Revenues Increase 43% from Q206 to $144.3 Million SUNNYVALE,
Calif., July 27 /PRNewswire-FirstCall/ -- Kyphon Inc. (NASDAQ:KYPH)
today announced financial and operating results for the second
quarter ended June 30, 2007 as follows: Financial Results Kyphon's
worldwide revenues for the second quarter of 2007 totaled $144.3
million, an increase of 43%, or 41% at constant foreign currency
exchange rates, over the $101.1 million in net sales reported for
the second quarter of 2006. Total U.S. revenues for the quarter
increased 36% to $110.7 million over the same period in 2006, while
total international revenues increased 73% to $33.6 million.
Kyphon's core spinal fracture management and repair product revenue
grew 19% to $120.6 million over the same quarter of 2006, with U.S.
revenues growing 13% to $92.2 million and international revenues
growing 46% to $28.4 million. Revenues from Kyphon's spinal motion
preservation and disc disease diagnosis and therapies products,
which include the X-STOP(R) IPD(R), Aperius(TM) Percutaneous Lumbar
Interspinous Decompression (PercLID(TM)), and Discyphor(TM)
Functional Anaesthetic Discography(TM) (F.A.D.(TM)) technologies,
were $23.7 million, with U.S. revenues of $18.4 million and
international revenues of $5.3 million. Total revenues for the
second quarter of 2007 included sales of $22.7 million of the
X-STOP(R) IPD(R) products from our acquisition of St. Francis
Medical Technologies, Inc. (SFMT) in January 2007. For the second
quarter of 2007, reported GAAP net income was $11.0 million, or
$0.23 per diluted share compared to net income of $9.5 million, or
$0.21 per diluted share, for the same period a year ago. Non-GAAP
diluted earnings per share for the second quarter was $0.26
compared to $0.21 per diluted share in the same quarter a year ago.
The non- GAAP diluted earnings per share of $0.26 excludes the
following impacts from the SFMT acquisition that closed in January
2007: (1) $0.01 per share for purchase accounting adjustments
related to inventory valuation, and (2) $0.02 per share for
severance and other transitional compensation expense. A
reconciliation of GAAP and non-GAAP operating results is presented
below. "We are very pleased with our performance during the second
quarter, as increased procedural penetration delivered strong
revenue growth for Kyphon," said Richard Mott, president and chief
executive officer of Kyphon. "Our results continue to reflect
strong clinician adoption and the value to patients of balloon
kyphoplasty and the X-STOP(R) IPD(R) procedure. Additionally, we
made solid progress on key initiatives designed to fuel future
growth including the introduction of new marketing programs to
supplement expansion of our global sales channel, training of new
spine specialists in performing balloon kyphoplasty and the
X-STOP(R) IPD(R) procedure, and increased enrollments for our
clinical trial programs," continued Mott. "We believe our focused
efforts to bring innovative minimally invasive based technologies
to physicians and patients around the world are creating a
foundation for continued long-term growth," concluded Mott. For the
first six months of 2007, Kyphon's worldwide revenues totaled
$272.5 million, an increase of 42%, or 39% at constant foreign
currency exchange rates, over the $192.5 million in net sales
reported for the same period in 2006. Total U.S. revenues increased
35% to $211.8 million for the first half of the year, while total
international revenues increased 72% to $60.7 million. Kyphon's
core spinal fracture management and repair product revenue grew 20%
during the first half of 2007 to $230.3 million over the same
period in 2006. U.S. revenues grew 14% to $179.0 million while
international revenues grew 45% to $51.3 million. Revenues from
Kyphon's spinal motion preservation and disc disease diagnosis and
therapies products were $42.2 million, with U.S. revenues of $32.7
and international revenues of $9.5 million. Total revenues for the
first six months of 2007 included sales of $40.8 million of the
X-STOP(R) IPD(R) products from our acquisition of SFMT in January
2007. For the first six months of 2007, reported net loss on a GAAP
basis was $11.6 million, or $0.26 per share compared to GAAP net
income of $18.0 million, or $0.39 per diluted share, for the same
period a year ago. Non-GAAP diluted earnings per share for the
first six months of 2007 was $0.46, compared to $0.39 per diluted
share for the same period a year ago. The non-GAAP diluted earnings
per share of $0.46 excludes the following impacts from the SFMT
acquisition: (1) $0.45 per share for in-process research &
development (IPR&D) charges; (2) $0.10 per share for write-off
of bank loan fees associated with the acquisition; (3) $0.06 per
share for purchase accounting adjustments related to inventory
valuation; (4) $0.04 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) $0.07 per share for severance and other
transitional compensation expense. A reconciliation of GAAP and
non-GAAP operating results is presented below. Business Highlights
During the second quarter of 2007: -- Kyphon reported that a record
number of balloon kyphoplasty procedures were performed in the
U.S., increasing the hospital activity rate to a record 3.8
procedures per active hospital account per month. -- Kyphon
reported that the first balloon kyphoplasty cases were completed in
India, Malaysia and Hong Kong, enhancing the company's global
presence with revenues derived from approximately 45 countries. --
Kyphon reported that approximately 540 spine surgeons were trained
to perform the X-STOP(R) IPD(R) procedure in the U.S. during the
quarter, bringing the total number of spine surgeons trained to
perform the X- STOP(R) IPD(R) procedure in 2007 to 930.
Additionally, the number of active X-STOP(R) hospital accounts in
the U.S. grew 49% in the second quarter to 620 compared to the
first quarter of 2007. -- Kyphon confirmed Medicare physician
reimbursement for the X-STOP(R) IPD(R) procedure has been
established in all 50 states. Additionally, in April the Centers
for Medicare & Medicaid Services (CMS) published the proposed
rule for inpatient DRG payment rates for fiscal 2008. CMS proposed
moving the X-STOP(R) IPD(R) procedure into a new, higher paying DRG
and discontinuing the new technology add-on payment. The proposed
payment represents an increase ranging from 20-81% depending on
hospital specific factors over the existing payment currently
associated with the X-STOP(R) IPD(R) procedure. -- In July, CMS
published the proposed 2008 Hospital Outpatient Prospective Payment
System (HOPPS) rule. With regard to balloon kyphoplasty, the 2008
proposed payment represents an increase of approximately 18% over
the total existing payment currently in effect. With regard to the
X-STOP(R) IPD(R) procedure, the proposed 2008 outpatient setting
payment represents an increase of approximately 21% over the
existing payment currently in effect. Additionally, the pass-
through payment for the X-STOP(R) IPD(R) device was proposed to be
extended through 2008. Finally, balloon kyphoplasty is to be added
to the Medicare list of approved Ambulatory Surgery Center (ASC)
procedures effective January 1, 2008. 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 results for the three and six-month periods ended
June 30, 2007 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 the three and six month
periods ended June 30, 2007 follows (unaudited, in thousands,
except per share amounts): Kyphon Inc. Reconciliation of GAAP and
Non-GAAP Operating Results (unaudited; in thousands, except per
share amounts) Three Months Ended Three Months Ended June 30, 2007
June 30, 2006 ----------------------------------- --------------
GAAP Adjustments Non-GAAP GAAP -------------------------- --------
-------------- U.S. net sales $110,676 $- $110,676 $81,641
International net sales 33,655 - 33,655 19,421
-------------------------- -------- -------------- Net sales
144,331 - 144,331 101,062 Operating costs and expenses: Cost of
goods sold 19,493 (933)(3) 18,560 12,913 Research and development
13,484 (733)(5) 12,751 9,931 Sales and marketing 63,780 (260)(4)(5)
63,520 48,649 General and administrative 20,026 (356)(5) 19,670
14,496 Amortization of acquired intangible assets 5,404 - 5,404 283
Total operating costs and expenses 122,187 (2,282) 119,905 86,272
-------------------------- -------- -------------- Income from
operations 22,144 2,282 24,426 14,790 Interest expense (3,046) -
(3,046) - Interest income and other, net 1,088 - 1,088 2,080
-------------------------- -------- -------------- Income before
income taxes 20,186 2,282 22,468 16,870 Provision for income taxes
9,210 801 10,011 7,390 -------------------------- --------
-------------- Net income $10,976 $1,481 $12,457 $9,480
-------------------------- -------- -------------- Net income per
share Basic $0.24 $0.03 $0.27 $0.21 --------------------------
-------- -------------- Diluted $0.23 $0.03 $0.26 $0.21
-------------------------- -------- --------------
-------------------------- -------- -------------- Weighted-average
shares outstanding: Basic 45,599 45,599 44,327 -------- --------
-------------- Diluted 47,818 47,818 46,221 -------- --------
-------------- Kyphon Inc. Reconciliation of GAAP and Non-GAAP
Operating Results (unaudited; in thousands, except per share
amounts) Six Months Ended Six Months Ended June 30, 2007 June 30,
2006 ----------------------------------- -------------- GAAP
Adjustments Non-GAAP GAAP -------------------------- --------
-------------- U.S. net sales $211,783 $- $211,783 $157,153
International net sales 60,685 - 60,685 35,337
-------------------------- -------- -------------- Net sales
272,468 - 272,468 192,490 Operating costs and expenses Cost of
goods sold 38,996 (5,191)(3) 33,805 23,878 Research and development
25,264 (1,348)(5) 23,916 18,237 Sales and marketing 127,496
(4,099)(4)(5) 123,397 94,035 General and administrative 39,957
(2,754)(5) 37,203 28,064 Amortization of acquired intangible assets
9,819 - 9,819 566 In-process research and development 21,300
(21,300)(1) - - -------------------------- -------- --------------
Total operating costs and expenses 262,832 (34,692) 228,140 164,780
-------------------------- -------- -------------- Income from
operations 9,636 34,692 44,328 27,710 Interest expense (15,449)
8,061(2) (7,388) - Interest income and other, net 2,123 - 2,123
4,203 -------------------------- -------- -------------- Income
(loss) before income taxes (3,690) 42,753 39,063 31,913 Provision
for income taxes 7,930 9,367 17,297 13,940
-------------------------- -------- -------------- Net income
(loss) $(11,620) $33,386 $21,766 $17,973 --------------------------
-------- -------------- Net income (loss) per share: Basic $(0.26)
$0.73 $0.48 $0.41 -------------------------- --------
-------------- Diluted $(0.26) $0.72 $0.46 $0.39
-------------------------- -------- -------------- Weighted-average
shares outstanding: Basic 45,426 45,426 44,181 -------- --------
-------------- Diluted 45,426 47,582 46,091 --------- --------
-------------- (1) In-process research and development (IPR&D)
charges related to SFMT acquisition. (2) The write-off of loan fees
related to the temporary bank financing used to close the SFMT
transaction. (3) Purchase accounting adjustments related to
inventory valuation for SFMT. (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 include stock-based compensation expenses of $6.8
million and $6.9 million for the three-month periods ended June 30,
2007 and 2006, respectively, and $13.4 million and $13.3 million
for the six-month periods ended June 30, 2007 and 2006,
respectively. Earnings Call Information Due to Kyphon's
announcement earlier today of its execution of a definitive
agreement to be acquired by Medtronic, no conference call will be
held to discuss these results. 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 compression fractures
caused by osteoporosis or cancer, in the Functional Anaesthetic
Discography(TM) (F.A.D.(TM)) procedure for diagnosing the source of
low back pain, and in the Interspinous Process Decompression
(IPD(R)) procedure for treating the symptoms of lumbar spinal
stenosis. More information about the company and its products can
be found at http://www.kyphon.com/ and its patient education Web
site, http://www.spinalfracture.com/. Kyphon, KyphX, X-STOP and IPD
are registered trademarks, and Aperius, PercLID, Discyphor,
Functional Anaesthetic Discography and F.A.D. are trademarks, of
Kyphon Inc. 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 the announced transaction with
Medtronic or any other future strategic 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 and on
Form 10-Q for the quarter ended March 31, 2007 filed with the SEC
on May 10, 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 STATEMENTS OF OPERATIONS
(unaudited; in thousands, except per share amounts) Three Months
Ended Six Months Ended June 30, June 30, ---------------
---------------- 2007 2006 2007 2006 ---- ---- ---- ---- U.S. net
sales $110,676 $81,641 $211,783 $157,153 International net sales
33,655 19,421 60,685 35,337 -------- -------- -------- -------- Net
sales 144,331 101,062 272,468 192,490 -------- -------- --------
-------- Operating costs and expenses: Cost of goods sold 19,493
12,913 38,996 23,878 Research and development 13,484 9,931 25,264
18,237 Sales and marketing 63,780 48,649 127,496 94,035 General and
administrative 20,026 14,496 39,957 28,064 Amortization of acquired
intangible assets 5,404 283 9,819 566 In-process research and
development - - 21,300 - -------- -------- -------- -------- Total
operating costs and expenses 122,187 86,272 262,832 164,780
-------- -------- -------- -------- Income from operations 22,144
14,790 9,636 27,710 Interest expense (3,046) - (15,449) - Interest
income and other, net 1,088 2,080 2,123 4,203 -------- --------
-------- -------- Income (loss) before income taxes 20,186 16,870
(3,690) 31,913 Provision for income taxes 9,210 7,390 7,930 13,940
-------- -------- -------- -------- Net income (loss) $10,976
$9,480 $(11,620) $17,973 -------- -------- -------- -------- Net
income (loss) per share: Basic $0.24 $0.21 $(0.26) $0.41 --------
-------- -------- -------- Diluted $0.23 $0.21 $(0.26) $0.39
-------- -------- -------- -------- Weighted-average shares
outstanding: Basic 45,599 44,327 45,426 44,181 -------- --------
-------- -------- Diluted 47,818 46,221 45,426 46,091 --------
-------- -------- -------- KYPHON INC. CONDENSED CONSOLIDATED
BALANCE SHEETS (unaudited; in thousands) June 30, December 31, 2007
2006 ---------- ---------- Assets Current assets: Cash and cash
equivalents $51,868 $81,939 Investments - 120,214 Accounts
receivable, net 97,157 73,859 Inventories 18,603 11,869 Prepaid
expenses and other current assets 9,802 7,520 Deferred tax assets
15,985 6,072 ---------- ---------- Total current assets 193,415
301,473 Property and equipment, net 37,179 27,590 Goodwill 357,944
4,802 Other intangible assets, net 205,042 9,940 Deferred tax
assets - 14,955 Other assets 114,055 69,846 ---------- ----------
Total assets $907,635 $428,606 ---------- ---------- Liabilities
and Stockholders' Equity Current liabilities: Accounts payable
$14,073 $10,447 Accrued liabilities 76,716 62,980 ----------
---------- Total current liabilities 90,789 73,427 ----------
---------- Deferred rent and other 16,991 10,479 Borrowings 401,275
- Deferred tax liabilities 62,449 - ---------- ---------- Total
liabilities 571,504 83,906 ---------- ---------- Commitments and
contingencies Stockholders' equity: Common stock, $0.001 par value
per share 46 45 Additional paid-in capital 287,481 284,672 Treasury
stock, at cost (201) (201) Accumulated other comprehensive income
2,408 1,607 Retained earnings 46,397 58,577 ---------- ----------
Total stockholders' equity 336,131 344,700 ---------- ----------
Total liabilities and stockholders' equity $907,635 $428,606
---------- ---------- DATASOURCE: Kyphon Inc. CONTACT: Julie D.
Tracy, Vice President, Chief Communications Officer,
+1-408-548-6687 Web site: http://www.kyphon.com/
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