EATONTOWN, N.J., Aug. 4 /PRNewswire-FirstCall/ -- Osteotech, Inc. reported today that net income for the three months ended June 30, 2006 was $.8 million, or $.04 diluted earnings per share, compared to a net loss of $1.9 million, or $.11 diluted net loss per share, for the three months ended June 30, 2005. Consolidated revenues for the three months ended June 30, 2006 and 2005 were $25.3 million in each respective period. Gross margins increased to 48% in the second quarter of 2006 from 40% in the second quarter of 2005, mainly due to improved inventory and processing productivity. As a result, there was a reduced need for reserves for expiring, excess and obsolete tissue inventories in 2006 compared to 2005.
Sam Owusu-Akyaw, Osteotech’s President and Chief Executive Officer, stated, “Throughout the first half of 2006, we continued to execute on our strategic initiatives. Our team was able to continue to improve gross margins and control operating expenses, and our progress on these initiatives is reflected in our second quarter profitability. As a result, we more than doubled operating income in the second quarter of 2006 compared to the first quarter of 2006 on a very similar revenue base. The team is committed to continuing these efforts and providing improvements in gross margins and operating income throughout 2006 and 2007.”
Mr. Owusu-Akyaw concluded, “Our team understands the challenges we face and is dedicated to tackling each new challenge with the same level of determination and intensity we have applied to other challenges over the past eighteen months.”
Net income for the six months ended June 30, 2006 was $1.0 million, or $.06 diluted earnings per share, compared to a net loss of $2.7 million, or $.16 diluted net loss per share, for the six months ended June 30, 2005. Consolidated revenues for the six months ended June 30, 2006 and 2005 were $50.4 million and $49.1 million, respectively. Gross margins increased to 47% in the first half of 2006 from 42% in the first half of 2005.
DBM Segment revenues were $13.7 million and $14.0 million for the three months ended June 30, 2006 and 2005, respectively. The decline in DBM Segment revenues was substantially the result of lower domestic unit sales volume and continued pricing pressures on our domestic sales efforts. Operating income in the DBM Segment was $.6 million and $1.2 million for the three months ended June 30, 2006 and 2005, respectively. The reduction in operating income in the second quarter of 2006 was primarily due to the decline in domestic Grafton(R) DBM revenues, which resulted in lower gross margins, partially offset by our ability to control operating expenses in 2006 compared to 2005.
DBM Segment revenues increased 5% to $28.2 million for the six months ended June 30, 2006 compared to revenues of $26.9 million in the corresponding period in 2005. The increase in DBM Segment revenues was substantially the result of increased unit sales volume in all product categories, partially offset by pricing pressures on our domestic sales efforts. Operating income in the DBM Segment was $2.1 million and $1.9 million for the six months ended June 30, 2006 and 2005, respectively. The improvement in operating income in the first half of 2006 was primarily due to the increase in revenues and our ability to control operating expenses in 2006 compared to 2005.
Base Tissue Segment revenues were $10.8 million for the three months ended June 30, 2006 compared to $11.0 million in the corresponding period in 2005. Base Tissue Segment revenues were primarily impacted by a 31% decline in service fees generated by processing allograft bone tissue for clients in the second quarter of 2006 as compared to 2005. We also experienced a 25% decline in revenues from the distribution of Graftech(R) Bio-implants in the three months ended June 30, 2006 compared to the same period in 2005 due to continued lower demand and increased competition from polymer-based spinal implants. Revenues from the worldwide distribution of traditional tissue increased 82% in the second quarter of 2006 compared to the second quarter of 2005, principally from increased unit sales volume. Base Tissue Segment revenues were $20.8 million for the six months ended June 30, 2006 compared to $21.5 million in the corresponding period in 2005. Base Tissue Segment revenues were negatively impacted by a 37% decline in service fees generated by processing allograft bone tissue for clients and a 19% decline in revenues from the distribution of Graftech(R) Bio-implants in the six months ended June 30, 2006 compared to the corresponding period in 2005. Revenues from the worldwide distribution of traditional tissue increased 69% in the first half of 2006 compared to the first half of 2005, mainly from increased unit sales volume.
Operating income in the Base Tissue Segment was $.9 million and $31,000 in the three months and six months ended June 30, 2006, respectively, compared to operating losses of $3.4 million and $4.9 million for the same respective periods in 2005. The improvement in operating income in both periods is primarily due to a substantial increase in gross margins resulting from improved inventory and processing productivity, which reduced the need for tissue inventory reserves in 2006 compared to 2005.
A conference call will be conducted by Sam Owusu-Akyaw, President and Chief Executive Officer, as well as other members of Osteotech management, on August 4, 2006 at 9:00 a.m. Eastern Time to discuss second quarter results. You are invited to listen to the conference call by dialing 1-706-643-1624. 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 18, 2006, by dialing 1-706-645-9291 and indicating access code 2521726.
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, differences in anticipated and actual product and service introduction dates, the ultimate success of those products in the marketplace, the continued acceptance and growth of current products and services, 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 filed with the Securities and Exchange Commission. All information in this press release is as of August 4, 2006 and the Company does not intend 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 CONSOLIDATED REVENUE DETAIL (dollars in thousands) Second Quarter Six Months Ended June 30, Ended June 30, 2006 2005 2006 2005 DBM Segment Domestic $11,359 $11,761 $23,699 $22,758 International 2,353 2,251 4,502 4,149 Total DBM Segment 13,712 14,012 28,201 26,907 Base Tissue Segment Domestic: Client Processing 2,277 3,523 4,056 6,767 Traditional Tissue 2,906 1,524 5,409 2,883 Graftech(R) Bio-implants 3,533 4,727 7,531 9,271 8,716 9,774 16,996 18,921 International: Client Processing 244 109 385 247 Traditional Tissue 1,871 1,102 3,467 2,360 2,115 1,211 3,852 2,607 Total Base Tissue Segment 10,831 10,985 20,848 21,528 Other Product Lines 739 293 1,313 703 Net Revenues $25,282 $25,290 $50,362 $49,138 OSTEOTECH, INC. and SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (dollars in thousands, except per share data) Second Quarter Six Months Ended June 30, Ended June 30, 2006 2005 2006 2005 Net revenues: Service $24,543 $24,997 $49,049 $48,435 Product 739 293 1,313 703 25,282 25,290 50,362 49,138 Cost of services 12,610 15,110 25,775 28,173 Cost of products 612 107 948 265 13,222 15,217 26,723 28,438 Gross profit 12,060 10,073 23,639 20,700 Marketing, selling, general and administrative 10,009 10,967 20,105 21,573 Research and development 1,143 1,224 2,315 2,186 11,152 12,191 22,420 23,759 Operating income (loss) 908 (2,118) 1,219 (3,059) Interest expense and other, net (3) (677) (29) (973) Income (loss) before income taxes 905 (2,795) 1,190 (4,032) Income tax provision (benefit) 136 (917) 179 (1,323) Net Income (loss) $769 $(1,878) $1,011 $(2,709) Earnings (loss) per share: Basic $.04 $(.11) $.06 $(.16) Diluted $.04 $(.11) $.06 $(.16) Shares used in computing earnings (loss) per share: Basic 17,273,778 17,187,792 17,274,846 17,182,245 Diluted 17,336,679 17,187,792 17,354,906 17,182,245 OSTEOTECH, INC. and SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (dollars in thousands) June 30, December 31, 2006 2005 Assets Cash and cash equivalents $13,813 $13,484 Accounts receivable, net 17,373 14,879 Deferred processing costs 28,554 28,805 Inventories 1,578 1,278 Other current assets 3,550 3,438 Total current assets 64,868 61,884 Property, plant and equipment, net 38,605 39,962 Other assets 8,468 9,176 $111,941 $111,022 Liabilities and Stockholders’ Equity Accounts payable and accrued expense $16,309 $16,320 Current maturities of capital lease obligation 690 655 Total current liabilities 16,999 16,975 Capital lease obligation 15,249 15,603 Other liabilities 7,399 7,689 Total liabilities 39,647 40,267 Stockholders’ equity 72,294 70,755 $111,941 $111,022
Osteotech, Inc.
CONTACT: Mark H. Burroughs, Osteotech, Inc., +1-732-542-2800
Web site: http://www.osteotech.com/
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