HealthTronics, Inc. Announces Third Quarter Results, Significant Progress on Reorganization Plan Continues

HealthTronics, Inc. (NASDAQ:HTRN), a leading provider of Urology services and products, today announced its financial results for the quarter ended September 30, 2006. Revenue from continuing operations for the third quarter 2006 totaled $37.2 million as compared to $42.8 million for the same period in 2005. Net income for the third quarter of 2006, in accordance with generally accepted accounting principals, totaled $31.2 million or $0.88 per share on a diluted basis. Included in net income for the third quarter of 2006 was income from discontinued operations of $32.2 million primarily as a result of the gain recognized on the sale of our Specialty Vehicle Manufacturing operations. During the quarter, the Company completed its performance improvement study. As a result of this study, the Company has started to make significant progress on both defining its future strategic plans and implementing certain major cost-saving initiatives. The Company paid $1.2 million in fees in the third quarter of 2006 to perform this study. The Company expects to incur additional costs through the end of 2006 to implement certain recommendations resulting from the study. Other significant non-recurring costs incurred in the quarter include approximately $1 million of severance costs relating to a former executive and $200,000 of recruiting costs for certain open executive positions. In addition to the non-recurring items in the quarter, the Company incurred approximately $470,000 in stock option expenses and another $200,000 of research & development expenses relating to the HIFU clinical trials. Excluding the total of the aforementioned expenses and the income from discontinued operations, fully diluted earning per share would have been $0.03 for the third quarter ended September 30, 2006. The success of the divestiture of our Specialty Vehicle Manufacturing operations positions the Company with a strong, de-levered balance sheet, which will facilitate the pursuit of our strategic growth opportunities. The Company’s current cash balance exceeds its debt by $12.8 million, the Company’s net working capital totals $50.8 million and the Company has no monies drawn on its $50 million revolver. Sam B. Humphries, President and Chief Executive Officer, commented, "We are very pleased with the restructuring, refocusing and cost-reduction initiatives that were begun late in the second quarter and continued at a fast pace during the third quarter. Most of these initiatives are substantially complete from an execution and operations point of view. We have completed the performance improvement study, substantially reduced our headcount and closed or scaled back several operations and product lines. One such action is that we have informed EDAP of our intention to discontinue our partnership in the U.S. "We are developing aggressive physician communications and marketing programs and are in the final stages of completing a comprehensive strategy for driving profitable growth in the future. We are also very pleased with the positive momentum that is starting to build in urology services and medical products divisions.” Urology Services By focusing field personnel on communicating with our physician partners and improving utilization of equipment at the partnership level, we expect to improve operating returns for our physician partners. At the same time, we expect centralization of administrative functions that are scalable across all of our partnerships to improve HealthTronics’ operating margins. Achieving our restructuring initiatives is an important step in delivering the highest quality of patient care at competitive margins. More importantly, with the growing deployment of the RevoLix laser, we continue to demonstrate 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 including a restructuring of the organization. The RevoLix laser for surgical treatment of Benign Prostatic Hyperplasia (BPH) is being rapidly adopted by our physician partners. Ten RevoLix units were deployed within physician partnerships in the 3rd quarter, doubling the number shipped in the second quarter. ClariPath Labs processed 1,600 cases in the quarter as a result of expanded sales efforts. We initiated our restructuring efforts with the decision to shut down our Swiss manufacturing operation, and consolidate all manufacturing into our Atlanta facility to improve operating margins. Management of HealthTronics will host a conference call the morning of Wednesday, November 8, 2006 at 10:30 a.m. EST. To participate in the live call, please dial 888-743-0342 (706-679-0861 for international callers) and ask for the "HealthTronics” call (conference I.D. #9956113). 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 800-642-1687 (706-645-9291 for international callers) and entering the conference I.D. #9956113. 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 CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)     ($ in thousands, except per share data) Three Months Ended Nine Months Ended September 30, September 30, 2006  2005 2006 2005 Revenue: (Restated) (Restated) Urology Services $ 32,426  $36,520  $ 97,367  $104,062  Medical Products 4,640  6,120  15,955  13,632  Other 115  151  419  542  Total revenue 37,181  42,791  113,741  118,236    Cost of services and general and administrative expenses: Salaries, wages and benefits 11,842  10,536  33,713  30,515  Other costs of services 5,911  5,301  16,831  14,374  General and administrative 2,603  2,369  8,103  7,214  Legal and professional 1,723  513  3,698  1,543  Manufacturing costs 1,790  2,725  8,042  4,210  Depreciation and amortization 3,110  2,996  8,931  8,976  26,979  24,440  79,318  66,832    Operating income 10,202  18,351  34,423  51,404    Other income (expenses): Interest and dividends 253  112  495  402  Interest expense (249) (289) (899) (941) 4  (177) (404) (539) Income from continuing operations before provision for income taxes and minority interest 10,206  18,174  34,019  50,865    Minority interest in consolidated income 11,409  12,839  33,116  35,687    Provision for income taxes (167) 1,958  618  6,133    Income (loss) from continuing operations (1,036) 3,377  285  9,045    Income (loss) from discontinued operations, net of tax 32,213  (246) 33,532  (1,809)   Net income $ 31,177  $ 3,131  $ 33,817  $ 7,236    Basic earnings per share: Income (loss) from continuing operations $ (0.03) $ 0.10  $ 0.01  $ 0.26  Discontinued operations $ 0.91  $ (0.01) $ 0.95  $ (0.05) Net income $ 0.88  $ 0.09  $ 0.96  $ 0.21  Weighted average shares outstanding 35,286  34,889  35,084  34,087    Diluted earnings per share: Income (loss) from continuing operations $ (0.03) $ 0.10  $ 0.01  $ 0.26  Discontinued operations $ 0.91  $ (0.01) $ 0.95  $ (0.05) Net income $ 0.88  $ 0.09  $ 0.96  $ 0.21  Weighted average shares outstanding 35,370  35,789  35,329  35,113  HealthTronics, Inc. and SubsidiariesCondensed Consolidated Balance Sheets(Unaudited)       September 30, 2006 December 31, 2005 ($ in thousands)   ASSETS   Total current assets $ 74,030  $ 86,487    Property and equipment, net 35,895  34,760    Assets held for sale -  94,676    Other assets 266,866  266,809    $ 376,791  $ 482,732    LIABILITIES   Total current liabilities $ 23,237  $ 35,674    Long-term debt, net of current portion 5,325  129,213    Liabilities held for sale -  17,423    Other long-term liabilities 35,110  24,974    Total liabilities 63,672  207,284    Minority interest 33,510  33,966    Total stockholders' equity 279,609  241,482    $ 376,791  $ 482,732  HealthTronics, Inc. Supplemental Financial Information Continuing Operations For the Periods Ended September 30, 2006 and 2005 Unaudited In thousands, except per share data     3rd Quarter YTD 2006  2005  2006  2005    Summary of Results from Operations Revenues $ 37,181  $ 42,791  $ 113,741  $ 118,236    EBITDA(a) $ 13,565  $ 21,459  $ 43,849  $ 60,782    Adjusted EBITDA(a) $ 2,156  $ 8,620  $ 10,733  $ 25,095    Net Income (loss) from Continuing Operations $ (1,036) $ 3,377  $ 285  $ 9,045    EPS $ (0.03) $ 0.10  $ 0.01  $ 0.26    Number of Shares 35,370  35,789  35,329  35,113    Segment Information   Revenues: Urology Services $ 32,426  $ 36,520  $ 97,367  $ 104,062    Medical Products $ 4,640  $ 6,120  $ 15,955  $ 13,632    Adjusted EBITDA(a): Urology Services $ 5,833  $ 8,049  $ 18,361  $ 22,596    Medical Products $ 62  $ 1,829  $ (153) $ 6,031    Other Information:   Cashflow from Operations $ 11,920  $ 18,950  $ 36,846  $ 33,874    Net Draws (Payments) on Senior Credit Facility $ (124,063) $ (8,000) $ (124,063) $ (7,313)   Net Debt $ (12,794) $ 124,791  $ (12,794) $ 124,791    Days Sales Outstanding 38.9  37.4  38.9  37.4    Capital Expenditures, net to HealthTronics $ 1,808  $ 1,895  $ 5,238  $ 5,454    (a) See accompanying reconciliation of EBITDA and Adjusted EBITDA HealthTronics, Inc. Reconciliation of EBITDA and Adjusted EBITDA Continuing Operations For the Periods Ended September 30, 2006 and 2005 Unaudited In thousands           3rd Qtr YTD Consolidated 2006  2005  2006  2005    Income (loss) from Continuing Operations $ (1,036) $ 3,377  $ 285  $ 9,045    Add Back (deduct): Provision for income taxes (167) 1,958  618  6,133  Interest expense 249  289  899  941  Depreciation and amortization 3,110  2,996  8,931  8,976    Adjusted EBITDA 2,156  8,620  10,733  25,095    Add Back: Minority interest expense 11,409  12,839  33,116  35,687    EBITDA $ 13,565  $ 21,459  $ 43,849  $ 60,782      Urology Services Segment   Revenues $ 32,426  $ 36,520  $ 97,367  $ 104,062    Expenses: Cost of Services (15,297) (15,806) (46,274) (46,289) Other Income (Expenses) 142  174  432  510    EBITDA 17,271  20,888  51,525  58,283    Minority interest expense (11,438) (12,839) (33,164) (35,687)   Adjusted EBITDA $ 5,833  $ 8,049  $ 18,361  $ 22,596      Medical Products Segment   Revenues $ 4,640  $ 6,120  $ 15,955  $ 13,632    Expenses: Cost of Services (4,637) (4,312) (16,437) (7,654) Other Income (Expenses) 30  21  281  53    EBITDA $ 33  $ 1,829  $ (201) $ 6,031    Minority interest expense 29  -  48  -    Adjusted EBITDA $ 62  $ 1,829  $ (153) $ 6,031