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TheStreet Open House

ArthroCare Reports Second Quarter 2011 Financial Results

Stock quotes in this article: ARTC

BALANCE SHEET AND CASH FLOWS

Cash and cash equivalents increased $52.4 million to $184.9 million as of June 30, 2011 from $132.5 million at December 31, 2010. Cash flows provided by operating activities for the six months ended June 30, 2011 was $44.0 million compared to $32.4 million for the six months ended June 30, 2010. As of June 30, 2011, net inventory balances decreased approximately $2.6 million and accounts receivable decreased $0.9 million from December 31, 2010.

CONFERENCE CALL

ArthroCare will hold a conference call to present these results Thursday, August 4, 2011, at 8:30 a.m. ET/5:30 a.m. PT to review the results. To participate in the live conference call dial 800-926-6185. 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 21533651. The replay will remain available through August 18, 2011.

ABOUT ARTHROCARE

ArthroCare develops and manufactures surgical devices, instruments, and implants that strive to enhance surgical techniques as well as improve patient outcomes. Its devices improve many existing surgical procedures and enable new minimally invasive procedures. Many of ArthroCare’s devices use its internationally patented Coblation ® technology. This technology precisely dissolves target tissue and limits damage to surrounding healthy tissue. ArthroCare also develops surgical devices utilizing other patented technology including its OPUS ® line of fixation products as well as re-usable surgical instruments. ArthroCare is leveraging these technologies in order to offer a comprehensive line of surgical devices to capitalize on a multi-billion dollar market opportunity across several surgical specialties, including its two core product areas consisting of Sports Medicine and Ear, Nose, and Throat as well as other areas such as spine, wound care, urology and gynecology.

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 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 investigation being conducted by 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.

 
ARTHROCARE CORPORATION
Condensed Consolidated Balance Sheets - Unaudited
(in thousands, except par value data)
    June 30, 2011   December 31, 2010
 
ASSETS
Current assets:
Cash and cash equivalents $ 184,900 $ 132,536

Accounts receivable, net of allowances of $2,265 and $2,445 at June 30, 2011 and December 31, 2010, respectively

47,968 48,870
Inventories, net 31,500 34,087
Deferred tax assets 18,075 24,661
Prepaid expenses and other current assets 6,404 4,424
Assets held for sale   -     3,081  
Total current assets 288,847 247,659
 
Property and equipment, net 38,438 41,582
Intangible assets, net 8,137 10,733
Goodwill 119,490 119,020
Deferred tax assets 16,019 16,019
Other assets   1,693     4,182  
Total assets $ 472,624   $ 439,195  
 
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND

STOCKHOLDERS' EQUITY

Current liabilities:
Accounts payable $ 12,168 $ 13,819
Accrued liabilities 40,914 40,197
Deferred tax liabilities 149 149
Income tax payable   1,308     1,555  
Total current liabilities 54,539 55,720
 
Deferred tax liabilities 233 213
Other non-current liabilities   12,916     13,766  
Total liabilities 67,688 69,699
 
Series A 3% Redeemable Convertible Preferred Stock, par value $0.001; Authorized: 100 shares;

Issued and outstanding: 75 shares at June 30, 2011 and December 31, 2010; Redemption value $87,089

75,457 73,768
 
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: 31,424 and 31,102 shares;

Outstanding: 27,446 and 27,112 shares at June 30, 2011 and December 31, 2010, respectively 27 27
Treasury stock: 3,978 shares at June 30, 2011 and 3,990 shares December 31, 2010 (107,577 ) (107,899 )
Additional paid-in capital 395,409 386,395
Accumulated other comprehensive income 5,280 4,246
Retained earnings   36,340     12,959  
Total stockholders' equity   329,479     295,728  
Total liabilities, redeemable convertible preferred stock and stockholders' equity $ 472,624   $ 439,195  
 
ARTHROCARE CORPORATION
Condensed Consolidated Statements of Operations - Unaudited
(in thousands, except per share data)
  Three Months Ended

June 30,

  Six Months Ended

June 30,

  2011       2010     2011       2010  
 
Revenues:
Product sales $ 86,925 $ 83,066 $ 170,432 $ 168,231
Royalties, fees and other   4,349     4,113     8,774     8,062  
Total revenues 91,274 87,179 179,206 176,293
 
Cost of product sales   25,897     28,358     50,641     54,937  
 
Gross profit   65,377     58,821     128,565     121,356  
Operating expenses:
Research and development 6,613 8,414 13,423 17,029
Sales and marketing 27,274 26,887 55,372 53,742
General and administrative 10,426 9,107 19,614 18,362
Amortization of intangible assets 1,323 1,302 2,634 2,617
Exit costs 2,490 - 2,490 -
Investigation and restatement related costs   2,257     528     3,461     1,571  
Total operating expenses   50,383     46,238     96,994     93,321  
 
Income from operations 14,994 12,583 31,571 28,035
Foreign exchange gain (loss) 78 (1,075 ) 742 (4,035 )
Interest and other expense, net   (201 )   (89 )   (375 )   (190 )
Other income (expense)   (123 )   (1,164 )   367     (4,225 )
 
Income from continuing operations before income taxes 14,871 11,419 31,938 23,810
 
Income tax provision   4,171     3,134     8,779     6,448  
 
Net income from continuing operations 10,700 8,285 23,159 17,362
 
Income (loss) from discontinued operations   1,600     (203 )   1,911     (453 )
 
Net income 12,300 8,082 25,070 16,909
 

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

  (849 )   (812 )   (1,689 )   (1,614 )
 
Net income available to common stockholders $ 11,451   $ 7,270   $ 23,381   $ 15,295  
 
Weighted average shares outstanding:Weighted-average shares outstanding:
Basic 27,338 26,976 27,267 26,958
Diluted 27,789 27,352 27,702 27,295
 
Earnings per share from continuing operations applicable to common stockholders:
Basic $ 0.30   $ 0.23   $ 0.65   $ 0.48  
Diluted $ 0.29   $ 0.22   $ 0.64   $ 0.47  
 

Earnings per share applicable to common stockholders:

Basic

$ 0.35   $ 0.22   $ 0.71   $ 0.47  

Diluted

$ 0.34   $ 0.22   $ 0.70   $ 0.46  

 

 
ARTHROCARE CORPORATION
Supplemental Schedule of Product Sales
(in thousands)
               
Three Months Ended Three Months Ended
June 30, 2011 June 30, 2010
Americas International

Total Product Sales

% Net Product Sales

Americas International

Total Product Sales

% Net Product Sales

 
 
Sports Medicine $ 36,348 $ 20,808 $ 57,156 65.7 % $ 37,701 $ 17,010 $ 54,711 65.9 %
ENT 22,650 4,785 27,435 31.6 % 21,196 3,979 25,175 30.3 %
Other   859   1,475   2,334 2.7 %   1,137   2,043   3,180 3.8 %
Total Product Sales $ 59,857 $ 27,068 $ 86,925 100.0 % $ 60,034 $ 23,032 $ 83,066 100.0 %
 
 
 
Six Months Ended Six Months Ended
June 30, 2011 June 30, 2010
Americas International

Total Product Sales

% Net Product Sales

Americas International

Total Product Sales

% Net Product Sales

 
 
Sports Medicine $ 73,729 $ 40,136 $ 113,865 66.8 % $ 82,092 $ 33,068 $ 115,160

68.4

%
ENT 42,687 9,052 51,739 30.4 % 39,611 7,309 46,920 27.9 %
Other   1,545   3,283   4,828 2.8 %   2,100   4,051   6,151 3.7 %
Total Product Sales $ 117,961 $ 52,471 $ 170,432 100.0 % $ 123,803 $ 44,428 $ 168,231 100.0 %




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