Six-Month Results. Total revenues for the six months ended December 31, 2006 increased 27% to $33.6 million from $26.4 million in the prior comparable six-month period. Net sales increased 41% to $21.8 million from $15.5 million recorded in the first six months of fiscal 2006. The Company’s sales of biomaterials products increased 33% to $19.8 million for the six months ended December 31, 2006 from $14.9 million in the prior year six-month period. Endovascular product sales increased 256% to $1.9 million from $543,000 for the six months ended December 31, 2005.
Royalty income increased 8% to $11.8 million compared to $10.9 million in the comparable prior year period. Royalty income included $10.0 million in Angio-Seal(TM) royalties, up 5% from the comparable six-month period of the prior fiscal year, and $1.8 million in royalties from Orthovita, Inc. (Nasdaq: VITA), up 29% from the comparable prior year period.
Reported diluted earnings increased to $0.24 per share, a 60% increase from the $0.15 pro forma diluted earnings per share for the first six months of the prior year. Equity compensation expense was recorded in both periods and was $1.6 million, or $0.09 per share, for the six months ended December 31, 2006 compared to $1.1 million, or $0.06 per share, for the six months ended December 31, 2005. Pro forma earnings per share for the prior year period excludes transition costs related to the facility move in fiscal 2006.
The following chart summarizes the Company’s results for the six months ended December 31, 2006, compared to its results for the comparable period in the prior fiscal year. See attached schedules for a detailed reconciliation between the non-GAAP and reported GAAP results.
Biomaterials Update. Biomaterials sales for the second quarter of fiscal 2007 were up 29% to $10.0 million from $7.7 million in the same period last year, primarily due to an increase in sales of Angio-Seal(TM) components to St. Jude Medical, Inc. which were $5.1 million, a 42% increase compared to last year. Angio-Seal(TM) component sales have been exceptionally strong over the last three quarters related to St. Jude ordering patterns. Although we expect continued growth in Angio-Seal(TM) end user sales during the second half of our fiscal year, we expect a significant reduction in component sales over that same period. Net sales of orthopaedic products, including both spine and sports medicine, were $4.4 million in the second quarter of fiscal 2007, representing a 10% increase over the prior year second quarter sales of $4.0 million. Sales of spine related products increased 103% from the second quarter of the prior fiscal year, partially offset by a 16% decline in sports medicine related products. We expect ongoing spine related product growth in the second half of our fiscal year and anticipate sports medicine product sales will increase significantly from the current level.
“Our biomaterials business continues to present additional opportunities, particularly in the spine market,” commented Joe Kaufmann, President and CEO of the Company. “We continue to attract new partners and to expand our existing relationships to commercialize a wide variety of bioresorbable medical devices. We are pleased with the continuing growth in sales and royalty income from Kensey Nash proprietary and co-developed products and are looking forward to an expanding royalty stream in future quarters as other royalty bearing arrangements gather momentum,” Mr. Kaufmann stated.
Endovascular Update. Endovascular sales were $1.2 million, a 462% increase over the prior year comparable period and 73% sequential growth from the quarter ended September 30, 2006. U.S. endovascular sales were $966,000, up 489% year-over-year and 57% over the first quarter of fiscal 2007. During the quarter the Company conducted its initial market release of the ThromCat(TM) Thrombectomy Catheter System in both the U.S. and Europe which contributed approximately $400,000 in net sales during the three months ended December 31, 2006.
During the second quarter, the Company began enrolling in its 300 to 400 patient carotid clinical trial for the TriActiv(R) ProGuard(TM) System, the third generation of the embolic protection system incorporating Local Flush and Extraction (LFX(TM)) technology for use in branched anatomies. A CE mark submission for the TriActiv(R) ProGuard(TM) System is pending and, if approved when anticipated, would allow for European launch with a carotid indication in the second half of the fiscal year.
“We are entering the second half of our fiscal year with great enthusiasm for both our Endovascular and Biomaterials businesses,” continued Mr. Kaufmann. “With our recent launches in the U.S. and Europe, we now are able to offer our customers a full complement of products that address embolic protection and thrombectomy. We have been extremely pleased with the feedback received from physicians, particularly regarding our unique ThromCat(TM) and QuickCat(TM) systems. We expect these products will significantly contribute to our endovascular business growth as we move through the second half of fiscal 2007 and beyond. In addition, sales of our embolic protection products, the TriActiv(R) FX(TM) and ProGuard(TM) systems have increased in the endovascular market and with the anticipated CE Mark approval of the carotid indication, sales should continue to grow,” Mr. Kaufmann concluded.
Prior Year Pro Forma Presentation. During its fiscal 2006 year, the Company successfully completed construction of, and moved its operations to, a new facility, which resulted in significant transition expenses related to the acceleration of depreciation of certain abandoned leasehold improvement assets at its previous locations and moving charges. The impact of these charges was $4.7 million, or $0.25 per share, during the fiscal year 2006, of which $1.9 million or $0.12 per share was recorded in the prior year second quarter and $3.6 million or $0.21 per share was recorded in the prior year six-month period. The transition to the new facility is complete and no additional charges have been recorded in fiscal 2007.
Research and Development Tax Credit Re-enactment. As a result of the recent Congressional approval of an extension of the Research and Experimentation (R&E) Tax Credit, the Company recorded retroactive adjustments to its tax provision during the second quarter ended December 31, 2006. The adjustments reflect the fact that the legislation is retroactive to January 1, 2006, and therefore significantly reduced its effective tax rate to 22% for the second quarter. The Company anticipates its effective tax rate for the remainder of the fiscal year to be approximately 30%, including the current period’s R&E effect on the tax provision.
Third Quarter Fiscal 2007 Forecast. The Company’s expectations for its third fiscal quarter are net sales in a range of $12.8 to $13.3 million, an increase of 28% to 33% year-over-year and royalties in a range of $6.3 to $6.5 million, an increase of 10% to 14% over the prior year comparable quarter. Revenues are expected to be in a range of $19.1 to $19.8 million, representing an increase of 22% to 27% year-over-year.
Diluted earnings per share are expected to be in a range of $0.19 to $0.22, which includes equity compensation expense of approximately $800,000 to $900,000, or $0.04 to $0.05 per share. This estimate is an increase of 12% to 29% over the prior year third quarter pro forma earnings per share of $0.17, which included $649,000 of equity compensation or $0.04 per share. On a sequential basis, the estimate represents an increase of 46% to 69% over the second quarter fiscal 2007 earnings of $0.13 per share.
Conference Call and Webcast. The Company will host a conference call on Friday, January 26, 2007 at 9:00 a.m. Eastern Standard Time. To participate in the conference call, interested parties should dial 1-612-332-1213. In addition, a live webcast of the call can be accessed by visiting the Investor Relations page under the Conferences & Webcasts link of the Kensey Nash website at http://www.kenseynash.com and clicking on Webcast. The teleconference call will also be available for replay starting Friday, January 26, 2007 at 12:30 p.m. Eastern Standard Time through Friday, February 2, 2007 at 11:59 p.m. Eastern Standard Time by dialing 1-800-475-6701 with an access code of 859397.
About Kensey Nash Corporation. Kensey Nash Corporation is a leading medical technology company providing innovative solutions and technologies for a wide range of medical procedures. The Company provides an extensive range of products into multiple medical markets, primarily in the endovascular, sports medicine and spine markets. Many of the products are based on the Company’s significant expertise in the design, development, manufacturing and processing of absorbable biomaterials, which has led to partnerships to commercialize technologies. Kensey Nash has also commercialized a series of innovative embolic protection and thrombectomy products through its own direct endovascular sales force. The Company is known as a pioneer in the field of arterial puncture closure, as the inventor and developer of the Angio-Seal(TM) Vascular Closure Device, which is licensed to St. Jude Medical, Inc.
Cautionary Note for Forward-Looking Statements. This press release contains forward-looking statements that reflect the Company’s current expectations about its prospects and opportunities including the Company’s forecast of operating results for the third quarter of fiscal 2007. The Company has tried to identify these forward-looking statements by using words such as “expect,” “anticipate,” “estimate,” “plan,” “will,” “forecast,” “believe,” “guidance,” “projection” or similar expressions, but these words are not the exclusive means for identifying such statements. The Company cautions that a number of risks, uncertainties, and other important factors could cause the Company’s actual results to differ materially from those in the forward-looking statements including, without limitation, the Company’s success in launching its endovascular products into the marketplace, the Company’s dependence on three major customers (St. Jude Medical, Arthrex and Orthovita) and their success in selling KNC related products in the marketplace, and competition from other technologies, among other important risks. For a more detailed discussion of these and other factors, please see the Company’s SEC filings, including the disclosure under “Risk Factors” in those filings. Except as expressly required by the federal securities laws, the Company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, changed circumstances or future events or for any other reason.
- FINANCIAL INFORMATION TO FOLLOW -
KENSEY NASH CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
| | Three Months
Ended December 31, | | Six Months
Ended December 31, | |
| |
| |
| |
| | 2006 | | 2005 | | 2006 | | 2005 | |
| |
|
| |
|
| |
|
| |
|
| |
Revenues: | | | | | | | | | | | | | |
Net sales | | | | | | | | | | | | | |
Biomaterial sales | | $ | 9,971,821 | | $ | 7,744,254 | | $ | 19,817,298 | | $ | 14,917,315 | |
Endovascular sales | | | 1,226,295 | | | 218,010 | | | 1,934,007 | | | 543,406 | |
Total net sales | | | 11,198,116 | | | 7,962,264 | | | 21,751,305 | | | 15,460,721 | |
Royalty income | | | 6,093,938 | | | 5,664,701 | | | 11,812,083 | | | 10,892,416 | |
Total revenues | | | 17,292,054 | | | 13,626,965 | | | 33,563,388 | | | 26,353,137 | |
Operating costs and expenses: | | | | | | | | | | | | | |
Cost of products sold | | | 5,261,524 | | | 5,247,868 | | | 10,109,353 | | | 10,041,497 | |
Research and development | | | 4,814,726 | | | 4,913,131 | | | 9,190,355 | | | 9,863,552 | |
Sales and marketing | | | 3,385,835 | | | 2,255,638 | | | 6,414,137 | | | 4,088,103 | |
General and administrative | | | 2,045,684 | | | 2,076,243 | | | 4,105,153 | | | 4,055,799 | |
Total operating costs and expenses | | | 15,507,769 | | | 14,492,880 | | | 29,818,998 | | | 28,048,951 | |
Income (loss) from operations | | | 1,784,285 | | | (865,915 | ) | | 3,744,390 | | | (1,695,814 | ) |
Interest and other income, net | | | 235,026 | | | 310,055 | | | 378,543 | | | 619,874 | |
Pre-tax income (loss) | | | 2,019,311 | | | (555,860 | ) | | 4,122,933 | | | (1,075,940 | ) |
Income tax expense (benefit) | | | 440,149 | | | — | | | 1,115,952 | | | (337,327 | ) |
Net income (loss) | | $ | 1,579,162 | | $ | (555,860 | ) | $ | 3,006,981 | | $ | (738,613 | ) |
Basic earnings (loss) per share | | $ | 0.13 | | $ | (0.05 | ) | $ | 0.26 | | $ | (0.06 | ) |
Diluted earnings (loss) per share | | $ | 0.13 | | $ | (0.05 | ) | $ | 0.24 | | $ | (0.06 | ) |
Weighted average common shares outstanding | | | 11,709,604 | | | 11,476,546 | | | 11,669,507 | | | 11,466,702 | |
Diluted weighted average common shares outstanding | | | 12,568,341 | | | 11,476,546 | | | 12,534,953 | | | 11,466,702 | |
CONDENSED CONSOLIDATED BALANCE SHEETS
| | December 31,
2006 | | June 30,
2006 | |
| |
|
| |
|
| |
| | (Unaudited) | | | | |
Assets | | | | | | | |
Current assets: | | | | | | | |
Cash, cash equivalents and investments | | $ | 30,876,056 | | $ | 27,127,992 | |
Restricted cash | | | 1,023,648 | | | 1,000,809 | |
Trade receivables | | | 4,533,200 | | | 6,396,165 | |
Other receivables | | | 6,378,709 | | | 6,942,480 | |
Inventory | | | 9,303,479 | | | 7,197,868 | |
Prepaids and other assets | | | 1,745,021 | | | 1,427,303 | |
Deferred tax asset, current | | | 2,202,665 | | | 1,849,513 | |
Total current assets | | | 56,062,778 | | | 51,942,130 | |
Property, plant and equipment, net | | | 64,968,876 | | | 63,250,526 | |
Other non-current assets | | | 14,611,472 | | | 14,998,612 | |
Total assets | | $ | 135,643,126 | | $ | 130,191,268 | |
Liabilities and stockholders’ equity | | | | | | | |
Current liabilities: | | | | | | | |
Accounts payable and accrued expenses | | $ | 5,851,878 | | $ | 7,391,130 | |
Current portion of debt | | | 26,667 | | | — | |
Deferred revenue | | | 224,797 | | | 203,351 | |
Total current liabilities | | | 6,103,342 | | | 7,594,481 | |
Long term portion of deferred revenue | | | 703,512 | | | 795,830 | |
Long term portion of debt | | | 7,973,333 | | | 8,000,000 | |
Deferred tax liability, non-current | | | 769,665 | | | 523,487 | |
Other non-current liabilities | | | 1,516,390 | | | 85,834 | |
Total stockholders’ equity | | | 118,576,884 | | | 113,191,636 | |
Total liabilities and stockholders’ equity | | $ | 135,643,126 | | $ | 130,191,268 | |
Non-GAAP Financial Measures and Reconciliations
We use various numerical measures in conference calls, investor meetings and other forums which are or may be considered “Non-GAAP financial measures” under Regulation G. We have provided below for your reference supplemental financial disclosure for these measures, including the most directly comparable GAAP measure and an associated reconciliation.
Kensey Nash Corporation
Non-GAAP Financial Measures and Reconciliations
Adjusted Income and Earnings Per Share Reconciliation
| | (Unaudited)
As Reported
Three Months
Ended
December 31,
2005 | | Non-GAAP
Adjustments
Acceleration of
Depreciation
and Moving
Costs 2005 | | | (Unaudited)
Pro forma
Three Months
Ended
December 31,
2005 | |
| |
|
| |
|
| |
|
| |
Revenues: | | | | | | | | | | |
Net sales | | | | | | | | | | |
Biomaterial sales | | $ | 7,744,254 | | $ | — | | $ | 7,744,254 | |
Endovascular sales | | | 218,010 | | | — | | | 218,010 | |
Total net sales | | | 7,962,264 | | | — | | | 7,962,264 | |
Royalty income | | | 5,664,701 | | | — | | | 5,664,701 | |
Total revenues | | | 13,626,965 | | | — | | | 13,626,965 | |
Operating costs and expenses: | | | | | | | | | | |
Cost of products sold | | | 5,247,868 | | | (1,071,470 | ) | | 4,176,398 | |
Research and development | | | 4,913,131 | | | (597,514 | ) | | 4,315,617 | |
Sales and marketing | | | 2,255,638 | | | (67,235 | ) | | 2,188,403 | |
General and administrative | | | 2,076,243 | | | (206,893 | ) | | 1,869,350 | |
Total operating costs and expenses | | | 14,492,880 | | | (1,943,112 | ) | | 12,549,768 | |
(Loss)/income from operations | | | (865,915 | ) | | 1,943,112 | | | 1,077,197 | |
Interest and other income, net | | | 310,055 | | | — | | | 310,055 | |
Pre-tax (loss)/income | | | (555,860 | ) | | 1,943,112 | | | 1,387,252 | |
Income tax expense | | | — | | | 464,258 | | | 464,258 | |
Net (loss)/income | | $ | (555,860 | ) | $ | 1,478,854 | | $ | 922,994 | |
Basic (loss)/earnings per share | | $ | (0.05 | ) | $ | 0.13 | | $ | 0.08 | |
Diluted (loss)/earnings per share | | $ | (0.05 | ) | $ | 0.12 | | $ | 0.08 | |
Weighted average common shares outstanding | | | 11,476,546 | | | 11,476,546 | | | 11,476,546 | |
Diluted weighted average common shares outstanding | | | 11,476,546 | | | 12,245,612 | | | 12,245,612 | |
| | (Unaudited)
As Reported
Six Months
Ended
December 31,
2005 | | Non-GAAP Adjustments Acceleration of Depreciation and Moving Costs 2005 | | (Unaudited)
Pro forma
Six Months
Ended
December 31,
2005 | |
| |
|
| |
|
| |
|
| |
Revenues: | | | | | | | | | | |
Net sales | | | | | | | | | | |
Biomaterial sales | | $ | 14,917,315 | | $ | — | | $ | 14,917,315 | |
Endovascular sales | | | 543,406 | | | — | | | 543,406 | |
Total net sales | | | 15,460,721 | | | — | | | 15,460,721 | |
Royalty income | | | 10,892,416 | | | — | | | 10,892,416 | |
Total revenues | | | 26,353,137 | | | — | | | 26,353,137 | |
Operating costs and expenses: | | | | | | | | | | |
Cost of products sold | | | 10,041,497 | | | (1,952,866 | ) | | 8,088,631 | |
Research and development | | | 9,863,552 | | | (1,148,371 | ) | | 8,715,181 | |
Sales and marketing | | | 4,088,103 | | | (129,220 | ) | | 3,958,883 | |
General and administrative | | | 4,055,799 | | | (385,780 | ) | | 3,670,019 | |
Total operating costs and expenses | | | 28,048,951 | | | (3,616,237 | ) | | 24,432,714 | |
(Loss)/income from operations | | | (1,695,814 | ) | | 3,616,237 | | | 1,920,423 | |
Interest and other income, net | | | 619,874 | | | — | | | 619,874 | |
Pre-tax (loss)/income | | | (1,075,940 | ) | | 3,616,237 | | | 2,540,297 | |
Income tax (benefit)/expense | | | (337,327 | ) | | 1,027,409 | | | 690,082 | |
Net (loss)/income | | $ | (738,613 | ) | $ | 2,588,828 | | $ | 1,850,215 | |
Basic (loss)/earnings per share | | $ | (0.06 | ) | $ | 0.23 | | $ | 0.16 | |
Diluted (loss)/earnings per share | | $ | (0.06 | ) | $ | 0.21 | | $ | 0.15 | |
Weighted average common shares outstanding | | | 11,466,702 | | | 11,466,702 | | | 11,466,702 | |
Diluted weighted average common shares outstanding | | | 11,466,702 | | | 12,299,244 | | | 12,299,244 | |
Note: To supplement our consolidated financial statements presented in accordance with GAAP (Generally Accepted Accounting Principles), Kensey Nash Corporation has used non-GAAP measures of pro forma net income and earnings per share, which are adjusted from our GAAP results to exclude certain expenses. These non-GAAP adjustments have been provided to enhance the user’s overall understanding of our historical financial performance. We believe the non-GAAP results provide useful information to both management and investors by excluding certain expenses that we believe are not indicative of our core operating results.
We have adjusted our GAAP results for the three and six months ended December 31, 2005 for an acceleration of depreciation charge and moving costs. The Company has excluded the impact of the acceleration of depreciation charge and moving costs related to the Company’s move to a new facility in June 2006. The acceleration of depreciation charge and moving costs began in May 2005 and were completed by June 2006. These were non-cash charges and had no impact on the cash flows of the Company.
This non-GAAP measure will provide investors and management with an alternative method for assessing Kensey Nash’s operating results in a manner consistent with the presentation prior to the acceleration of depreciation charge related to the transition to the new facility. Further, this non-GAAP results is one of the primary indicators management uses for planning and forecasting in future periods. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with accounting principles generally accepted in the United States.
| | (Unaudited)
As Reported
Three Months
Ended
March 31,
2006 | | Non-GAAP
Adjustments
Acceleration of
Depreciation
and Moving
Costs 2006 | | (Unaudited)
Pro forma
Three Months
Ended
March 31, 2006 | |
| |
|
| |
|
| |
|
| |
Revenues: | | | | | | | | | | |
Net sales | | | | | | | | | | |
Biomaterial sales | | $ | 9,759,893 | | $ | — | | $ | 9,759,893 | |
Endovascular sales | | | 203,834 | | | — | | | 203,834 | |
Total net sales | | | 9,963,727 | | | — | | | 9,963,727 | |
Royalty income | | | 5,711,798 | | | — | | | 5,711,798 | |
Total revenues | | | 15,675,525 | | | — | | | 15,675,525 | |
Operating costs and expenses: | | | | | | | | | | |
Cost of products sold | | | 4,545,175 | | | (268,014 | ) | | 4,277,161 | |
Research and development | | | 4,635,501 | | | (169,998 | ) | | 4,465,503 | |
Sales and marketing | | | 2,408,464 | | | (19,129 | ) | | 2,389,335 | |
General and administrative | | | 1,892,986 | | | (55,206 | ) | | 1,837,780 | |
Total operating costs and expenses | | | 13,482,126 | | | (512,347 | ) | | 12,969,779 | |
Income from operations | | | 2,193,399 | | | 512,347 | | | 2,705,746 | |
Interest and other income, net | | | 244,055 | | | — | | | 244,055 | |
Pre-tax income | | | 2,437,454 | | | 512,347 | | | 2,949,801 | |
Income tax expense | | | 649,820 | | | 158,483 | | | 808,303 | |
Net income | | $ | 1,787,634 | | $ | 353,864 | | $ | 2,141,498 | |
Basic earnings per share | | $ | 0.16 | | $ | 0.03 | | $ | 0.19 | |
Diluted earnings per share | | $ | 0.15 | | $ | 0.03 | | $ | 0.17 | |
Weighted average common shares outstanding | | | 11,477,601 | | | 11,477,601 | | | 11,477,601 | |
Diluted weighted average common shares outstanding | | | 12,263,183 | | | 12,263,183 | | | 12,263,183 | |
Note: To supplement our consolidated financial statements presented in accordance with GAAP (Generally Accepted Accounting Principles), Kensey Nash Corporation has used non-GAAP measures of pro forma net income and earnings per share, which are adjusted from our GAAP results to exclude certain expenses. These non-GAAP adjustments have been provided to enhance the user’s overall understanding of our historical financial performance. We believe the non-GAAP results provide useful information to both management and investors by excluding certain expenses that we believe are not indicative of our core operating results.
We have adjusted our GAAP results for the three months ended March 31, 2006 for an acceleration of depreciation charge and moving costs. The Company has excluded the impact of the acceleration of depreciation charge and moving costs related to the Company’s move to a new facility in June 2006. The acceleration of depreciation charge and moving costs began in May 2005 and were completed by June 2006. These were non-cash charges and had no impact on the cash flows of the Company.
This non-GAAP measure will provide investors and management with an alternative method for assessing Kensey Nash’s operating results in a manner consistent with the presentation prior to the acceleration of depreciation charge related to the transition to the new facility. Further, this non-GAAP results is one of the primary indicators management uses for planning and forecasting in future periods. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with accounting principles generally accepted in the United States.
SOURCE Kensey Nash Corporation
-0- 01/26/2007
/CONTACT: Joseph W. Kaufmann, President and Chief Executive Officer of Kensey Nash Corporation, +1-484-713-2100/
/Web site: http://www.kenseynash.com /
(KNSY VITA)
