Cyberonics Inc. (NSDQ:CYBX) posted third-quarter sales of $40.8 million for the three months ended Jan. 22, up 15.8 percent compared with $35.3 million during the same period in 2009. Net income fell 9.7 percent to $8.8 million, compared with $9.8 million during Q3 2009:
Cyberonics Continues Strong Sales Growth and Profitability in Fiscal 2010 Third Quarter
– Company Achieves Sales Growth of 16% –
– Increases Sales and Operating Income Guidance –
– Increases Sales and Operating Income Guidance –
HOUSTON, Feb. 17 /PRNewswire-FirstCall/ — Cyberonics, Inc. (Nasdaq: CYBX) today announced results for the quarter ended January 22, 2010.
Operating results for the third quarter of fiscal 2010 compared to the third quarter of fiscal 2009 include:
- Net sales of $40.8 million, a 16% increase from $35.3 million,
- Income from operations of $9.0 million, an increase of 81% over the prior year,
- Net U.S. product sales attributable to the epilepsy indication increased by an estimated 12% to $31.7 million,
- Record international net sales of $8.3 million,
- Adjusted non-GAAP net income of $8.1 million, compared with an adjusted non-GAAP net income of $4.2 million (both numbers excluding net gains of $0.8 million and $5.6 million respectively on early extinguishment of debt adjusted for tax impact and other effects),
- Adjusted non-GAAP EBITDA of $11.7 million, a 54% increase from $7.6 million.
- Year-over-year net product sales attributable to the epilepsy indication grew by more than 15% for the ninth consecutive quarter,
- The company has improved year-over-year quarterly income from operations in each of the last eleven quarters,
- The company received regulatory approval for its VNS Therapy® System for the epilepsy indication in Japan, one of the largest medical device markets in the world.
As discussed below under “Use of Non-GAAP Financial Measures,” the company presents non-GAAP financial measures, adjusted net income, adjusted net income per share and adjusted EBITDA, in this release. Investors should consider non-GAAP measures in addition to, and not as a substitute for, or superior to, financial performance measures prepared in accordance with GAAP. Please refer to the attached reconciliation between GAAP and non-GAAP financial measures.
Worldwide net sales for the third quarter of fiscal 2010 were $40.8 million compared to $35.3 million in the comparable period of fiscal 2009, an increase of 16%. On a constant currency basis, the year-over-year sales increase was 14%.
U.S. net product sales attributable to the epilepsy indication increased to an estimated $31.7 million, compared with $28.3 million in the comparable period of fiscal 2009, an increase of $3.4 million, or 12%.
International net sales of $8.3 million increased by $2.1 million, or 34%, from the comparable period of fiscal 2009 with foreign currency movements providing a positive impact of approximately $0.5 million. On a constant currency basis, the year-over-year increase for international sales was 26%.
Sales for the nine months ended January 22, 2010 were $120.0 million, an increase of $15.0 million, or 14%, when compared to the same period in fiscal 2009. On a constant currency basis, there was no material impact on the year- to-date sales.
The gross profit for the third quarter of fiscal 2010 represented 87.9% of net sales compared to 86.0% in the third quarter of fiscal 2009. This increase is primarily a result of higher production volumes and improved manufacturing efficiencies, as well as a higher average selling price due to product mix changes.
Operating expenses increased by $1.5 million to $26.8 million for the third quarter of fiscal 2010 from the $25.3 million recorded in the comparable period of fiscal 2009 and were $0.3 million higher than in the second quarter of the current fiscal year. Operating expenses for the quarter ended January 22, 2010 included $2.0 million for stock-based compensation, also materially unchanged from the comparable period of fiscal 2009.
For the nine-month period ended January 22, 2010, operating expenses totaled $80.0 million, an increase of $2.2 million, or 3%, over the same period of fiscal 2009.
Income from operations
The company reported income from operations of $9.0 million during the third quarter of fiscal 2010, compared with $5.0 million in the comparable period of fiscal 2009.
For the nine-month period ended January 22, 2010, income from operations of $24.6 million doubled when compared to income from operations of $12.3 million in the same period of fiscal 2009.
Debt repurchase / other income
During the recently completed quarter, the company repurchased $16.8 million of its outstanding convertible debt for total cash consideration of $15.7 million and recorded a net gain of $0.8 million, including the impact of tax and the accelerated amortization of deferred issuance costs.
The company reported net income of $8.8 million, or $0.29 per diluted share, for the third quarter of fiscal 2010, compared with a net income of $9.8 million, or $0.15 cents per share, in the third quarter of fiscal 2009. Reported net income includes gains on early extinguishment of debt of $0.8 million and $5.8 million in the third quarters of fiscal 2010 and 2009, respectively. Although the gain on early extinguishment of the convertible debt is included in the calculation of net income, it is excluded from the calculation of net income per diluted share as per the applicable accounting rules. The number of diluted shares included in the year-to-date totals includes approximately 540,000 shares resulting from the dilutive effect of the remaining convertible notes on an as-if-converted basis.
For the third quarter of fiscal 2010, the company reported adjusted non-GAAP net income and adjusted non-GAAP diluted earnings per share of $8.1 million and $0.29 cents per share, respectively, compared with adjusted non-GAAP net income and adjusted non-GAAP earnings per share of $4.2 million and $0.15 cents per share for the comparable period of fiscal 2009.
Balance sheet and cash flow
The company generated positive operating cash flow of $27.5 million during the nine-month period ended January 22, 2010, including $10.6 million in the recently completed quarter. Available cash and cash equivalent balances were $54.7 million at quarter end. Debt outstanding at quarter end totaled $22.5 million, a reduction of $42.4 million over the last 12 months, and a reduction of $110 million over the last 24 months.
Results and objectives
“The Cyberonics team has continued to produce strong results in fiscal 2010, consistent with those earlier in the year. Our performance in the most recent quarter included record net sales, income from operations increasing 81% over last year, and adjusted EBITDA of more than $11 million,” commented Dan Moore, Cyberonics’ President and Chief Executive Officer. ”Of significant strategic importance, our international operations delivered a record quarter, measured by both units and revenues. Since geographic expansion is one of our key growth drivers over the next several years, this performance was especially encouraging. Finally, our U.S. epilepsy business produced solid growth in net sales of 12% over the prior year.
“The Japanese regulatory approval announced last month is a major milestone in the effort to bring VNS Therapy to Japanese patients with epilepsy. This regulatory approval in Japan covers all people with drug-resistant refractory epilepsy, excluding those cases for which surgery is recommended, but without restrictions as to age or type of seizure. We estimate that approximately 50,000 new cases of epilepsy are diagnosed annually in Japan. Reimbursement is expected before the end of the first quarter of fiscal 2011.
“At Cyberonics, we remain excited about the opportunity that both the U.S. and international epilepsy markets represent in the coming years,” Mr. Moore continued. ”As a team, we are dedicated to development efforts to improve the efficacy of VNS Therapy for epilepsy, with particular attention to research efforts around seizure detection and improved stimulation parameters. Over the past two years, we have rapidly expanded the team dedicated to this effort, and expect to continue to build our expertise in the coming year to allow us to bring medical devices to those affected by epilepsy.
“Consistent with our press release on July 24, 2009, we expect to complete patient follow-up on all patients enrolled in the D-21 post approval dosing study for treatment-resistant depression within the next two weeks. Preliminary results are likely to be available in the first quarter of fiscal 2011.”
Mr. Moore concluded, “To reiterate the medium term goals outlined at our investor day in December, we are targeting net sales growth of 15%, and a faster rate of growth for net income, goals that were again met in the recently completed quarter. We remain focused on achieving an operating margin of 25% by fiscal 2011.”
Fiscal 2010 guidance
Based on performance over the first three quarters of the year, Cyberonics is increasing its previously provided net sales guidance range from $159 million to $162 million to a range of $162 million to $164 million, and increasing its previously provided guidance range for income from operations from $28 million to $30 million to a range of $32 million to $34 million.