EX-99.1 2 a11-28837_1ex99d1.htm EX-99.1

Exhibit 99.1

 

FOR IMMEDIATE RELEASE:

CONTACTS:

ArthroCare Corp.

Corinne Ervin

512-391-3907

 

ARTHROCARE REPORTS THIRD QUARTER 2011 FINANCIAL RESULTS

 

Austin, Texas — November 2, 2011 — ArthroCare Corp. (NASDAQ: ARTC), a leader in developing state-of-the-art, minimally invasive surgical products, announced its financial results for the third quarter ended September 30, 2011.

 

REVENUE

 

Total revenue from continuing operations for the third quarter of 2011 was $83.3 million, compared to $86.5 million for the third quarter of 2010, a decrease of 3.7 percent.

 

Proprietary product sales were $74.7 million in the third quarter of 2011 compared to $72.6 million for the third quarter of 2010, an increase of $2.1 million or 2.9 percent.  Worldwide sales of the Company’s proprietary Sports Medicine products increased $0.8 million or 1.6 percent, as a decline in the Americas products sales was offset by higher International reported product sales. ENT product sales increased $1.9 million, or 8.2 percent, from increased product volume across all geographies as well as higher average sales prices in the Americas. Other product sales declined $0.5 million in the third quarter of 2011 compared to the same period of 2010.

 

Contract manufactured product sales were $4.7 million in the third quarter of 2011 compared to $10.3 million for the third quarter of 2010, a decrease of $5.6 million.

 

Had the same foreign currency rates been in effect in the quarter ended September 30, 2011 as were in effect in the same quarter in 2010, the U.S. dollar reported value of product sales would have been lower by $2.1 million for the quarter ended September 30, 2011.

 

GROSS PRODUCT MARGIN

 

Gross product margin was 67.9 percent for the third quarter of 2011 compared to 65.5 percent for the third quarter of 2010.  The increase in gross product margin in the third quarter of 2011 was due to lower inventory obsolescence charges, lower controller amortization charges and lower contract manufactured product sales which generally realize lower product margins in the third quarter of 2011 compared to the same period in 2010.

 

INCOME FROM OPERATIONS

 

Income from operations for the third quarter of 2011 was $4.4 million compared to $11.5 million for the same period in 2010.  Income from operations for the third quarter of 2011 included approximately $11.2 million of higher operating expenses than in the third quarter of 2010 associated with the investigation and restatement related costs, as well as exit and other costs associated with the relocation of the Company’s Sunnyvale operations to Austin, Texas.

 

In the third quarter of 2011, the Company reported investigation and restatement related costs of $6.0 million as a result of higher legal costs in connection with the ongoing shareholder class action, Department of Justice investigation, and legal fees associated with indemnification agreements for certain former executives of the Company.  In the third quarter of 2010, the Company reported a net recovery of $0.1 million as insurance recoveries in the third quarter of 2010 exceeded investigation and restatement costs incurred in that period.

 

In the third quarter of 2011, the Company incurred exit costs related to the closure and relocation of its Sunnyvale, California facilities and operations of approximately $2.8 million.   The Company also incurred an additional $2.3 million in operating expenses not classified as exit costs that related to accelerated amortization of

 


 

leasehold costs and additional rent expense, relocation, recruiting, training, and overlapping employee cost associated with the relocation of the Sunnyvale operations to Austin, Texas.

 

Research and development (R&D) cost incurred during the quarter ended September 30, 2011 decreased $1.2 million compared to the same period in 2010 as a higher proportion of the Company’s engineering activities were associated with the manufacturing process, resulting in increased allocation of R&D costs to inventory and cost of goods sold.

 

NET INCOME AVAILABLE TO COMMON STOCKHOLDERS

 

Net income available to common stockholders was $1.6 million or $0.05 per diluted share in the third quarter of 2011, compared to $8.4 million, or $0.25 per diluted share, in the third quarter of 2010.

 

BALANCE SHEET AND CASH FLOWS

 

Cash and cash equivalents increased $75.1 million to $207.7 million as of September 30, 2011 from December 31, 2010.  Cash flows provided by operating activities for the nine months ended September 30, 2011 was $69.8 million compared to $63.6 million for the nine months ended September 30, 2010.

 

CONFERENCE CALL

 

ArthroCare will hold a conference call with the financial community to present these results at 8:30 a.m. ET/5:30 a.m. PT on Thursday, November 3, 2011. To participate in the live conference call dial 800-950-3502.  A live and on-demand webcast of the call will be available on ArthroCare’s Web site at www.arthrocare.com.  A telephonic replay of the conference call can be accessed by dialing 800-633-8284 and entering pass code number 21544090.  The replay will remain available through November 17, 2011.

 

ABOUT ARTHROCARE

 

ArthroCare develops and manufactures surgical devices, instruments, and implants that strive to enhance surgical techniques as well as improve patient outcomes.  Its devices improve many existing surgical procedures and enable new minimally invasive procedures.  Many of ArthroCare’s devices use its internationally patented Coblation® technology. This technology precisely dissolves target tissue and limits damage to surrounding healthy tissue. ArthroCare also develops surgical devices utilizing other patented technology including its OPUS® line of fixation products as well as re-usable surgical instruments.  ArthroCare is leveraging these technologies in order to offer a comprehensive line of surgical devices to capitalize on a multi-billion dollar market opportunity across several surgical specialties, including its two core product areas consisting of Sports Medicine and Ear, Nose, and Throat as well as other areas such as spine, wound care, urology and gynecology.

 

FORWARD-LOOKING STATEMENTS

 

The information provided herein includes forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. Statements that are not historical facts are forward-looking statements. Forward-looking statements are based on beliefs and assumptions by management and on information currently available to management. Forward-looking statements speak only as of the date they are made, and the Company undertakes no obligation to update any of them publicly in light of new information or future events. Additional factors that could cause actual results to differ materially from those contained in any forward-looking statement include, without limitation: the resolution of litigation pending against the Company; the Company’s ability to design or improve internal controls to address issues detected in its reviews of internal controls and insurance reimbursement practices or by management in its reassessment of the Company’s internal controls; the impact upon the Company’s operations of legal compliance matters or internal controls review, improvement and remediation; the ability of the Company to control expenses relating to legal compliance matters or internal controls review, improvement and remediation; the Company’s ability to remain current in its periodic reporting requirements under the Exchange Act and to file required reports with the Securities and Exchange Commission on a timely basis; the results of the investigation being conducted by the United States Department of Justice; the impact on the Company of additional civil and criminal investigations by state and federal agencies and civil suits by private third parties involving the Company’s financial reporting and its previously announced restatement and its insurance billing and healthcare fraud-and-abuse compliance practices; the ability of the Company to attract and retain qualified senior management and to prepare and

 


 

implement appropriate succession planning for its Chief Executive Officer; general business, economic and political conditions; competitive developments in the medical devices market; changes in applicable legislative or regulatory requirements; the Company’s ability to effectively and successfully implement its financial and strategic alternatives, as well as business strategies, and manage the risks in its business; and the reactions of the marketplace to the foregoing.

 

Financial Tables Appended

 


 

ARTHROCARE CORPORATION

Condensed Consolidated Balance Sheets - Unaudited

(in thousands, except par value data)

 

 

 

September 30,
2011

 

December 31,
2010

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

207,674

 

$

132,536

 

Accounts receivable, net of allowances of $2,226 and $2,445 at September 30, 2011 and December 31, 2010, respectively

 

39,917

 

48,870

 

Inventories, net

 

35,593

 

34,087

 

Deferred tax assets

 

18,496

 

24,661

 

Prepaid expenses and other current assets

 

5,929

 

4,424

 

Assets held for sale

 

—

 

3,081

 

Total current assets

 

307,609

 

247,659

 

 

 

 

 

 

 

Property and equipment, net

 

36,120

 

41,582

 

Intangible assets, net

 

6,770

 

10,733

 

Goodwill

 

119,154

 

119,020

 

Deferred tax assets

 

16,019

 

16,019

 

Other assets

 

1,617

 

4,182

 

Total assets

 

$

487,289

 

$

439,195

 

 

 

 

 

 

 

LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

 

$

15,223

 

$

13,819

 

Accrued liabilities

 

45,751

 

40,197

 

Deferred tax liabilities

 

149

 

149

 

Income tax payable

 

2,071

 

1,555

 

Total current liabilities

 

63,194

 

55,720

 

 

 

 

 

 

 

Deferred tax liabilities

 

213

 

213

 

Other non-current liabilities

 

14,174

 

13,766

 

Total liabilities

 

77,581

 

69,699

 

 

 

 

 

 

 

Series A 3% Redeemable Convertible Preferred Stock, par value $0.001; Authorized: 100 shares; Issued and outstanding: 75 shares at September 30, 2011 and December 31, 2010; Redemption value $87,089

 

76,316

 

73,768

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

Preferred stock, par value $0.001; Authorized: 4,900 shares; Issued and outstanding: none

 

—

 

—

 

Common stock, par value $0.001; Authorized: 75,000 shares; Issued: 31,458 and 31,102 shares; Outstanding: 27,479 and 27,112 shares at September 30, 2011 and December 31, 2010, respectively

 

27

 

27

 

Treasury stock: 3,978 shares at September 30, 2011 and 3,990 shares December 31, 2010

 

(107,408

)

(107,899

)

Additional paid-in capital

 

398,270

 

386,395

 

Accumulated other comprehensive income

 

4,611

 

4,246

 

Retained earnings

 

37,892

 

12,959

 

Total stockholders’ equity

 

333,392

 

295,728

 

Total liabilities, redeemable convertible preferred stock and stockholders’ equity

 

$

487,289

 

$

439,195

 

 


 

ARTHROCARE CORPORATION

Condensed Consolidated Statements of Operations - Unaudited

(in thousands, except per share data)

 

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

 

 

 

 

 

 

 

 

 

 

Revenues:

 

 

 

 

 

 

 

 

 

Product sales

 

$

79,432

 

$

82,917

 

$

249,864

 

$

251,148

 

Royalties, fees and other

 

3,835

 

3,536

 

12,609

 

11,598

 

Total revenues

 

83,267

 

86,453

 

262,473

 

262,746

 

 

 

 

 

 

 

 

 

 

 

Cost of product sales

 

25,529

 

28,632

 

76,170

 

83,569

 

 

 

 

 

 

 

 

 

 

 

Gross profit

 

57,738

 

57,821

 

186,303

 

179,177

 

Operating expenses:

 

 

 

 

 

 

 

 

 

Research and development

 

8,037

 

9,244

 

21,460

 

26,537

 

Sales and marketing

 

25,752

 

26,156

 

81,124

 

79,898

 

General and administrative

 

9,479

 

9,723

 

26,372

 

26,048

 

Amortization of intangible assets

 

1,338

 

1,315

 

3,972

 

3,932

 

Exit costs

 

2,814

 

—

 

5,304

 

—

 

Investigation and restatement related costs

 

5,963

 

(99

)

12,145

 

3,245

 

Total operating expenses

 

53,383

 

46,339

 

150,377

 

139,660

 

 

 

 

 

 

 

 

 

 

 

Income from operations

 

4,355

 

11,482

 

35,926

 

39,517

 

Foreign exchange gain (loss)

 

(902

)

1,323

 

(160

)

(2,711

)

Interest and other expense, net

 

(126

)

(96

)

(501

)

(287

)

Other income (expense)

 

(1,028

)

1,227

 

(661

)

(2,998

)

 

 

 

 

 

 

 

 

 

 

Income from continuing operations before income taxes

 

3,327

 

12,709

 

35,265

 

36,519

 

 

 

 

 

 

 

 

 

 

 

Income tax provision

 

898

 

3,536

 

9,677

 

9,984

 

 

 

 

 

 

 

 

 

 

 

Net income from continuing operations

 

2,429

 

9,173

 

25,588

 

26,535

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from discontinued operations

 

—

 

85

 

1,911

 

(368

)

 

 

 

 

 

 

 

 

 

 

Net income

 

2,429

 

9,258

 

27,499

 

26,167

 

 

 

 

 

 

 

 

 

 

 

Accrued dividend and accretion charges on Series A 3% Convertible Preferred Stock

 

(857

)

(820

)

(2,546

)

(2,434

)

 

 

 

 

 

 

 

 

 

 

Net income available to common stockholders

 

$

1,572

 

$

8,438

 

$

24,953

 

$

23,733

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

Basic

 

27,466

 

27,017

 

27,335

 

26,972

 

Diluted

 

27,855

 

27,323

 

27,755

 

27,299

 

 

 

 

 

 

 

 

 

 

 

Earnings per share from continuing operations applicable to common stockholders:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.05

 

$

0.25

 

$

0.70

 

$

0.74

 

Diluted

 

$

0.05

 

$

0.25

 

$

0.68

 

$

0.73

 

 

 

 

 

 

 

 

 

 

 

Earnings per share applicable to common stockholders:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.05

 

$

0.26

 

$

0.75

 

$

0.72

 

Diluted

 

$

0.05

 

$

0.25

 

$

0.74

 

$

0.72

 

 


 

ARTHROCARE CORPORATION

Supplemental Schedule of Product Sales

(in thousands)

 

 

 

Three Months Ended

 

Three Months Ended

 

 

 

September 30, 2011

 

September 30, 2010

 

 

 

Americas

 

International

 

Total
Product
Sales

 

% Net
Product
Sales

 

Americas

 

International

 

Total
Product
Sales

 

% Net
Product
Sales

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sports Medicine

 

$

33,251

 

$

18,850

 

$

52,101

 

65.6

%

$

40,029

 

$

16,944

 

$

56,973

 

68.7

%

ENT

 

20,046

 

4,851

 

24,897

 

31.3

%

19,379

 

3,636

 

23,015

 

27.8

%

Other

 

658

 

1,776

 

2,434

 

3.1

%

1,016

 

1,913

 

2,929

 

3.5

%

Total Product Sales

 

$

53,955

 

$

25,477

 

$

79,432

 

100.0

%

$

60,424

 

$

22,493

 

$

82,917

 

100.0

%

 

 

 

Nine Months Ended

 

Nine Months Ended

 

 

 

September 30, 2011

 

September 30, 2010

 

 

 

Americas

 

International

 

Total
Product
Sales

 

% Net
Product
Sales

 

Americas

 

International

 

Total
Product
Sales

 

% Net
Product
Sales

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sports Medicine

 

$

106,980

 

$

58,987

 

$

165,967

 

66.4

%

$

122,121

 

$

50,012

 

$

172,133

 

68.5

%

ENT

 

62,732

 

13,903

 

76,635

 

30.7

%

58,990

 

10,945

 

69,935

 

27.9

%

Other

 

2,203

 

5,059

 

7,262

 

2.9

%

3,115

 

5,965

 

9,080

 

3.6

%

Total Product Sales

 

$

171,915

 

$

77,949

 

$

249,864

 

100.0

%

$

184,226

 

$

66,922

 

$

251,148

 

100.0

%