Leading pelvic-health devices provider American Medical Systems (AMMD) reported first-quarter fiscal 2011 adjusted (excluding one-time items such as amortization charges) earnings per share of 33 cents, beating the Zacks Consensus Estimate of 30 cents and surpassing the year-ago adjusted earnings of 29 cents.

The results were ahead of the Minnesota-based company’s guidance range of 29 cents and 32 cents.

Besides, amortization charges, adjusted earnings also exclude the start-up expenses associated with transition of manufacturing operations to the company’s new facility in Ireland. Profit (as reported) for the quarter climbed 4.4% year over year to $21.6 million (or 27 cents a share).

Revenues and Margins

Revenues for the quarter moved up 4.3% year over year to $140.8 million, above the Zacks Consensus Estimate of $137 million and the company’s guidance of $135 and $139 million.

Excluding currency exchange translation and the impact of the divested Her Option uterine health product line, sales grew 5.4%. Revenue growth in the quarter was driven by higher sales across the company’s Men’s Health and Women’s Health businesses.

Gross margin declined narrowly to 84.3% from 84.4% a year-ago. Operating margin increased to 29% from 27% in the earlier-year quarter.

Results by Segments

Revenues from American Medical’s Men’s Health business rose 4.5% year over year to $67.4 million as its male continence product line performed well in the quarter.

BPH Therapy sales spiked 8.3% to $28.1 million, led by the company’s GreenLight XPS laser therapy and the new BPH therapy system, MoXy Liquid Cooled Fiber. In Women’s Health business, revenues jumped 6% year over year to $45.3 million, driven by the sustained healthy performance of pelvic floor repair products buoyed by the success of Elevate anterior and Elevate posterior systems. 

Geographically, the U.S. sales rose 3.3% year over year to $99.7 million, representing 71% of total sales while international revenues (up 12.3% to $41.1 million) accounted for the balance.

Balance Sheet and Cash Flow

American Medical ended the quarter with cash and short-term investments of $110 million, up 84% year over year. Total debt and other long-term liabilities declined roughly 17% year over year to $320.6 million. American Medical generated $33.2 million in cash from operations during the quarter, a roughly 25% year over year increase.

Endo Pharmaceuticals Deal

American Medical is slated to be acquired by specialty healthcare solutions company Endo Pharmaceuticals (ENDP) in the third quarter of 2011. Under the deal, announced in April 2011, Endo Pharmaceuticals will buy American Medical for $2.9 billion or $30.00 per share in cash.

The consideration includes the assumption of $312 million of debt. The deal has been approved by the Boards of both companies and is subject to the approval of American Medical’s shareholders, antitrust clearance and attainment of other closing conditions.The company will announce a special shareholder meeting in due course to secure stockholder clearance of the proposed deal. Currently, we have a Neutral rating on American Medical.

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