SUNNYVALE, Calif., April 27 /PRNewswire-FirstCall/ -- Kyphon Inc. today announced that net sales for the quarter ended March 31, 2006 totaled $91.4 million, an increase of 38% over the $66.2 million in net sales reported for the first quarter of 2005. Earnings per diluted share for the quarter increased 27% to $0.19, which includes the impact of stock-based compensation under FAS 123(R), compared to $0.15 for the same period a year ago.
Adoption of FAS 123(R) during the first quarter of 2006 resulted in a $4.3 million non-cash charge to net income for stock-based compensation, or $0.09 per diluted share. First quarter 2005 net income excludes the impact of stock-based compensation under FAS 123(R).
Non-GAAP net income for the first quarter of 2006, which excludes the FAS 123(R) stock-based compensation charge, increased 100% to $12.8 million, or $0.28 per diluted share compared to net income of $6.4 million, or $0.15 per diluted share, for the first quarter of fiscal 2005. A reconciliation of GAAP and non-GAAP operating results is provided below.
Kyphon’s revenues for the first quarter included $75.5 million in net sales in the United States and $15.9 million in net sales from its international operations, representing growth in those markets of 30% and 90%, respectively, over the first quarter of 2005. Revenue growth at constant foreign currency exchange rates for international and total company was 107% and 40% respectively.
“I am very pleased that our performance in the first quarter marked another period of strong execution for Kyphon,” said Richard Mott, president and chief executive officer of Kyphon. “Our revenue performance both in the U.S. and internationally continues to reflect strong clinician adoption and the value to patients of the balloon kyphoplasty procedure. Additionally, we made solid progress on key initiatives designed to fuel future growth including increased clinical trial enrollments for our evidence-based medicine programs, integration of the acquisition of InnoSpine and its functional anaesthetic discography product line for discogenic back pain, expansion of our global sales force, and training of new clinicians in performing balloon kyphoplasty using our KyphX products,” continued Mott. “We believe our dedicated, focused efforts to bring innovative technologies and new minimally invasive procedural solutions to spine specialists and patients are creating a foundation for continued growth and support for our customers,” concluded Mott.
Financial Outlook for Full-Year 2006 and Quarter Ending June 30, 2006
For the full-year 2006, net sales are targeted to increase at least 30% versus 2005 to approximately $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 second quarter of 2006, the company anticipates worldwide net sales of $97 million to $101 million, which represents an increase of 29% to 35% versus the second quarter of 2005. Net sales from the company’s international operations are targeted to constitute 18% to 20% of total worldwide net sales in the second 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 $0.89. The target range for non-GAAP earnings per diluted share excluding the impact of FAS 123(R) is $1.19 to $1.26.
For the second quarter, the target range for GAAP earnings per diluted share including the impact of FAS 123(R) is $0.19 to $0.21. Excluding the impact of FAS 123(R), non-GAAP earnings per diluted share is targeted to be between $0.29 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 June 30, December 31, 2006 2006 ------------------- --------------- Projected GAAP earnings per diluted share $0.19- $0.21 $0.82- $0.89 Add: Stock-based compensation expense, net of taxes 0.10 0.37 ------------------- --------------- Projected non-GAAP earnings per diluted share $0.29 - $0.31 $1.19 - $1.26 =================== =============== Selected Metrics
Kyphon ended the first quarter of 2006 with 269 device sales representatives in the U.S. Internationally, the company ended the first quarter with approximately 97 sales professionals. Kyphon is planning to end 2006 with approximately 300 to 315 device sales representatives in the U.S., along with approximately 120 to 135 sales representatives outside of the U.S. These sales representatives work with spine specialists worldwide who perform, or who are candidates to perform, the kyphoplasty procedure and the primary care physician community, to educate them about the option of kyphoplasty. To date, approximately 5,300 spine specialists in the U.S. and 3,300 outside the U.S. have been trained to perform kyphoplasty. For the year 2006, Kyphon expects to train a total of approximately 1,800 physicians to perform kyphoplasty procedures, 900 in the U.S. and 900 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 first quarter 2006 results exclude the FAS 123(R) stock-based compensation charges. A reconciliation of Kyphon’s non-GAAP operating results for the first quarter of 2006 is as 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 Three Months Ended Ended March 31, March 31, 2006 2005 ----------------------- -------- Adjust- Non- GAAP ments(1) GAAP GAAP ----------------------- -------- U. S. net sales $75,512 $- $75,512 $57,866 International net sales 15,916 - 15,916 8,368 ----------------------- --------- Net sales 91,428 - 91,428 66,234 Cost of goods sold 10,965 (164) 10,801 7,925 ----------------------- --------- Gross profit 80,463 164 80,627 58,309 ----------------------- --------- Operating expenses: Research and development 8,589 (958) 7,631 5,460 Sales and marketing 45,386 (2,603) 42,783 34,985 General and administrative 13,568 (2,691) 10,877 7,698 ----------------------- --------- Total operating expenses 67,543 (6,252) 61,291 48,143 ----------------------- --------- Income from operations 12,920 6,416 19,336 10,166 Interest income and other, net 2,123 - 2,123 525 ----------------------- --------- Income before income taxes 15,043 6,416 21,459 10,691 Provision for income taxes 6,550 2,077 8,627 4,270 ----------------------- --------- Net income $8,493 $4,339 $12,832 $6,421 ======================= ========= Net income per share: Basic $0.19 $0.10 $0.29 $0.15 ======================= ========= Diluted $0.19 $0.09 $0.28 $0.15 ======================= ========= Weighted-average shares outstanding: Basic 44,032 - 44,032 41,843 ======================= ========= Diluted 45,882 197 46,079 44,231 ======================= =========
(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, 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 before. 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 first 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 6:00 p.m. Pacific Time on Thursday, April 27, 2006, until 12:00 a.m. Pacific Time on Thursday, May 18, 2006. To access the replay, dial 888-203-1112 (U.S.) or 719-457-0820 (International) and enter the access code 7088154.
About Kyphon Inc.
Kyphon develops and markets medical devices designed to restore spinal function using minimally invasive technologies. The company’s KyphX line of products are used in balloon kyphoplasty, a minimally invasive procedure to treat spinal fractures caused by osteoporosis or cancer. For more information, visit Kyphon’s Web site at http://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. 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 Balance Sheets (unaudited, in thousands) March 31, December 31, 2006 2005 ---------- --------- Assets Current assets: Cash and cash equivalents $92,084 $76,149 Investments 125,138 118,324 Accounts receivable, net 55,535 55,480 Inventories 9,934 9,265 Prepaid expenses and other current assets 7,922 5,899 Deferred tax assets 12,384 10,488 ---------- --------- Total current assets 302,997 275,605 Property and equipment, net 20,166 15,977 Goodwill and other intangible assets, net 15,204 15,377 Deferred tax assets 6,749 6,749 Other assets 2,880 2,924 ---------- --------- Total assets $347,996 $316,632 ========== ========= Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $10,551 $9,308 Accrued liabilities 54,143 49,793 ---------- --------- Total current liabilities 64,694 59,101 ---------- --------- Deferred rent and other 5,324 4,051 Contingent purchase price 3,556 3,424 ---------- --------- Total liabilities 73,574 66,576 ---------- --------- Commitments and contingencies Stockholders’ equity: Common stock, par value: $0.001 per share 44 44 Additional paid-in capital 246,386 231,312 Treasury stock, at cost (201) (201) Deferred stock-based compensation, net - (116) Accumulated other comprehensive income 855 172 Retained earnings 27,338 18,845 ---------- --------- Total stockholders’ equity 274,422 250,056 ---------- --------- Total liabilities and stockholders’ equity $347,996 $316,632 ========== ========= Kyphon Inc. Condensed Consolidated Income Statements (unaudited; in thousands, except per share amounts) Three Months Ended March 31, --------------------- 2006 2005 --------- --------- U. S. net sales $75,512 $57,866 International net sales 15,916 8,368 --------- --------- Net sales 91,428 66,234 Cost of goods sold 10,965 7,925 --------- --------- Gross profit 80,463 58,309 --------- --------- Operating expenses: Research and development 8,589 5,460 Sales and marketing 45,386 34,985 General and administrative 13,568 7,698 --------- --------- Total operating expenses 67,543 48,143 --------- --------- Income from operations 12,920 10,166 Interest income and other, net 2,123 525 --------- --------- Income before income taxes 15,043 10,691 Provision for income taxes 6,550 4,270 --------- --------- Net income $8,493 $6,421 ========= ========= Net income per share: Basic $0.19 $0.15 ========= ========= Diluted $0.19 $0.15 ========= ========= Weighted-average shares outstanding: Basic 44,032 41,843 ========= ========= Diluted 45,882 44,231 ========= =========
Kyphon Inc.
CONTACT: investors and media, Julie D. Tracy, Vice President, InvestorRelations and Corporate Marketing of Kyphon Inc., +1-408-548-6500, orjtracy@kyphon.com
Web site: http://www.kyphon.com/
