EX-99.1 2 a10-15158_1ex99d1.htm EX-99.1

Exhibit 99.1

 

FOR IMMEDIATE RELEASE:

CONTACTS:

 

ArthroCare Corp.

 

Corinne Ervin

 

512-391-3907

 

 

 

The Ruth Group

 

Nick Laudico / Zack Kubow

 

646-536-7030 / 7020

 

ARTHROCARE REPORTS SECOND QUARTER 2010 FINANCIAL RESULTS

 

Austin, Texas — August 3, 2010 — ArthroCare Corp. (NASDAQ: ARTC), a leader in developing state-of-the-art, minimally invasive surgical products, announced its financial results for the second quarter ended June 30, 2010 as follows:

 

SECOND QUARTER 2010 HIGHLIGHTS

·                  Second quarter 2010 total revenue of $88.8 million

·                  Product margin of 65.9 percent

·                  Operating income of $12.3 million

·                  Net income available to common stockholders of $7.3 million, or $0.22 per diluted share

 

REVENUE

Total revenue for the second quarter of 2010 was $88.8 million, compared to $80.8 million for the second quarter of 2009. Product sales increased in both the Company’s core Sports Medicine and ENT businesses and across all geographies. Changes in exchange rates decreased the U.S. dollar reported value of product sales by approximately $0.3 million.

 

Sports Medicine product sales increased $4.9 million, or 9.8 percent, in the second quarter of 2010 compared to the same period of 2009. Americas Sports Medicine product sales increased $2.3 million, or 6.4 percent, in the second quarter of 2010 compared to the same period in 2009, due to higher contract manufacturing volume, partially offset by lower sales of the Company’s proprietary Sports Medicine products. International Sports Medicine product sales increased $2.6 million, or 18.0 percent, in the second quarter of 2010 compared to the same period in 2009.

 

ENT product sales increased $2.5 million, or 11.2 percent, in the second quarter of 2010 compared to the same period of 2009, from increased volume of the Company’s tonsil and turbinate products as well as higher average sales prices.

 

Spine product sales declined $0.3 million, or 5.5 percent, in the second quarter of 2010 compared to the second quarter of 2009.

 

PRODUCT MARGIN

Product margin was 65.9 percent for the second quarter of 2010 compared to 71.5 percent for the second quarter of 2009.  Product margin for the second quarter of 2010 was lower due to higher contract manufactured product sales which generally realize lower margins and adjustments made to the carrying value of inventory for excess and obsolete items.

 

INCOME (LOSS) FROM OPERATIONS

Income from operations for the second quarter of 2010 was $12.3 million compared to a loss from operations of $2.4 million for the same period in 2009. Investigation and restatement related expenses were $0.5 million in the second quarter of 2010 compared to $7.3 million in the second quarter of 2009. Sales and marketing and general and administrative expenses declined by $2.6 million and $3.1 million, respectively, compared to the second

 


 

quarter of 2009.  The improvement in sales and marketing expenses was a result of lower product demonstration costs, lower bad debt allowance requirements due to accounts receivable collection and aging improvement, and a quarter over quarter decline in sales expenses associated with the Company’s Spine business following the restructuring of its Americas sales organization in 2009.  Moreover, contract manufactured products did not incur direct sales and marketing costs, such as commission expense. The improvement in general and administrative expenses was a result of lower legal fees after the completion of the arbitration matter involving Gyrus and Ethicon in December 2009.  Research and development expenses were $1.0 million lower in the second quarter of 2010 compared to the same period in 2009, primarily due to one-time charges associated with third party service contracts that have since terminated, offset by higher personnel headcount.

 

NET INCOME (LOSS) AVAILABLE TO COMMON STOCKHOLDERS

Second quarter 2010 net income available to common stockholders was $7.3 million, or $0.22 per diluted share, compared to a net loss of $2.7 million, or ($0.10) per share, for the second quarter of 2009.

 

BALANCE SHEET AND CASH FLOWS

Cash, cash equivalents, restricted cash equivalents, and investments increased $25.8 million to $83.2 million as of June 30, 2010 from $57.4 million at December 31, 2009.  Cash flows provided by operating activities for the six months ended June 30, 2010 was $32.4 million compared to $22.8 million for the six months ended June 30, 2009.  Net inventory balances decreased approximately $6.4 million and accounts receivable decreased $1.1 million from December 31, 2009. The Company continues to focus on working capital efficiency, process improvements, and cash conversion.

 

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 Wednesday, August 4, 2010. To participate in the live conference call dial 800-785-6380.  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 21477843.  The replay will remain available through August 17, 2010.

 

ABOUT ARTHROCARE

Founded in 1993, ArthroCare Corp. 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 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 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 other technologies to its portfolio, including Opus Medical sports medicine, Parallax spine and Applied Therapeutics ENT products, to complement Coblation within key indications.

 

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 ability of the Company to fulfill its obligations with respect to the rights of the holders of the Series A Convertible Preferred Stock, including but not limited to the redemption rights and registration rights of the holders of the Series A Convertible Preferred Stock; 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 investigations being conducted by the Staff of the Division of Enforcement of the Securities and Exchange Commission and 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)

 

 

 

June 30,
2010

 

December 31,
2009

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

83,181

 

$

57,386

 

Accounts receivable, net of allowances of $2,984 and $4,069 at June 30, 2010 and December 31, 2009, respectively

 

44,739

 

45,789

 

Inventories, net

 

42,183

 

48,628

 

Deferred tax assets

 

6,727

 

12,983

 

Prepaid expenses and other current assets

 

5,818

 

6,563

 

Total current assets

 

182,648

 

171,349

 

 

 

 

 

 

 

Property and equipment, net

 

45,254

 

47,386

 

Intangible assets, net

 

14,761

 

17,975

 

Goodwill

 

118,604

 

119,076

 

Deferred tax assets

 

30,526

 

30,526

 

Other assets

 

4,373

 

4,816

 

Total assets

 

$

396,166

 

$

391,128

 

 

 

 

 

 

 

LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

 

$

12,897

 

$

14,299

 

Accrued liabilities

 

34,032

 

46,077

 

Deferred tax liabilities

 

—

 

3

 

Deferred revenue

 

—

 

4,508

 

Income tax payable

 

—

 

195

 

Total current liabilities

 

46,929

 

65,082

 

 

 

 

 

 

 

Deferred tax liabilities

 

280

 

303

 

Other non-current liabilities

 

4,800

 

4,844

 

Total liabilities

 

52,009

 

70,229

 

 

 

 

 

 

 

Commitments and contingencies

 

—

 

—

 

 

 

 

 

 

 

Series A 3% Redeemable Convertible Preferred Stock, par value $0.001; Authorized: 100 shares; Issued and outstanding: 75 shares at June 30, 2010 and December 31, 2009; Redemption value: $87,089

 

72,118

 

70,504

 

 

 

 

 

 

 

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 and outstanding:

 

 

 

 

 

27,006 shares at June 30, 2010 and 26,886 shares at December 31, 2009

 

27

 

27

 

Treasury stock: 4,005 shares at June 30, 2010 and 4,019 shares at December 31, 2009

 

(108,351

)

(108,724

)

Additional paid-in capital

 

382,774

 

379,921

 

Accumulated other comprehensive income

 

3,154

 

1,645

 

Accumulated deficit

 

(5,565

)

(22,474

)

Total stockholders’ equity

 

272,039

 

250,395

 

Total liabilities, redeemable convertible preferred stock and stockholders’ equity

 

$

396,166

 

$

391,128

 

 


 

ARTHROCARE CORPORATION

Condensed Consolidated Statements of Operations - Unaudited

(in thousands, except per share data)

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 

2010

 

2009

 

2010

 

2009

 

 

 

 

 

 

 

 

 

 

 

Revenues:

 

 

 

 

 

 

 

 

 

Product sales

 

$

84,631

 

$

77,513

 

$

171,248

 

$

153,081

 

Royalties, fees and other

 

4,154

 

3,298

 

8,148

 

6,519

 

Total revenues

 

88,785

 

80,811

 

179,396

 

159,600

 

 

 

 

 

 

 

 

 

 

 

Cost of product sales

 

28,840

 

22,073

 

55,773

 

43,871

 

 

 

 

 

 

 

 

 

 

 

Gross profit

 

59,945

 

58,738

 

123,623

 

115,729

 

Operating expenses:

 

 

 

 

 

 

 

 

 

Research and development

 

8,543

 

9,507

 

17,693

 

17,869

 

Sales and marketing

 

27,908

 

30,470

 

55,728

 

60,135

 

General and administrative

 

9,095

 

12,173

 

18,077

 

24,121

 

Amortization of intangible assets

 

1,554

 

1,588

 

3,121

 

3,174

 

Investigation and restatement related costs

 

528

 

7,305

 

1,571

 

16,030

 

Reimbursement services

 

24

 

100

 

45

 

266

 

Total operating expenses

 

47,652

 

61,143

 

96,235

 

121,595

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from operations

 

12,293

 

(2,405

)

27,388

 

(5,866

)

Interest and other expense, net

 

(89

)

(940

)

(190

)

(2,132

)

Foreign exchange loss, net

 

(1,075

)

(990

)

(4,035

)

(1,135

)

Interest and other expense, net

 

(1,164

)

(1,930

)

(4,225

)

(3,267

)

 

 

 

 

 

 

 

 

 

 

Income (loss) before income taxes

 

11,129

 

(4,335

)

23,163

 

(9,133

)

 

 

 

 

 

 

 

 

 

 

Income tax provision

 

3,047

 

(1,646

)

6,254

 

63

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

8,082

 

(2,689

)

16,909

 

(9,196

)

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

 

(812

)

—

 

(1,614

)

—

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) available to common stockholders

 

$

7,270

 

$

(2,689

)

$

15,295

 

$

(9,196

)

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

Basic

 

26,976

 

26,810

 

26,958

 

26,798

 

Diluted

 

27,352

 

26,810

 

27,295

 

26,798

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) per common share:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.22

 

$

(0.10

)

$

0.47

 

$

(0.34

)

Diluted

 

$

0.22

 

$

(0.10

)

$

0.46

 

$

(0.34

)

 


 

ARTHROCARE CORPORATION

Supplemental Schedule of Product Sales

(in thousands)

 

 

 

Three Months Ended

 

Three Months Ended

 

 

 

June 30, 2010

 

June 30, 2009

 

 

 

Americas

 

International

 

Total
Product
Sales

 

% Net
Product
Sales

 

Americas

 

International

 

Total
Product
Sales

 

% Net
Product
Sales

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sports Medicine

 

$

37,701

 

$

17,010

 

$

54,711

 

64.7

%

$

35,429

 

$

14,416

 

$

49,845

 

64.3

%

ENT

 

21,196

 

3,979

 

25,175

 

29.7

%

19,466

 

3,179

 

22,645

 

29.2

%

Spine

 

2,557

 

2,188

 

4,745

 

5.6

%

2,630

 

2,393

 

5,023

 

6.5

%

Total Product Sales

 

$

61,454

 

$

23,177

 

$

84,631

 

100.0

%

$

57,525

 

$

19,988

 

$

77,513

 

100.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

% Net Product Sales

 

72.6

%

27.4

%

100.0

%

 

 

74.2

%

25.8

%

100.0

%

 

 

 

 

 

Six Months Ended

 

Six Months Ended

 

 

 

June 30, 2010

 

June 30, 2009

 

 

 

Americas

 

International

 

Total
Product
Sales

 

% Net
Product
Sales

 

Americas

 

International

 

Total
Product
Sales

 

% Net
Product
Sales

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sports Medicine

 

$

 

82,092

 

$

33,068

 

$

115,160

 

67.2

%

$

71,258

 

$

28,761

 

$

100,019

 

65.3

%

ENT

 

39,611

 

7,309

 

46,920

 

27.4

%

36,773

 

6,111

 

42,884

 

28.0

%

Spine

 

4,838

 

4,330

 

9,168

 

5.4

%

5,758

 

4,420

 

10,178

 

6.6

%

Total Product Sales

 

$

 

126,541

 

$

44,707

 

$

171,248

 

100.0

%

$

113,789

 

$

39,292

 

$

153,081

 

100.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

% Net Product Sales

 

73.9

%

26.1

%

100.0

%

 

 

74.3

%

25.7

%

100.0

%