EXHIBIT 99.1
Contact: Michael Dale, President/CEO
[ATS MEDICAL LOGO] Jack Judd, Chief Financial Officer
763/553-7736
EVC Group, Inc.
Doug Sherk, Jennifer Beugelmans
415/896-6820
FOR IMMEDIATE RELEASE
ATS MEDICAL REPORTS 27.3% INCREASE IN THIRD QUARTER SALES
US SALES GROW 69.3% YEAR-OVER-YEAR
BUSINESS DEVELOPMENT EFFORT RESULTS IN INCREASED REVENUE DIVERSIFICATION
MINNEAPOLIS, OCTOBER 27 -- ATS Medical, Inc. (Nasdaq: ATSI), developer,
manufacturer and marketer of state-of-the-art cardiac surgery products and
services, today reported that sales for the third quarter of 2005 increased
27.3% to $8.3 million, compared with sales of $6.5 million for the third quarter
of 2004. Mechanical heart valve sales represented 85.5% of total revenue while
other products and services represented 14.5% of total revenue. There was no
meaningful impact on revenue from foreign currency exchange. The net loss for
the third quarter of 2005 decreased to $4.1 million, or $0.13 per share,
compared with a net loss of $4.5 million, or $0.15 per share, in the third
quarter of 2004. Included in the net loss amount in the third quarter of 2005 is
$0.7 million relating to a lower of cost or market inventory adjustment and in
the net loss amount in the third quarter of 2004 is $0.4 million in factory
production ramp-up costs, both recorded as additional cost of sales.
For the first nine months of 2005, sales increased 18.8% to $24.7 million,
compared with sales of $20.8 million for the first nine months of 2004. The net
loss for the first nine months of 2005 was $11.2 million, or $0.36 per share,
compared with $11.2 million or $0.40 per share for the same period a year ago.
"Our strong third quarter growth illustrates the success of our strategy to
diversify the product portfolio and leverage our sales and marketing
infrastructure," said Michael Dale, Chairman, President and CEO. "While we
generated solid year-over-year revenue growth with our ATS Open Pivot(R)
mechanical heart valves, especially in the U.S. market, our other products and
services added during 2005 represented 14.5% of our total revenue. This revenue
contribution compares with only 4% in the second quarter. The cardiovascular
surgeon is increasingly looking to ATS to provide state of the art products and
services that enhance patient outcomes."
"In addition, we continue to make operational progress. Our inventories have
declined $4.6 million from the September 30, 2004 level," continued Mr. Dale.
"Manufacturing efficiencies and product diversification are improving margins.
Our gross margin increased to 31.4% in the third quarter of 2005 from 20.9%
during the same period in 2004. After making allowances for lower of cost or
market and factory production ramp-up costs, gross margin improved to 39.8%
during the just completed quarter versus 27.2% in the prior year. Overall
inventories will continue to decline during the remainder of 2005. Operating
costs and most importantly, selling and marketing costs, have remained flat over
the past three quarters, while G&A expense has increased due to costs to comply
with Sarbanes Oxley and the expensing of restricted stock units."
"Looking ahead, we are highly optimistic about our ability to achieve
approximately $35 million in revenue for the full year 2005, which is at the
upper end of the guidance we provided at the beginning of 2005," Continued Mr.
Dale. "In addition to the solid momentum generated in the marketplace by our
Open Pivot mechanical heart valve, our new products and services are being well
received by the cardiovascular surgeon and we expect to achieve a $10 million
revenue quarter for the first time in the Company's history for the period
ending December 31, 2005. Our product development efforts are on schedule and we
remain particularly excited about the market potential of the PARSUS(TM) blood
filtration technology."
"We've also established some preliminary goals for 2006," continued Mr. Dale.
"Based on current operations, our goal is to grow revenue next year by 20 to 25
percent. We also continue to expect that we will consume our remaining high cost
pyrolytic carbon inventory early in 2006. Our strategy to self-manufacture 100%
of our future product component requirements remains on schedule and we
currently expect to achieve operating profitability during the second half of
2006."
"While our cash balances and credit facilities are sufficient to support our
current product and service lines, in early October we raised more than $22
million to fund our business development effort," continued Mr. Dale. "Our goal
with these resources is to continue to expand our product and service portfolio
so that ATS can become the provider of choice to the cardiovascular surgeon and
achieve significant gains in revenue. To date we have made substantial progress
towards our goals and we continue to devote significant time to our
diversification effort," concluded Mr. Dale.
DISCLOSURE OF NON-GAAP FINANCIAL MEASURES
ATS reports its financial results in accordance with generally accepted
accounting principles ("GAAP"). In addition, from time to time, we include other
measures in our releases which are not prepared in accordance with GAAP.
Investors should consider these non-GAAP measures in addition to, not as a
substitute for or as superior to, financial reporting measures prepared in
accordance with GAAP. In this release we have included adjusted versions of our
gross margin percentages for the third quarters of 2005 and 2004. These non-GAAP
measures do not reflect a lower of cost or market inventory adjustment in the
third quarter of 2005 and certain factory production ramp-up costs in the third
quarter of 2004 because we believe that these charges will not be incurred on a
regular basis. We use the adjusted gross margin measure in our internal analysis
and review of our operational performance. We believe that these non-GAAP
measures provide investors with useful information in comparing our performance
over different periods, particularly when comparing one of these periods to a
period in which we did not incur these
kind of charges. By using these non-GAAP measures we believe investors get a
better picture of the performance of our underlying business. We have also
included as an attachment to this release a schedule which reconciles our gross
margin percentage calculated using numbers prepared in accordance with GAAP to
our adjusted gross margin percentages presented above.
CONFERENCE CALL TODAY
ATS management will host a conference call and web cast today, October 27, 2005
at 4:30 p.m. ET to discuss its third quarter financial results, outlook for the
remainder of 2005 and 2006, and current corporate developments. The dial in
number for the conference call is 866-249-6463 for domestic participants and
303-262-2190 for international participants.
A taped replay of the conference call will also be available beginning
approximately one hour after the call's conclusion and will remain available
through Midnight ET on Thursday, November 3, 2005 and can be accessed by dialing
800-405-2236 for domestic callers and 303-590-3000 for international callers,
using the passcode 11041619#. A live webcast of the call can be accessed at
http://www.atsmedical.com by clicking on the Investors icon. The replay of the
webcast will be available on the company's website for one year.
ABOUT ATS MEDICAL
ATS Medical manufactures and markets products and services focused on
cardiac surgery. It is headquartered in Minneapolis and is global in scope with
sales in more than 61 countries. More than 100,000 ATS Open Pivot heart valves,
which utilize a unique pivot design resulting in exceptional clinical
performance and a lower risk profile, have been implanted in patients worldwide.
The ATS Medical web site is http://www.atsmedical.com.
SAFE HARBOR
This Press Release contains forward-looking statements that may include
statements regarding intent, belief or current expectations of the Company and
its management. Actual results could differ materially from those projected in
the forward looking statements as a result of a number of important factors,
including regulatory actions, competition, pricing pressures, supplier actions
and management of growth. For a discussion of these and other risks and
uncertainties that could affect the Company's activities and results, please
refer to the Company's filings with the Securities and Exchange Commission,
including its Form 10-Q for the quarter ended June 30, 2005.
ATS MEDICAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
Three months ended Nine months ended
September 30, September 30,
-------------------------- ----------------------------
2005 2004 2005 2004
----------- ----------- ------------ ------------
Net sales $8,333 $6,547 $24,703 $20,789
Cost of goods sold 5,714 5,178 15,489 15,372
----------- ----------- ------------ ------------
Gross profit 2,619 1,369 9,214 5,417
Operating expenses:
Sales and marketing 4,323 4,211 13,765 11,827
Research and development 409 278 1,118 651
General and administrative 1,928 1,423 5,443 4,171
----------- ----------- ------------ ------------
Total operating expenses 6,660 5,912 20,326 16,649
----------- ----------- ------------ ------------
Operating loss (4,041) (4,543) (11,112) (11,232)
----------- ----------- ------------ ------------
Interest (expense) income (37) 17 (58) 33
----------- ----------- ------------ ------------
Net loss ($4,078) ($4,526) ($11,170) ($11,199)
=========== =========== ============ ============
Net loss per share:
Basic and diluted ($0.13) ($0.15) ($0.36) ($0.40)
Weighted average number of shares outstanding:
Basic and diluted 31,039 30,730 30,981 28,215
</Table>
ATS MEDICAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
September 30, December 31,
2005 2004
---------------- -----------------
ASSETS
Cash and short-term investments $2,973 $15,994
Accounts receivable 10,300 7,893
Inventories 23,782 24,303
Prepaid expenses 831 1,053
---------------- -----------------
Total current assets 37,886 49,243
Property and equipment, net 8,012 7,650
Other inventories - 3,000
Intangible assets 20,515 18,720
Other assets 442 438
---------------- -----------------
TOTAL ASSETS $66,855 $79,051
================ =================
LIABILITIES & SHAREHOLDERS' EQUITY
Accounts payable $2,699 $4,049
Accrued compensation 1,790 1,797
Other accrued liabilities 1,247 1,174
Current maturities of long-term debt 833 764
---------------- -----------------
Total current liabilities 6,569 7,784
Long-term liabilities 1,111 1,826
Shareholders' equity 59,175 69,441
---------------- -----------------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $66,855 $79,051
================ =================
ATS MEDICAL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOW
(IN THOUSANDS)
Nine months ended September 30,
--------------------------------------
2005 2004
---------------- -----------------
OPERATING ACTIVITIES
Net loss ($11,170) ($11,199)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 1,145 802
Compensation expense on stock options 359 33
Non-cash interest expense 22 5
Lower of cost or market adjustment 700 -
Changes in operating assets and liabilities (742) 9,141
---------------- -----------------
Net cash used in operating activities (9,686) (1,218)
INVESTING ACTIVITIES
Maturities of short-term investments, net of purchases 5,738 1,981
Payments for intangible assets (1,817) (232)
Net purchases of furniture, machinery and equipment (1,507) (1,840)
---------------- -----------------
Net cash provided by (used in) investing activities
2,414 (91)
FINANCING ACTIVITIES
Net proceeds from sale of common stock 413 12,975
Loan advances - 2,500
Repayments on note payable (556) -
---------------- -----------------
Net cash provided by (used in) financing activities
(143) 15,475
Other items 132 32
---------------- -----------------
Increase (decrease) in cash and cash equivalents ($7,283) $14,198
================ =================
</Table>
ATS MEDICAL, INC.
RECONCILIATION OF GAAP GROSS PROFIT TO ADJUSTED GROSS PROFIT
(IN THOUSANDS)
Three months ended Nine months ended
September 30, September 30,
-------------------------- ---------------------------
2005 2004 2005 2004
----------- ----------- ------------ -----------
Net sales, as reported $8,333 $6,547 $24,703 $20,789
Cost of goods sold, as reported 5,714 5,178 15,489 15,372
----------- ----------- ------------ -----------
Gross profit, as reported 2,619 1,369 9,214 5,417
Gross profit % 31.4% 20.9% 37.3% 26.1%
Adjustments to gross profit
Factory production ramp-up costs 415 415
Lower of cost or market write-down 700 - 700 -
----------- ----------- ------------ -----------
Adjusted gross profit 3,319 1,784 9,914 5,832
Adjusted gross profit % 39.8% 27.2% 40.1% 28.1%
</Table>