ArthroCare Reports Record Revenues of $59.3 Million for the Fourth Quarter; 41 Percent Product Revenue Growth Drives EPS to $0.31.AUSTIN, Texas -- 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 surgical products, announced today financial results for the fourth quarter and fiscal year ended Dec. 31, 2005. Fourth quarter product revenues were $57.4 million, a 41 percent increase over the $40.8 million recorded in the same quarter of the previous year. Total revenues, which include product revenues, license fees and royalties, for the fourth quarter were $59.3 million, a 39 percent increase over the $42.7 million reported in the fourth quarter of 2004. ArthroCare's revenue growth was positively impacted by the 2004 acquisition 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, Inc. Excluding the impact of this acquisition, total product revenue growth for the fourth quarter of 2005 versus the comparable period in 2004 was approximately 25 percent. ArthroCare reported net income of $8.4 million, or $0.31 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 fourth quarter of 2005, compared to a net loss of $34.5 million, or $1.52 per share, reported in the same quarter of 2004. Excluding the non-recurring impact of the Opus Medical acquisition, net income in the fourth quarter of 2004 was $4.7 million, or $0.20 per diluted share. On this basis, ArthroCare's 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. ) in the fourth quarter of 2005 increased $0.11 per share or 55 percent over the fourth quarter of 2004.
Q4 SUMMARY TABLE
Q405 Q305 Q404
----------------------------------------------------------------------
Product Sales $57.4 M $51.6 M $40.8 M
----------------------------------------------------------------------
License Fees, Royalties
and Other Revenues $1.9 M $2.0 M $1.9 M
----------------------------------------------------------------------
Total Revenues $59.3 M $53.6 M $42.7 M
----------------------------------------------------------------------
Net Income (Loss) $8.4 M $7.2 M $(34.5) M
----------------------------------------------------------------------
Earnings (Loss) Per Diluted Share $0.31 $0.27 $(1.52)
----------------------------------------------------------------------
FISCAL YEAR-END Fiscal Year-End The completion of a one-year, or 12-month, accounting period. Notes: The reason that a company's fiscal year often differs from the calendar year and does not close on Dec 31, is due to the nature of company's needs. 2005 For the fiscal year ended Dec. 31, 2005, total revenues reached $214.3 million, a 39 percent increase compared with fiscal 2004 total revenues of $154.1 million. The product sales portion of revenue increased 40 percent to $206.5 million from $147.8 million in 2004. Net income for fiscal year 2005 was $23.5 million, or $0.89 per diluted share, compared to the fiscal year 2004 net loss of $26.2 million, or $1.21 per diluted share. Excluding the non-recurring impact of the Opus Medical acquisition, net income for the year ended Dec. 31, 2004 was approximately $13.0 million, or $0.56 per diluted share. On this basis, ArthroCare's EPS in 2005 increased $0.33 cents per share Cents per share The amount of a mutual fund's dividend or capital gains distributions that a shareholder will receive for each share owned. or 59 percent over fiscal year 2004. REVENUE In addition to fourth quarter product sales of $57.4 million, license fees, royalties and other revenue were $1.9 million in the fourth quarter of 2005, which represents 3 percent of total revenue, compared to $1.9 million or 4 percent of total fourth quarter 2004 revenue. International revenue for the fourth quarter of 2005 increased 35 percent compared to the same period last year, and represented 21 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 39 percent during the quarter ended Dec. 31, 2005 compared with the same period of 2004, and represented 68 percent of total product revenue. For the year ended Dec. 31, 2005, Sports Medicine sales grew 43 percent compared to fiscal year 2004 and represented 68 percent of total product sales. Per the previously disclosed purchase agreement, ArthroCare made a $35 million payment to the former stockholders of Opus Medical in January 2006. ArthroCare will also make an earn-out payment of $21.3 million in the first quarter of 2006 based upon Opus product line revenues of $33.5 million, which exceeded guidance set forth when the acquisition closed. A final payment of up to $5 million may be made in the fourth quarter subject to the release of certain purchase contingencies. Sales in the Spine business unit increased 23 percent during the fourth quarter of 2005 compared to the same period in 2004. Spine sales represented 10 percent of product sales in the fourth quarter of 2005. For the year ended Dec. 31, 2005, Spine revenues grew 7 percent compared to fiscal year 2004 and represented 11 percent of total product revenue. The fourth 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 57 percent, with ENT sales representing 22 percent of product revenue during the quarter. For the year ended Dec. 31, 2005, ENT revenues grew 54 percent compared to fiscal year 2004 and represented 21 percent of total product revenue. OPERATIONS Product margin was 70 percent in the fourth quarter of 2005, compared to 64 percent in the year-ago quarter, reflecting ongoing improvements related to product mix, ongoing cost reduction activities and operating efficiencies. For the year ended Dec. 31, 2005, product margin was 69 percent compared to 65 percent reported in the prior 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 $31.5 million in the fourth quarter, compared to $26.5 million in the third quarter of 2005. This quarter-to-quarter increase is due substantially to net general and administrative expenses returning to normalized levels after the favorable fa·vor·a·ble adj. 1. Advantageous; helpful: favorable winds. 2. Encouraging; propitious: a favorable diagnosis. 3. impact of a non-recurring litigation An action brought in court to enforce a particular right. The act or process of bringing a lawsuit in and of itself; a judicial contest; any dispute. When a person begins a civil lawsuit, the person enters into a process called litigation. settlement in the third quarter. "We are pleased to have achieved our financial objectives for the fourth quarter and fiscal year," 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. "Record revenues of $59.3 million enabled us to exceed our guidance and the consensus estimates for earnings and EPS. We look forward to carrying the strong momentum generated throughout 2005 into our next fiscal year." RECENT CORPORATE DEVELOPMENTS --ArthroCare entered into a $100 million, five-year, secured revolving credit Revolving Credit A line of credit where the customer pays a commitment fee and is then allowed to use the funds when they are needed. It is usually used for operating purposes, fluctuating each month depending on the customers current cash flow needs. facility. ArthroCare plans to utilize the credit facility to fund earn-out payments associated with the Opus Medical acquisition and general corporate purposes. A syndicate of lenders led by Bank of America
Bank of America (NYSE: BAC TYO: 8648 ) is the largest commercial bank in the United States in terms of deposits, and the largest company of its kind in the world. , N.A., serving as the administrative agent, and Wells Fargo Wells Fargo armored carriers of bullion. [Am. Hist.: Brewer Dictionary, 1147] See : Protectiveness Wells Fargo company that handled express service to western states; often robbed. [Am. Hist. Bank, National Association, serving as the syndication agent, arranged the credit facility, which can be increased, under certain conditions, to $175 million to meet further growth needs of the company should additional financing be required in the future. --Study results released in a presentation by Dr. James P. Tasto at the International 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 Society 6th Symposium in January show the use of Coblation technology may aid in the repair of the avascular avascular /avas·cu·lar/ (a-vas´ku-ler) not vascular; bloodless. a·vas·cu·lar adj. Not associated with or supplied by blood vessels. region of the 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. of rabbits following injury and suture suture /su·ture/ (soo´cher) 1. sutura. 2. a stitch or series of stitches made to secure apposition of the edges of a surgical or traumatic wound. 3. to apply such stitches. 4. repair. According to according to prep. 1. As stated or indicated by; on the authority of: according to historians. 2. In keeping with: according to instructions. 3. Dr. Tasto, Clinical Professor, Department of Orthopaedics orthopaedics Orthopedics , University of California The University of California has a combined student body of more than 191,000 students, over 1,340,000 living alumni, and a combined systemwide and campus endowment of just over $7.3 billion (8th largest in the United States). San Diego San Diego (săn dēā`gō), city (1990 pop. 1,110,549), seat of San Diego co., S Calif., on San Diego Bay; inc. 1850. San Diego includes the unincorporated communities of La Jolla and Spring Valley. Coronado is across the bay. , "The purpose of the current study was to utilize bipolar (1) See bipolar transmission. (2) One of two major categories of transistor; the other is "field effect transistor" (FET). Although the first transistors and first silicon chips were bipolar, most chips today are field effect transistors wired as CMOS logic, which radiofrequency in the treatment of an avascular meniscal injury and suture repair, and to evaluate its effects on the healing response of the treated area. The results of this study are encouraging and indicate this approach to treat the meniscus may have therapeutic value in humans." BUSINESS OUTLOOK The following statements are based on current expectations on Feb. 15, 2006. 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. ArthroCare's business outlook for fiscal 2006 is as follows: --The company expects total revenues for fiscal 2006 to be in the range of $255 million to $265 million. --For the first quarter of 2006, ArthroCare anticipates sequential revenue growth over the fourth quarter of 2005 and growth of at least 20 percent over the first quarter of 2005. --ArthroCare estimates diluted EPS for fiscal 2006, excluding FAS 123R employee award expense, to be in the range of $1.25 to $1.35. --ArthroCare estimates FAS 123R expense for employee awards in fiscal 2006 to be $0.15 to $0.20 per share. --Including the impact of FAS 123R the range of fiscal 2006 GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). earnings is $1.05 to $1.20. CONFERENCE CALL AND SEC FILINGS ArthroCare will hold a conference call with the financial community to discuss these results at 9:00 a.m. ET/6:00 a.m. PT today. The call will be simultaneously 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 March 15, 2006. A telephonic replay of the conference call can be accessed by dialing 800-633-8284 and entering pass code number 21281638. Following completion of the annual audit process, ArthroCare will file a fiscal year 2005 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. with the Securities and Exchange Commission in early March. 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; 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, 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. spine and Applied Therapeutics therapeutics Treatment and care to combat disease or alleviate pain or injury. Its tools include drugs, surgery, radiation therapy, mechanical devices, diet, and psychiatry. ENT 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 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 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 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-Q Form 10-Q See 10-Q. for the quarter ended Sept. 30, 2005 and Form 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
Reported Recurring
Dec. 31 Dec. 31 OPUS Dec. 31
2005 2004 Impact 2004 Variance
--------- ---------- -------- --------- --------
Revenues:
Net Product Sales $57,394 $40,823 $(2,906) $37,917 $19,477
Royalties, fees
and other 1,901 1,877 1,877 24
--------- ---------- -------- --------- --------
Total revenues 59,295 42,700 (2,906) 39,794 19,501
Cost of product sales 17,031 14,727 (2,241) 12,486 (4,545)
--------- ---------- -------- --------- --------
Gross profit 42,264 27,973 (665) 27,308 14,956
--------- ---------- -------- --------- --------
Product Margin 70.3% 63.9% 67.1%
Gross Margin 71.3% 65.5% 68.6%
Operating expenses:
Research and
development 5,746 3,506 (969) 2,537 (3,209)
Sales and marketing 20,094 16,548 (2,450) 14,098 (5,996)
General and
administrative 3,947 5,228 (446) 4,782 835
Intangible
Amortization 1,670 1,022 (436) 586 (1,084)
Acquired in-process
research and
development costs -- 36,400 (36,400) -- 0
--------- ---------- -------- --------- --------
Total operating
expenses 31,457 62,704 (40,701) 22,003 (9,454)
Income from
operations 10,807 (34,731) 40,036 5,305 5,502
Interest and other
income, net (507) 381 134 515 (1,022)
--------- ---------- -------- --------- --------
Income before income
tax provision 10,300 (34,350) 40,170 5,820 4,480
Net Operating Margin 17% -80% -1382% 15%
Income tax provision 1,943 176 960 1,136 (807)
--------- ---------- -------- --------- --------
Net income (loss) $8,357 $(34,526) $39,210 $4,684 $3,673
========= ========== ======== ========= ========
Basic net income
(loss) per share $0.34 -$1.52 N/A $0.22 $0.12
========= ========== ======== ========= ========
Shares used in
computing basic net
income (loss) per
share 24,858 22,751 (969) 21,782
Diluted net income
per common share $0.31 -$1.52 N/A $0.20 $0.11
========= ========== ======== ========= ========
Shares used in
computing diluted
net income (loss)
per share 26,710 22,751 (969) 23,754
ARTHROCARE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
The Year Ended
Reported Recurring
Dec. 31 Dec. 31 OPUS Dec. 31
2005 2004 Impact 2004 Variance
--------- ---------- -------- --------- --------
Revenues:
Net Product Sales $206,533 $147,830 $(2,906) $144,924 $61,609
Royalties, fees
and other 7,801 6,318 6,318 1,483
--------- ---------- -------- --------- --------
Total revenues 214,334 154,148 (2,906) 151,242 63,092
Cost of product sales 64,206 51,100 (2,241) 48,859 (15,347)
--------- ---------- -------- --------- --------
Gross profit 150,128 103,048 (665) 102,383 47,745
--------- ---------- -------- --------- --------
Product Margin 68.9% 65.4% 66.3%
Gross Margin 70.0% 66.9% 67.7%
Operating expenses:
Research and
development 21,015 13,346 (969) 12,377 (8,638)
Sales and marketing 75,302 58,087 (2,450) 55,637 (19,665)
General and
administrative 12,202 16,310 (446) 15,864 3,662
Intangible
Amortization 6,150 2,658 (436) 2,222 (3,928)
Acquired in-process
research and
development costs 2,400 36,400 (36,400) -- (2,400)
--------- ---------- -------- --------- --------
Total operating
expenses 117,069 126,801 (40,701) 86,100 (30,969)
Income from
operations 33,059 (23,753) 40,036 16,283 16,776
Interest and other
income, net (2,336) 824 134 958 (3,294)
--------- ---------- -------- --------- --------
Income before income
tax provision 30,723 (22,929) 40,170 17,241 13,482
Net Operating Margin 14% -15% -1382% 11%
Income tax provision 7,193 3,260 960 4,220 (2,973)
--------- ---------- -------- --------- --------
Net income (loss) $23,530 $(26,189) $39,210 $13,021 $10,509
========= ========== ======== ========= ========
Basic net income
(loss) per share $0.97 -$1.21 N/A $0.61 $0.36
========= ========== ======== ========= ========
Shares used in
computing basic net
income (loss) per
share 24,375 21,594 (244) 21,350
Diluted net income
per common share $0.89 -$1.21 N/A $0.56 $0.33
========= ========== ======== ========= ========
Shares used in
computing diluted
net income (loss)
per share 26,407 21,594 (244) 23,156
Note: Due to net loss position for the 4th quarter and full year 2004
diluted share count is not used.
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