= =========
Basic net income
(loss) per share $0.13 -$1.52 N/A $0.22 $(0.09)
========= ========= ========= ========= =========
Shares used in
computing basic net
income (loss) per
share 23,916 22,751 (969) 21,782
Diluted net income
(loss) per share $0.12 -$1.52 N/A $0.20 $(0.08)
========= ========= ========= ========= =========
Shares used in
computing diluted
net income (loss)
per share 25,741 22,751 (969) 23,754
ARTHROCARE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
March 31, December 31,
ASSETS 2005 2004
------------ ------------
Current assets:
Cash and cash equivalents $23,920 $21,836
Accounts receivable, net of allowances 39,437 34,032
Inventories 39,064 40,484
Prepaid expenses and other current assets 16,388 15,549
------------ ------------
Total current assets 118,809 111,901
Available-for-sale securities - -
Property and equipment, net 29,992 29,396
Related party receivables 1,075 1,075
Intangible assets 38,424 39,959
Goodwill 57,859 57,859
Other assets 334 341
------------ ------------
Total assets $246,493 $240,531
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $13,500 $9,517
Accrued liabilities 8,943 9,925
Accrued compensation 5,934 6,783
Current portion on long term debt 4,286 4,286
Income taxes payable 1,394 478
------------ ------------
Total current liabilities 34,057 30,989
Loan Payable 23,571 24,643
Deferred Tax and other liabilities 9,640 9,647
------------ ------------
Total liabilities 67,268 65,279
------------ ------------
Total stockholders' equity 179,225 175,252
------------ ------------
Total liabilities and stockholders'
equity $246,493 $240,531
============ ============
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