Kensey Nash’s Q2 sales, earnings fall

Kensey Nash Corp. (NSDQ:KNSY) posted second-quarter sales of $19.1 million for the three months ended Dec. 31, 2009, down 8.3 percent compared with $20.8 million during the same period in 2008. Net income fell 30.2 percent to $3.7 million, compared with $5.2 million during Q2 2009:

Press Release

Kensey Nash Reports Second Quarter Fiscal Year 2010 Financial Results

EXTON, Pa., Jan. 28 /PRNewswire-FirstCall/ — Kensey Nash Corporation (Nasdaq: KNSY), a leading medical technology company that provides innovative solutions and technologies for a wide range of medical procedures, today reported the results for its three and six months ended December 31, 2009. All references in this press release to preliminary second quarter results are to those provided in the Company’s January 15, 2010 press release.

Second Quarter Snapshot and Recent Developments

• Expanded cost reduction plan resulting in estimated annual savings of $1.8 million and a one-time pre-tax severance and unabsorbed overhead expense charge of approximately $1.9 million.
• Revenue of $19.1 million, including net sales of $12.5 million and royalty income of $6.6 million, as indicated in the Company’s announcement of preliminary second quarter results.
• Adjusted EPS (excluding pre-tax severance and unabsorbed overhead expense charges) of $0.43*, in line with guidance range of $0.42-$0.45.
• EPS of $0.32, within the preliminary second quarter results range of $0.31 to $0.34.
• EBITDA* of $7.7 million.

President and CEO Commentary

“During the quarter we took action to reduce our costs and overall inventory levels through the implementation of a cost reduction plan that included headcount reductions and reduced work schedules.  These actions are expected to generate annual pre-tax cost savings of approximately $1.8 million.  As discussed in our January 15, 2010 press release, our original revenue guidance was based on the expectation that we would see an acceleration in revenue as the healthcare environment improved, resulting in a higher growth rate in orthopaedic procedures in the second half of fiscal 2010.  Although we are experiencing an increase in orders, the rate of improvement has been lower than previously expected.  Consequently, we have adjusted our revenue expectations to reflect the ongoing challenging economic climate and taken the necessary steps to reduce inventories and control our costs. The cost reductions will not impact our new endeavors with the ECM and cartilage technologies, as both programs are key to the long term growth prospects for our Company.  We are excited about the progress we are making; we anticipate launching the ECM product in fiscal 2010 and receiving CE Mark for our cartilage repair device in the current quarter,” commented Joe Kaufmann, President and CEO of the Company.

Second Quarter Ended December 31, 2009 (Second Quarter Fiscal 2010) Results

Revenues: Sales and Royalties.  Total revenues for the quarter of $19.1 million decreased 8% from total revenues of $20.8 million in the prior fiscal year second quarter.

Net sales of $12.5 million decreased 11% from $14.0 million in the prior fiscal year comparable period.  Net sales of biomaterials products were $11.6 million compared to $13.1 million in the comparable prior fiscal year period.  Cardiovascular sales of $4.3 million, consisting primarily of vascular closure product components to St. Jude Medical (NYSE: STJ), decreased $1.0 million from $5.3 million in the prior fiscal year period.  Fiscal year 2009 cardiovascular sales included a one-time cancellation fee of $0.8 million for a research and development project.  Additionally, the decline in Cardiovascular sales is partially attributed to variations in ordering patterns of components used in the manufacture of the Angio-Seal device by St. Jude Medical.  Orthopaedic sales, consisting primarily of sports medicine and spine products, decreased from $7.1 million to $6.0 million. As anticipated and previously disclosed the Company’s sales growth in the orthopaedic market, particularly related to sports medicine products, has been negatively affected in the short-term.  Net sales of spine products decreased $0.5 million to $2.8 million in the second quarter of fiscal 2010 from $3.3 million in the prior fiscal year comparable quarter.  Net sales of sports medicine products decreased $0.6 million to $3.1 million in the second quarter of fiscal 2010 from $3.7 million in the prior fiscal year comparable quarter.  

Endovascular sales during the quarter were $0.8 million compared to $0.9 million in the prior fiscal year second quarter. As planned, the QuickCat manufacturing was transferred to Spectranetics in December 2009; therefore, the second quarter of fiscal 2010 will be the last quarter reflecting sales of the QuickCat device.  Following the second quarter of fiscal 2010, the Company expects its manufacturing of endovascular products will be limited to the ThromCat product.  

Royalty income for the second quarter of fiscal 2010 was $6.6 million, compared to $6.8 million in the comparable prior fiscal year period.  Royalty income in the second quarter of fiscal 2010 included $5.0 million in Angio-Seal™ royalties and $1.5 million in royalties from Orthovita, Inc. ( VITA).  Angio-Seal™ royalties decreased by approximately $0.4 million in the quarter over the prior fiscal year comparable quarter. The decline in Angio-Seal™ royalties from the prior year was primarily due to fewer shipping days in December 2009 as compared to December 2008.  Royalties from Orthovita increased $0.2 million compared to the same prior fiscal year quarter.

Earnings Per Share.  Second quarter adjusted diluted earnings per share* (which exclude the charges described below) were $0.43, compared to diluted earnings per share of $0.44 for the same period of fiscal 2009.  Second quarter fiscal 2010 diluted earnings per share were $0.32.  As previously disclosed, in the second quarter of fiscal 2010, the Company implemented a cost reduction plan. Originally, this plan was estimated to result in charges of approximately $0.9 million; however, the cost reduction plan was expanded and, as a result, the total charges increased to $1.9 million.  The $1.9 million in charges includes a pre-tax severance charge of approximately $1.0 million and a pre-tax unabsorbed overhead expense charge of approximately $0.9 million. Adjusted diluted earnings per share* exclude these $1.9 million in charges.

During the second quarter of fiscal 2010, the Company’s total tax-effected equity compensation expense was $0.6 million, an increase of $0.6 million from the comparable prior year period.  Second quarter fiscal 2010 tax-effected equity compensation expense was higher than the comparable prior year period because the fiscal 2010 expense included an additional $0.3 million of amortized expense related to three years of equity grants, while second quarter fiscal 2009 equity compensation expense primarily included amortized expense for only two years of equity grants, due to the fiscal 2008 acceleration of stock awards. Furthermore, fiscal 2009 included an additional $0.3 million favorable mark-to-market adjustment on cash-settled stock appreciation rights.  Also negatively affecting earnings per share was a $0.2 million decrease in interest income in the second quarter of fiscal 2010 compared to the prior fiscal year comparable quarter, due to the significant decrease in interest rates.

Six Months Ended December 31, 2009 Results

Revenues: Sales and Royalties.  Total revenues for the six months ended December 31, 2009 of $38.8 million decreased 5% from total revenues of $40.9 million in the prior fiscal year period.

Net sales of $25.9 million decreased 6% from $27.4 million in the prior fiscal year comparable period.  Net sales of biomaterials products were $24.2 million compared to $25.8 million in the comparable prior fiscal year period.  Orthopaedic sales, consisting primarily of sports medicine and spine products, decreased from $15.1 million to $12.5 million. Net sales of spine products decreased $1.4 million to $5.6 million in the six months ended December 31, 2009 from $7.0 million in the prior fiscal year comparable period. Fiscal year 2009 spine sales included a one-time cancellation fee of $0.8 million for a research and development project.  Net sales of sports medicine products decreased $1.0 million to $6.7 million in the six months ended December 31, 2009 from $7.7 million in the prior fiscal year comparable period.  Cardiovascular sales of $9.3 million, consisting primarily of vascular closure product components to St. Jude Medical, increased slightly in the six months ended December 31, 2009 from $9.2 million in the prior fiscal year period.  

Endovascular sales during the six months ended December 31, 2009 remained constant, at $1.7 million compared to the same amount in the prior fiscal year period, primarily due to the increase in milestone revenue recognized under the Company’s research and development agreement with Spectranetics, offset by a decrease in SafeCross product sales.

Royalty income for the six months ended December 31, 2009 was $12.9 million, compared to $13.5 million in the comparable prior fiscal year period. Royalty income in the six months ended December 31, 2009 included $9.9 million in Angio-Seal™ royalties and $2.9 million in royalties from Orthovita, Inc.  Angio-Seal™ royalties decreased by approximately $0.8 million in the six months ended December 31, 2009 over the prior fiscal year comparable period primarily due to fewer shipping days in December 2009, in combination with product mix changes and the effects of foreign currency exchange rate fluctuations. Royalties from Orthovita increased modestly compared to the prior fiscal period.

Earnings Per Share.  For the six months ended December 31, 2009, adjusted diluted earnings per share* (which exclude the second quarter charges described above) were $0.86, compared to diluted earnings per share of $0.87 for the same period of fiscal 2009.  For the six months ended December 31, 2009, diluted earnings per share were $0.75.

During the six months ended December 31, 2009, the Company’s total tax-effected equity compensation expense was $1.0 million, an increase of $0.8 million from $0.2 million in the prior year comparable period.  Tax-effected equity compensation expense for the six months ended December 31, 2009 was higher than the comparable prior year period because fiscal 2010 equity expense included an additional $0.5 million due to an additional year of amortized expense and fiscal 2009 included an additional $0.3 million favorable mark-to-market adjustment on cash-settled stock appreciation rights. Also negatively affecting earnings per share was a $0.5 million decrease in interest income in the six months ended December 31, 2009 compared to the prior fiscal year comparable period, due to the significant decrease in interest rates.

During the six month period ended December 31, 2009, the Company generated cash from operations of $9.2 million, and at December 31, 2009, the Company had $82.0 million of cash and investment balances and total debt of $32.1 million.