MINNEAPOLIS--(BUSINESS WIRE)-- American Medical Systems Holdings, Inc. (NASDAQ: AMMD) reported revenue of $123.2 million for the third quarter of 2009, a 4.9 percent increase from revenue of $117.5 million in the comparable quarter of 2008. The strengthening of the U.S. dollar had a negative impact on revenue of $2.1 million in the third quarter compared to the prior year. Excluding the impact of foreign currency fluctuations, third quarter revenue grew 6.7 percent over the same period last year. On a GAAP basis, the Company reported 2009 third quarter net income of $28.6 million, or $0.38 per share, compared to net income in the same period last year of $3.5 million, or $0.05 per share. Included in the third quarter 2009 net income was a $17.4 million pre-tax gain on the sale of the Ovion technology as well as a $5.6 million pre-tax gain on the exchange of the majority of the Company's 3.25% Convertible Senior Subordinated Notes due 2036, completed during the quarter. Third quarter 2008 net income was reduced for a $7.5 million pre-tax in-process research and development (IPRD) charge on a milestone payment related to a prior acquisition.

The Company also reported very strong non-GAAP adjusted EPS performance in the third quarter of 2009 of $0.27 per share compared to $0.18 per share in the comparable period last year. This exceeds the Company's non-GAAP adjusted EPS guidance of $0.17 to $0.21 per share for the third quarter. Non-GAAP adjusted EPS excludes the impact of the amortization of intangible assets and amortization of financing costs, both significant non-cash items affecting comparability to other companies. The non-GAAP adjusted net income for the third quarter of 2009 also excludes the gain on sale of the Ovion technology and the gain on exchange of the majority of its convertible notes during the quarter. Non-GAAP adjusted EPS for the third quarter of 2008 excludes the IPRD charge on a milestone payment related to a prior acquisition. A reconciliation of reported net income to non-GAAP adjusted net income is provided in the attached schedules.

Men's Health led the third quarter revenue growth, which at $54.7 million was up 6.6 percent on a reported basis compared to the same quarter last year and grew 8.7 percent on a constant currency basis. Erectile restoration revenue growth continued its strong performance, while third quarter male continence revenue growth improved over the muted growth we experienced in the second quarter. Our BPH therapy business was up 3.1 percent on a reported basis and grew 4.9 percent on a constant currency basis to $27.7 million during the quarter, driven by strong sales of laser fibers, particularly in our United States market. The Women's Health business increased 4.0 percent on a reported basis and 5.4 percent on a constant currency basis to $40.9 million in the third quarter. Highlighting the quarter was very strong performance from our pelvic floor repair products, benefiting from the recent launch of our new Elevate ® anterior product. Third quarter revenue growth rates from our female continence products improved over second quarter growth rates and, as anticipated, sales from uterine health declined this quarter.

"We are very pleased with the strong financial performance in the third quarter of 2009, demonstrated by accelerated growth rates across all three business units. Particularly notable, we returned to a growth position in our BPH business, despite continued softness in capital sales," stated Tony Bihl, Chief Executive Officer. "In addition, we completed two very strategic transactions in the quarter: the sale of the Ovion technology and the $250 million exchange of our convertible notes. Operationally, we continued with our disciplined approach to spending and working capital management, which combined with the cash we received from the sale of the Ovion technology allowed us to make cash payments at a record quarterly amount of $49 million on our debt. We delivered revenue and earnings exceeding the high end of guidance and as a result, have increased our expectations for full year 2009 revenue and earnings performance."

Outlook

The Company estimates fourth quarter revenue in the range of $136 to $142 million, resulting in full year 2009 revenue guidance of $509 to $515 million; an increase from previous 2009 revenue guidance of $495 to $510 million. This guidance assumes foreign currency exchange rates remain constant with current rates.

In May 2008, the Financial Accounting Standards Board (FASB) issued new guidance related to accounting for convertible debt instruments, which the Company adopted in the first quarter 2009 (and applied retrospectively to prior periods). This new guidance changed the balance sheet classification of a component of the Company's convertible notes between equity and debt, and resulted in additional non-cash interest charges being reflected in the statement of operations. The Company estimates that the adoption of this new accounting guidance will reduce net income for fiscal year 2009 by approximately $0.11 per share.

Given the significant impact of the amortization of financing costs resulting from the implementation of the new FASB guidance in 2009, combined with the amortization of intangible assets, the Company has two significant non-cash charges in GAAP earnings that create inconsistencies in comparisons to many other companies. Accordingly the Company now guides to non-GAAP adjusted earnings per share, which the Company defines as GAAP earnings per share excluding the impact of amortization of intangible assets and amortization of financing costs. This guidance also excludes the impact of any unusual non-recurring items that could occur in 2009, such as the gain on early debt extinguishment, the gain on sale of non-strategic assets, or IPRD charges on milestone payments related to prior acquisitions.

Reflecting the strong earnings performance experienced in the first three quarters, the Company estimates fourth quarter 2009 non-GAAP adjusted earnings per share will be in the range of $0.29 to $0.33 and full year 2009 non-GAAP adjusted earnings per share in the range of $1.10 to $1.14. This is an increase from previous guidance for the full year 2009 in the range of $1.00 to $1.10. This guidance excludes the impact of amortization of intangible assets which is approximately $0.03 and $0.11 for the fourth quarter and full year 2009, respectively, and amortization of financing costs which is approximately $0.04 and $0.14 for the fourth quarter and full year 2009, respectively. Guidance for both periods excludes the impact of any unusual non-recurring items that could occur, such as gain or loss on early debt extinguishments, sale of non-strategic assets or IPRD charges on milestone payments related to prior acquisitions.

Use of Non-GAAP Financial Measures

In addition to financial measures prepared in accordance with generally accepted accounting principles (GAAP), management provides non-GAAP adjusted net income, non-GAAP adjusted earnings per share and constant currency revenue growth rates because management believes that in order to properly understand the Company's short-term and long-term financial trends and for purposes of comparability to other companies, investors may wish to consider the impact of certain adjustments (such as gain on extinguishment of debt, gain on sale of non-strategic assets, IPRD charges, amortization of intangible assets, amortization of financing costs and related income tax adjustments and the impact of foreign currency translation on reported revenue). These adjustments result from facts and circumstances (such as acquisition and business development activities and other non-recurring items) that vary in frequency and impact on the Company's results of operations, represent significant items, which when excluded provide a useful measure to determine the health of the business and earnings by the business before significant non-cash charges or in the case of foreign currency translation, are highly variable and difficult to predict. Management uses non-GAAP adjusted net income, non-GAAP adjusted earnings per share and constant currency revenue growth rates to forecast and evaluate the operational performance of the Company as well as to compare results of current periods to prior periods on a consistent basis.

A reconciliation of net income from continuing operations and revenue growth rate percentages, the GAAP measures most directly comparable to non-GAAP adjusted earnings per share and constant currency revenue growth rates, respectively, are provided on the attached schedules.

Non-GAAP financial measures used by the Company may be calculated differently from, and therefore may not be directly comparable to, similarly titled measures used by other companies. Investors should consider non-GAAP measures in addition to, and not as a substitute for, or superior to, financial performance measures prepared in accordance with GAAP.

Earnings Call Information

American Medical Systems will host a conference call on Wednesday, November 4, 2009 at 5:00 p.m. eastern time to discuss its 2009 third quarter results. Those without internet access may join the call from within the U.S. by dialing 888-263-1724; outside the U.S., dial 706-679-3821.

A live web cast of the call will be available through the Company's corporate website at www.AmericanMedicalSystems.com and will be available for replay within three hours after the completion of the call.

About American Medical Systems

American Medical Systems, headquartered in Minnetonka, Minnesota, is a diversified supplier of medical devices and procedures to cure incontinence, erectile dysfunction, benign prostate hyperplasia (BPH), pelvic floor repair and other pelvic disorders in men and women. These disorders can significantly diminish one's quality of life and profoundly affect social relationships. In recent years, the number of people seeking treatment has increased markedly as a result of longer lives, higher-quality-of-life expectations and greater awareness of new treatment alternatives. American Medical Systems' products reduce or eliminate the incapacitating effects of these diseases, often through minimally invasive therapies. The Company's products were used to treat approximately 320,000 patients in 2008.

Forward-Looking Statements

This press release contains forward-looking statements relating to the market opportunities, future products, sales and financial results of American Medical Systems. These statements and other statements contained in this press release that are not purely historical fact are forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, that are based on management's beliefs, certain assumptions and current expectations. These forward-looking statements are subject to risks and uncertainties such as successfully competing against competitors; physician acceptance, endorsement, and use of AMS products; potential product recalls or technological obsolescence; successfully managing debt leverage and related credit facility financial covenants; current worldwide economic conditions and the impact on operations of the disruption in global financial markets; factors impacting the stock market and share price and its impact on the dilution of convertible securities; potential obligations to make significant contingent payments under prior acquisitions; ability of the Company's manufacturing facilities to meet customer demand; reliance on single or sole-sourced suppliers; loss or impairment of a principal manufacturing facility; clinical and regulatory matters; timing and success of new product introductions; patient acceptance of the Company's products and therapies; changes in and adoption of reimbursement rates; adequate protection of the Company's intellectual property rights; product liability claims; currency and other economic risks inherent in selling our products internationally and other risks and uncertainties described in the Company's Annual Report on Form 10-K for the year ended January 3, 2009, and its other SEC filings. Actual results may differ materially from anticipated results. The forward-looking statements contained in this press release are made as of the date hereof, and AMS undertakes no obligation to update any forward-looking statements to reflect events or circumstances after the date on which any such statement is made or to reflect the occurrence of unanticipated events.

More information about the Company and its products can be found at its website www.AmericanMedicalSystems.com and in the Company's Annual Report on Form 10-K for 2008 and its other SEC filings.

Other adjustments, including changes in operating assets and liabilities

Year-to-date 2008 net income was reduced by $6,529 and amortization of financing costs was increased by $10,479, due to the impact of retroactively adjusting the historical financial statements, as required by U.S. GAAP, for the change in accounting related to the Company's 2036 Convertible Notes. This change in accounting has no impact on cash used for interest on the 2036 Convertible Notes.