SUNNYVALE, Calif., July 26 /PRNewswire-FirstCall/ -- Kyphon Inc. today announced that net sales for the quarter ended June 30, 2006 totaled $101.1 million, an increase of 35% over the $75.0 million in net sales reported for the second quarter of 2005 and marking the first time the Company's quarterly revenues passed one hundred million dollars.
Net income for the second quarter of 2006 on a GAAP basis, including the FAS 123( R ) stock-based compensation charge, increased 19% to $9.5 million, or $0.21 per diluted share, compared to net income of $7.9 million or $0.18 per diluted share for the same period in 2005. Excluding the FAS 123( R ) stock-based compensation charge, non-GAAP net income for the second quarter compared to the same period a year ago increased 79% to $14.2 million, or $0.31 per diluted share. A reconciliation of GAAP and non-GAAP operating results is provided below.
Kyphon's revenues for the second quarter included $81.7 million in net sales in the United States and $19.4 million in net sales from its international operations, representing growth in those markets of 28% and 71%, respectively, over the second quarter of 2005.
For the six-month period ended June 30, 2006, Kyphon reported net sales of $192.5 million, an increase of 36% over the $141.3 million reported for the same period in 2005. Net income for the first six months of 2006 on a GAAP basis, including the FAS 123( R ) stock-based compensation charge, increased 25% to $18.0 million or $0.39 per diluted share, compared to net income of $14.4 million, or $0.32 per diluted share for the same period in 2005. Excluding the FAS 123( R ) stock-based compensation charge, non-GAAP net income for the six-month period ended June 30, 2006 compared to the same period a year ago increased 88% to $27.0 million, or $0.58 per diluted share. A reconciliation of GAAP and non-GAAP operating results is provided below.
"I am very pleased with the continued revenue and earnings growth posted in our second quarter, including the achievement of our first one hundred million dollar quarter," said Richard Mott, president and chief executive officer of Kyphon. "This is a significant milestone for our company and could not have been accomplished without the support of our customers and the hard work and dedication of our 1,010 employees worldwide. During the second half of 2006, we intend to remain focused on strengthening our foundation for future growth through broadening our worldwide customer base, expanding our balloon kyphoplasty product suite, and launching our Functional Anaesthetic Discography product line, which is intended to help physicians diagnose discogenic back pain," Mott concluded.
Financial Outlook for Full-Year 2006 and Quarter Ending September 30, 2006
For the full-year 2006, net sales are targeted to increase approximately 30% versus 2005 to at least $398 million. Net sales from the company's international operations are targeted to constitute 17% to 19% of total worldwide net sales for the full-year 2006.
For the third quarter of 2006, the company anticipates worldwide net sales of $98 million to $102 million, which represents an increase of 24% to 29% versus the third quarter of 2005. Net sales from the company's international operations are targeted to constitute 16% to 18% of total worldwide net sales in the third quarter.
The full-year 2006 target range for GAAP earnings per diluted share, which includes the impact of the implementation of stock-based compensation under FAS 123( R ), is expected to be between $0.82 and $0.87. The target range for non-GAAP earnings per diluted share excluding the impact of FAS 123( R ) is $1.21 to $1.26.
For the third quarter, the target range for GAAP earnings per diluted share including the impact of FAS 123( R ) is $0.18 to $0.21. Excluding the impact of FAS 123( R ), non-GAAP earnings per diluted share is targeted to be between $0.28 and $0.31. 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 September 30, 2006 December 31, 2006 Projected GAAP earnings per diluted share $0.18-$0.21 $0.82-$0.87 Add: Stock-based compensation expense, net of taxes 0.10 0.39 Projected non-GAAP earnings per diluted share $0.28-$0.31 $1.21-$1.26 Selected Metrics
Kyphon ended the second quarter of 2006 with about 290 device sales representatives in the U.S. Internationally, the company ended the second quarter with approximately 105 sales professionals. Kyphon is planning to end 2006 with approximately 305 to 315 device sales representatives in the U.S., along with approximately 120 to 130 sales representatives outside of the U.S. These sales representatives work 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 option of balloon kyphoplasty. To date, approximately 5,560 spine specialists in the U.S. and 3,760 outside the U.S. have been trained to perform balloon kyphoplasty. For the year 2006, Kyphon expects to train a total of approximately 1,900 physicians to perform balloon kyphoplasty procedures, 950 in the U.S. and 950 outside of the U.S.
Use of Non-GAAP Financial Measures
Kyphon management believes that in order to properly understand Kyphon's short-term and long-term financial trends, investors may wish to consider the impact of certain charges. 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 second quarter 2006 and six months ended June 30, 2006 results exclude the FAS 123( R ) stock-based compensation charges. A reconciliation of Kyphon's non-GAAP operating results to its GAAP operating results for the second quarter of 2006 and for the six months ended June 30, 2006 follows (unaudited, in thousands, except per share amounts):
Three Months Ended Three Months Ended June 30, June 30, 2006 2005 ---------------------------- ------- Adjust- Non- GAAP ments(1) GAAP GAAP ---------------------------- ------- U.S. net sales $81,641 $-- $81,641 $63,697 International net sales 19,421 -- 19,421 11,329 ---------------------------- ------- Net sales 101,062 -- 101,062 75,026 Cost of goods sold 13,188 (393) 12,795 8,494 ---------------------------- ------- Gross profit 87,874 393 88,267 66,532 ---------------------------- ------- Operating expenses: Research and development 9,939 (943) 8,996 7,638 Sales and marketing 48,649 (2,926) 45,723 36,174 General and administrative 14,496 (2,665) 11,831 10,343 ---------------------------- ------- Total operating expenses 73,084 (6,534) 66,550 54,155 ---------------------------- ------- Income from operations 14,790 6,927 21,717 12,377 Interest income and other, net 2,080 -- 2,080 819 ---------------------------- ------- Income before income taxes 16,870 6,927 23,797 13,196 Provision for income taxes 7,390 2,221 9,611 5,260 ---------------------------- ------- Net income $9,480 $4,706 $14,186 $7,936 ============================= ======== Net income per share: Basic $0.21 $0.11 $0.32 $0.19 ============================= ======== Diluted $0.21 $0.10 $0.31 $0.18 ============================= ======== Weighted-average shares outstanding: Basic 44,327 -- 44,327 42,512 ============================= ======== Diluted 46,221 175 46,396 44,660 ============================= ======== Six Months Ended Six Months Ended June 30, June 30, 2006 2005 ----------------------------- -------- Adjust- Non- GAAP ments(1) GAAP GAAP ----------------------------- -------- U.S. net sales $157,153 $-- $157,153 $121,563 International net sales 35,337 -- 35,337 19,697 ----------------------------- -------- Net sales 192,490 -- 192,490 141,260 Cost of goods sold 24,153 (557) 23,596 16,419 ----------------------------- -------- Gross profit 168,337 557 168,894 124,841 ----------------------------- -------- Operating expenses: Research and development 18,528 (1,901) 16,627 13,098 Sales and marketing 94,035 (5,529) 88,506 71,159 General and administrative 28,064 (5,356) 22,708 18,041 ----------------------------- -------- Total operating expenses 140,627 (12,786) 127,841 102,298 ----------------------------- -------- Income from operations 27,710 13,343 41,053 22,543 Interest income and other, net 4,203 -- 4,203 1,344 ----------------------------- -------- Income before income taxes 31,913 13,343 45,256 23,887 Provision for income taxes 13,940 4,298 18,238 9,530 ----------------------------- -------- Net income $17,973 $9,045 $27,018 $14,357 ============================= ======== Net income per share: Basic $0.41 $0.20 $0.61 $0.34 ============================= ======== Diluted $0.39 $0.20 $0.58 $0.32 ============================= ======== Weighted-average shares outstanding: Basic 44,181 -- 44,181 42,180 ============================= ======== Diluted 46,091 213 46,304 44,453 ============================= ========
(1) Adjustments consist of stock-based compensation and the related tax effect. FAS 123( R ) requires the company to estimate the cost of all forms of employee stock-based compensation, including employee stock options and awards under our employee stock purchase plan (ESPP), and to record a commensurate expense (which is subjective in nature) in the income statement. This non-GAAP presentation is given in part to enhance the understanding of the company's historical financial performance and comparability between periods in light of a change in accounting standards particularly since the company has not included stock-based compensation under FAS 123( R ) as an expense in its financial statements prior to January 1, 2006. In addition, the company strongly believes that the non-GAAP presentation to exclude stock- based compensation 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.
Earnings Call Information
Kyphon will host a conference call today at 2:00 p.m. Pacific Time to discuss its second quarter 2006 results and expectations for 2006. A live webcast of the call will be available from the Investor Relations section of the company's corporate Web site at www.kyphon.com . The call will be archived on this site for a minimum of two months. An audio replay of the call will also be available beginning from 6:00 p.m. Pacific Time on Wednesday, July 26, 2006, until 12:00 a.m. Pacific Time on Wednesday, August 16, 2006. To access the replay, dial 888-203-1112 (U.S.) or 719-457-0820 (International) and enter the access code 9369476.
About Kyphon Inc.
Kyphon develops and markets medical devices designed to restore spinal function using minimally invasive technologies. The company's KyphX(R) line of products is used in balloon kyphoplasty, a minimally invasive procedure to treat spinal fractures caused by osteoporosis or cancer. More information about the company can be found at www.kyphon.com.
NOTE: Kyphon and KyphX are registered 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," "expects," "anticipates," "targets," "intends," "plans," "projects," and words of similar effect, and specifically include the company's future financial projections and anticipated business direction and performance. Forward-looking statements are based on management's current preliminary expectations 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, 2005 filed with the SEC on March 3, 2006 and in Kyphon's quarterly report on Form 10-Q for the quarter ended March 31, 2006 filed with the SEC on May 10, 2006. 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.
Kyphon Inc. Condensed Consolidated Balance Sheets (unaudited, in thousands) June 30, December 31, 2006 2005 -------- ------------ Assets Current assets: Cash and cash equivalents $119,609 $76,149 Investments 111,693 118,324 Accounts receivable, net 61,267 55,480 Inventories 11,525 9,265 Prepaid expenses and other current assets 23,025 16,387 -------- ------------ Total current assets 327,119 275,605 Property and equipment, net 21,685 15,977 Goodwill and other intangible assets, net 15,157 15,377 Other assets 9,288 9,673 -------- ------------ Total assets $373,249 $316,632 ======== ============ Liabilities and Stockholders' Equity Current liabilities: Accounts payable $10,292 $9,308 Accrued liabilities 56,370 49,793 -------- ------------ Total current liabilities 66,662 59,101 -------- ------------ Deferred rent and other 5,256 4,051 Contingent purchase price 3,484 3,424 -------- ------------ Total liabilities 75,402 66,576 -------- ------------ Commitments and contingencies Stockholders' equity: Common stock, par value: $0.001 per share 44 44 Additional paid-in capital 258,802 231,312 Treasury stock, at cost (201) (201) Deferred stock-based compensation, net -- (116) Accumulated other comprehensive income 2,384 172 Retained earnings 36,818 18,845 -------- ------------ Total stockholders' equity 297,847 250,056 -------- ------------ Total liabilities and stockholders' equity $373,249 $316,632 ======== ============ Kyphon Inc. Condensed Consolidated Income Statements (unaudited; in thousands, except per share amounts) Three Months Ended Six Months Ended June 30, June 30, ------------------ ----------------- 2006 2005 2006 2005 --------- ------- -------- -------- U.S. net sales $81,641 $63,697 $157,153 $121,563 International net sales 19,421 11,329 35,337 19,697 --------- ------- -------- -------- Net sales 101,062 75,026 192,490 141,260 Cost of goods sold 13,188 8,494 24,153 16,419 --------- ------- -------- -------- Gross profit 87,874 66,532 168,337 124,841 --------- ------- -------- -------- Operating expenses: Research and development 9,939 7,638 18,528 13,098 Sales and marketing 48,649 36,174 94,035 71,159 General and administrative 14,496 10,343 28,064 18,041 --------- ------- -------- -------- Total operating expenses 73,084 54,155 140,627 102,298 --------- ------- -------- -------- Income from operations 14,790 12,377 27,710 22,543 Interest income and other, net 2,080 819 4,203 1,344 --------- ------- -------- -------- Income before income taxes 16,870 13,196 31,913 23,887 Provision for income taxes 7,390 5,260 13,940 9,530 --------- ------- -------- -------- Net income $9,480 $7,936 $17,973 $14,357 ========= ======= ======== ======== Net income per share: Basic $0.21 $0.19 $0.41 $0.34 ========= ======= ======== ======== Diluted $0.21 $0.18 $0.39 $0.32 ========= ======= ======== ======== Weighted-average shares outstanding: Basic 44,327 42,512 44,181 42,180 ========= ======= ======== ======== Diluted 46,221 44,660 46,091 44,453 ========= ======= ======== ======== 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, June 30, 2006 2005 ---------------------------- ------- Adjust- Pro GAAP ments(1) Forma GAAP ---------------------------- ------- U.S. net sales $81,641 $-- $81,641 $63,697 International net sales 19,421 -- 19,421 11,329 ---------------------------- ------- Net sales 101,062 -- 101,062 75,026 Cost of goods sold 13,188 (393) 12,795 8,494 ---------------------------- ------- Gross profit 87,874 393 88,267 66,532 ---------------------------- ------- Operating expenses: Research and development 9,939 (943) 8,996 7,638 Sales and marketing 48,649 (2,926) 45,723 36,174 General and administrative 14,496 (2,665) 11,831 10,343 ---------------------------- ------- Total operating expenses 73,084 (6,534) 66,550 54,155 ---------------------------- ------- Income from operations 14,790 6,927 21,717 12,377 Interest income and other, net 2,080 -- 2,080 819 ---------------------------- ------- Income before income taxes 16,870 6,927 23,797 13,196 Provision for income taxes 7,390 2,221 9,611 5,260 ---------------------------- ------- Net income $9,480 $4,706 $14,186 $7,936 ============================= ======== Net income per share: Basic $0.21 $0.11 $0.32 $0.19 ============================= ======== Diluted $0.21 $0.10 $0.31 $0.18 ============================= ======== Weighted-average shares outstanding: Basic 44,327 -- 44,327 42,512 ============================= ======== Diluted 46,221 175 46,396 44,660 ============================= ======== Six Months Ended Six Months Ended June 30, June 30, 2006 2005 Adjust- Pro GAAP ments(1) Forma GAAP U.S. net sales $157,153 $-- $157,153 $121,563 International net sales 35,337 -- 35,337 19,697 ----------------------------- -------- Net sales 192,490 -- 192,490 141,260 Cost of goods sold 24,153 (557) 23,596 16,419 ----------------------------- -------- Gross profit 168,337 557 168,894 124,841 ----------------------------- -------- Operating expenses: Research and development 18,528 (1,901) 16,627 13,098 Sales and marketing 94,035 (5,529) 88,506 71,159 General and administrative 28,064 (5,356) 22,708 18,041 ----------------------------- -------- Total operating expenses 140,627 (12,786) 127,841 102,298 ----------------------------- -------- Income from operations 27,710 13,343 41,053 22,543 Interest income and other, net 4,203 -- 4,203 1,344 ----------------------------- -------- Income before income taxes 31,913 13,343 45,256 23,887 Provision for income taxes 13,940 4,298 18,238 9,530 ----------------------------- -------- Net income $17,973 $9,045 $27,018 $14,357 ============================= ======== Net income per share: Basic $0.41 $0.20 $0.61 $0.34 ============================= ======== Diluted $0.39 $0.20 $0.58 $0.32 ============================= ======== Weighted-average shares outstanding: Basic 44,181 -- 44,181 42,180 ============================= ======== Diluted 46,091 213 46,304 44,453 ============================= ======== KYPHE
Kyphon Inc.CONTACT: Julie D. Tracy, Vice President, Investor Relations and CorporateMarketing of Kyphon Inc., +1-408-548-6500, or jtracy@kyphon.com
Web site: http://www.kyphon.com//
