TranS1 Inc. Reports Operating Results For The Third Quarter Of 2010, Issues Fourth Quarter Guidance

- Third quarter revenues were $6.3 million -

- 589 TranS1 procedures performed globally in the quarter -

- Net loss per share was $0.18 for the quarter -

- Excluding special items, net loss per share was $0.16 for the quarter* -

WILMINGTON, N.C., Nov. 9, 2010 (GLOBE NEWSWIRE) -- TranS1 Inc. (Nasdaq:TSON), a medical device company focused on designing, developing and marketing products that implement its proprietary approach to treat degenerative conditions of the spine affecting the lower lumbar region, today announced its financial results for the third quarter ended September 30, 2010.
Comparison of Selected Financial Results (in millions, except per share data)
  Three Months Ended Sept. 30,
  2010 2009
As reported:    
Total revenue $6.3 $6.9
Net loss (3.8) (5.6)
Net loss per common share (0.18) (0.27)
Excluding special items*:    
Net loss (3.4) (4.8)
Net loss per common share (0.16) (0.23)
     
* See "Reconciliation of GAAP Financial Information to Non-GAAP Financial Information" below.

Revenues were $6.3 million in the third quarter of 2010, representing an 8% decrease over revenues of $6.9 million in the third quarter of 2009. Domestic revenues were $5.9 million in the third quarter of 2010, compared to $6.5 million in the third quarter of 2009. Gross margin was 81.0% in the third quarter of 2010 as compared to 80.2% in the third quarter of 2009. 

Net loss was $3.8 million and $5.6 million for the quarters ended September 30, 2010 and 2009, respectively.   Net loss per common share was $0.18 in the third quarter of 2010 compared to a net loss per share of $0.27 in the third quarter of 2009.

Excluding special items, net loss in the third quarter of 2010 was $3.4 million, or $0.16 per common share, compared to net loss excluding special items of $4.8 million, or $0.23 per common share in the third quarter of 2009. Special items in the third quarter of 2010 consisted of inventory obsolescence reserves of $0.1 million and employee and director equity-based compensation of $0.4 million. Special items in the third quarter of 2009 consisted of employee and director equity-based compensation of $0.6 million and inventory obsolescence reserves of $0.1 million.

Cash, cash-equivalents and investments were $44.1 million as of September 30, 2010. 

"In addition to typical third quarter seasonal weakness, our sales for the quarter were adversely affected by a higher rate of insurance denials for lumbar surgery due to medical necessity and ongoing AxiaLIF physician reimbursement pressures," commented Rick Randall, Chief Executive Officer of TranS1 Inc. "We reduced our cash burn by 49% over the prior year while strategically investing in direct sales efforts and payor reimbursement initiatives in geographies where we are seeing procedural growth."

TranS1 Outlook

For the fourth quarter ending December 31, 2010, the company expects total revenues in the range of $5.0 - $6.0 million.

Conference Call

TranS1 will host a conference call today at 4:30 pm ET to discuss its third quarter financial results. To listen to the conference call on your telephone, please dial (877) 881-2183 for domestic callers and (970) 315-0453 for international callers approximately ten minutes prior to the start time. The call will be concurrently webcast. To access the live audio broadcast or the archived recording, use the following link at http://ir.trans1.com/events.cfm.

Reconciliation of GAAP Financial Information to Non-GAAP Financial Information

To supplement the Company's consolidated financial statements presented in accordance with GAAP, the Company uses non-GAAP measures of certain components of financial performance, including net loss and loss per share, which are adjusted from results based on GAAP.  Although "as adjusted" financial measures are non-GAAP financial measures, the Company believes that the presentation of "as adjusted" financial measures calculated to exclude "special items" are useful adjuncts to the GAAP "as reported" financial measures.  "Special items" consist of an adjustment for equity-based employee and director compensation expense for each period, management transition costs incurred in 2010, including severance, recruiting and other personnel-related expenses, and inventory obsolescence reserves taken in 2010 for an existing product that is being replaced and in 2009 for obsolete and excess inventory. These non-GAAP measures are provided to enhance investors' overall understanding of the Company's current financial performance and the Company's prospects for the future. We believe that providing a non-GAAP measure that adjusts for significant non-cash expenses, such as equity-based compensation expense and inventory obsolescence reserves, and significant non-recurring management transition expenses, allows comparison of our core operations from period to period. These non-GAAP measures may be considered in addition to results prepared in accordance with generally accepted accounting principles, but should not be considered a substitute for, or superior to, GAAP results. The non-GAAP measures included in this press release have been reconciled to the most directly comparable GAAP measure.

About TranS1 Inc.

TranS1 is a medical device company focused on designing, developing and marketing products that implement its proprietary approach to treat degenerative conditions of the spine affecting the lower lumbar region. TranS1 currently markets the AxiaLIF family of products for single and multilevel lumbar fusion and the Vectre and Avatar posterior fixation systems for lumbar fixation supplemental to AxiaLIF fusion.  TranS1 was founded in May 2000 and is headquartered in Wilmington, North Carolina. For more information, visit www.trans1.com.

This press release includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, the accuracy of which are necessarily subject to risks and uncertainties. These risks and uncertainties include, among other things, risks associated with the adoption of a new technology by spine surgeons, product development efforts, regulatory requirements, maintenance and prosecution of adequate intellectual property protection and other economic and competitive factors. These forward looking statements are based on the company's expectations as of the date of this press release and the company undertakes no obligation to update information provided in this press release. For a discussion of risks and uncertainties associated with TranS1's business, please review the company's filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the year ended December 31, 2009.
TranS1 Inc.
Consolidated Statements of Operations
(in thousands, except per share amounts)
(Unaudited)
         
  Three Months Ended September 30,  Nine Months Ended September 30, 
  2010 2009 2010 2009
         
         
Revenue  $ 6,339  $ 6,912  $ 20,296  $ 23,528
Cost of revenue  1,205  1,366  3,998  4,423
Gross profit  5,134  5,546  16,298  19,105
Operating expenses:        
Research and development  1,026  1,362  3,307  5,047
Sales and marketing  5,908  8,126  20,053  26,219
General and administrative  2,011  1,683  6,716  5,714
Total operating expenses  8,945  11,171  30,076  36,980
Operating loss (3,811) (5,625) (13,778) (17,875)
Other income (expense) 20 54 (15) 382
Net loss  $ (3,791)  $ (5,571)  $ (13,793)  $ (17,493)
         
Net loss per common share - basic an diluted  $ (0.18)  $ (0.27)  $ (0.67)  $ (0.85)
         
Weighted average common shares outstanding - basic and diluted  20,741  20,630  20,694  20,591
         
         
Stock-based compensation is included in operating expenses in the following categories:         
Cost of revenue  $ 7  $ 19  $ 23  $ 56
Research and development  11  40  43  141
Sales and marketing  165  368  698  1,143
General and administrative  176  186  657  860
   $ 359  $ 613  $ 1,421  $ 2,200
 
 
Reconciliation of GAAP Financial Information to Non-GAAP Financial Information
(in thousands, except per share amounts)
(Unaudited)
  Three Months Ended September 30, 
  2010 2009
GAAP net loss  $ (3,791)  $ (5,571)
Special items:    
Management transition costs  26  -- 
Inventory obsolescence reserve  56  125
Stock based compensation  359  613
Net loss excluding special items  $ (3,350)  $ (4,833)
     
GAAP net loss per share  $ (0.18)  $ (0.27)
Special items:    
Management transition costs  --   -- 
Inventory obsolescence reserve  --   0.01
Stock based compensation  0.02  0.03
Net loss excluding special items  $ (0.16)  $ (0.23)
     
Shares used in computing GAAP and non-GAAP loss per share  20,741  20,630
     
  Nine Months Ended September 30, 
  2010 2009
GAAP net loss  $ (13,793)  $ (17,493)
Special items:    
Management transition costs  1,347  -- 
Inventory obsolescence reserve  322  425
Stock based compensation  1,421  2,200
Net loss excluding special items  $ (10,703)  $ (14,868)
     
GAAP net loss per share  $ (0.67)  $ (0.85)
Special items:    
Management transition costs  0.07  -- 
Inventory obsolescence reserve  0.02  0.02
Stock based compensation  0.07  0.11
Net loss excluding special items  $ (0.51)  $ (0.72)
     
Shares used in computing GAAP and non-GAAP loss per share  20,694  20,591
 
TranS1 Inc.
Consolidated Balance Sheets
(in thousands)
(Unaudited)
  September 30, December 31,
  2010 2009
Assets    
Current assets:    
Cash and cash equivalents $ 25,089 $ 29,298
Short-term investments  18,980  25,953
Accounts receivable, net  4,428  3,926
Inventory 6,164 7,325
Prepaid expenses and other assets 338 676
Total current assets 54,999 67,178
Property and equipment, net 1,569 1,813
Total assets $ 56,568 $ 68,991
     
Liabilities and Stockholders' Equity    
Current liabilities:    
Accounts payable $ 1,294 $ 2,442
Accrued expenses 2,249 1,269
Total current liabilities 3,543 3,711
     
Stockholders' equity:    
Common stock 2 2
Additional paid-in capital 137,951 136,402
Accumulated other comprehensive income (loss) (16) (5)
Accumulated deficit (84,912) (71,119)
Total stockholders' equity 53,025 65,280
Total liabilities and stockholders' equity $ 56,568 $ 68,991
 
TranS1 Inc.
Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
         
  Three Months Ended September 30,  Nine Months Ended September 30, 
  2010 2009 2010 2009
Cash flows from operating activities:        
Net loss $ (3,791) $ (5,571) $ (13,793) $ (17,493)
Adjustments to reconcile net loss to net        
cash used in operating activities:        
Depreciation 166 236 592 684
Stock-based compensation 359 613 1,421 2,200
Allowance for excess and obsolete inventory 56 148 341 541
Provision for bad debts 17 18 54 63
Loss on sale of fixed assets     70 --
Changes in operating assets and liabilities:        
(Increase) decrease in accounts receivable 137 521 (556) 581
(Increase) decrease in inventory 207 (473) 820 (1,843)
(Increase) decrease in prepaid expenses 281 114 338 199
Increase (decrease) in accounts payable (413) (444) (1,148) (241)
Increase (decrease) in accrued expenses 302 (242) 980 (229)
Net cash used in operating activities (2,679) (5,080) (10,881) (15,538)
Cash flows from investing activities:        
Purchase of property and equipment (62) (143) (418) (553)
Purchases of investments -- (6,008) (7,969) (39,911)
Sales and maturities of short-term investments (18) 12,314 14,942 44,157
Net cash provided by (used in) investing activities (80) 6,163 6,555 3,693
Cash flows from financing activities:        
Proceeds from issuance of common stock 87 9 128 89
Net cash provided by (used in) financing activities 87 9 128 89
Effect of exchange rate changes on cash and cash equivalents -- (1) (11) 3
Net increase (decrease) in cash and cash equivalents (2,672) 1,091 (4,209) (11,753)
Cash and cash equivalents, beginning of period 27,761 29,207 29,298 42,051
Cash and cash equivalents, end of period $ 25,089 $ 30,298 $ 25,089 $ 30,298
CONTACT:  TranS1 Inc.          Investors:          Joseph P. Slattery, Executive Vice-President and           Chief Financial Officer          910-332-1700          Westwicke Partners           Mark Klausner           443-213-0501          mark.klausner@westwicke.com

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