HealthTronics, Inc. Announces Fourth Quarter and Annual Results

HealthTronics, Inc. (NASDAQ:HTRN), a leading provider of Urology services and products, today announced its financial results for the quarter and year ended December 31, 2006. Fourth Quarter 2006 Revenue from continuing operations for the fourth quarter 2006 totaled $33.4 million as compared to $38.2 million for the same period in 2005. The Company’s net loss for the fourth quarter of 2006, in accordance with generally accepted accounting principles ("GAAP”), totaled $25.1 million or $0.71 per share on a diluted basis. Included in net loss for the fourth quarter of 2006 were costs of $7.0 million classified as discontinued operations, primarily as a result of the Company’s sale of its cryosurgery operation, exit from its HIFU initiative with EDAP, and plan to sell its Rocky Mountain Prostate operation. The loss from continuing operations for the fourth quarter 2006 totaled $18.1 million compared to income from continuing operations for the fourth quarter 2005 of $1.9 million. During the quarter, the Company completed its restructuring and incurred certain non-recurring costs in the quarter of approximately $1.0 million in severance and legal costs relating to either departing employees or disposed businesses. The company also recorded a $20.6 million non-cash charge for goodwill impairment related to its Urology Services and Medical Products divisions. In addition to the non-recurring and goodwill impairment charges recorded in the quarter, the Company incurred approximately $940,000 in stock option expense under FAS 123R. Excluding the total of the aforementioned expenses, the Company’s Adjusted EBITDA from continuing operations would have been $2.7 million in the fourth quarter 2006, which compares to $5.7 million in the fourth quarter 2005. Full Year 2006 Revenue from continuing operations for the year ended December 31, 2006 totaled $142.9 million as compared to $152.3 million for the year ended December 31, 2005. The Company’s net income for 2006, in accordance with generally accepted accounting principles ("GAAP”), totaled $8.7 million or $0.25 per share on a diluted basis as compared to $9.2 million in net income for 2005, or $0.26 per diluted share. Included in net income for 2006 was income of $25.1 million classified as discontinued operations, primarily from the Company’s sale of its Specialty Vehicles division during the third quarter of 2006. The loss from continuing operations for 2006 totaled $16.5 million compared to earnings of $10.9 million in 2005. Excluding certain non-cash and non-recurring charges, the Company’s Adjusted EBITDA from continuing operations would have been $17.9 million for 2006, which compares to $30.0 million for 2005. The Company’s current cash balance before minority interest exceeds its debt by $16.5 million, the Company’s net working capital before minority interest totals $41.7 million and the Company has no monies drawn on its $50 million revolving line of credit. Sam B. Humphries, President and Chief Executive Officer commented, "We are pleased that the restructuring, refocusing and cost reduction initiatives are now behind us in 2006. The fourth quarter and annual financial results for 2006 are disappointing, but are also behind us. We can now aggressively move into the execution phase of our strategic plan. On that front, we have developed aggressive physician communications and marketing programs, as well as, a comprehensive strategy that we hope will drive profitable growth in the future. We are also excited about the positive momentum that is starting to build in both the urology services and medical products divisions.” Urology Services We have focused field personnel on communicating with our physician partners and improving utilization of equipment at the partnership level and expect to improve operating returns for our physician partners during 2007. At the same time, we expect the centralization of administrative functions which are scalable across all of our partnerships to improve HealthTronics’ operating margins going forward. The completion of our restructuring was an important step in delivering the highest quality of patient care at competitive margins. Our continued deployment of the RevoLix Laser demonstrates to our urologist partners our commitment to bring new technologies that improve patient care and enhance practice economics. Our willingness to commit capital and resources to evaluating and sponsoring new urological technologies across different modalities makes us unique among competitors in the urology services field. Medical Products The Medical Products division continues to execute on growth initiatives. The RevoLix laser for surgical treatment of Benign Prostatic Hyperplasia (BPH) is being steadily adopted by our physician partners and treatment volumes are increasing. Cases treated by the RevoLix lasers deployed by HealthTronics increased 107% in the fourth quarter of 2006 when compared to the third quarter. ClariPath Labs processed 4,500 billable CPT codes in the fourth quarter of 2006 as a result of expanded sales efforts, which represents a 38% increase when compared to third quarter volumes. We closed our Swiss manufacturing operation and completed the consolidation of all distribution and service support into our Atlanta facility which should improve operating margins. Conference Call and Webcast Management of HealthTronics will host a conference call the morning of Tuesday, March 6, 2007 at 10:30 a.m. EST. To participate in the live call, please dial 800-500-0311 (719-457-2698 for international callers) and ask for the "HealthTronics” call (conference I.D. #4532473). Please call in 10 minutes before the call is scheduled to begin. The conference call will also be webcast live via the Investors section of the Company’s web site at www.healthtronics.com. To listen to the live webcast, go to the web site at least 10 minutes early to register, download and install any necessary audio software. If you are unable to listen live, the conference call will be archived on the Company’s web site. A telephone replay will be available for two weeks by dialing 888-203-1112 (719-457-0820 for international callers) and entering the conference I.D. or replay passcode of #4532473. HealthTronics’ use of Non GAAP Financial Measures This press release includes financial measures for net income (loss), net income (loss) from continuing operations, and related per share amounts that exclude certain charges and therefore have not been calculated in accordance with U.S. generally accepted accounting principles (GAAP). These non-GAAP financial measures may be different from non-GAAP financial measures used by other companies. Non-GAAP financial measures should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. By excluding certain charges, these non-GAAP financial measures facilitate management’s internal comparisons to the Company’s historical operating results, to competitors’ operating results, and to estimates made by securities analysts. Management uses these non-GAAP financial measures internally to evaluate its performance. The Company believes these non-GAAP financial measures are useful to decision-making. In addition, the Company has historically reported similar non-GAAP financial measures to its investors and believes that the inclusion of comparative numbers provides consistency in it financial reporting. Investors are encouraged to review the reconciliation of the non-GAAP financial measures used in this press release to their most directly comparable GAAP financial measure as provided in the financial statements attached to this press release. EBITDA and Adjusted EBITDA HealthTronics has presented EBITDA and Adjusted EBITDA amounts, which are non-GAAP financial measures. In the SEC filings, HealthTronics has reconciled such amounts to their most directly comparable financial measure calculated in accordance with GAAP, which is HealthTronics’ net income. HealthTronics believes that its presentations of EBITDA and Adjusted EBITDA are important supplemental measures of operating performance to its investors. Earnings before interest, taxes, depreciation and amortization ("EBITDA”) is a commonly used measure of performance which HealthTronics believes, when considered with measures calculated in accordance with GAAP, gives investors a more complete understanding of HealthTronics’ operating results before the impact of investing and financing transactions and income taxes. HealthTronics does not subtract minority interest expense when calculating EBITDA; however, HealthTronics does adjust for minority interest expense and refers to this measure as "Adjusted EBITDA”. Minority interest is a GAAP measure intended to reflect our partner’s share of our consolidated net income and not our partner’s share of our consolidated EBITDA. For example, calculation of minority interest expense does not include adjustments for depreciation, amortization, taxes or interest. As a result, our partners’ share of consolidated EBITDA may not, in a given reporting period, equal the deduction for minority interest expense used in arriving at Adjusted EBITDA. HealthTronics has historically reported Adjusted EBITDA to its investors and believes that the continued inclusion of Adjusted EBITDA provides consistency in its financial reporting. Adjusted EBITDA is among the more significant factors in management’s internal evaluation of total company performance. Adjusted EBITDA is also widely used by HealthTronics management in the annual budgeting process. HealthTronics believes these measures continue to be used by investors and creditors in their assessment of HealthTronics’ operational performance and the valuation of the company. EBITDA and Adjusted EBITDA are used in addition to and in conjunction with results presented in accordance with GAAP. EBITDA and Adjusted EBITDA should not be considered as an alternative to net income, operating income, a liquidity measure, or any other operating performance measure prescribed by GAAP, nor should these measures be relied upon to the exclusion of GAAP financial measures. EBITDA and Adjusted EBITDA reflect additional ways of viewing HealthTronics’ operations that HealthTronics believes, when viewed with its GAAP results and the reconciliations to the corresponding GAAP financial measures provide a more complete understanding of factors and trends affecting HealthTronics’ business than could be obtained absent this disclosure. About HealthTronics, Inc. HealthTronics provides healthcare services primarily to the Urology community, and manufactures, services and distributes a variety of specialty medical products. For more information, visit www.healthtronics.com. Statements by the Company’s management made in this press release that are not strictly historical, including statements regarding plans, objective and future financial performance, are "forward-looking” statements that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Although HealthTronics believes that the expectations reflected in such forward-looking statements are reasonable, no assurance can be given that the expectations will prove to be correct. Factors that could cause actual results to differ materially from HealthTronics’ expectations include, among others, the existence of demand for and acceptance of HealthTronics’ services, regulatory approvals, economic conditions, the impact of competition and pricing, financing efforts and other factors described from time to time in HealthTronics’ periodic filings with the Securities and Exchange Commission. HEALTHTRONICS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME       ($ in thousands, except per share data) Years Ended December 31, 2006  2005  2004  Revenue: Urology Services $ 123,265  $133,360  $ 75,361  Medical Products 19,080  18,202  10,846  Other 546  705  936  Total revenue 142,891  152,267  87,143    Cost of services and general and administrative expenses: Salaries, wages and benefits 44,755  39,741  23,802  Other costs of services 19,247  16,377  7,945  General and administrative 8,552  7,946  5,480  Legal and professional 4,630  2,142  1,090  Manufacturing costs 9,761  6,855  5,273  Advertising 1,151  1,490  872  Goodwill impairment and other 20,861  330  49  Depreciation and amortization 11,275  11,444  6,763  120,232  86,325  51,274    Operating income 22,659  65,942  35,869    Other income (expenses): Interest and dividends 755  448  319  Interest expense (1,146) (1,139) (650) (391) (691) (331) Income from continuing operations before provision for income taxes and minority interest 22,268  65,251  35,538    Minority interest in consolidated income 43,277  47,816  27,030    Provision for income taxes (4,563) 6,502  3,247    Income (loss) from continuing operations (16,446) 10,933  5,261    Income (loss) from discontinued operations, net of tax 25,129  (1,745) (3,908)   Net income $ 8,683  $ 9,188  $ 1,353        Basic earnings per share: Income (loss) from continuing operations $ (0.47) $ 0.32  $ 0.24  Discontinued operations $ 0.72  $ (0.05) $ (0.18) Net income $ 0.25  $ 0.27  $ 0.06  Weighted average shares outstanding 35,157  34,311  21,903    Diluted earnings per share: Income (loss) from continuing operations $ (0.47) $ 0.31  $ 0.24  Discontinued operations $ 0.72  $ (0.05) $ (0.18) Net income $ 0.25  $ 0.26  $ 0.06  Weighted average shares outstanding 35,347  35,182  22,201  HealthTronics, Inc. and Subsidiaries Consolidated Balance Sheets (Unaudited)       December 31, December 31, ($ in thousands) 2006  2005    ASSETS   Total current assets $ 71,825  $ 84,095    Property and equipment, net 34,270  33,035    Assets held for sale 1,258  98,787    Goodwill 229,261  255,817    Other assets 10,119  10,998    $ 346,733  $ 482,732    LIABILITIES   Total current liabilities $ 30,123  $ 34,807    Long-term debt, net of current portion 5,673  129,195    Liabilities held for sale 258  18,727    Other long-term liabilities 25,058  24,972    Total liabilities 61,112  207,701    Minority interest 30,104  33,549    Total stockholders' equity 255,517  241,482    $ 346,733  $ 482,732  HealthTronics, Inc. Supplemental Financial Information Continuing Operations For the Periods Ended December 31, 2006 and 2005 Unaudited In thousands, except per share data     4th Quarter YTD 2006  2005  2006  2005    Summary of Results from Operations Revenues $ 33,448  $ 38,164  $ 142,891  $ 152,267    EBITDA(a) $ 12,921  $ 17,870  $ 61,145  $ 77,834    Adjusted EBITDA(a) $ 2,676  $ 5,650  $ 17,868  $ 30,018    Net Income (loss) from Continuing Operations $ (18,092) $ 1,872  $ (16,446) $ 10,933    Net Income (loss) $ (25,135) $ 1,948  $ 8,683  $ 9,188    EPS from Continuing Operations $ (0.51) $ 0.06  $ (0.47) $ 0.31    EPS $ (0.71) $ 0.06  $ 0.25  $ 0.26    Number of Shares 35,373  35,379  35,347  35,182    Segment Information   Revenues: Urology Services $ 30,290  $ 33,431  $ 123,265  $ 133,360    Medical Products $ 3,031  $ 4,569  $ 19,080  $ 18,202    Adjusted EBITDA(a): Urology Services $ 4,712  $ 7,012  $ 23,567  $ 28,773    Medical Products $ (952) $ 44  $ (597) $ 6,019    Other Information:   Cashflow from Operations $ 11,708  $ 22,386  $ 48,554  $ 56,260    Net Draws (Payments) on Senior Credit Facility $ -  $ (625) $ (124,063) $ (7,938)   Net Debt $ (16,520) $ 119,161  $ (16,520) $ 119,161    Days Sales Outstanding 41.5  39.6  41.5  39.6      (a) See accompanying reconciliation of EBITDA and Adjusted EBITDA HealthTronics, Inc. Non-GAAP Financial Measures Reconciliation of EBITDA and Adjusted EBITDA Continuing Operations For the Periods Ended December 31, 2006 and 2005 Unaudited In thousands   4th Qtr YTD Consolidated 2006  2005  2006  2005    Income (loss) from Continuing Operations $ (18,092) $ 1,872  $ (16,446) $ 10,933    Add Back(deduct): Provision for income taxes (5,003) 556  (4,563) 6,502  Interest expense 252  287  1,146  1,139  Depreciation and amortization 2,941  2,935  11,275  11,444  Restructuring charges 1,039  -  4,234  -  Stockbased compensation costs 939  -  1,622  -  Goodwill impairment 20,600  -  20,600  -    Adjusted EBITDA 2,676  5,650  17,868  30,018    Add Back: Minority interest expense 10,245  12,220  43,277  47,816    EBITDA $ 12,921  $ 17,870  $ 61,145  $ 77,834    Urology Services Segment   Revenues $ 30,290  $ 33,431  $ 123,265  $ 133,360    Expenses: Cost of Services (27,802) (14,202) (69,447) (57,000) Other Income (Expenses) 90  3  294  229    EBITDA 2,578  19,232  54,112  76,589    Minority interest expense (10,279) (12,220) (43,358) (47,816)   Adjusted EBITDA before add backs: $ (7,701) $ 7,012  $ 10,754  $ 28,773    Add Backs: Restructuring charges 213  -  613  -  Goodwill impairment 12,200  -  12,200  -    Adjusted EBITDA $ 4,712  $ 7,012  $ 23,567  $ 28,773    Medical Products Segment   Revenues $ 3,031  $ 4,569  $ 19,080  $ 18,202    Expenses: Cost of Services (13,045) (4,545) (28,830) (12,247) Other Income (Expenses) 12  20  55  64    EBITDA (10,002) 44  (9,695) 6,019    Minority interest expense 33  -  81  -    Adjusted EBITDA before add backs: $ (9,969) $ 44  $ (9,614) $ 6,019    Add Backs: Restructuring charges 617  -  617  -  Goodwill impairment 8,400  -  8,400  -    Adjusted EBITDA $ (952) $ 44  $ (597) $ 6,019