NxStage(R) Reports Record Third Quarter 2010 Financial Results and Achieves Positive Adjusted EBITDA

Thursday November 4, 2010

Highlights:
– Revenue Increases to $45.0 Million, up 18% from Q3’09
– Home Market Posts Sequential Growth of 7% with Revenues of $22.3 Million
– Gross Margin Increases to 33%, up from 25% in Q3’09
– Company Achieves First Quarter of Positive Adjusted EBITDA of $0.5 Million
– Company Generates Positive Cash Flow of $1.9 Million

LAWRENCE, Mass., Nov. 4, 2010 /PRNewswire via COMTEX/ — NxStage Medical, Inc. (Nasdaq: NXTM), a leading manufacturer of innovative dialysis products, today reported record financial results for the third quarter of 2010 ended September 30, 2010.

Net revenue for the third quarter of 2010 increased to $45.0 million, an increase of 18 percent when compared with revenue of $38.0 million for the third quarter of 2009. Solid performance across the Home and Critical Care markets drove the year over year growth.

The Company delivered 7 percent sequential growth in its Home market with revenue of $22.3 million for the third quarter of 2010, representing an increase of 37 percent when compared with revenue of $16.4 million for the third quarter of 2009. Critical Care revenue grew to $6.8 million for the third quarter of 2010, representing an increase of 20 percent when compared with revenues of $5.7 million for the third quarter of 2009. Revenue in the In-Center market, from the Company’s Medisystems business, was $15.9 million for the third quarter of 2010 compared with $16.0 million for the third quarter of 2009.

We continued to build good momentum across our business and set new records on a number of financial metrics. Our Q3 results are strong validation of our business model particularly since we believe we are still in the early stages of growth and adoption of home hemodialysis with the System One&#153, stated Jeffrey H. Burbank, Chief Executive Officer of NxStage Medical. We see significant opportunities in each of our markets to advance our long term growth strategy and remain confident in our ability to deliver continued improvement and meaningful growth.

NxStage reported a net loss of $8.2 million, or ($0.17) per share, for the third quarter of 2010 compared with a net loss of $10.0 million, or ($0.22) for the third quarter of 2009.

For the third quarter of 2010, NxStage increased gross margins to 33%, a sequential increase of 200 basis points. With respect to Adjusted EBITDA, adjusted for stock-based compensation, deferred revenue recognized and other non-cash and non-recurring expenses, the Company achieved its first positive quarter, showing profits of $0.5 million, compared with an Adjusted EBITDA loss of $2.4 million in the third quarter of 2009. (See the exhibits for a reconciliation of this non-GAAP measure.)

The Company also achieved positive cash flow of $1.9 million for the three months ended September 30, 2010.

Guidance:

For the fourth quarter of 2010, the Company is forecasting revenue to be within a range of $45 to $47 million. At this revenue level, the Company would expect a net loss in the range of $6.5 to $7.5 million or ($0.13) to ($0.16) per share, and Adjusted EBITDA in the range of $0.5 to $1.5 million for the fourth quarter of 2010. The Company expects to achieve consolidated gross margins of between 33 percent to 35 percent in the fourth quarter of 2010.

This release contains a non-GAAP financial measure. A reconciliation of the Company’s non-GAAP financial measure to its most comparable GAAP financial measure is in the exhibits to this press release.

Conference Call:

NxStage will also host a conference call today at 9:00 a.m. Eastern Time to discuss its third quarter financial results. To listen to the conference call, please 866-700-7101 (domestic) or 617-213-8837 (international). The passcode is 22816983. The call will also be webcast LIVE and can be accessed via the investor relations section of the Company’s website at www.nxstage.com/ir.cfm.

A replay of the conference call will be available 3 hours after the start of the call through November 11, 2010. To access the replay dial 888-286-8010 (domestic) or 617-801-6888 (international) and enter passcode 96098212. An online archive of the conference call can be accessed via the investor relations section of the Company’s website at www.nxstage.com/ir.cfm.

About NxStage

NxStage Medical, Inc. (Nasdaq: NXTM) is a medical device company, headquartered in Lawrence, Massachusetts, USA, that develops, manufactures and markets innovative products for the treatment of ESRD and acute kidney failure. For more information on NxStage and its products, please visit the company’s website at http://www.nxstage.com/.

Forward-Looking Statements

This release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements contained in this release that are not clearly historical in nature are forward-looking, and the words anticipate, believe, expect, estimate, plan, and similar expressions are generally intended to identify forward-looking statements. Examples of these forward-looking statements include statements as to the anticipated demand for the Company’s products, anticipated operating results, including revenues, loss, gross margin and Adjusted EBITDA numbers, expectations regarding achievement of positive or improved cash flow and cash flow from operations, and other expectations as to future operating results. All forward-looking statements involve risks, uncertainties and contingencies, many of which are beyond NxStage’s control, which may cause actual results, performance, or achievements to differ materially from anticipated results, performance or achievements, including market acceptance and demand for NxStage’s products, growth in home and/or daily hemodialysis, unanticipated difficulties in achieving operational efficiencies and cost reductions, changes in reimbursement for home and daily hemodialysis, changes in the regulatory environment, changes in the historical purchasing patterns and preferences of our major customers, including DaVita Inc., and certain other factors that may affect future operating results and which are detailed in NxStage’s filings with the Securities and Exchange Commission, including its Quarterly Report on Form 10-Q for the period ended June 30, 2010.

In addition, the statements in this press release represent NxStage’s expectations and beliefs as of the date of this press release. NxStage anticipates that subsequent events and developments may cause these expectations and beliefs to change. However, while NxStage may elect to update these forward-looking statements at some point in the future, it specifically disclaims any obligation to do so, whether as a result of new information, future events, or otherwise. These forward-looking statements should not be relied upon as representing NxStage’s expectations or beliefs as of any date subsequent to the date of this press release.


Contact:


Kristen K. Sheppard, Esq.


VP, Investor Relations


ksheppard@nxstage.com





Non-GAAP Financial Measure

The Company discloses a certain non-GAAP financial measure to supplement the Company’s consolidated financial statements presented on a GAAP basis. This non-GAAP measure is not in accordance with, or an alternative for, generally accepted accounting principles in the United States and may be different from similar non-GAAP financial measures used by other companies. The non-GAAP financial measure disclosed by the Company is not meant to be considered superior to or a substitute for results of operations prepared in accordance with GAAP. Management uses Adjusted EBITDA (EBITDA adjusted for stock based-compensation, deferred revenue recognized, and other non-recurring expenses) to understand operational cash usage. The Company believes the non-GAAP financial measure provides useful and supplementary information allowing investors greater transparency to one measure used by management. The non-GAAP financial measure is meant to supplement, and to be viewed in conjunction with, GAAP financial measures. The non-GAAP financial measure is reconciled to the most comparable GAAP financial measure below.

NxStage Medical, Inc.

Condensed Consolidated Statements of Operations

(in thousands, except per share data)

(unaudited)










Three Months Ended

Nine Months Ended


September 30,


September 30,


2010


2009


2010


2009









Revenues

$ 45,033


$ 38,033


$ 129,449


$ 108,166

Cost of revenues

30,073


28,488


88,914


82,749

Gross profit

14,960


9,545


40,535


25,417









Operating expenses:








Selling and marketing

8,452


7,449


25,034


22,091

Research and development

3,132


2,707


9,369


7,380

Distribution

3,788


3,267


10,831


10,476

General and administrative

6,023


4,808


16,604


14,512

Total operating expenses

21,395


18,231


61,838


54,459

Loss from operations

(6,435)


(8,686)


(21,303)


(29,042)









Other expense:








Interest income


7



32

Interest expense

(1,176)


(1,130)


(3,432)


(5,502)

Other (expense) income, net

(341)


(59)


(128)


20


(1,517)


(1,182)


(3,560)


(5,450)









Net loss before income taxes

(7,952)


(9,868)


(24,863)


(34,492)









Provision for income taxes

212


179


556


298









Net loss

$ (8,164)


$ (10,047)


$ (25,419)


$ (34,790)









Net loss per share, basic and diluted

$ (0.17)


$ (0.22)


$ (0.54)


$ (0.75)









Weighted-average shares outstanding, basic and diluted

48,049


46,672


47,501


46,600

NxStage Medical, Inc.

Condensed Consolidated Balance Sheets

(amount in thousands, except share data)

(unaudited)





September 30,


December 31,



2010


2009

ASSETS





Current assets:





Cash and cash equivalents


$ 21,974


$ 21,720

Accounts receivable, net


14,651


14,238

Inventory


31,957


28,117

Prepaid expenses and other current assets


1,839


1,227

Total current assets


70,421


65,302






Property and equipment, net


8,630


10,336

Field equipment, net


15,434


21,726

Deferred cost of revenues


37,327


27,799

Intangible assets, net


26,111


28,208

Goodwill


42,698


42,698

Other assets


521


909






Total assets


$ 201,142


$ 196,978











LIABILITIES AND STOCKHOLDERS’ EQUITY





Current liabilities:





Accounts payable


$ 16,289


$ 19,827

Accrued expenses


13,092


9,377

Current portion of long-term debt


59


61

Total current liabilities


29,440


29,265






Deferred revenue


52,577


38,490

Long-term debt


39,779


37,854

Other long-term liabilities


1,833


1,923






Total liabilities


123,629


107,532






Commitments and contingencies





Stockholders’ equity:





Undesignated preferred stock: par value $0.001, 5,000,000shares authorized; no shares issued and outstanding, as of September 30, 2010 and December 31, 2009



Common stock: par value $0.001, 100,000,000shares authorized; 49,310,143 shares issued as of September 30, 2010 and 46,795,859shares issued and outstanding as of December 31, 2009


49


47

Additional paid-in capital


381,585


365,548

Accumulated deficit


(302,133)


(276,714)

Accumulated other comprehensive income


244


565

Treasury stock, at cost: 204,334 shares as of September 30, 2010


(2,232)







Total stockholders’ equity


77,513


89,446






Total liabilities and stockholders’ equity


$ 201,142


$ 196,978

NxStage Medical, Inc.

Cash Flows from Operating Activities

(amounts in thousands)

(unaudited)






Nine Months Ended


September 30,


2010


2009

Cash flows from operating activities:




Net loss

$ (25,419)


$ (34,790)

Adjustments to reconcile net loss to net




cash used in operating activities:




Depreciation and amortization

16,879


15,367

Stock-based compensation

10,985


6,392

Other

1,750


1,977

Changes in operating assets and liabilities:




Accounts receivable

(303)


337

Inventory

(20,504)


(3,707)

Prepaid expenses and other assets

(327)


682

Accounts payable

(3,376)


25

Accrued expenses and other liabilities

3,980


1,455

Deferred revenue

14,087


(653)

Net cash used in operating activities

$ (2,248)


$ (12,915)

NxStage Medical, Inc.

Revenues by Segment

(in thousands)










Three Months Ended


Nine Months Ended


September 30,


September 30,


2010

2009

2010

2009









System One segment








Home

$ 22,346


$ 16,356


$ 62,204


$ 45,914

Critical Care

6,817


5,672


19,528


15,381

Total System One segment

29,163


22,028


81,732


61,295

In-Center segment

15,870


16,005


47,717


46,871

Total

$ 45,033


$ 38,033


$ 129,449


$ 108,166

























NxStage Medical, Inc.

Non-GAAP Financial Measures

(amounts in millions)

(unaudited)










Three Months Ended


Nine Months Ended


September 30,


September 30,


2010

2009

2010

2009









Net loss

$ (8.2)


$ (10.0)


$ (25.4)


$ (34.8)

Less: Depreciation amortization, interest, and taxes

7.6


6.6


21.0


21.2

Less: Adjusting items*

1.1


1.0


3.4


2.1









Adjusted EBITDA gain (loss)

$ 0.5


$ (2.4)


$ (1.0)


$ (11.5)









* Adjusting items include stock-based compensation, deferred revenue recognized and other non-cash and non-recurring expenses

NxStage Medical, Inc.

Non-GAAP Financial Guidance

(amounts in millions)






Three Months Ended


December 31, 2010


High
Estimate


Low
Estimate





Net loss

$ (6.5)


$ (7.5)

Less: Depreciation amortization, interest, and taxes

7.0


7.0

Less: Adjusting items*

1.0


1.0





Adjusted EBITDA gain

$ 1.5


$ 0.5





* Adjusting items include stock-based compensation, deferred revenue recognized and other non-cash and non-recurring expenses

SOURCE NxStage Medical, Inc.