Quarterly highlights
Results for the second quarter of fiscal 2009 compared to the secondquarter of fiscal 2008 include:
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As discussed below under "Use of Non-GAAP Financial Measure," the companypresents a non-GAAP financial measure, adjusted net income, in this release.Investors should consider non-GAAP measures in addition to, and not as asubstitute for, or superior to, financial performance measures prepared inaccordance with GAAP. Please refer to the attached reconciliation betweenGAAP and non-GAAP financial measures.
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Sales
Worldwide sales for the second quarter of fiscal 2009 were $36.0 millioncompared to $28.9 million in the comparable period of fiscal 2008,representing an increase of 24%. Product sales in the quarter attributable tothe epilepsy indication were an estimated $35.0 million, a 28% increase, or$7.6 million, over the second quarter of fiscal 2008. Product sales excludeincome from licensing.
U.S. product sales attributable to the epilepsy indication increased to anestimated $28.6 million, compared with $21.7 million in the comparable periodof fiscal 2008, an increase of $6.9 million, or 32%.
International sales increased by 12% in the second quarter of fiscal 2009to $6.6 million, up from $5.9 million in the second quarter of the priorfiscal year, due primarily to pricing improvements, largely offset by theimpact of foreign currency movements.
Sales for the six months ended October 24, 2008 were $69.8 million, anincrease of $11.7 million, or 20%, when compared to the same period in fiscal2008. Product sales in the six-month period attributable to the epilepsyindication were an estimated $67.6 million, an increase of $13.4 million, or25%, over the comparable period of fiscal 2008.
Gross profit
The gross profit for the second quarter of fiscal 2009 represented 85.6%of net sales compared to 84.2% in the second quarter of fiscal 2008. Thisincrease is primarily a result of higher production volumes and improvedmanufacturing efficiencies.
Operating expenses
Operating expenses were reduced by $1.6 million to $26.3 million for thesecond quarter of fiscal 2009 from the $28.0 million recorded in thecomparable period of fiscal 2008 and were relatively unchanged from the firstquarter of the current fiscal year. Operating expenses for the quarter endedOctober 24, 2008 included $2.6 million for stock-based compensation,materially unchanged from the comparable period of fiscal 2008.
For the six-month period ended October 24, 2008, operating expensestotaled $52.5 million, a reduction of $6.9 million over the same period offiscal 2008.
Operating income
For the fourth consecutive quarter, the company reported operating income.During the second quarter of fiscal 2009, the company's income from operationswas $4.5 million compared with a loss from operations of $3.6 million in thecomparable period of fiscal 2008. This operating profit is the highest everrecorded by the company.
For the six-month period ended October 24, 2008, income from operations of$7.3 million compared to a loss from operations of $11.5 million in the sameperiod of fiscal 2008.
Debt repurchase / other income
During the recently completed quarter, the company repurchased $40.4million of its outstanding convertible debt for a total consideration of $34.9million, and recorded a net gain of $4.6 million, including the impact of theaccelerated amortization of deferred issuance costs.
Net income
The company reported net income of $8.3 million, or $0.14 per dilutedshare, for the second quarter, compared with a net loss of $4.1 million, or$0.15 per share, in the second quarter of fiscal 2008. Although the gain onearly extinguishment of the convertible debt is included in the calculation ofnet income, as per the applicable accounting rules it is excluded from thecalculation of net income per diluted share.
Balance sheet and cash flow
The company generated positive operating cash flow of $4.0 million duringthe quarter. The overall decrease of $31.8 million in cash to $69.3 millionin the recently completed quarter resulted primarily from the repurchase ofconvertible debt referenced above.
Results and objectives
"Fiscal 2009 performance continues to be strong," commented Dan Moore,Cyberonics' President and Chief Executive Officer. "Our financial resultshave improved in each of the last six quarters. The company again recordedoperating income, positive cash flow from operations and net income. Our coreU.S. epilepsy business showed excellent growth, with revenues increasing by anestimated 32% over the prior year.
"Over the last 12 months, we estimate that approximately 3,600 newpatients have chosen VNS Therapy(TM) in the U.S. market, and approximately5,700 worldwide. In addition, over 2,600 patients worldwide have replacedtheir VNS generator upon depletion of its battery during this time period.Our estimate is that over 70% of patients are replacing their generator, anextraordinary statement as to the benefits of VNS Therapy for people withepilepsy. Further, there are many patients electing to receive a thirdgenerator.
"We continue to believe that both the U.S. and international epilepsymarkets represent significant opportunities for the company to realizeconsistent growth in both sales and earnings in the coming years," Mr. Moorecontinued. "Specifically, the Cyberonics team is dedicated to developmentefforts to improve the efficacy of VNS Therapy for epilepsy, with particularattention to research efforts around seizure detection and stimulationparameters.
"The company has recently appointed new general managers for Europe andLatin America. Regional management is now complete worldwide, and ourinternational priority is now clearly focused on obtaining appropriateapprovals in Japan."
Mr. Moore concluded, "We are maintaining our longer term goals for ourepilepsy business, which include consistent annual unit growth in the range of10% to 20% and the achievement of an operating margin of 25% by fiscal 2011.Further, the ongoing improvement to our balance sheet provides us with theflexibility to achieve sustained increases in shareholder value. Themanagement and staff of Cyberonics remain focused on executing our strategicplan around epilepsy. We are proud of the improvement in financial resultsaccomplished by the entire Cyberonics team over the last six quarters."
Fiscal 2009 guidance
Based on our first half performance, Cyberonics is increasing itspreviously provided sales guidance to between $136 million and $140 million.
Additional details will be provided during the upcoming conference calland in the accompanying presentation slides, as described below.
Use of Non-GAAP Financial Measure
Management has disclosed a financial measurement in this pressannouncement that present financial information that is not in accordance withGenerally Accepted Accounting Principles (GAAP). This measurement is not asubstitute for GAAP measurements, although company management uses thismeasurement as an aid in monitoring the company's on-going financialperformance from quarter-to-quarter and year-to-year on a regular basis, andfor benchmarking against other medical technology companies. Non-GAAP netincome measures the income of the company excluding the gain on earlyextinguishment of the company's convertible debt, which is considered bymanagement to be outside of the normal on-going operations of the company.Management uses and presents non-GAAP net income because management believesthat in order to properly understand the company's short and long-termfinancial trends, the impact of this unusual item should be eliminated fromon-going operating activities. Management also uses non-GAAP net income toforecast and evaluate the operational performance of the company as well as tocompare results of current periods to prior periods on a consistent basis.
Non-GAAP financial measures used by the company may be calculateddifferently from, and therefore may not be comparable to, similarly titledmeasures used by other companies. Investors should consider non-GAAP measuresin addition to, and not a substitute for, or superior to, financialperformance measures prepared in accordance with GAAP.
Please refer to the attached reconciliation between GAAP and non-GAAPfinancial measures.
Fiscal Year 2009 Second Quarter Results Conference Call Instructions
A conference call to discuss fiscal year 2009 second quarter results willbe held at 9:00 AM EST on Thursday, November 20, 2008. To listen to theconference call live by telephone dial 877-313-8035 (if dialing from withinthe U.S.) or 706-679-4838 (if dialing from outside the U.S.). The conferenceID is 71901126; the leader is Dan Moore. Presentation slides will beavailable on-line at www.cyberonics.com no later than 8:00 AM EST on Thursday,November 20, 2008. A replay of the conference call will be availableapproximately two hours after the completion of the live call by dialing 800-642-1687 (if dialing from within the U.S.) or 706-645-9291 (if dialing outsidethe U.S.). The replay conference ID access code is 71901126. The replay willbe available for one week on the above number, and subsequently on theCompany's website for a period of six months.
About VNS Therapy(TM) and Cyberonics
Cyberonics, Inc. (NASDAQ:CYBX) is a medical technology company with coreexpertise in neuromodulation. The company developed and markets the VagusNerve Stimulation (VNS) Therapy(TM) System, which is FDA-approved for thetreatments of epilepsy and depression. The VNS Therapy System uses asurgically implanted medical device that delivers electrical pulsed signals tothe vagus nerve. Cyberonics markets the VNS Therapy System in selectedmarkets worldwide.
Additional information on Cyberonics, Inc. and VNS Therapy(TM) isavailable at http://www.cyberonics.com and http://www.vnstherapy.com.
Safe harbor statement
This press release contains forward-looking statements within the meaningof Section 27A of the Securities Act of 1933, as amended and Section 21E ofthe Securities Exchange Act of 1934, as amended. These statements can beidentified by the use of forward-looking terminology, including "may,""believe," "will," "expect," "anticipate," "estimate," "plan," "intend,""forecast," or other similar words. Statements contained in this pressrelease are based on information presently available to us and assumptionsthat we believe to be reasonable. We are not assuming any duty to update thisinformation if those facts change or if we no longer believe the assumptionsto be reasonable. Investors are cautioned that all such statements involverisks and uncertainties, including without limitation, statements concerningconsistent growth in our net sales and income in the coming years, improvingthe efficacy of VNS Therapy(TM) for epilepsy, successfully developing aproduct capable of seizure detection and improving efficacy with newstimulation parameters, obtaining regulatory approvals in Japan, achievementof consistent unit growth of 10% to 20%, an operating margin of 25% by fiscal2011, sustained increases in shareholder value, fiscal 2009 sales of $136million to $140 million, and positive income in fiscal 2009. Our actualresults may differ materially. Important factors that may cause actualresults to differ include, but are not limited to: continued market acceptanceof VNS Therapy(TM) and sales of our product; the development and satisfactorycompletion of clinical trials and/or market test and/or regulatory approval ofVNS Therapy(TM) for the treatment of other indications; satisfactorycompletion of post-market studies required by the U.S. Food and DrugAdministration as a condition of approval for the treatment-resistantdepression indication; adverse changes in coverage or reimbursement amounts bythird-parties; intellectual property protection and potential infringementclaims; maintaining compliance with government regulations and obtainingnecessary government approvals for new indications; product liability claimsand potential litigation; reliance on single suppliers and manufacturers forcertain components; the accuracy of management's estimates of future expensesand sales; the results of the previously disclosed governmental inquiries; thepotential identification of material weaknesses in our internal controls overfinancial reporting; risks and costs associated with such governmentalinquiries and any litigation relating thereto or to our stock option grants,procedures, and practices (including the previously disclosed privatelitigation); uncertainties associated with stockholder litigation; and otherrisks detailed from time to time in our filings with the Securities andExchange Commission (SEC). For a detailed discussion of these and othercautionary statements, please refer to our most recent filings with the SEC,including our Annual Report on Form 10-K for the fiscal year ended April 25,2008, and Quarterly Report on Form 10-Q for the quarterly period ended July25, 2008.-- Net sales of $36.0 million, a 24% increase from $28.9 million, -- Net U.S. product sales attributable to the epilepsy indication increased by an estimated 32% to $28.6 million, unit sales grew by 11%, -- Gross profit margin increased to 85.6% from 84.2%, -- Adjusted net income of $3.74 million (excluding a gain of $4.61 million on early extinguishment of debt), and net income of $8.35 million compared with a net loss of $4.08 million.
SOURCE Cyberonics, Inc.
