Spectranetics Reports Third Quarter Revenue Up 7% to $28.8 Million
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Profitability Achieved, Excluding Special Items
Conference Call Begins at 11:00 a.m. Eastern Time Today
COLORADO SPRINGS, Colo.--(BUSINESS WIRE)-- Spectranetics Corporation (Nasdaq: SPNC) today reported financial results for the quarter and nine months ended September 30, 2009.
Revenue for the third quarter of 2009 was $28.8 million, up 7% compared with revenue of $26.8 million for the third quarter of 2008.
The pre-tax loss for the third quarter of 2009 was $2,492,000, compared with pre-tax income of $615,000 for the third quarter of 2008. The pre-tax loss during the third quarter of 2009 includes $3,133,000 of special items, consisting of $602,000 of costs associated with the federal investigation; $1,090,000 of costs associated with previously announced ongoing litigation, which is unrelated to the federal investigation; $1,075,000 relating to the discontinuation of the marketing and sales of the Safe-Cross(R) product line; and $366,000 of employee termination and lease abandonment costs. Pre-tax income during the third quarter of 2008 included $422,000 of costs associated with the federal investigation. Excluding these special items in both periods, adjusted pre-tax income was $641,000 in the third quarter of 2009, compared with adjusted pre-tax income of $1,037,000 in the third quarter of 2008. A further description of these special items and a reconciliation of these non-GAAP financial measures to the most directly comparable financial measure calculated in accordance with GAAP is provided immediately following the financial tables under Reconciliation of Non-GAAP Financial Measures.
"Several important milestones were reached this quarter that reflect our focus on positioning the Company for continued revenue growth and careful management of our cost structure. We received 510k clearance and initiated a limited market release for our Turbo-Tandem(TM) device. We also filed a 510k application with the FDA for the treatment of in-stent restenosis in leg arteries. During the quarter, we completed a restructuring of the Company's organization that we expect to result in annual savings of approximately $1.7 million," said Emile J. Geisenheimer, Chairman, President and Chief Executive Officer. "Further, we achieved $28.8 million of revenue in the third quarter, which is historically our weakest quarter of the year. Of particular note is the 29% revenue growth in our lead management business and the achievement of an adjusted pre-tax profit for the first time this year."
Third Quarter Revenue Review
Vascular intervention revenue rose 7% to $15.4 million, lead management revenue increased 29% to $9.8 million, laser equipment revenue declined 43% to $1.4 million, and service and other revenue declined 6% to $2.2 million, all compared with the third quarter of 2008. Vascular intervention sales include three product lines -- atherectomy, which decreased 3%, crossing solutions, which increased 23%, and thrombectomy, which increased 26%, all compared with the third quarter of 2008.
On a geographic basis, revenue in the United States was $24.5 million during the quarter ended September 30, 2009, an increase of 6% from the prior year third quarter. International revenue totaled $4.3 million, an increase of 18% from the third quarter of last year.
Reflecting the Company's emphasis on sales to existing accounts, laser placements to new customers were anticipated to decline compared with prior year levels. During the quarter ended September 30, 2009, the Company placed 30 laser systems with new customers compared with 38 placements during the third quarter of last year. Of those new laser placements, 17 laser systems were transfers from the existing installed base during the third quarter of 2009, compared with 13 transfers during the third quarter of 2008. As of September 30, 2009 the worldwide installed base of laser systems totaled 889 (693 in the United States).
Year-to-Date Financial Results
Revenue for the first nine months of 2009 rose 10% to $85.2 million, from $77.4 million for the first nine months of 2008.
Year-to-date 2009 vascular intervention revenue was $46.7 million, up 9% compared with $43.0 million in the first nine months of 2008; and year-to-date lead management revenue was $26.8 million, up 25% compared with $21.4 million the first nine months of 2008. Laser equipment revenue declined 24% to $4.8 million, from $6.3 million in the comparable period of 2008. Service and other revenue for the first nine months of 2009 was $6.9 million, up 2% compared with $6.7 million for the comparable period in 2008.
On a geographic basis, revenue in the United States was $72.6 million during the nine months ended September 30, 2009, an increase of 8% from the comparable period last year. International revenue totaled $12.6 million, an increase of 28% from last year.
The pre-tax loss for the first nine months of 2009 was $7,733,000, compared with a pre-tax loss of $3,526,000 in the first nine months of 2008. The pre-tax loss during the nine months ended September 30, 2009 includes $5,658,000 of special items, consisting of $2,957,000 of costs associated with the federal investigation; $1,090,000 of costs associated with previously announced ongoing litigation, which is unrelated to the federal investigation; $1,075,000 relating to the discontinuation of the marketing and sales of the Safe-Cross(R) product line; and $536,000 of employee termination and lease abandonment costs. Pre-tax loss during the nine months ended September 30, 2008 included $4,271,000 of special items, consisting of $3,849,000 of in-process research and development costs and $422,000 of costs associated with the federal investigation. Excluding these special items in both periods, adjusted pre-tax loss was $2,075,000 in the first nine months of 2009, compared with adjusted pre-tax income of $745,000 in the first nine months of 2008. A further description of these special items and a reconciliation of these non-GAAP financial measures to the most directly comparable financial measure calculated in accordance with GAAP is provided immediately following the financial tables under Reconciliation of Non-GAAP Financial Measures.
Cash, cash equivalents and current investment securities totaled $18.3 million at September 30, 2009, compared with $15.6 million at June 30, 2009 and $20.5 million at December 31, 2008.
2009 Outlook
The Company continues to expect revenue growth during 2009 in both the vascular intervention and lead management business units.
Vascular intervention revenue is anticipated to increase approximately 8% to 9% in 2009 as compared with 2008. Lead management revenue growth in 2009 as compared with 2008 is anticipated to approximate 27% to 28%.
Gross margin is expected to be approximately 71% in 2009.
While management expects to incur a pre-tax loss for 2009, a pre-tax profit is anticipated in the second half of 2009 after adjusting for the special items discussed under Reconciliation of Non-GAAP Financial Measures immediately following the financial tables.
Conference Call
Management will host an investment-community conference call today beginning at 9:00 a.m. Mountain time, 11:00 a.m. Eastern time, to discuss these results. Individuals interested in listening to the conference call should dial (888) 803-8271 for domestic callers, or (706) 634-2467 for international callers. The live conference call will also be available via the Internet on the investor relations section of www.spectranetics.com. A slide presentation will accompany the webcast.
A telephone replay will be available for 48 hours following the conclusion of the call by dialing (800) 642-1687 for domestic callers, or (706) 645-9291 for international callers and entering reservation code 36171056. The web site replay will be available for 14 days following the completion of the call.
About Spectranetics
Spectranetics manufactures and markets the only Excimer Laser System approved in the United States, Canada, Europe and Japan for use in minimally invasive interventional procedures within the cardiovascular system. Nearly 900 Spectranetics laser systems are used in hospitals worldwide.
The Company's Vascular Intervention (VI) products include a range of peripheral and cardiac laser catheters for ablation of occluded arteries above and below the knee and within coronary arteries. The Company also markets aspiration catheters for the removal of thrombus and support catheters to facilitate crossing of coronary and peripheral arterial blockages.
The Lead Management (LM) product line includes excimer laser sheaths and cardiac lead management accessories for the removal of pacemaker and defibrillator cardiac leads.
For more information, visit www.spectranetics.com.
Safe Harbor Statement
This news release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such statements are based on current assumptions that involve risks and uncertainties that could cause actual outcomes and results to differ materially. These risks and uncertainties may include adverse results of the FDA and Immigration and Customs Enforcement investigation, adverse results of the securities litigation or the stockholder derivative litigation in which the Company or any of its officers or directors is a party, insufficient insurance coverage or the denial of insurance coverage related to legal costs or any settlement or judgment in connection with those proceedings, continued or worsening adverse conditions in the general domestic and global economic markets and continued volatility and disruption of the credit markets, which, among other things, affects the ability of hospitals and other health care systems to obtain credit and may impede our access to capital and has rendered our investments in auction rate securities illiquid, market acceptance of excimer laser atherectomy technology, increasing price and product competition, increased pressure on expense levels resulting from expanded sales, marketing, product development and clinical activities, uncertain success of the Company's strategic direction, dependence on new product development, intellectual property claims of third parties, availability of inventory from suppliers, adverse outcome of FDA inspections, the receipt of FDA approval to market new products or applications and the timeliness of any approvals, market acceptance of new products or applications, product defects, ability to manufacture sufficient volumes to fulfill customer demand, availability of vendor-sourced components at reasonable prices, unexpected delays or costs associated with the Company's relocation and consolidation of its manufacturing operations, and price volatility due to the initiation or cessation of coverage, or changes in ratings, by securities analysts. For a further list and description of such risks and uncertainties that could cause the actual results, performance or achievements of the Company to be materially different from any anticipated results, performance or achievements, please see the Company's previously filed SEC reports. Spectranetics disclaims any intention or obligation to update or revise any financial projections or forward-looking statements, whether as a result of new information, future events or otherwise.
Use of Non-GAAP Financial Measures
To supplement the Company's consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP), Spectranetics uses certain non-GAAP financial measures in this release. Reconciliations of the non-GAAP financial measures used in this release to the most directly comparable U.S. GAAP measures for the respective periods, and an explanation of the Company's use of these non-GAAP measures, can be found in Reconciliation of Non-GAAP Financial Measures immediately following the financial tables. Non-GAAP financial measures have limitations as analytical tools and should not be considered in isolation or as a substitute for the Company's financial results prepared in accordance with GAAP.
THE SPECTRANETICS CORPORATION
Condensed Consolidated Statements of Operations
(000's, except per share data and percentages)
(unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2009 2008 2009 2008
Revenue $ 28,841 $ 26,836 $ 85,176 $ 77,365
Cost of revenue 7,951 7,617 24,497 21,820
Gross profit 20,890 19,219 60,679 55,545
Gross margin % 72 % 72 % 71 % 72 %
Operating
expenses:
Selling,
general and 16,706 15,135 52,089 46,126
administrative
Research,
development and 3,637 3,346 10,973 10,046
other
technology
In-process
research & -- -- -- 3,849
development
Federal
investigation 602 422 2,957 422
costs
Provision for
costs related 1,090 -- 1,090 --
to litigation
Discontinuation
costs-- 1,075 -- 1,075 --
Safe-Cross
product line
Employee
termination and
lease 366 -- 536 --
abandonment
costs
Total operating 23,476 18,903 68,720 60,443
expenses
Operating (2,586 ) 316 (8,041 ) (4,898 )
income (loss)
Other income, 94 299 308 1,372
net
Loss before (2,492 ) 615 (7,733 ) (3,526 )
taxes
Income tax
(expense) -- (432 ) 102 663
benefit
Net income $ (2,492 ) $ 183 $ (7,631 ) $ (2,863 )
(loss)
Loss per common
and common
equivalent
share
Basic $ (0.08 ) $ 0.01 $ (0.24 ) $ (0.09 )
Diluted $ (0.08 ) $ 0.01 $ (0.24 ) $ (0.09 )
Weighted
average shares
outstanding
Basic 32,663 31,970 32,345 31,765
Diluted 32,663 33,742 32,345 31,765
THE SPECTRANETICS CORPORATION
Condensed Consolidated Balance Sheets
(000's)
September 30, December 31,
2009 2008
Assets (Unaudited)
Current assets
Cash, cash equivalents and investment $ 18,298 $ 20,478
securities
Restricted cash 717 1,350
Accounts receivable, net 15,752 15,555
Inventories 9,259 8,053
Deferred tax asset, current 1,242 888
Other current assets 2,478 2,034
Total current assets 47,746 48,358
Property, plant and equipment, net 32,161 32,345
Investment securities, non-current 15,020 15,570
Deferred tax asset, non-current 5,410 5,597
Goodwill 5,569 4,292
Other assets 722 934
Total assets $ 106,628 $ 107,096
Liabilities and stockholders' equity
Current liabilities $ 18,246 $ 15,690
Non-current liabilities 587 422
Stockholders' equity 87,795 90,984
Total liabilities and stockholders' equity $ 106,628 $ 107,096
THE SPECTRANETICS CORPORATION
Supplemental Financial Information
(Unaudited)
Financial Summary 2008 2009
3rd Qtr 4th Qtr 1stQtr 2nd Qtr 3rd Qtr
(000's, except
laser sales and
installed base
amounts)
Laser revenue:
Equipment sales $ 1,408 $ 1,273 $ 352 $ 843 $ 150
Rental fees 1,015 1,074 1,108 1,105 1,231
Total laser 2,423 2,347 1,460 1,948 1,381
revenue
Disposable
products revenue:
Vascular
intervention 14,433 14,421 15,290 16,017 15,429
revenue
Lead management 7,652 7,538 8,173 8,773 9,839
revenue
Total disposable 22,085 21,959 23,463 24,790 25,268
products revenue
Service and other 2,328 2,339 2,380 2,294 2,192
revenue
Total revenue 26,836 26,645 27,303 29,032 28,841
Non-GAAP adjusted
pre-tax income 1,037 893 (1,526 ) (1,190 ) 641
(loss) excluding
special items (1)
Pre-tax income 615 (1,135 ) (2,899 ) (2,342 ) (2,492 )
(loss)
Cash flow
generated by
(used in) 2,742 (4,556 ) (1,997 ) (1,132 ) 2,219
operating
activities
Total cash and
investment 26,815 20,478 18,403 15,623 18,298
securities -
current
Laser sales
summary:
Laser sales from 10 7 2 4 1
inventory
Laser sales from
evaluation/rental 1 1 0 1 1
units
Total laser sales 11 8 2 5 2
(1) Non-GAAP adjusted pre-tax income (loss) excluding special items is a non-GAAP financial
measure. Please refer to the non-GAAP reconciliation tables following this table.
Worldwide
Installed Base
Summary:
Laser sales from 10 7 2 4 1
inventory
Rental placements 23 20 22 21 25
Evaluation 5 8 10 5 4
placements
Laser placements 38 35 34 30 30
during quarter
Buy-backs/returns (13 ) (10 ) (17 ) (21 ) (17 )
during quarter
Net laser
placements during 25 25 17 9 13
quarter
Total lasers
placed at end of 825 850 867 876 889
quarter
Reconciliation of Non-GAAP Financial Measures
To supplement the Company's condensed consolidated financial statements prepared in accordance with GAAP, Spectranetics uses certain non-GAAP financial measures in this release. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures for the respective periods can be found in the tables below. An explanation of the manner in which the Company's management uses these non-GAAP measures to conduct and evaluate its business and the reasons why management believes that these non-GAAP measures provide useful information to investors is provided following the reconciliation tables.
THE SPECTRANETICS CORPORATION
Reconciliation of Pre-Tax Income (Loss) to Non-GAAP Adjusted Pre-Tax Income
(Loss)
(000's)
(unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2009 2008 2009 2008
Pre-tax income $ (2,492 ) $ 615 $ (7,733 ) $ (3,526 )
(loss), as reported1
Purchased in-process
research and -- -- -- 3,849
development2
Federal investigation 602 422 2,957 422
costs3
Provision for costs
related to 1,090 -- 1,090 --
litigation4
Discontinuation
costs--Safe-Cross 1,075 -- 1,075 --
product line5
Employee termination
and lease abandonment 366 -- 536 --
costs6
Non-GAAP adjusted $ 641 $ 1,037 $ (2,075 ) $ 745
pre-tax income (loss)
1 Given the Company's significant historical net operating losses that are
available to offset future taxable income, any income tax expense or benefit is
a non-cash item. As a result, management believes that pre-tax income or loss is
the most appropriate measure of its operating performance.
2 In May 2008, Spectranetics acquired the endovascular product lines of Kensey
Nash Corporation. At the date of acquisition, the Company recorded a charge of
$3.8 million to expense, representing purchased IPR&D related to a development
project that had not yet reached technological feasibility and had, in
management's opinion, no alternative future use.
3 As previously disclosed in filings with the SEC, on September 4, 2008, the
Company was jointly served by the FDA and U.S. Immigration and Customs
Enforcement with a search warrant issued by the United States District Court,
District of Colorado. The Company has incurred significant legal and other
expenses in this matter. These amounts represent significant charges beginning
in the third quarter of 2008.
4 The amounts recorded represent a provision for costs related to previously
disclosed ongoing litigation, which is unrelated to the federal investigation.
5 In the third quarter of 2009, the Company discontinued the marketing and sales
of the Safe-Cross product line, which was acquired from Kensey Nash Corporation
in May 2008. The $1.1 million one-time charge includes a patent impairment
charge, impairment of long-lived assets, inventory write-offs and an amount in
consideration of remaining contractual obligations to Kensey Nash Corporation
primarily related to inventory purchases.
6 In the second and third quarters of 2009, the Company eliminated certain
positions in order to streamline operations. As a result, the Company recorded
severance obligations totaling $240,000 and $410,000 for the three and nine
months ended September 30, 2009, respectively. In addition, the Company recorded
a charge for remaining lease obligations in the amount of $126,000 for a portion
of a leased facility that is no longer being utilized.
THE SPECTRANETICS CORPORATION
Reconciliation of Net Income (Loss) to Non-GAAP Adjusted Net Income (Loss) and
Net Income (Loss) per Share to Non-GAAP Adjusted Net Income (Loss) per Share
(000's, except per share data)
(unaudited)
Three Months Ended September 30, Nine Months Ended September 30,
2009 2008 2009 2008
Impact Impact Impact Impact
Net (loss) per Net per Net loss per Net loss per
income diluted Income diluted diluted diluted
share* share* share* share*
Net income
(loss), $ (2,492 ) $ (0.08 ) $ 183 $ 0.01 $ (7,631 ) $ (0.24 ) $ (2,863 ) $ (0.09 )
as reported
Purchased
in-process
research and -- -- -- -- -- -- 2,386 0.08
development,
net of tax
Federal
investigation 602 0.02 262 0.01 2,957 0.09 262 0.01
costs, net of
tax
Provision for
costs related 1,090 0.03 -- -- 1,090 0.03 -- --
to litigation
Discontinuation
costs -- 1,075 0.03 -- -- 1,075 0.03 -- --
Safe-Cross
product line
Employee
termination and
lease 366 0.01 -- -- 536 0.02 -- --
abandonment
costs
Non-GAAP
adjusted $ 641 $ 0.02 $ 445 $ 0.01 $ (1,973 ) $ (0.06 ) $ (215 ) $ (0.01 )
net income
(loss)
* Per share amounts may not add due to rounding.
The following table shows associated income tax benefit on special items that were excluded from net income to arrive at non-GAAP adjusted net income. In 2009, the Company did not record an income tax benefit for any of these special items. For 2008, amounts are tax effected at the Company's marginal tax rate of 38%.
Reconciliation of Net Income (Loss) to Non-GAAP Adjusted Net Income (Loss) --
Tax effect of reconciling items
(000's) (unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2009 2008 2009 2008
Purchased in-process $ -- $ -- $ -- $ 3,849
research and development
Income tax benefit -- -- -- (1,463 )
Purchased in-process
research and development, -- -- -- 2,386
net of tax
Federal investigation costs 602 422 2,957 422
Income tax benefit -- (160 ) -- (160 )
Federal investigation $ 602 $ 262 $ 2,957 $ 262
costs, net of tax
Spectranetics uses the non-GAAP financial measures described above as supplemental measures of performance and believes these measures facilitate operating performance comparisons from period to period and company to company by factoring out potential differences caused by unusual or infrequent charges not related to the Company's regular, ongoing business. The Company's management uses the non-GAAP financial measures used in this release to analyze the underlying trends in the Company's business, assess the performance of the Company's core operations, establish operational goals and forecasts that are used in allocating resources and evaluate the Company's performance period over period and in relation to its competitors' operating results.
Spectranetics believes that presenting the non-GAAP financial measures used in this release provides investors greater transparency to the information used by management for its financial and operational decision-making and allows investors to see the Company's results "through the eyes" of management. Spectranetics also believes that providing this information better enables the Company's investors to understand the Company's operating performance and evaluate the methodology used by management to evaluate and measure such performance. The Company's management believes that non-GAAP financial measures are useful to investors to evaluate the Company's performance period over period and in relation to its competitors' operating results.
Non-GAAP financial measures have limitations as analytical tools and should not be considered in isolation or as a substitute for the Company's financial results prepared in accordance with GAAP. Some of the limitations associated with the Company's use of these non-GAAP financial measures are:
-- Items such as purchased IPR&D reflect economic costs to the Company
which are not reflected in non-GAAP adjusted net income and non-GAAP
adjusted net income per share.
-- Items such as the federal investigation costs, provision for costs
related to litigation, and employee termination and lease abandonment
costs that are excluded from non-GAAP net income and non-GAAP net income
per share can have a material impact on cash flows and GAAP net income
and net income per share.
-- Intangible asset impairment charges and inventory write-offs related to
the Safe-Cross discontinuation represent a reduction in value of
intangible and tangible assets. The expense associated with this
reduction in value is not included in the Company's non-GAAP net income
or non-GAAP net income per share.
-- Non-GAAP financial measures are not based on any comprehensive set of
accounting rules or principles and therefore other companies may
calculate similarly titled non-GAAP financial measures differently than
Spectranetics, limiting the usefulness of those measures for comparative
purposes.
-- The Company's management exercises judgment in determining which types
of charges or other items should be excluded from the non-GAAP financial
measures Spectranetics uses.
Spectranetics compensates for these limitations by relying primarily upon its GAAP results and using non-GAAP financial measures only as a supplement to its GAAP results. Spectranetics provides detailed reconciliations of each non-GAAP measure to its most directly comparable GAAP measure. Spectranetics encourages investors to review these reconciliations.
Source: Spectranetics Corporation
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