FOXH Foxhollow Technologies (MM)

Company Announces First Profitable Quarter REDWOOD CITY, Calif., Aug. 2 /PRNewswire-FirstCall/ -- FoxHollow Technologies, Inc. (NASDAQ:FOXH), which manufactures and markets the SilverHawk(TM) Plaque Excision Systems -- a minimally invasive device for the treatment of peripheral artery disease (PAD) -- today reported results for the second quarter and first half of fiscal 2006. For the quarter ended June 30, 2006, the company reported revenue of $48.2 million, a 68 percent increase over revenue of $28.7 million in the same period a year ago. Revenue for the second quarter of 2006 included $48.0 million of product revenue and $216,000 of research collaboration revenue related to the company's partnership with Merck & Co., Inc. This compares with first quarter revenue of $44.6 million from product sales and $2.1 million in research collaboration revenue. As discussed previously, the company anticipated the decline in research collaboration revenue during the second quarter, related to the timing of patient enrollment in clinical studies. FoxHollow reported net income of $532,000, or $0.02 per diluted share, which marks the company's first profitable quarter. The company reported a net loss of $3.4 million, or $0.15 per share, in the second quarter of 2005. Included in these results are non-cash, stock-based compensation expenses of $2.9 million, or $0.12 per share in the second quarter of 2006, and $1.9 million, or $0.08 per share, in the second quarter of 2005. Net income, excluding stock-based compensation, was $3.4 million, or $0.13 per diluted share, in the second quarter of 2006. The company reported a gross margin on product sales of 78 percent in the second quarter of 2006 versus 69 percent in the second quarter a year ago. A reconciliation of GAAP and non-GAAP operating results is provided below. "This was a milestone quarter for FoxHollow for a number of reasons, including our first quarter of profitability on a GAAP basis. Our financial performance speaks to increased adoption of the SilverHawk and growing confidence in the medical community that plaque excision is a valuable and important addition to the treatment options for PAD," noted Dr. John Simpson, who was named chief executive officer during the second quarter. "In addition, we realized important accomplishments in our product development programs. We have now launched the MiniHawk, a downsized version of the SilverHawk, which is designed to treat very small arteries in the lower leg and foot. These arteries can be hard to access with standard sized devices but are often very important for foot salvage, so I expect the MiniHawk to move us closer to our ultimate goal of minimizing amputations at all levels. I am also pleased to announce we have completed working prototypes of the NightHawk, a plaque excision system that includes intravascular imaging capabilities. We have used the NightHawk in experimental models with very good success and remain on track to use this product in patients by the end of the year," Dr. Simpson added. In the second quarter, the company also initiated enrollment in its SWIFT study, which will provide third-party analysis of the six and twelve month outcomes data for a new 100 patient registry. The company also expects to begin patient enrollment in its PROOF trial during the fourth quarter. This study will randomize 400 patients with critical limb ischemia to either the SilverHawk or surgical bypass, which is currently considered the standard of care within the vascular surgery community. Patients will be followed for five years post-procedure, with the primary study endpoint being amputation-free survival. The study will also measure ten additional endpoints, such as limb salvage, quality of life, re-intervention rates and costs. Regarding the company's biologics group and business development activities, Duke Rohlen, the company's president of strategic operations, commented, "Our collaboration with Merck continues to go very well. The early results from Merck's plaque analysis are consistent with what was predicted based on the biopsy experience in cancer tumors that dates back decades -- that there is valuable information in the tissue taken from the diseased areas. We are hitting or exceeding our collective initial objectives and have received positive feedback from Merck on the value they are receiving from the collaboration. We also continue to have discussions regarding other potential biologics-related opportunities that do not conflict with our Merck collaboration, as well as several opportunities to acquire or license complementary device technologies." For the first six months of 2006, FoxHollow reported revenue of $94.8 million versus revenue of $50.2 million in the same period a year ago. The company reported a net loss of $14.1 million, or $0.57 per share in the first six months of 2006, versus a net loss of $10.0 million, or $0.44 per share, in the same period a year ago. FoxHollow reported net income excluding stock- based compensation, of $3.6 million, or $0.14 per diluted share, in the first six months of 2006, versus a loss of $6.3 million, or $0.28 per share, in the first six months of 2005. A reconciliation of GAAP and non-GAAP operating results is provided below. Guidance for the Third Quarter and Fiscal 2006 FoxHollow expects revenue of $53-$55 million for the third quarter of 2006, including approximately $4.0 million of revenue related to the company's biologics program. The company expects earnings per diluted share of $0.10- $0.15 for the third quarter. This includes stock-based compensation of approximately $3.0 million, or $0.11 per share. Diluted earnings per share excluding stock-based compensation, or non-GAAP earnings per diluted share, are expected to be in the range of $0.21-$0.26. For the full year 2006, the company expects revenue of $210-$214 million, including approximately $10-$12 million in biologics revenue. The company is expecting a loss per share of $0.22-$0.07. This includes stock-based compensation of approximately $24 million, or $0.92 per share. Non-GAAP earnings per diluted share are expected to be in the range of $0.70-$0.85. A reconciliation of the company's financial guidance for GAAP and non-GAAP earnings per diluted share is as follows: Three Months Ending Year Ending September 30, 2006 December 31, 2006 ------------------ ----------------- Projected GAAP earnings (loss) per diluted share $0.10 - $0.15 $(0.22) - $(0.07) Add: Stock-based compensation expense 0.11 0.92 ------------------ ----------------- Projected non-GAAP earnings per diluted share $0.21 - $0.26 $0.70 - $0.85 ================== ================= The company noted that stock-based compensation expense for both the third quarter and full year 2006 could vary significantly, depending on the price of the company's stock and future stock grant practices, as well as other factors. Conference Call The company will hold a conference call today at 2 p.m., Pacific Time (5 p.m., Eastern Time). The teleconference can be accessed via the investor relations section of the company's website at http://investor.foxhollowtech.com/ , or by calling 888-889-5602 (domestic) or 973-582-2734 (international). Please dial in or access the website 10-15 minutes prior to the beginning of the call. A replay of the conference call will be available four hours after the conference call concludes through 12 a.m., Eastern Time, August 16, 2006, by dialing 877-519-4471, or 973-341-3080 (international), passcode 7673722. An online archive of the webcast will be available for a minimum of two months by accessing the investor relations portion of the company's website at http://investor.foxhollowtech.com/ . About FoxHollow Technologies FoxHollow Technologies, Inc., develops and markets minimally invasive plaque excision devices for the treatment of peripheral artery disease (PAD). An estimated 12 million people in the United States are thought to suffer from PAD, with 2.5 million patients currently diagnosed. PAD results from plaque that accumulates in the arteries and blocks blood flow in the legs. These blockages can result in severe pain for patients and very limited physical mobility. The company's SilverHawk System is a minimally invasive method of removing the obstructive plaque and restoring blood flow to the legs and feet. For more information, please visit our website at http://www.foxhollowtech.com/ . Use of Non-GAAP Financial Measures FoxHollow management believes that in order to properly understand FoxHollow'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, FoxHollow 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. Forward-Looking Statements This press release contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Statements in this press release regarding FoxHollow's business that are not historical facts may be "forward-looking statements" that involve risks and uncertainties. Specifically, statements regarding the company's financial guidance for the third quarter and full year 2006, future revenue and profit from the Merck collaboration and other business development transactions and expectations regarding future product releases and enrollment in clinical trials are forward-looking statements involving risks and uncertainties. FoxHollow's second quarter 2006 financial results, as discussed in this release, are preliminary and unaudited, and subject to adjustment. Forward- looking statements are based on management's current, preliminary expectations and are subject to risks and uncertainties, which may cause FoxHollow's results to differ materially from the statements contained herein. The potential risks and uncertainties that could cause actual results to differ from the results predicted are included under the caption, "Factors Affecting Future Operating Results," in "Management's Discussion and Analysis of Financial Condition and Results of Operations," in our most recent quarterly report on Form 10-Q for the quarter ended March 31, 2006, filed with the SEC on May 9, 2006, and available on our investor relations website at http://www.foxhollowtech.com/ and on the SEC's website at http://www.sec.gov/ . Undue reliance should not be placed on forward-looking statements, which speak only as of the date they are made. FoxHollow undertakes no obligation to update publicly any forward-looking statements to reflect new information, events or circumstances after the date there were made, or to reflect the occurrence of unanticipated events. Contacts: Matt Ferguson Chief Financial Officer 650-421-8449 Robin Gaffney Media Relations 650-421-8614 FOXHOLLOW TECHNOLOGIES, INC. CONDENSED BALANCE SHEETS (in thousands) (unaudited) June 30, December 31, 2006 2005 ----------- ----------- Assets Current assets: Cash and cash equivalents $24,140 $24,249 Short-term investments 41,661 35,666 Accounts receivable, net 25,073 21,831 Inventories 13,463 15,607 Prepaid expenses and other current assets 1,583 1,846 ----------- ----------- Total current assets 105,920 99,199 Property and equipment, net 8,700 8,442 Other assets 568 564 ----------- ----------- Total assets $115,188 $108,205 =========== =========== Liabilities and Stockholders' Equity Current liabilities: Accounts payable $6,610 $7,072 Accrued liabilities 12,125 11,163 Deferred revenue 3,926 6,206 ----------- ----------- Total liabilities 22,661 24,441 =========== =========== Stockholders' equity: Common stock 25 24 Additional paid-in capital 195,214 178,011 Deferred stock-based compensation (3,469) (9,066) Other comprehensive loss (31) (99) Accumulated deficit (99,212) (85,106) ----------- ----------- Total stockholders' equity 92,527 83,764 ----------- ----------- Total liabilities and stockholders' equity $115,188 $108,205 =========== =========== FOXHOLLOW TECHNOLOGIES, INC. CONDENSED STATEMENTS OF OPERATIONS (in thousands, except per share amounts) (unaudited) Three Months Ended Six Months Ended June 30, June 30, -------------------- ------------------- 2006 2005 2006 2005 ------- ------- ------- ------- Revenue: Product $47,951 $28,724 $92,534 $50,202 Research collaboration 216 -- 2,280 -- ------- ------- ------- ------- Net revenue 48,167 28,724 94,814 50,202 ------- ------- ------- ------- Costs and expenses: Product 10,578 8,863 21,735 17,754 Research collaboration 708 -- 1,828 -- Research and development 4,818 2,513 8,909 4,922 Selling, general and administrative 32,222 21,272 77,738 38,392 ------- ------- ------- ------- Total costs and expenses 48,326 32,648 110,210 61,068 ------- ------- ------- ------- Loss from operations (159) (3,924) (15,396) (10,866) Interest and other income and expense, net 691 482 1,290 901 ------- ------- ------- ------- Net income (loss) $532 $(3,442) $(14,106) $(9,965) ======= ======= ======= ======= Net income (loss) per common share: Basic $0.02 $(0.15) $(0.57) $(0.44) ======= ======= ======= ======= Diluted $0.02 $(0.15) $(0.57) $(0.44) ======= ======= ======= ======= Weighted-average number of shares used in per common share calculations: Basic 24,847 22,711 24,581 22,527 ======= ======= ======= ======= Diluted 25,807 22,711 24,581 22,527 ======= ======= ======= ======= 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- Adjust- ments ments GAAP (1) Non-GAAP GAAP (1) Non-GAAP -------------------------- ------------------------ Revenue: Product $47,951 $-- $47,951 $28,724 $-- $28,724 Research collaboration 216 -- 216 -- -- -- -------------------------- ------------------------ Net revenue 48,167 -- 48,167 28,724 -- 28,724 -------------------------- ------------------------ Costs and expenses: Product 10,578 (312) 10,266 8,863 (126) 8,737 Research collaboration 708 -- 708 -- -- -- Research and development 4,818 (547) 4,271 2,513 (408) 2,105 Selling, general and administrative 32,222 (2,031) 30,191 21,272 (1,332) 19,940 -------------------------- ------------------------ Total costs and expenses 48,326 (2,890) 45,436 32,648 (1,866) 30,782 -------------------------- ------------------------ Income (loss) from operations (159) 2,890 2,731 (3,924) 1,866 (2,058) Interest and other income and expense, net 691 -- 691 482 -- 482 -------------------------- ------------------------ Net income (loss) $532 $2,890 $3,422 $(3,442) $1,866 $(1,576) ========================== ======================== Net income (loss) per common share: Basic $0.02 $0.12 $0.14 $(0.15) $0.08 $(0.07) ========================== ======================== Diluted $0.02 $0.11 $0.13 $(0.15) $0.08 $(0.07) ========================== ======================== Weighted-average number of shares used in per common share calculations: Basic 24,847 -- 24,847 22,711 -- 22,711 ========================== ======================== Diluted 25,807 -- 25,807 22,711 -- 22,711 ========================== ======================== Six Months Ended Six Months Ended June 30, June 30, 2006 2005 Adjust- Adjust- ments ments GAAP (1) Non-GAAP GAAP (1) Non-GAAP -------------------------- ------------------------ Revenue: Product $92,534 $-- $92,534 $50,202 $-- $50,202 Research collaboration 2,280 -- 2,280 -- -- -- -------------------------- ------------------------ Net revenue 94,814 -- 94,814 50,202 -- 50,202 -------------------------- ------------------------ Costs and expenses: Product 21,735 (644) 21,091 17,754 (299) 17,455 Research collaboration 1,828 -- 1,828 -- -- -- Research and development 8,909 (1,074) 7,835 4,922 (727) 4,195 Selling, general and administrative 77,738 (15,965) 61,773 38,392 (2,616) 35,776 -------------------------- ------------------------ Total costs and expenses 110,210 (17,683) 92,527 61,068 (3,642) 57,426 -------------------------- ------------------------ Income (loss) from operations (15,396) 17,683 2,287 (10,866) 3,642 (7,224) Interest and other income and expense, net 1,290 -- 1,290 901 -- 901 -------------------------- ------------------------ Net income (loss) $(14,106) 17,683 $3,577 $(9,965) 3,642 $(6,323) ========================== ======================== Net income (loss) per common share: Basic $(0.57) $0.72 $0.15 $(0.44) $0.16 $(0.28) ========================== ======================== Diluted $(0.57) $0.71 $0.14 $(0.44) $0.16 $(0.28) ========================== ======================== Weighted-average number of shares used in per common share calculations: Basic 24,581 -- 24,581 22,527 -- 22,527 ========================== ======================== Diluted 24,581 -- 25,798 22,527 -- 22,527 ========================== ======================== (1) Adjustments consist of stock-based compensation. The company 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. DATASOURCE: FoxHollow Technologies, Inc. CONTACT: Matt Ferguson, Chief Financial Officer, +1-650-421-8449, or , or Robin Gaffney, Media Relations, +1-650-421-8614, or , both of FoxHollow Technologies, Inc. Web site: http://www.foxhollowtech.com/

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