Osteotech, Inc. Posts Fourth Quarter Profit and Provides Future Outlook

EATONTOWN, N.J., March 8 /PRNewswire-FirstCall/ -- Osteotech, Inc. reported today that net income was $.5 million or $.03 diluted earnings per share for the three months ended December 31, 2006 compared to a net loss of $11.6 million or $.67 diluted net loss per share for the three months ended December 31, 2005. As previously reported, consolidated revenues for the fourth quarter of 2006 were $25.4 million, a 16% increase over consolidated revenues of $21.9 million for the fourth quarter of 2005. Gross margins increased to 50% in the fourth quarter of 2006 from 19% in the fourth quarter of 2005, mainly due to implemented productivity initiatives and increased unit sales.

Sam Owusu-Akyaw, Osteotech’s President and Chief Executive Officer, stated, “Throughout 2006, we have focused on creating a culture of execution and accountability. Our financial results clearly show the benefits from these efforts as we returned to profitability in the first quarter and remained profitable for all quarters in 2006. We have high performance expectations for the organization, but in the short-term I must temper those expectations so we can effectuate a solid, sustainable-growth business model.”

Mr. Owusu-Akyaw continued, “Our growth will depend on our ability to execute our distribution and new product initiatives during 2007. We believe we will begin to realize the benefits from our investments in distribution in the second half of year, which will then provide the platform for growth as we introduce new products in both 2007 and 2008. We expect revenues to grow at a 6% rate in 2007 and we are setting a minimum growth target of 15% for 2008.”

Mr. Owusu-Akyaw concluded, “We will utilize the additional profitability from our productivity improvements to fund the investments in our business. We anticipate sustaining our profitability in 2007 at approximately the same level as 2006 and then expect net income to double in 2008.”

Diluted earnings per share were $.11 and net income was $1.9 million for the year ended December 31, 2006 compared to a net loss of $21.1 million or $1.23 diluted net loss per share for the same period in 2005. Consolidated revenues for full-year 2006 and 2005 were $99.2 million and $93.3 million, respectively, representing a 6% increase in revenues year over year. Gross margins increased to 48% in 2006 from 34% in 2005.

DBM Segment revenues increased 14% and 9% in the fourth quarter and full- year 2006, respectively, compared to the corresponding periods in 2005, mainly as a result of revenue from the Xpanse(TM) Bone Inserts introduced in the fourth quarter of 2005 and increased unit sales volume in both Grafton(R) DBM and private label DBM tissue grafts. In the Traditional Tissue Segment, revenues from the world-wide distribution of traditional tissue increased 44% in the fourth quarter of 2006 and 45% for the year ended December 31, 2006 primarily from increased unit volume. Revenues in the Hybrid/Synthetic Segment, which are generated from our GraftCage(TM) Spacers, were $.3 million and $1.3 million in the fourth quarter and full-year 2006, respectively, after introduction of this product line in the first half of 2006. In the Client Services Segment, fees from the processing of donors increased 30% in the fourth quarter of 2006 as compared to the same period in 2005 primarily due to processing additional donors for our clients, while service fees for the year ended December 31, 2006 declined 19% from the prior year as a result of processing fewer donors for our clients during the first three quarters of 2006 as compared to the same period in 2005. A decrease in units sold in our Spinal Allograft Segment lead to revenue declines of 17% and 19% for the three months and year ended December 31, 2006, respectively, compared to the same periods in 2005. Effective December 31, 2006, we have re-organized our business segments into the segments discussed above from the DBM and Base Tissue Segments previously reported. Segment information which will be included in our Annual Report on Form 10-K will reflect the above noted segment re-alignment and prior year information will be restated to conform to the current presentation.

Mr. Owusu-Akyaw will host a conference call on March 8 at 9:00 am Eastern Time to discuss full year and fourth quarter results. You are invited to listen to the conference call by dialing 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, March 22, 2007, by dialing 706-645-9291 and indicating access code 1509134.

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 market place, 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 March 8, 2007 and the Company undertakes no duty to update this information.

Osteotech, Inc., headquartered in Eatontown, New Jersey, is a global leader in providing osteo-biologic solutions to surgeons and patients for the repair of the musculoskeletal system through the development of innovative therapy-driven products that alleviate pain, promote biologic healing and restore function. For further information regarding Osteotech, this press release or the conference call, please go to Osteotech’s website at www.osteotech.com.

OSTEOTECH, INC. and Subsidiaries CONSOLIDATED STATEMENTS OF OPERATIONS (dollars in thousands, except per share data) Three Months Year Ended Ended December 31, December 31, 2006 2005 2006 2005 Revenues $25,431 $21,924 $99,241 $93,307 Cost of revenue 12,838 17,768 51,439 61,445 Gross profit 12,593 4,156 47,802 31,862 Marketing, selling and general and administrative 10,771 13,729 40,627 46,909 Research and development 1,321 1,734 4,828 5,021 12,092 15,463 45,455 51,930 Operating income (loss) 501 (11,307) 2,347 (20,068) Interest expense, net (176) (228) (914) (774) Other 57 56 416 (790) Income (loss) before income taxes 382 (11,479) 1,849 (21,632) Income tax provision (benefit) (163) 132 (58) (515) Net Income (loss) $545 $(11,611) $1,907 $(21,117) Earnings (loss) per share: Basic $.03 $(.67) $.11 $(1.23) Diluted $.03 $(.67) $.11 $(1.23) Shares used in computing loss per share: Basic 17,347,880 17,219,856 17,298,352 17,195,868 Diluted 17,542,228 17,219,856 17,399,719 17,195,868 CONSOLIDATED SEGMENT REVENUE DETAIL (dollars in thousands) Three Months Year Ended Ended December 31, December 31, 2006 2005 2006 2005 DBM $14,792 $12,960 $57,493 $52,704 Traditional Tissue 4,674 3,256 16,955 11,676 Spinal Allografts 3,027 3,665 13,795 16,960 Hybrid/Synthetic 332 -- 1,270 -- Client Services 2,456 1,893 9,128 11,277 Other Product Lines 150 150 600 690 Revenues $25,431 $21,924 $99,241 $93,307 CONDENSED CONSOLIDATED BALANCE SHEET (dollars in thousands) December 31, 2006 2005 Assets Cash and cash equivalents $17,946 $13,484 Accounts receivable, net 18,507 14,879 Deferred processing costs 29,067 28,805 Inventories 1,005 1,278 Other current assets 2,795 3,438 Total current assets 69,320 61,884 Property, plant and equipment, net 36,340 39,962 Other assets 7,373 9,176 $113,033 $111,022 Liabilities and Stockholders’ Equity Accounts payable and accrued expense $15,861 $16,320 Current maturities of capital lease obligation 727 655 Total current liabilities 16,588 16,975 Capital lease obligation 14,876 15,603 Other liabilities 7,716 7,689 Total liabilities 39,180 40,267 Stockholders’ equity 73,853 70,755 $113,033 $111,022

Osteotech, Inc.

CONTACT: Mark H. Burroughs for Osteotech, Inc., +1-732-542-2800

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