EX-99.1 2 v130102_ex99-1.htm

 
For Immediate Release 
 
 
VNUS Medical Technologies Reports Third-Quarter 2008 Results:
25% Growth in Net Product Revenues and 29% Growth in Unit Sales Over Third Quarter 2007
$23.1 Million Net Revenues, $0.10 Net Income Per Share
 
SAN JOSE, Calif.—October 29, 2008 —VNUS® Medical Technologies, Inc. (Nasdaq:VNUS), a leading provider of medical devices for the minimally invasive treatment of venous disease, today announced its financial results for the third quarter ended September 30, 2008.
 
Net revenues for the third quarter of 2008 increased 32% to $23.1 million compared with $17.5 million for the third quarter of 2007. Net revenues for the third quarter of 2008 included net product revenues and royalty revenues. Net product revenues are derived from the sale of disposable endovenous catheters and devices, RF generators and accessory products. Royalty revenues are derived from other companies paying royalties for a license to certain VNUS patents previously subject to an infringement lawsuit.
 
Net product revenues for the third quarter of 2008 increased 25% to $21.9 million compared with $17.5 million for the third quarter of 2007. Net product revenues increased sequentially by 2% when compared to net product revenues in the second quarter of 2008 of $21.5 million. The increase in net product revenues from the third quarter of 2007 was due to continuing higher sales of disposable ClosureFAST™ catheters and higher overall international sales. Disposable catheters and device unit sales increased in the third quarter of 2008 by 29% compared to the third quarter of 2007.
 
Royalty revenues in the third quarter of 2008 were $1.2 million. The royalty revenues are a result of an agreement entered into on June 3, 2008, resolving the infringement lawsuit against two companies selling laser vein ablation products. In the third quarter of 2008, the royalty revenues also include a negotiated payment of $0.3 million from the Diomed bankruptcy estate for royalties relating to Diomed’s post-bankruptcy patent infringement. No royalty revenues are included in net revenues for any period prior to the second quarter of 2008.
 
Gross margins in the third quarter of 2008 were 69.6% compared to 61.5% in the third quarter of 2007 and 76.7% in the second quarter of 2008. For comparison, after excluding $8.7 million of one time royalties, gross margin in the second quarter of 2008 was 67.9%.
 
Third quarter net income was $1.6 million, compared with a net loss of $2.2 million for the third quarter of 2007 and net income of $8.8 million for the second quarter of 2008. Patent litigation expense included in the third quarter was $0.3 million compared to $2.8 million in the comparable quarter in 2007, and $1.0 million in the second quarter of 2008. Net income includes a provision for income taxes of $0.3 million with retroactive effect back to the beginning of the year for a two year suspension of California net operating loss carryforwards and limitation of tax credits which was implemented by the budget of the State of California on September 18, 2008.  Net income per share for the third quarter was $0.10, compared with a net loss per share of $0.14 for the third quarter of 2007 and net income per share of $0.53 for the second quarter of 2008.
 
 
Adjusted EBITDA for the third quarter of 2008 was earnings of $3.6 million, as compared to a loss of $2.2 million in the comparable quarter of 2007, and earnings of $11.1 million in the second quarter of 2008. For periods with net income, earnings per share, if fully taxed at 38%, would be $0.07 for the third quarter of 2008 compared to earnings per share, if fully taxed at the same rate, of $0.03 in the second quarter of 2008 after removing $8.7 million of income from non-recurring royalty revenue. The Company expects to be in a Fully Taxed EPS position on a GAAP basis during 2010 or 2011. Accordingly, the Company has decided to provide supplemental disclosure of Fully Taxed EPS as a long term measure of growth in earnings on a comparable constant per share basis absent the utilization of net operating loss carryforwards and one-time events, such as the payment of royalties in the second quarter of 2008 related to periods prior to 2008.
 
VNUS' balance sheet at September 30, 2008 included cash, cash equivalents and short-term investments of $78.2 million, approximately $3.5 million more than the second quarter of 2008 due primarily to operating efficiencies.
 
“We are especially pleased that our third quarter results show sequential growth during a normally slower summer quarter,” said VNUS President and Chief Executive Officer Brian E. Farley. “With product revenue growth of 25% and another consecutive quarter of a strong increase in unit sales of proprietary disposables of 29% led by international sales, we believe the market is both continuing to grow and is confirming that our VNUS ClosureFAST catheter is the preferred treatment for venous reflux. Furthermore, with third quarter operating income at 8.3% of revenues, our management team showed that the business is now well on track to generate good operating margins and improving profitability.”
 
VNUS also announced today its business outlook for the fourth quarter and fiscal year end of 2008.
 
Business Outlook
 
Fourth Quarter 2008
  
Full Year 2008
 
Millions except EPS
   
Total revenues
$24.0 - $25.3
  
$97.9 - $99.3
Net product revenues
$23.1 - $24.2
  
$85.4 - $86.5
Royalty revenue
$0.9 - $1.1
  
$12.5 - $12.8
Gross margin
68% - 69%
  
70%- 72%
Operating expenses
$14.8 - $15.1
  
$58.2 - $58.5
Effective tax rate
9.0%
  
8.0%
Net income
$1.4 - $2.2
  
$11.5 - $12.2
GAAP EPS
$0.09 - $0.13
  
$0.69 - $0.73
Average shares outstanding
16.7- 17.0
  
16.7- 16.9
Adjusted EBITDA
$3.1 - $4.0
  
$17.4 - $18.3
Fully Taxed EPS (1)
$0.06 - $0.09
  
$0.14 - $0.17
 
(1) For Full Year 2008, excludes $8.7 million of one time royalties associated with pre-2008 sales
 
VNUS expects international growth volume to continue but with the current strengthening foreign exchange rate trend in the United States dollar, the rate of growth of reported international revenues may slow. VNUS currently estimates an increase in fourth-quarter operating expenses primarily due to increased marketing and sales expenses associated with increased sales activities, additional marketing related expenditures to support new long term business initiatives in domestic and international markets and additional patent litigation expenses.
 
 
VNUS estimates that full-year 2008 operating expenses will include patent litigation expenses of $2.0 million to $2.3 million.
 
Today's Teleconference
 
VNUS plans to host its regular quarterly teleconference today at 2:00 p.m. PT / 5:00 p.m. ET. The call can be accessed by dialing (303) 262-2006 (for both U.S. and international callers). This call will be webcast live and as a replay on the company's website at http://ir.vnus.com/. A phone replay will be available for one week after the live call at (303) 590-3000, code 11120881#.
 
Non-GAAP Financial Information:
 
VNUS’ management evaluates and makes operating decisions using various operating measures, including adjusted earnings before interest, taxes, depreciation and amortization, and non-cash charges for stock-based compensation (Adjusted EBITDA), and Fully Taxed EPS calculated by using income after excluding one-time events, assuming no use of net operating loss carryforwards and fully diluted weighted average number of shares (Fully Taxed EPS). The Company believes that these non-GAAP measures, when presented in conjunction with the comparable GAAP measures, are useful to both management and investors in analyzing the Company's ongoing business and operating performance. The Company believes that providing the non-GAAP information to investors, in addition to the GAAP presentation, allows investors to view the Company's financial results in the way management views the Company's operating results. Management believes Adjusted EBITDA is useful as a supplemental measure of the performance of the Company's operations because it isolates the Company's operating performance from the accounting impact of the Company's financing strategies, tax provisions, and depreciation and amortization. The Company believes that Fully Taxed EPS is useful as a supplemental disclosure because the Company expects to be in a Fully Taxed EPS position on a GAAP basis during 2010 or 2011. Accordingly, the Company has decided to provide supplemental disclosure of Fully Taxed EPS as a long term measure of growth in earnings on a comparable constant per share basis absent the utilization of net operating loss carryforwards and one-time events , such as the payment of royalties in the second quarter of 2008 related to periods prior to 2008. VNUS believes Adjusted EBITDA and Fully Taxed EPS should be considered in addition to, but not as a substitute for, items prepared in accordance with GAAP, as the items excluded in the presentation of Adjusted EBITDA and Fully Taxed EPS are significant components in understanding and assessing financial performance. The reconciliation between GAAP and non-GAAP financial information is provided in the financial statements portion of this release.
 
About VNUS Medical Technologies, Inc.
 
VNUS is a leading provider of medical devices for the minimally invasive treatment of venous reflux, a progressive condition caused by incompetent vein valves in the leg. VNUS sells the Closure system, which consists of a proprietary radiofrequency (RF) generator and proprietary disposable endovenous catheters and devices to treat diseased veins through the application of temperature-controlled RF energy. For more information, please visit the corporate website at www.vnus.com.
 
 
Forward-Looking Statements
 
In addition to statements of historical facts or statements of current conditions, VNUS has made forward-looking statements in this press release. Words such as “expects,” "estimates,” “believes”, “assumes“ and “plans” or variations of such words and similar expressions, are intended to identify such forward-looking statements in this press release, including the statements regarding the outlook for VNUS’ business and revenue and net income forecasts. Actual results may differ materially from current expectations based on a number of factors affecting VNUS’ business, including, among other things, overall economic and market conditions; fluctuating foreign exchange rates; changes in reimbursement levels established by governmental and third-party payors; commercial success of VNUS’ licensees ; changing competitive market, clinical trial data and regulatory conditions; changes in the credit markets impacting the fair value of our investment securities; continued market acceptance of the ClosureFAST catheter; customer and physician preferences; the ability of VNUS to protect its patent position; and the effectiveness of advertising and other promotional campaigns. The reader is cautioned not to unduly rely on these forward-looking statements. The statements in this press release are made as of the date of this press release, even if subsequently made available by VNUS on its web site or otherwise. VNUS expressly disclaims any intent or obligation to update these forward-looking statements except as required by law.
 
Additional information concerning these and other risk factors can be found in press releases issued by VNUS and VNUS' periodic public filings with the Securities and Exchange Commission (SEC), including its Annual Report on Form 10-K filed with the SEC on March 14, 2008 and its Quarterly Report on Form 10-Q filed with the SEC on August 18, 2008. Copies of VNUS’ press releases and additional information about VNUS are available on the corporate website at www.vnus.com.
 
—Financial Statements Attached—
 
 
VNUS MEDICAL TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)

   
September 30, 2008
  
December 31, 2007
  
ASSETS
              
Current assets:
              
Cash and cash equivalents
  
$
48,532
  
$
39,269
  
Short-term investments
    
29,637
   
24,067
 
Accounts receivable, net
    
11,797
   
11,456
 
Inventories
    
5,662
   
5,485
 
Prepaid expenses and other current assets
    
2,091
   
1,421
 
Total current assets
    
97,719
   
81,698
 
Property and equipment, net
    
4,266
   
4,354
 
Other assets
    
130
   
130
 
Total assets
  
$
102,115
  
$
86,182
  
               
LIABILITIES AND STOCKHOLDERS’ EQUITY
              
Current liabilities:
              
Accounts payable
  
$
3,166
  
$
2,366
  
Accrued compensation and benefits
    
6,431
    
6,040
  
Other accrued liabilities
    
1,585
    
1,571
  
Deferred revenue, net
    
829
    
720
  
Total current liabilities
    
12,011
    
10,697
  
Other long term liabilities
    
1,904
    
1,996
  
Total liabilities
    
13,915
    
12,693
  
Stockholders’ equity:
              
Common stock
    
16
   
15
 
Additional paid-in capital
    
126,719
   
122,009
 
Deferred stock compensation
    
(3
)
  
(23
)
Accumulated other comprehensive income
    
(18
)
  
21
 
Accumulated deficit
    
(38,514
)
  
(48,533
)
Total stockholders’ equity
    
88,200
   
73,489
 
Total liabilities and stockholders’ equity
  
$
102,115
  
$
86,182
  
 

VNUS MEDICAL TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)

 
  
Three months ended
  
Nine months ended
  
 
  
September 30,
  
September 30,
  
 
  
2008
  
2007
  
2008
  
2007
  
                   
Net product revenues
  
$
21,910
  
$
17,495
  
$
62,302
  
$
50,333
  
Royalty revenues
    
1,226
   
—
   
11,628
   
—
 
Net revenues
    
23,136
   
17,495
   
73,930
   
50,333
 
Cost of revenues
    
7,026
   
6,741
   
20,865
   
18,665
 
Gross profit
    
16,110
   
10,754
   
53,065
   
31,668
 
Operating Expenses:
                          
Sales and marketing
    
6,779
   
5,460
   
21,195
   
18,435
 
Research and development
    
2,554
   
2,258
   
7,596
   
7,168
 
General and administrative
    
4,860
   
6,128
   
14,654
   
15,029
 
Total operating expenses
    
14,193
   
13,846
   
43,445
   
40,632
 
Income (loss) from operations
    
1,917
   
(3,092
)
  
9,620
   
(8,964
)
Interest and other income, net
    
24
   
945
   
1,241
   
2,569
 
Income (loss) before provision for taxes
    
1,941
   
(2,147
)
  
10,861
   
(6,395
)
Provision for income taxes
    
349
   
19
   
842
   
37
 
Net income (loss)
  
$
1,592
  
$
(2,166
)
$
10,019
  
$
(6,432
)
                           
Basic net income (loss) per share
  
$
0.10
  
$
(0.14
)
$
0.63
  
$
(0.42
)
Diluted net income (loss) per share
  
$
0.10
  
$
(0.14
)
$
0.60
  
$
(0.42
)
                           
Basic weighted average number of shares
    
15,941
   
15,466
   
15,844
   
15,364
 
Diluted weighted average number of shares
    
16,751
   
15,466
   
16,588
   
15,364
 
                           
Reconciliation of Income (Loss) from operations to Adjusted EBITDA:
                          
Income (loss) from operations
  
$
1,917
  
$
(3,092
)
$
9,620
  
$
(8,964
)
Stock-based compensation
    
1,309
   
588
   
3,560
   
1,610
 
Depreciation and amortization
    
376
   
326
   
1,114
   
890
 
Adjusted EBITDA
  
$
3,602
  
$
(2,178
)
$
14,294
  
$
(6,464
)
                           
Calculation of Fully Taxed EPS for periods with net income:
                          
Income before provision for taxes
  
$
1,941
        
$
10,861
        
Less one time events:
                          
Royalty revenue related to periods before 2008
    
-
         
(8,699
)
      
Income before taxes
    
1,941
         
2,162
       
Less taxes at an assumed 38% rate
    
(738
)
        
(822
)
      
Fully taxed income
  
$
1,203
        
$
1,340
        
Divided by diluted weighted average number of shares
    
16,751
         
16,588
       
Fully Taxed EPS for periods with net income
  
$
0.07
        
$
0.08
        


CONTACT: Peter Osborne, Chief Financial Officer of VNUS Medical Technologies, Inc., +1-408-360-7499, ir@vnus.com
Web site: http://www.vnus.com