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 THIRD QUARTER 2010 FINANCIAL RESULTS
Austin, Texas — November 1, 2010 — 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, 2010 as follows:
THIRD QUARTER 2010 HIGHLIGHTS
· Total revenue of $87.9 million, an increase of 10.6 percent from the third quarter of 2009
· Operating income of $11.6 million, or operating margin of 13.2 percent
· Net income available to common stockholders of $8.4 million, or $0.25 per diluted share
REVENUE
Total revenue for the third quarter of 2010 was $87.9 million, compared to $79.5 million for the third quarter of 2009. Product sales increased in both the Company’s core Sports Medicine and ENT businesses.
Product sales in Sports Medicine increased $6.4 million, or 12.6 percent, for the quarter ended September 30, 2010 compared to the same period in 2009. The product sales increase is attributable to a $6.4 million increase in contract manufacturing pursuant to an existing supply and distribution agreement with Smith & Nephew. Worldwide sales of the Company’s proprietary products were flat, as a decline in Americas products sales was offset by higher International product sales.
ENT product sales increased $1.7 million, or 8.2 percent, in the third quarter of 2010 compared to the same period of 2009 from increased product volume across all geographies as well as higher average sales prices in the Americas.
Spine product sales declined $0.2 million in the third quarter of 2010 compared to the same period of 2009, due to lower sales in the Americas, partially offset by higher International sales.
Had the same foreign currency rates been in effect in the quarter ended September 30, 2010 as were in effect in the same quarter in 2009, the U.S. dollar reported value of product sales would have been higher by $0.9 million for the quarter ended September 30, 2010.
GROSS PRODUCT MARGIN
Gross product margin was 65.6 percent for the third quarter of 2010 compared to 68.2 percent for the third quarter of 2009. Gross product margin for the third quarter of 2010 was lower due to a higher proportion of contract manufactured product sales, which generally realize lower product margins, and adjustments made to the carrying value of inventory related to excess and obsolete items.
INCOME (LOSS) FROM OPERATIONS
Income from operations for the third quarter of 2010 was $11.6 million compared to a loss from operations of $5.5 million for the same period in 2009. Investigation and restatement related expenses were $0.3 million in the third quarter of 2010 compared to $9.3 million in the third quarter of 2009. Sales and marketing and general and administrative expenses declined by $1.9 million and $2.7 million, respectively, compared to the third quarter of
2009. The decrease in sales and marketing expenses was a result of lower product demonstration costs, a decrease in bad debt allowance requirements due to improved accounts receivable performance, and a decline in sales expenses associated with the Company’s Spine business following a 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 reduction 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.
NET INCOME (LOSS) AVAILABLE TO COMMON STOCKHOLDERS
Net income available to common stockholders was $8.4 million, or $0.25 per diluted share in the third quarter of 2010, compared to a net loss available to common stockholders of $31.7 million, or ($1.18) per share, in the third quarter of 2009.
BALANCE SHEET AND CASH FLOWS
Cash and cash equivalents increased $55.6 million to $113.0 million as of September 30, 2010 from $57.4 million at December 31, 2009. Cash flows provided by operating activities for the nine months ended September 30, 2010 was $63.6 million compared to $29.4 million for the nine months ended September 30, 2009. Net accounts receivable decreased $3.4 million and net inventory balances decreased approximately $9.1 million from December 31, 2009.
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 Tuesday, November 2, 2010. To participate in the live conference call dial 888-612-1048. 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 21486242. The replay will remain available through November 16, 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)
|
| September 30, |
| December 31, |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
| $ | 113,036 |
| $ | 57,386 |
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Accounts receivable, net of allowances of $2,697 and $4,069 at September 30, 2010 and December 31, 2009, respectively |
| 42,422 |
| 45,789 |
| ||
Inventories, net |
| 39,563 |
| 48,628 |
| ||
Deferred tax assets |
| 3,812 |
| 12,983 |
| ||
Prepaid expenses and other current assets |
| 4,864 |
| 6,563 |
| ||
Total current assets |
| 203,697 |
| 171,349 |
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Property and equipment, net |
| 43,097 |
| 47,386 |
| ||
Intangible assets, net |
| 13,329 |
| 17,975 |
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Goodwill |
| 119,281 |
| 119,076 |
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Deferred tax assets |
| 34,370 |
| 30,526 |
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Other assets |
| 4,344 |
| 4,816 |
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Total assets |
| $ | 418,118 |
| $ | 391,128 |
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LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY |
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Current liabilities: |
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Accounts payable |
| $ | 14,401 |
| $ | 14,299 |
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Accrued liabilities |
| 37,996 |
| 46,077 |
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Deferred tax liabilities |
| 56 |
| 3 |
| ||
Deferred revenue |
| — |
| 4,508 |
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Income tax payable |
| — |
| 195 |
| ||
Total current liabilities |
| 52,453 |
| 65,082 |
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Deferred tax liabilities |
| 294 |
| 303 |
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Other non-current liabilities |
| 11,953 |
| 4,844 |
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Total liabilities |
| 64,700 |
| 70,229 |
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Commitments and contingencies |
| — |
| — |
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Series A 3% Redeemable Convertible Preferred Stock, par value $0.001; Authorized: 100 shares; Issued and outstanding: 75 shares at September 30, 2010 and December 31, 2009; Redemption value: $87,089 |
| 72,938 |
| 70,504 |
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Stockholders’ equity: |
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Preferred stock, par value $0.001; Authorized: 4,900 shares; Issued and outstanding: none |
| — |
| — |
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Common stock, par value $0.001; Authorized: 75,000 shares; Issued and outstanding: |
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27,029 shares at September 30, 2010 and 26,886 shares at December 31, 2009 |
| 27 |
| 27 |
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Treasury stock: 4,005 shares at September 30, 2010 and 4,019 shares at December 31, 2009 |
| (108,351 | ) | (108,724 | ) | ||
Additional paid-in capital |
| 381,994 |
| 379,921 |
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Accumulated other comprehensive income |
| 3,938 |
| 1,645 |
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Accumulated deficit |
| 2,872 |
| (22,474 | ) | ||
Total stockholders’ equity |
| 280,480 |
| 250,395 |
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Total liabilities, redeemable convertible preferred stock and stockholders’ equity |
| $ | 418,118 |
| $ | 391,128 |
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ARTHROCARE CORPORATION
Condensed Consolidated Statements of Operations - Unaudited
(in thousands, except per share data)
|
| Three Months Ended |
| Nine Months Ended |
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| 2010 |
| 2009 |
| 2010 |
| 2009 |
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Revenues: |
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Product sales |
| $ | 84,312 |
| $ | 76,408 |
| $ | 255,560 |
| $ | 229,489 |
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Royalties, fees and other |
| 3,570 |
| 3,110 |
| 11,718 |
| 9,629 |
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Total revenues |
| 87,882 |
| 79,518 |
| 267,278 |
| 239,118 |
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Cost of product sales |
| 29,029 |
| 24,316 |
| 84,802 |
| 68,185 |
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Gross profit |
| 58,853 |
| 55,202 |
| 182,476 |
| 170,933 |
| ||||
Operating expenses: |
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Research and development |
| 9,383 |
| 9,229 |
| 27,076 |
| 27,099 |
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Sales and marketing |
| 26,669 |
| 28,563 |
| 82,397 |
| 88,700 |
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General and administrative |
| 9,295 |
| 11,981 |
| 27,372 |
| 36,101 |
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Amortization of intangible assets |
| 1,564 |
| 1,583 |
| 4,685 |
| 4,757 |
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Investigation and restatement related costs |
| 317 |
| 9,293 |
| 1,888 |
| 25,323 |
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Reimbursement services |
| 25 |
| 46 |
| 70 |
| 312 |
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Total operating expenses |
| 47,253 |
| 60,695 |
| 143,488 |
| 182,292 |
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Income (loss) from operations |
| 11,600 |
| (5,493 | ) | 38,988 |
| (11,359 | ) | ||||
Interest and other expense, net |
| (96 | ) | (1,207 | ) | (286 | ) | (3,339 | ) | ||||
Foreign exchange loss, net |
| 1,323 |
| (446 | ) | (2,712 | ) | (1,581 | ) | ||||
Interest and other expense, net |
| 1,227 |
| (1,653 | ) | (2,998 | ) | (4,920 | ) | ||||
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Income (loss) before income taxes |
| 12,827 |
| (7,146 | ) | 35,990 |
| (16,279 | ) | ||||
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Income tax provision (benefit) |
| 3,570 |
| (2,719 | ) | 9,824 |
| (2,656 | ) | ||||
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Net income (loss) |
| 9,257 |
| (4,427 | ) | 26,166 |
| (13,623 | ) | ||||
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Accrued dividend and accretion charges on Series A 3% Redeemable Convertible Preferred Stock |
| (820 | ) | (27,252 | ) | (2,434 | ) | (27,252 | ) | ||||
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Net income (loss) available to common stockholders |
| $ | 8,437 |
| $ | (31,679 | ) | $ | 23,732 |
| $ | (40,875 | ) |
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Weighted average shares outstanding: |
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Basic |
| 27,017 |
| 26,838 |
| 26,972 |
| 26,798 |
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Diluted |
| 27,323 |
| 26,838 |
| 27,299 |
| 26,798 |
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Earnings (loss) per common share: |
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Basic |
| $ | 0.26 |
| $ | (1.18 | ) | $ | 0.72 |
| $ | (1.53 | ) |
Diluted |
| $ | 0.25 |
| $ | (1.18 | ) | $ | 0.72 |
| $ | (1.53 | ) |
ARTHROCARE CORPORATION
Supplemental Schedule of Product Sales
(in thousands)
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| Three Months Ended |
| Three Months Ended |
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| September 30, 2010 |
| September 30, 2009 |
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| Americas |
| International |
| Total |
| % Net |
| Americas |
| International |
| Total |
| % Net |
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Sports Medicine |
| $ | 40,029 |
| $ | 16,944 |
| $ | 56,973 |
| 67.6 | % | $ | 35,502 |
| $ | 15,106 |
| $ | 50,608 |
| 66.2 | % |
ENT |
| 19,379 |
| 3,636 |
| 23,015 |
| 27.3 | % | 18,109 |
| 3,167 |
| 21,276 |
| 27.9 | % | ||||||
Spine |
| 2,276 |
| 2,048 |
| 4,324 |
| 5.1 | % | 2,636 |
| 1,888 |
| 4,524 |
| 5.9 | % | ||||||
Total Product Sales |
| $ | 61,684 |
| $ | 22,628 |
| $ | 84,312 |
| 100.0 | % | $ | 56,247 |
| $ | 20,161 |
| $ | 76,408 |
| 100.0 | % |
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% Net Product Sales |
| 73.2 | % | 26.8 | % | 100.0 | % |
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| 73.6 | % | 26.4 | % | 100.0 | % |
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| Nine Months Ended |
| Nine Months Ended |
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| September 30, 2010 |
| September 30, 2009 |
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| Americas |
| International |
| Total |
| % Net |
| Americas |
| International |
| Total |
| % Net |
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Sports Medicine |
| $ | 122,121 |
| $ | 50,012 |
| $ | 172,133 |
| 67.3 | % | $ | 106,760 |
| $ | 43,867 |
| $ | 150,627 |
| 65.6 | % |
ENT |
| 58,990 |
| 10,945 |
| 69,935 |
| 27.4 | % | 54,882 |
| 9,278 |
| 64,160 |
| 28.0 | % | ||||||
Spine |
| 7,114 |
| 6,378 |
| 13,492 |
| 5.3 | % | 8,394 |
| 6,308 |
| 14,702 |
| 6.4 | % | ||||||
Total Product Sales |
| $ | 188,225 |
| $ | 67,335 |
| $ | 255,560 |
| 100.0 | % | $ | 170,036 |
| $ | 59,453 |
| $ | 229,489 |
| 100.0 | % |
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% Net Product Sales |
| 73.7 | % | 26.3 | % | 100.0 | % |
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| 74.1 | % | 25.9 | % | 100.0 | % |
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