Kensey Nash announces financial results for fourth-quarter and full fiscal year 2009

www.kenseynash.comAug 20 2009

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 fourth quarter and fiscal year ended June 30, 2009.

Fourth Quarter Snapshot and Recent Developments

• EPS of $0.41, meeting the high end of previous guidance of $0.38-$0.41.
• Revenue of $20.5 million, meeting the high end of previous guidance of $19.8-$20.5 million.
• Angio-Seal royalties were negatively impacted primarily due to foreign currency exchange by our estimated calculation of approximately $300,000 compared to prior year.
• Record orthopaedic royalties of $1.7 million, representing an increase of 29% from fourth quarter of the prior fiscal year.
• Operating margin of 37%.
• Operating cash flow of $11.2 million.
• EBITDA of $9.2 million.
• Submitted 510(k) for company's first extracellular matrix (ECM) product.
• Re-acquired the distribution rights, along with the trademark, inventory and other assets associated with the OsseoFit Bone Void Filler product line.
• Repurchased approximately 236,000 shares of Common Stock at a total cost of approximately $5.7 million, or an average market price of approximately $24.00 per share.

Full Year Fiscal 2009 Financial Overview

• Record full fiscal year EPS of $1.69, meeting the high end of previous guidance of $1.66-$1.69.
• Revenue of $82.1 million, meeting the high end of previous guidance of $81.5-$82.1 million.
• Angio-Seal royalties were negatively impacted primarily due to foreign currency exchange by our estimated calculation of approximately $600,000 compared to the prior year.
• Record orthopaedic royalties of $6.0 million, representing an increase of 30% over the prior fiscal year.
• Operating margin of 37%.
• Operating cash flow of $33.2 million.
• EBITDA of $37.4 million.
• Repurchased approximately 810,000 shares of Common Stock at a total cost of approximately $19.4 million, or an average market price of approximately $23.92 per share.

President and CEO Commentary

"We are extremely pleased with our fourth quarter and full fiscal year results as our key financial metrics continue to demonstrate a disciplined execution of our business plan. We achieved record profits for our fiscal year in an extraordinarily difficult economic climate. Spine products, which include Vitoss(TM) Bioactive Foam and Vitoss Foam products marketed by Orthovita, Inc. (Nasdaq: VITA), continued to show solid growth in the quarter and fiscal year, while product sales of sports medicine products were down significantly in the quarter, as expected, and were essentially flat for the full year over year. In fiscal 2009, our operating margins improved, we generated over $33 million in operating cash flow and we ended the year with $79.7 million in cash and investments on our balance sheet," said Joe Kaufmann, President and CEO of the Company.

"Furthermore, in fiscal 2009, we executed on a number of our core strategic growth initiatives, including expanding our business with existing customers, developing new proprietary products for partners, and adding new technology capabilities. We made substantial progress in the development of our cartilage repair and extracellular matrix programs. We are optimistic about these growth prospects and the benefits these products could provide for improving patient outcomes," he continued.

"Looking ahead, despite the current depressed economic environment, we view fiscal 2010 as a year for continued execution of our strategic growth initiates, which will require additional investments to provide for the future growth of our company and increased value for our stockholders. We expect to announce soon, an ECM strategic agreement with a major medical device company, which represents an important milestone in our plans to build upon Kensey Nash's leadership position as a developer of innovative regenerative medicine products," he concluded.

Fourth Quarter Ended June 30, 2009 (Fourth Quarter Fiscal 2009) Results

Revenues: Sales and Royalties. Total revenues for the quarter of $20.5 million were at the high end of the previous guidance range of $19.8 to $20.5 million and were comparable sequentially to the third quarter of fiscal 2009 of $20.6 million. Revenues for the quarter were down 7% from total revenues of $22.0 million in the prior year fourth quarter.

Net sales decreased 9% to $13.6 million from $15.0 million in the prior fiscal year. Net sales of biomaterials products decreased 8%, to $12.3 million from $13.3 million in the comparable prior fiscal year period. Orthopaedic sales, consisting primarily of sports medicine and spine products, decreased 16% to $7.0 million from $8.4 million in the comparable period of the prior fiscal year. Net sales of sports medicine products decreased 35% to $3.2 million, as anticipated, due to exceptionally high orders in the comparable prior year period from two major customers and current economic conditions impacting customer inventory levels. Net sales of spine products increased 21% in the fourth quarter of fiscal 2009 over the prior fiscal year comparable quarter and 24% sequentially, primarily attributed to increased sales of the Vitoss Bioactive Foam products sold by Orthovita. Cardiovascular sales of $4.5 million, consisting primarily of vascular closure product components to St. Jude Medical (NYSE: STJ), increased 8% from $4.2 million in the prior fiscal year period.

The fourth quarter of fiscal 2009 represented the fourth full quarter of endovascular sales to Spectranetics (Nasdaq: SPNC) following the Company's completion of the sale of its endovascular business in May 2008. As previously disclosed, these sales are at a reduced transfer price compared to the direct to market price reflected in the Company's historical sales figures and include milestone revenue recognized. As a result of the reduced transfer price, endovascular sales during the quarter decreased 24% to $1.2 million from $1.6 million in the prior fiscal year period, although overall net unit sales of endovascular products to Spectranetics increased when compared to the prior fiscal year.

Royalty income was essentially flat at $6.9 million in the fourth quarter of fiscal 2009 compared to $7.0 million in the comparable prior fiscal year period. Royalty income in the fourth quarter of fiscal 2009 included $5.3 million in Angio-Seal(TM) royalties and $1.6 million in royalties from Orthovita. Although Angio-Seal(TM) unit sales increased over the fourth quarter of the prior fiscal year, Angio-Seal royalties decreased from the comparable quarter of the prior fiscal year primarily due to the negative impact of foreign currency exchange by our estimated calculation of approximately $300,000. Royalties from products co-developed with Orthovita increased 30% over the prior fiscal year period due to the continued success of the Vitoss Bioactive Foam and Vitoss Foam products sold by Orthovita in the end-user marketplace.

Earnings Per Share. Fourth quarter diluted earnings per share was $0.41, compared to a diluted loss per share of ($0.09) for the same period of fiscal 2008. Diluted loss per share of ($0.09) for fiscal 2008 included after-tax charges of $5.4 million ($8.1 million pre-tax) for the sale of the Company's endovascular business to Spectranetics. In addition, the improvement in fiscal 2009 earnings per share was also due to the elimination of the endovascular sales and marketing expenses, which was partially offset by anticipated increases in biomaterials research and development expenses.

During the three-month period ended June 30, 2009, the total tax-effected equity compensation expense was $600,000, an increase from $430,000 in the prior year comparable period. Fourth quarter fiscal 2009 equity compensation expense was higher than the comparable prior year period primarily because fiscal 2009 expense included amortized expense related to two years of equity grants, while fourth quarter fiscal 2008 equity compensation expense primarily included amortized expense for only one year of equity grants, as a result of the fiscal 2008 acceleration of stock awards triggered by a third party's significant open market purchase of the Company's Common Stock.

Fiscal Year Ended June 30, 2009 (Fiscal 2009) Results

Revenues: Sales and Royalties. Total revenues for the fiscal year ended June 30, 2009 were $82.1 million, up 3% from total revenues of $79.8 million for the fiscal year ended June 30, 2008.

Net sales increased 2% to $54.9 million from $53.8 million in the prior fiscal year. Net sales of biomaterials products increased 7%, to $51.0 million from $47.5 million in the prior fiscal year, due to strong sales in both the cardiovascular and orthopaedic product lines. Cardiovascular sales of $18.3 million, consisting primarily of sales of vascular closure product components to St. Jude Medical, increased 16%, from $15.9 million in the prior fiscal year. Orthopaedic sales increased 1% to $29.8 million from $29.4 million in the prior fiscal year, due to sales of spine products, which increased 6% over the prior fiscal year. Sports medicine products sales of $15.5 million were flat compared to fiscal 2008 of $15.6 million.

Endovascular sales during fiscal 2009 decreased 38% to $3.9 million from $6.2 million in the prior fiscal year. Although overall net unit sales to Spectranetics increased compared to prior fiscal year end-user unit sales, the reduced transfer pricing more than offset the increase in units.

Royalty income increased 4% to $27.2 million for the fiscal year ended June 30, 2009, compared with $26.0 million for the fiscal year ended June 30, 2008. Royalty income in fiscal 2009 included $21.2 million in Angio-Seal(TM) royalties and $5.8 million in royalties from Orthovita. Angio-Seal(TM) royalties decreased 1% from the prior fiscal year. Angio-Seal(TM) royalties were adversely impacted by our estimated calculation of approximately $600,000 primarily due to foreign currency exchange. Excluding the negative impact of foreign exchange, Angio-Seal royalties increased 2% year over year. Orthovita royalties increased 31%, which was attributable to the successful introduction by Orthovita of its Vitoss Bioactive Foam products, as well as the continuing sales of existing Vitoss Foam products by Orthovita in the end-user marketplace.

Earnings Per Share. The Company reported diluted earnings per share of $1.69 for the fiscal year ended June 30, 2009, compared to $0.38 for the prior fiscal year. The improvement in fiscal 2009 earnings per share was primarily due to the elimination of the endovascular sales and marketing expenses, partially offset by anticipated increases in biomaterials research and development expenses. Diluted earnings per share of $0.38 for fiscal 2008 also included after-tax charges of $7.6 million ($11.4 million pre-tax) for the acceleration of stock awards, discontinuation of the Company's embolic protection platform and sale of the Company's endovascular business to Spectranetics.

In the fiscal year ended June 30, 2009, the total tax-effected equity compensation expense was $1.3 million, a decrease from $3.5 million in the prior year comparable period as a result of the fiscal 2008 acceleration of stock awards triggered by a third party's significant open market purchase of the Company's Common Stock, as well as favorable mark-to-market adjustments on outstanding Stock Appreciation Rights in the 2009 fiscal year, offset in small part by the inclusion in equity compensation expense for the 2009 fiscal year of amortization for an additional year of equity grants.

During the fiscal year ended June 30, 2009, the Company generated cash from operations of $33.2 million and, at June 30, 2009, had $79.7 million of cash and investment balances and total debt of $32.8 million.