*** Second Quarter, 2005 Revenue Highlights ***
-- Domestic Grafton(R) DBM $10,922,000 (+27%)
-- International Grafton(R) DBM $2,251,000 (+33%)
-- Private label DBM $839,000 (+55%)
-- Domestic Traditional Tissue $5,045,000 (+16%)
-- International Traditional Tissue $1,211,000 (+54%)
EATONTOWN, N.J., July 26 /PRNewswire-FirstCall/ -- Osteotech, Inc.
(Nasdaq: OSTE) announced today that it had achieved record revenues of
$25,290,000 in the second quarter ended June 30, 2005. Revenues increased 14%
over second quarter 2004 revenues of $22,225,000, which included $608,000 of
revenues from metal spinal implant products that the Company ceased
distributing in June 2004 and also increased 6% over first quarter 2005
revenues of $23,848,000. The strong revenue performance in the second quarter
is primarily attributable to the continued growth of our international
business and improved domestic revenues of Grafton(R) DBM, in addition to
increased revenue from the direct distribution of traditional tissue and our
private label business.
Revenues in the six months ended June 30, 2005 increased 7% to $49,138,000
from $46,002,000 in the six months ended June 30, 2004, which included
$1,700,000 of revenues from metal spinal implant products that the Company
ceased distributing in June 2004.
Domestic revenues in the second quarter and six months ended June 30, 2005
were $21,662,000 and $42,019,000, respectively, as compared to $19,446,000 and
$40,365,000 in the same periods of 2004, respectively. Domestic revenues in
the second quarter and six months ended June 30, 2004 included revenues of
$608,000 and $1,700,000, respectively, from metal spinal implant products.
International operations revenues increased 31% and 26% in the second quarter
and six months ended June 30, 2005, respectively, to $3,628,000 and
$7,119,000. In the same periods of 2004, international operations generated
revenues of $2,779,000 and $5,637,000, respectively.
The Company incurred a net loss of $1,878,000 and $2,709,000, or $.11 and
$.16 diluted net loss per share, in the second quarter and six months ended
June 30, 2005, respectively, as compared to a net loss of $427,000 and
$1,682,000, or $.02 and $.10 diluted net loss per share, in the same
respective periods of 2004. The net losses in the second quarter and six
months ended June 30, 2005 were principally impacted by lower gross profit
margins, due to an increase in reserves for inventory obsolescence and
expiration, in part, because of the previously announced dispute with Bone
Bank Allograft ("BBA"), which prevents us from utilizing BBA labeled tissue,
increased operating expenses, primarily related to costs associated with
implementation of programs to turn around the domestic business, expenses
associated with our continuing investment in strengthening and diversifying
our tissue sources and increased professional fees, and translation losses of
$674,000 and $859,000, respectively, on the outstanding balance of
intercompany debt due to the strengthening of the U.S. dollar against the
Euro. The net loss in the six months ended June 30, 2004 included pre-tax
charges of $1,998,000 related to the Company's exit from the metal spinal
implant business and severance costs of $650,000 related to the reorganization
of the sales and marketing functions.
On July 7, 2005, the Board of Directors declared $5.5 million of
intercompany loans receivable from OST Developpement S.A., the Company's
subsidiary located in Clermont-Ferrand, France, to be permanent debt. As a
result, from July 7, 2005 forward, that portion of the intercompany receivable
will no longer be subject to the effects of variations in currency exchange
rates between the U.S. dollar and the Euro.
Richard W. Bauer, Osteotech's Chief Executive Officer, stated, "Second
quarter's excellent revenue performance coupled with our outstanding first
quarter revenue performance provides further confirmation that the Company's
turnaround in the domestic business is occurring at a rapid pace. Growth in
our domestic business, coupled with our continued rapid growth in
international markets and growth of our private label business, has produced a
record revenue quarter for the Company of $25.3 million. As a result of this
performance, the Company is raising its revenue guidance for the year from a
range of $94 million to $98 million to a range of $97 million to $101 million.
This is done taking into account our expectation of lower revenue in the third
quarter as compared to the second quarter due to the normal summer slowdown in
surgeries both here in the U.S. and overseas. We will continue to maintain
our loss per diluted share guidance for the year in the range of $.25 to $.28.
We are taking the position on our loss per diluted share guidance,
notwithstanding better than expected revenue growth, due to four factors that
will negatively impact our P&L, certain of which were not fully anticipated as
we entered the year. The four factors are: the currency translation losses;
the reserve that must be taken for the tissue that remains in our system due
to the lawsuit initiated by BBA, the underabsorption of costs associated with
our program to reduce Graftech(R) Bio-implant inventory levels, and an
accelerated investment being made to gain greater donor sourcing diversity in
the U.S. so, for the long-term, the Company will be less reliant on any one
U.S. based donor sourcing client. We currently do not anticipate these four
cost elements will extend past 2005, therefore, with continued revenue growth
and a more normalized expense base and, as we have previously indicated, we
anticipate returning to profitability in 2006."
Consolidated gross profit margins were 40% and 42% in the second quarter
and six months ended June 30, 2005, respectively, as compared to 45% and 43%
in the same periods of 2004, respectively. Gross profit margins in both
periods of 2005 were constrained by the increase in international revenues,
which has lower gross profit margins than domestic revenues because
international products are generally distributed through stocking
distributors, the underabsorption of Graftech(R) Bio-implants processing costs
resulting from lower levels of production to achieve a reduction in the level
of inventory, and increased reserves for inventory obsolescence and
expiration, due, in part, to a previously announced dispute with BBA, which
prevents us from utilizing BBA labeled tissue that otherwise will expire.
DBM Segment revenues increased 29% and 21% to $14,012,000 and $26,907,000
in the second quarter and six months ended June 30, 2005, respectively, as
compared to $10,862,000 and $22,295,000 in the same periods of 2004,
respectively. The Segment's revenues consist of:
DBM Segment Revenues
Second Quarter Six Months
Ended June 30, Ended June 30,
2005 2004 2005 2004
(Dollars in Thousands)
Domestic:
Grafton(R) DBM $10,922 $8,632 $20,818 $17,737
Private Label 839 542 1,940 1,146
11,761 9,174 22,758 18,883
International:
Grafton(R) DBM 2,251 1,688 4,149 3,412
Total Segment Revenues $14,012 $10,862 $26,907 $22,295
The increase in second quarter and six months 2005 revenues relate to a
27% and 17% increase in domestic Grafton(R) DBM revenues, primarily due to an
11% increase in volume and recognition of increased revenue related to the
continued conversion of the domestic Grafton(R) DBM business to direct
distribution, a 55% and 69% increase in private label DBM revenues and a 33%
and 22% increase in international Grafton(R) DBM revenues, which results
primarily from increased unit volume.
DBM Segment operating income increased to $1,237,000 and $1,883,000 in the
second quarter and six months ended June 30, 2005, respectively, as compared
to operating income of $121,000 and $1,241,000 in the same periods of last
year, respectively. The significant increase in second quarter and six months
operating income is primarily as a result of increased revenue and improved
gross profit margins.
Base Tissue Segment revenues increased to $10,985,000 and $21,528,000 in
the second quarter and six months ended June 30, 2005, respectively, from
$10,291,000 and $21,051,000 in the second quarter and six months ended June
30, 2004, respectively. The Segment's revenues consist of:
Base Tissue Segment Revenues
Second Quarter Six Months
Ended June 30, Ended June 30,
2005 2004 2005 2004
(Dollars in Thousands)
Domestic:
Traditional Tissue
Processing And
Direct Distribution $5,045 $4,360 $9,650 $8,657
Graftech(R) Bio-implants 4,729 5,147 9,271 10,815
9,774 9,507 18,921 19,472
International:
Traditional Tissue
Processing And Direct
Distribution 1,211 784 2,607 1,579
Total Segment Revenues $10,985 $10,291 $21,528 $21,051
The increase in second quarter and six-month 2005 revenues is primarily
due to an increase in unit volumes of directly distributed traditional tissue,
partially offset by an 8% and 14% decrease in revenues from Graftech(R) Bio-
implants due to lower demand and the processing of fewer donors for clients.
The Base Tissue Segment incurred operating losses of $3,434,000 and
$4,911,000 in the second quarter and six months ended June 30, 2005,
respectively, as compared to operating losses of $722,000 and $1,064,000 in
the same periods of last year, respectively. The increases in operating
losses are primarily attributed to increased reserves for inventory
obsolescence and expiring tissue, the underabsorption of processing costs due
to a lower level of Graftech(R) Bio-implant production in order to achieve a
reduction in inventory levels, as well as increased operating expenses mainly
related to the continuing significant investment in strengthening and
diversifying our tissue sources.
Mr. Bauer will host a conference call on July 27, 2005 at 9:00 AM Eastern
to discuss second quarter results. You are invited to listen to the
conference call by dialing (706) 634-5453. The conference will also be
simultaneously Web Cast at http://www.osteotech.com. Automated playback will
be available two hours after completion of the live call through midnight,
August 10, 2005, by dialing (706) 645-9291 and indicating access code 7865345.
Certain statements made throughout this press release that are not
historical facts contain forward-looking statements (as such are defined in
the Private Securities Litigation Reform Act of 1995) regarding the Company's
future plans, objectives and expected performance. Any such forward-looking
statements are based on assumptions that the Company believes are reasonable,
but are subject to a wide range of risks and uncertainties and, therefore,
there can be no assurance that actual results may not differ materially from
those expressed or implied by such forward-looking statements. Factors that
could cause actual results to differ materially include, but are not limited
to, the continued acceptance and growth of current products and services,
differences in anticipated and actual product and service introduction dates,
the ultimate success of those products in the marketplace, the impact of
competitive products and services, the availability of sufficient quantities
of suitable donated tissue and the success of cost control and margin
improvement efforts. Certain of these factors are detailed from time to time
in the Company's periodic reports (including the Annual Report on Form 10-K
for the year ended December 31, 2004 and the Form 10-Q for the first quarter
of 2005) filed with the Securities and Exchange Commission. All information
in this press release is as of July 26, 2005 and the Company undertakes no
duty to update this information.
Osteotech, Inc, headquartered in Eatontown, New Jersey, is a leading
provider of human bone and bone connective tissue for transplantation and an
innovator in the development and marketing of biomaterial and implant products
for musculoskeletal surgery. For further information regarding Osteotech,
this press release or the conference call, please go to Osteotech's website
homepage at http://www.osteotech.com and to Osteotech's Financial Information
Request Form website page at http://www.osteotech.com/finrequest.htm.
OSTEOTECH, INC. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per share data)
Three Months Six Months
Ended June 30, Ended June 30,
2005 2004 2005 2004
Net revenues:
Service $24,997 $21,153 $48,435 $43,346
Product 293 1,072 703 2,656
25,290 22,225 49,138 46,002
Cost of services 15,110 11,800 28,173 22,697
Cost of products 107 468 265 3,710
15,217 12,268 28,438 26,407
Gross profit 10,073 9,957 20,700 19,595
Marketing, selling,
general and
administrative 10,967 9,678 21,573 20,184
Research and development 1,224 1,187 2,186 2,043
12,191 10,865 23,759 22,227
Operating loss (2,118) (908) (3,059) (2,632)
Other, net (677) (108) (973) (345)
Loss before income
tax benefit (2,795) (1,016) (4,032) (2,977)
Income tax benefit (917) (589) (1,323) (1,295)
Net loss $(1,878) $(427) $(2,709) $(1,682)
Loss per share:
Basic $(.11) $(.02) $(.16) $(.10)
Diluted $(.11) $(.02) $(.16) $(.10)
Shares used in computing
loss per share:
Basic 17,187,792 17,144,280 17,182,245 17,132,335
Diluted 17,187,792 17,144,280 17,182,245 17,132,335
OSTEOTECH, INC. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
June 30 December 31,
2005 2004
Assets (unaudited)
Cash and cash equivalents $10,959 $13,391
Accounts receivable, net 18,764 14,795
Deferred processing costs 34,232 36,049
Inventories 1,524 1,202
Other current assets 6,223 5,595
Total current assets 71,702 71,032
Property, plant and equipment, net 35,050 37,447
Other assets 7,600 7,925
$114,352 $116,404
Liabilities and Stockholders' Equity
Accounts payable and accrued expense $13,128 $11,532
Current portion of long-term debt 2,661 2,661
Total current liabilities 15,789 14,193
Long-term debt 8,746 10,076
Other liabilities 119 740
Total liabilities 24,654 25,009
Stockholders' equity 89,698 91,395
$114,352 $116,404
SOURCE Osteotech, Inc.
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Related links:
http://www.osteotech.com
Company News On-Call:
http://www.prnewswire.com/comp/668050.html
CONTACT:
Michael J. Jeffries, Osteotech,
+1-732-542-2800
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