EX-99.1 2 a07-20537_1ex99d1.htm EX-99.1

Exhibit 99.1

FOR IMMEDIATE RELEASE:

 

Contact:

 

Michael Gluk (investors)

 

 

 

 

Chief Financial Officer

 

 

 

 

ArthroCare Corporation

 

 

 

 

512-391-3906

 

 

 

 

 

 

 

 

 

Howard Zar (media)

 

 

 

 

Porter Novelli

 

 

 

 

212-601-8084

 

 

 

 

hzar@porternovelli.com

 

ARTHROCARE REPORTS SECOND QUARTER 2007 REVENUE OF
$80 MILLION, EPS OF $0.37, EXCEEDING CONSENSUS ESTIMATES

Austin, Texas - July 26, 2007—ArthroCare Corp. (Nasdaq: ARTC), a leader in developing state-of-the-art, minimally invasive surgical products, announced that for the second quarter ended June 30, 2007, total revenues grew 21 percent to $79.5 million, compared with $66.0 million in the prior year’s second quarter. ArthroCare’s second quarter net income of $10.4 million, or $0.37 per share, grew 35 percent, compared to net income of $7.7 million, or $0.28 per share a year ago.  This quarterly performance was due to accelerating growth in the Company’s Spine and Sports Medicine businesses, reflecting new product launches, high volume manufacturing of key new products, and the benefits from continued investments in sales and marketing. Gross revenue and operating profit margin improvements of 2.6 and 0.9 points, respectively, also contributed to earnings growth.

“Through the first half of this year we have continued to aggressively pursue our core strategy of leveraging our platform technologies to develop breakthrough products and to put the infrastructure, clinical credibility, and reimbursement in place to drive the acceptance of those products in the marketplace,” noted Mike Baker, CEO of ArthroCare.

Q2 SUMMARY TABLE

 

Q207

 

Q107

 

Q206

 

Product sales

 

$

76.6M

 

$

71.0M

 

$

63.8M

 

Royalties, fees and other revenue

 

$

2.9M

 

$

2.7M

 

$

2.2M

 

Total revenues

 

$

79.5M

 

$

73.7M

 

$

66.0M

 

Net income

 

$

10.4M

 

$

7.1M

 

$

7.7M

 

 Diluted net income per share

 

$

0.37

 

$

0.25

 

$

0.28

 

 



REVENUE
In addition to product sales of $76.6 million, royalties, fees and other revenue was $2.9 million in the second quarter of 2007, which represents four percent of total revenue, compared to $2.2 million, or three percent of total second quarter 2006 revenue. International product sales increased 27 percent over 2006, led by Sports Medicine products.

BUSINESS UNIT PERFORMANCE
The Sports Medicine business unit produced sales growth of 13 percent during the quarter ended June 30, 2007 compared with the same period of 2006, and represented 61 percent of total product sales.  Excluding the impact of product lines discontinued in July 2006, Sports Medicine sales increased 16 percent over the second quarter of 2006.  Sales in the Spine business unit during the second quarter of 2007 grew 72 percent compared to the same period in 2006, with Spine sales representing 14 percent of product sales in the second quarter of 2007.   The second quarter increase in ENT product sales over the comparable period of last year was 17 percent, with ENT sales representing 25 percent of product sales during the quarter.

OPERATIONS
Product margin was 72 percent in the second quarter of 2007, compared to product margin of 69 percent in the second quarter of 2006. Operating expenses were $44.8 million in the second quarter 2007, or approximately 56 percent of total revenue, compared to $36.0 million, or 55 percent of total revenue in the second quarter of 2006. This increase is primarily a result of increased sales and marketing expenses due to continued additions to our direct sales force and new product launches in the second quarter of 2007.

BALANCE SHEET
Cash, cash equivalents and short-term investments increased $10.3 million to $41.1 million as of June 30, 2007, compared to $30.8 million at December 31, 2006.  Inventories decreased to $49.2 million from $51.5 million at December 31, 2006, while accounts receivable was $67.4 million at June 30, 2007 compared to $61.9 million at December 31, 2006.  This represents 76 days sales outstanding which is in line with the first quarter and a four day improvement over fourth quarter.

BUSINESS OUTLOOK
The following statements are based on current expectations on July 26, 2007. 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 into in future periods.

ArthroCare’s business outlook for fiscal 2007 is as follows:

·                  The Company expects total revenue growth of at least 20 percent.

·                  The Company expects the Sports Medicine business unit to achieve revenue growth in the low teens.

·                  ENT business unit revenue growth is expected to be between 25 and 30 percent.

·                  Spine business unit revenue growth is anticipated to exceed 50 percent.

·                  The Company anticipates sequential improvement in quarterly revenue growth rates.

·                  The Company expects earnings per share growth greater than revenue growth. GAAP diluted EPS is forecast to be in the range of $1.40 to $1.50.

·                  The Company expects a 100 basis point improvement in both product and operating margins over the 2006 calendar year margins.

·                  ArthroCare’s preliminary guidance for 2008 is for revenue growth of at least 20 percent, for continued improvements in margin, and for earnings to grow faster than revenue.



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. A live webcast of the call will be available on ArthroCare’s Web site at www.arthrocare.com.  The webcast will remain available through August 26, 2007.  A telephonic replay of the conference call can be accessed by dialing 800-633-8284 and entering pass code number 21343672.

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, significantly improving existing surgical procedures and enabling new, minimally invasive procedures. Many of ArthroCare’s products are based on its patented Coblation technology, which uses low-temperature radiofrequency energy to gently and precisely dissolve 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 procedures. ArthroCare also has added a number of novel technologies to its portfolio, including Opus Medical sports medicine, Parallax spine and Applied Therapeutics ENT products, to complement Coblation within key indications.

SAFE HARBOR STATEMENTS
Except for historical information, this press release includes forward-looking statements. These statements include, but are not limited to, the Company’s stated business outlook for fiscal 2007, 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, 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 for the quarter ended March 31, 2007 and its Form 10-K for the year ended December 31, 2006. Forward-looking statements are indicated by words or phrases such as “anticipates,” “estimates,” “projects,” “believes,” “intends,” “expects,” and similar words and phrases. Actual results may differ materially from management expectations.

Financial Tables Appended



 

ARTHROCARE CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30,

 

June 30,

 

 

 

June 30,

 

June 30,

 

 

 

 

 

2007

 

2006

 

Variance

 

2007

 

2006

 

Variance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

Product sales

 

$

76,606

 

$

63,821

 

$

12,785

 

$

147,606

 

$

124,078

 

$

23,528

 

Royalties, fees and other

 

2,936

 

2,184

 

752

 

5,679

 

4,408

 

1,271

 

Total revenues

 

79,542

 

66,005

 

13,537

 

153,285

 

128,486

 

24,799

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of product sales

 

21,703

 

19,756

 

(1,947

)

42,459

 

37,461

 

(4,998

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross profit

 

57,839

 

46,249

 

11,590

 

110,826

 

91,025

 

19,801

 

Product Margin

 

71.7

%

69.0

%

 

 

71.2

%

69.8

%

 

 

Gross Margin

 

72.7

%

70.1

%

 

 

72.3

%

70.8

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

6,624

 

6,125

 

(499

)

13,089

 

12,327

 

(762

)

Sales and marketing

 

30,112

 

22,796

 

(7,316

)

59,606

 

44,701

 

(14,905

)

General and administrative

 

6,130

 

5,377

 

(753

)

12,309

 

10,438

 

(1,871

)

Amortization of intangible assets

 

1,924

 

1,718

 

(206

)

3,835

 

3,540

 

(295

)

Total operating expenses

 

44,790

 

36,016

 

(8,774

)

88,839

 

71,006

 

(17,833

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from operations

 

13,049

 

10,233

 

2,816

 

21,987

 

20,019

 

1,968

 

Interest and other income (expense), net

 

475

 

(11

)

486

 

805

 

(322

)

1,127

 

Income before income tax provision

 

13,524

 

10,222

 

3,302

 

22,792

 

19,697

 

3,095

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax provision

 

3,111

 

2,523

 

(588

)

5,242

 

4,865

 

(377

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

10,413

 

$

7,699

 

$

2,714

 

$

17,550

 

$

14,832

 

$

2,718

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic net income per share

 

$

0.38

 

$

0.29

 

$

0.09

 

$

0.64

 

$

0.58

 

$

0.06

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares used in computing

 

 

 

 

 

 

 

 

 

 

 

 

 

basic net income per share

 

27,261

 

26,180

 

 

 

27,212

 

25,756

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted net income per share

 

$

0.37

 

$

0.28

 

$

0.09

 

$

0.62

 

$

0.53

 

$

0.09

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares used in computing

 

 

 

 

 

 

 

 

 

 

 

 

 

diluted net income per share

 

28,392

 

27,803

 

 

 

28,343

 

27,773

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

ARTHROCARE CORPORATION

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

 

 

 

June 30,
2007

 

December 31,
2006

 

ASSETS

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

26,933

 

$

15,531

 

Short-term investments

 

14,124

 

15,225

 

Accounts receivable, net

 

67,442

 

61,935

 

Inventories, net

 

49,206

 

51,542

 

Deferred tax assets

 

14,409

 

13,795

 

Prepaid expenses and other current assets

 

5,174

 

5,389

 

Total current assets

 

177,288

 

163,417

 

 

 

 

 

 

 

Property and equipment, net

 

38,898

 

36,071

 

Related party receivables

 

—

 

500

 

Intangible assets, net

 

33,964

 

35,982

 

Goodwill

 

139,674

 

137,831

 

Other assets

 

3,202

 

1,245

 

 

 

 

 

 

 

Total assets

 

$

393,026

 

$

375,046

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

 

$

13,232

 

$

12,993

 

Accrued liabilities

 

12,526

 

26,347

 

Accrued compensation

 

10,168

 

7,906

 

Income taxes payable

 

4,044

 

2,427

 

Total current liabilities

 

39,970

 

49,673

 

 

 

 

 

 

 

Deferred tax liabilities

 

538

 

1,991

 

Other non-current liabilities

 

5,899

 

879

 

Total liabilities

 

46,407

 

52,543

 

 

 

 

 

 

 

 

 

 

 

 

 

Total stockholders’ equity

 

346,619

 

322,503

 

 

 

 

 

 

 

Total liabilities and stockholders’ equity

 

$

393,026

 

$

375,046