Revenues Grow 40% to $128.1 Million; St. Francis Integration Ahead of
Schedule
SUNNYVALE, Calif., April 26 /PRNewswire-FirstCall/ -- Kyphon Inc.
(Nasdaq: KYPH) today announced operating results for the first quarter
ended March 31, 2007 as follows:
Operating Results
Kyphon's worldwide net sales totaled $128.1 million, which includes
$18.1 million of X-STOP(R) Interspinous Process Decompression (IPD(R))
product sales from the St. Francis Medical Technologies, Inc. (SFMT)
acquisition that closed on January 18, 2007. Total product sales increased
40%, or 38% at constant foreign currency exchange rates, compared to the
$91.4 million in net sales reported for the first quarter of 2006.
Total revenues in the U.S. increased 34% to $101.1 million, while total
international revenues increased 70% to $27.0 million. Revenues from
Kyphon's spinal motion preservation and disc disease diagnosis and
therapies businesses, which includes the X-STOP(R) IPD(R), Aperius(TM)
Percutaneous Lumbar Interspinous Decompression (PercLID(TM)) and Functional
Anaesthetic Discography(TM) (F.A.D.(TM)) technologies, were $14.3 million
in the U.S. and $4.2 million in international markets.
Kyphon's core spinal fracture management and repair business revenue
grew 20% to $109.6 million over the same quarter of 2006. Revenues in the
U.S. grew 15% to $86.8 million and revenues from international operations
grew 43% to $22.8 million in the first quarter.
Reported net loss was $22.6 million, or $0.50 per share compared to net
income of $8.5 million, or $0.19 per diluted share, for the same period a
year ago. The reported $0.50 loss per share includes $40.5 million pre-tax
and $31.9 million after-tax SFMT in-process research and development
(IPR&D) charges and acquisition-related expenses, which are detailed in the
reconciliation of non-GAAP income below.
Non-GAAP diluted earnings per share for the first quarter of 2007 were
$0.20, compared to diluted earnings per share of $0.19 in the same quarter
a year ago. The non-GAAP diluted earnings per share of $0.20 excludes the
following impacts from the SFMT acquisition: (1) $0.45 per share for IPR&D
charges; (2) $0.09 per share for write-off of bank loan fees associated
with the acquisition; (3) $0.05 per share for purchase accounting
adjustments related to inventory valuation; (4) $0.03 per share for costs
related to the transition of SFMT sales agent activities to Kyphon's direct
sales force in the U.S.; and (5) $0.05 per share for severance and other
transitional compensation expense. A reconciliation of GAAP and non-GAAP
operating results is presented below.
"We are pleased with our strong execution this quarter and the focus
that was maintained on our core spinal fracture management and repair
business while integrating the X-STOP(R) IPD(R) system obtained through our
St. Francis acquisition," said Richard Mott, president and chief executive
officer of Kyphon. "We made excellent progress in assimilating St. Francis'
operations into Kyphon's and undertaking clinical initiatives designed to
support long term procedural adoption and adequate facility and physician
reimbursement for the X-STOP(R) IPD(R) technology. Furthermore, as device
competition increases in the vertebral compression fracture market, we
believe the ability of balloon kyphoplasty to achieve deformity correction
coupled with the growing body of clinical data for the procedure remain key
considerations for many clinicians in selecting the appropriate treatment
for their spinal fracture patients. We believe we are well positioned for
future growth through our focus on restoring spinal function through
minimally invasive therapies," Mott concluded.
Business Highlights
During the first quarter of 2007:
-- Kyphon completed enrollment for its Japan registry trial for its
balloon kyphoplasty inflatable bone tamps and bone cement. This represents
a critical milestone for obtaining regulatory approval in this key market
with an estimated half-million fractures each year due to osteoporosis.
-- The health insurance company Aetna, Inc. published national coverage
for kyphoplasty. Aetna's membership represents over 30 million covered
lives, more than 767,000 health care professionals, and more than 453,000
primary care physicians at over 4,400 hospitals.
-- Kyphon successfully closed a $400 million offering of convertible
senior notes. The proceeds, together with revolver borrowings, were used to
retire the $425 million senior secured term loan incurred to complete the
acquisition of SFMT.
-- Kyphon launched its Aperius(TM) PercLID(TM) system for the treatment
of mild to moderate lumber spinal stenosis (LSS) in select European
markets. The device received the CE Mark in October 2006 and is a
percutaneous solution used by spine specialists in treating LSS.
-- Kyphon early concluded enrollment of patients in its European BEST
(Biomaterials Effectiveness and Safety in Trauma) clinical trial for the
use of its KyphOs(TM) FS calcium phosphate material in treating vertebral
compression fractures caused by trauma. The clinical trial investigators
determined that the interim analysis after enrolling 51 patients showed
highly statistically and clinically significant improvement in pain in
addition to having a high safety profile. The company is preparing to
initiate market launch activities of KyphOs(TM) FS in select European
countries in the second half of 2007.
-- Kyphon initiated enrollment in a pilot multi-center, prospective,
single-arm clinical study evaluating its Discyphor(TM) Catheter for the
F.A.D.(TM) procedure versus provocative discography. The SODA (Study Of
Disc Anaesthesia) study is expected to enroll up to 100 patients in up to
15 sites and is designed to measure the proportion of positive disc levels
registered after provocative discography differing from that after the
F.A.D.(TM) procedure.
-- Kyphon enrolled 23 patients in its CAFE (CAncer Fracture
Evaluation), study bringing the total cumulative enrollment to 75 patients.
This multi- center, randomized, controlled study designed to evaluate
balloon kyphoplasty versus non-surgical management in patients suffering
vertebral compression fractures due to cancer is intended to enroll up to
200 patients.
-- Kyphon enrolled 30 patients in its KAVIAR (Kyphoplasty And
Vertebroplasty In the Augmentation and Restoration of Vertebral Body
Compression Fractures) study, bringing the total cumulative enrollment to
45 patients. This multi-center, randomized, controlled study is designed to
evaluate balloon kyphoplasty against vertebroplasty on a number of
endpoints and is intended to enroll up to 1,234 patients.
Financial Outlook for Full-Year 2007 and Quarter Ending June 30, 2007
For the full-year 2007, net sales are targeted to increase
approximately 40% to 43% versus 2006 to $570-$585 million. Based on our
view of how our existing business is expected to perform, we are providing
this updated target revenue range although it excludes all of the $5-10
million in 2007 revenue from the Disc-O-Tech products that was originally
included in our previous guidance of $565-$585 million. The company
presently assumes that both previously announced asset transactions with
Disc-O-Tech Medical Technologies, Ltd. will close by the end of the fourth
quarter of 2007; however, both remain subject to clearance by the Federal
Trade Commission and the timing of the closing of these transactions
remains uncertain.
We anticipate approximately 82% to 85% of 2007 revenues will be
generated from our spinal fracture management and repair business and
approximately 15% to 18% will be generated from our spinal motion
preservation business, which includes the X-STOP(R) IPD(R) and the
Aperius(TM) PercLID(TM) system. International revenues are expected to
comprise approximately 22% to 24% of total 2007 revenues.
The full-year 2007 target range for earnings per diluted share, which
includes the impact of all of the charges associated with the SFMT and
Disc-O- Tech transactions except the write-off of IPR&D, is expected to be
between $0.80 and $0.88. The target range for non-GAAP earnings per diluted
share excluding IPR&D charges and the acquisition-related expenses as
outlined in the GAAP to non-GAAP reconciliation provided below is $1.06 to
$1.14. This target earnings range assumes amortization of intangible
charges for the full year of $19 million related to the SFMT acquisition
and $3 million relating to the Disc-O-Tech asset acquisition transactions.
The company estimates that the one-time pre-tax charge for IPR&D
associated with the acquisitions of SFMT and the spinal assets of
Disc-O-Tech will be approximately $56 million. Of the estimated $56 million
charge, the $21 million associated with the SFMT acquisition recorded in
the first quarter of 2007 is non-tax deductible. Kyphon currently assumes
the remaining $35 million of the IPR&D charge relating to the two
Disc-O-Tech transactions will occur in the fourth quarter of 2007.
For the second quarter of 2007, the company anticipates worldwide net
sales of $137 million to $142 million, which represents an increase of 36%
to 41% versus the second quarter of 2006. Worldwide net sales from the
spinal fracture management and repair business are targeted to be between
$114 million to $118 million, which represents an increase of 13% to 17%
versus the same period a year ago. Net sales from the company's
international operations are targeted to constitute approximately 22% to
23% of worldwide revenues in the second quarter of 2007.
For the second quarter of 2007, the target range for earnings per
diluted share including the impact of certain acquisition related charges
is $0.18 to $0.20. The non-GAAP earnings per diluted share, excluding the
after-tax impact of certain acquisition-related expenses, estimated at $2.7
million pre- tax, is targeted to be between $0.21 and $0.23. A
reconciliation of GAAP to non-GAAP earnings per diluted share for the
company's financial outlook is as follows:
Three Months Ending Year Ending
June 30, 2007 December 31, 2007
Projected GAAP earnings per
diluted share $0.18 - $0.20 ($0.05) - $0.03
Add: Write-off of in-process research
and development -- 0.85
Projected earnings per diluted share,
excluding in-process research and
development $0.18 - $0.20 $0.80 - $0.88
Add: Acquisition related expenses,
net of tax 0.03 0.26
Projected non-GAAP earnings per
diluted share $0.21 - $0.23 $1.06 - $1.14
Selected Metrics
Kyphon ended the first quarter of 2007 with approximately 500
individuals in its worldwide field-based sales organization, which includes
device sales representatives, sales management, and other field-based sales
professionals. The company is planning to end 2007 with approximately 580
to 610 field based sales professionals worldwide. This global sales
organization works with spine specialists worldwide who perform, or who are
candidates to perform, the balloon kyphoplasty procedure and the primary
care physician community, to educate them about the balloon kyphoplasty
treatment for spinal fractures and the X-STOP(R) IPD(R) procedure to treat
lumbar spinal stenosis.
Through the first quarter of 2007, approximately 6,300 spine
specialists in the U.S. and 4,800 outside the U.S. have been trained to
perform balloon kyphoplasty. For 2007, Kyphon expects to train a total of
approximately 1,700 physicians to perform balloon kyphoplasty procedures,
700 in the U.S. and 1,000 outside of the U.S. Approximately 1,800 spine
surgeons in the U.S. have been trained to perform the X-STOP(R) IPD(R)
procedure through the first quarter of 2007. In 2007, the company expects
to train approximately 1,800 spine specialists in the U.S. to perform the
X-STOP(R) IPD(R) procedure.
Use of Non-GAAP Financial Measures
Kyphon management believes that investors may wish to consider the
impact of certain charges to better understand short- and long-term
financial trends in the company's operations and financial performance.
These charges result from facts and circumstances that vary in frequency
and/or impact on continuing operations. In addition, Kyphon management uses
results of operations before certain charges to evaluate the operational
performance of the company and as a basis for strategic planning. Investors
should consider these non-GAAP measures in addition to, and not as a
substitute for, financial performance measures in accordance with GAAP.
Reconciliation of GAAP and Non-GAAP Operating Results
Non-GAAP first quarter 2007 results exclude certain expenses related to
the acquisition of SFMT. This non-GAAP presentation is given in part to
enhance the understanding of the company's historical financial performance
and comparability between periods. In addition, the company believes that the
non-GAAP presentation to exclude certain charges is relevant and useful
information that will be widely used by analysts, investors, and other
interested parties in the medical device industry. Accordingly, the company
is disclosing this information to permit additional analysis of the company's
performance. A reconciliation of Kyphon's non-GAAP operating results to its
GAAP operating results for this period follows (unaudited, in thousands,
except per share amounts):
Three
Months
Three Months Ended Ended
March 31,
March 31, 2007 2006
----------------------------------- ---------
GAAP Adjustments Non-GAAP GAAP
----------------------- --------- ---------
U. S. net sales $101,107 $-- $101,107 $75,512
International net sales 27,030 -- 27,030 15,916
----------------------- --------- ---------
Net sales 128,137 -- 128,137 91,428
Operating costs and expenses:
Cost of goods sold 19,503 (4,258)(3) 15,245 10,965
Research and development 11,780 (615)(5) 11,165 8,306
Sales and marketing 63,716 (3,839)(4)(5) 59,877 45,386
General and administrative 19,931 (2,398)(5) 17,533 13,568
Amortization of acquired
intangible assets 4,415 -- 4,415 283
In-process research and
development 21,300 (21,300)(1) -- --
-------------------- --------- ---------
Total operating costs and
expenses 140,645 (32,410) 108,235 78,508
-------------------- --------- ---------
Income (loss) from operations (12,508) 32,410 19,902 12,920
Interest expense (12,403) 8,061 (2) (4,342) (3)
Interest income (expense) and
other, net 1,035 -- 1,035 2,126
-------------------- --------- ---------
Income (loss) before income
taxes (23,876) 40,471 16,595 15,043
Provision for (benefit from)
income taxes (1,280) 8,566 7,286 6,550
-------------------- --------- ---------
Net income (loss) $(22,596) $31,905 $9,309 $8,493
==================== ========= =========
Net income (loss) per share:
Basic $(0.50) $0.71 $0.21 $0.19
==================== ========= =========
Diluted $(0.50) $0.67 $0.20 $0.19
==================== ========= =========
Weighted-average shares
outstanding:
Basic 45,251 45,251 44,032
=========== ========= =========
Diluted 45,251 47,351 45,882
=========== ========= =========
(1) In-process research and development (IPR&D) charges.
(2) The write-off of loan fees related to the temporary bank financing
used to close the transaction.
(3) Purchase accounting adjustments related to inventory valuation.
(4) Costs related to the transition of SFMT agents to Kyphon's direct
sales force in the U.S.
(5) Severance and other transitional compensation expense related to the
SFMT acquisition.
Kyphon's operating results on both a GAAP and non-GAAP basis includes
stock-based compensation expenses of $6.5 million and $6.4 million for the
three-month periods ended March 31, 2007 and 2006, respectively.
Earnings Call Information
Kyphon will host a conference call today at 2:00 p.m. Pacific Time to
discuss its first quarter results. To participate in the conference call,
dial 1-800-289-0572 (U.S.) or 913-981-5543 (International). A simultaneous
webcast of the call will also be available from the Investor Relations
section of the company's corporate Web site at http://ir.kyphon.com. The
call will be archived on this site for a minimum of two months.
An audio replay of the call will be available beginning from 6:00 p.m.
Pacific Time on Thursday, April 26, 2007, until 12:00 a.m. Pacific Time on
Thursday, May 17, 2007. To access the replay, dial 888-203-1112 (U.S.) or
719-457-0820 (International) and enter the access code 2042530.
About Kyphon Inc.
Kyphon develops and markets medical devices designed to restore and
preserve spinal function and diagnose the source of low back pain using
minimally invasive technologies. The company's products are used in balloon
kyphoplasty for the treatment of spinal fractures caused by osteoporosis or
cancer, in the Functional Anaesthetic Discography(TM) procedure for
diagnosing the source of low back pain, and in the Interspinous Process
Decompression procedure for treating lumbar spinal stenosis. More
information about the company and its products can be found at
http://www.kyphon.com.
Functional Anaesthetic Discography, F.A.D., Discyphor, Aperius and
PercLID are trademarks, and Kyphon, KyphX, X-STOP, X STOP, and IPD are
registered trademarks, of Kyphon Inc. Disc-O-Tech, B-Twin and SKy are
trademarks of Disc-O-Tech Medical Technologies, Ltd.
This press release contains forward-looking statements within the
meaning of the U.S. Private Securities Litigation Reform Act of 1995.
Forward looking statements include, but are not limited to, those that use
words such as "believes," "anticipates," "targets," "intends," "plans,"
"may," and words of similar effect, and specifically include the company's
anticipated business direction and performance. Forward-looking statements
are based on management's current preliminary expectations without taking
into account any possible impact from any other future business development
transaction and are subject to risks, uncertainties and assumptions, which
may cause the company's actual results to differ materially from the
statements contained herein. Information on potential risk factors that
could affect Kyphon, its business and its financial results are detailed in
the company's periodic filings with the Securities and Exchange Commission
(SEC), including, but not limited to, those risks and uncertainties listed
in the section entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Factors Affecting Future Operating
Results," which can be found in Kyphon's annual report on Form 10-K for the
year ended December 31, 2006 filed with the SEC on February 28, 2007.
Kyphon undertakes no obligation to release publicly any revisions to any
forward-looking statements contained herein to reflect events or
circumstances after the date hereof.
KYPHE
Kyphon Inc.
Condensed Consolidated Income Statements
(unaudited; in thousands, except per share amounts)
Three Months Ended
March 31,
----------------------------------
2007 2006
--------------- ---------------
U. S. net sales $101,107 $75,512
International net sales 27,030 15,916
--------------- ---------------
Net sales 128,137 91,428
Operating costs and expenses:
Cost of goods sold 19,503 10,965
Research and development 11,780 8,306
Sales and marketing 63,716 45,386
General and administrative 19,931 13,568
Amortization of acquired intangible
assets 4,415 283
In-process research and
development 21,300 --
--------------- ---------------
Total operating costs and
expenses 140,645 78,508
--------------- ---------------
Income (loss) from operations (12,508) 12,920
Interest expense (12,403) (3)
Interest income and other, net 1,035 2,126
--------------- ---------------
Income (loss) before income taxes (23,876) 15,043
Provision for (benefit from) income
taxes (1,280) 6,550
--------------- ---------------
Net income (loss) $(22,596) $8,493
=============== ===============
Net income per share:
Basic $(0.50) $0.19
=============== ===============
Diluted $(0.50) $0.19
=============== ===============
Weighted-average shares outstanding:
Basic 45,251 44,032
=============== ===============
Diluted 45,251 45,882
=============== ===============
Kyphon Inc.
Condensed Consolidated Balance Sheets
(unaudited, in thousands)
March 31, December 31,
2007 2006
--------------- ---------------
Assets
Current assets:
Cash and cash equivalents $79,699 $81,939
Investments -- 120,214
Accounts receivable, net 89,437 73,859
Inventories 19,710 11,869
Prepaid expenses and other current
assets 11,824 7,520
Deferred tax assets 15,532 6,072
--------------- ---------------
Total current assets 216,202 301,473
Property and equipment, net 32,233 27,590
Goodwill 357,096 4,802
Other intangible assets, net 210,446 9,940
Deferred tax assets -- 14,955
Other assets 110,404 69,846
--------------- ---------------
Total assets $926,381 $428,606
=============== ===============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $15,658 $10,447
Accrued liabilities 65,670 62,980
--------------- ---------------
Total current liabilities 81,328 73,427
--------------- ---------------
Deferred rent and other 16,916 10,479
Borrowings 460,286 -
Deferred tax liabilities 63,694 -
--------------- ---------------
Total liabilities 622,224 83,906
--------------- ---------------
Commitments and contingencies
Stockholders' equity:
Common stock, par value: $0.001
per share 45 45
Additional paid-in capital 267,006 284,672
Treasury stock, at cost (201) (201)
Accumulated other comprehensive
income 1,885 1,607
Retained earnings 35,422 58,577
--------------- ---------------
Total stockholders' equity 304,157 344,700
--------------- ---------------
Total liabilities and
stockholders' equity $926,381 $428,606
=============== ===============
SOURCE Kyphon Inc.
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Related links:
http://www.kyphon.com/
CONTACT:
Investors and Media, Julie D. Tracy, Vice
President, Chief Communications Officer, +1-408-548-6687, or
jtracy@kyphon.com
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