Spectranetics 2010 third quarter revenue increases 3% to $29.6 million

Oct 27 2010

Spectranetics Corporation (Nasdaq:SPNC) today reported financial results for the three and nine months ended September 30, 2010.

“We have also taken important steps to improve the productivity of our Vascular Intervention sales organization, including realignment of territories with limited growth potential, and improvements to our sales compensation plans that provide greater incentives for our top-performing sales representatives.”

Revenue for the third quarter of 2010 was $29.6 million, up 3% compared with revenue of $28.8 million for the third quarter of 2009. The pre-tax loss for the third quarter of 2010 was $6.6 million, compared with a pre-tax loss of $2.5 million in the third quarter of 2009. Excluding special items in both periods, the adjusted pre-tax income was $1.6 million in the third quarter of 2010, compared with adjusted pre-tax income of $0.6 million in the third quarter of 2009.

The pre-tax loss in the third quarter of 2010 included $8.1 million of special items, consisting of $6.5 million in accrued indemnification costs to former employees related to the federal investigation, an asset impairment charge of $0.9 million, and employee termination costs of $0.7 million associated with the consolidation of certain sales territories in the Vascular Intervention sales organization. The pre-tax loss during the third quarter of 2009 included $3.1 million of special items, consisting of $0.6 million of costs associated with the federal investigation, $1.1 million of costs associated with a litigation settlement, $1.1 million related to the discontinuation of the marketing and sales of the Safe-Cross® product line, and $0.4 million of employee termination and lease abandonment costs.

"Our Lead Management products extended their track record of sales growth, increasing 8% compared with last year's record quarter," said Jason D. Hein, Senior Vice President of Sales and Marketing. "We have also taken important steps to improve the productivity of our Vascular Intervention sales organization, including realignment of territories with limited growth potential, and improvements to our sales compensation plans that provide greater incentives for our top-performing sales representatives."

Shar Matin, Senior Vice President of Operations, Product Development and International, commented, "Now that work on the site consolidation and related activities is substantially complete, we spent the third quarter re-aligning our resources to focus on three key areas -- product development, new clinical studies and improving operating efficiencies. We expect to introduce several new products by the end of next year. In addition, we are on track with our bench and animal testing that will be included in our FDA filing to initiate a randomized clinical study to treat in-stent restenosis."

Guy A. Childs, Chief Financial Officer, stated, "Over the last year, we have implemented multiple programs that have streamlined our operations and increased productivity, particularly within the sales organization. We are in the early stages of realizing the benefits of these actions, as demonstrated by nearly $3.0 million of cash flow from operating activities this quarter."

The net loss for the third quarter of 2010 was $12.7 million, or $0.38 per share, compared with a net loss of $2.5 million, or $0.08 per share, in the third quarter of 2009. The net loss in the third quarter of 2010 includes an increase in the valuation allowance of $6.1 million against the Company's deferred tax asset. Excluding the increase in the valuation allowance against the deferred tax asset and special items discussed above, adjusted net income for the third quarter of 2010 was $1.5 million, or $0.04 per diluted share, compared with adjusted net income of $0.6 million, or $0.02 per diluted share, in the third quarter of 2009.

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 are provided immediately following the financial tables under "Reconciliation of Non-GAAP Financial Measures."

Third Quarter Revenue Review

Lead Management revenue increased 8% to $10.6 million, laser equipment revenue increased 50% to $2.1 million, and service and other revenue rose 6% to $2.3 million, all compared with the third quarter of 2009. Vascular Intervention sales declined 6% to $14.6 million and include three product lines: atherectomy (including peripheral and coronary), which decreased 6%, crossing solutions, which was essentially flat, and thrombectomy, which decreased 19%, all compared with the third quarter of 2009.

On a geographic basis, revenue in the United States was $25.5 million in the third quarter of 2010, an increase of 4% from the prior year third quarter. International revenue was $4.1 million, a decrease of 4% from the third quarter of 2009, or an increase of 3% on a constant currency basis.

Year-to-Date Financial Results

Revenue for the first nine months of 2010 rose 4% to $88.6 million, from $85.2 million for the first nine months of 2009.

Year-to-date 2010 Lead Management revenue was up 14% to $30.6 million, laser equipment revenue increased 4% to $5.0 million, and service and other revenue increased 1% to $6.9 million, all compared with the first nine months in 2009. Vascular Intervention revenue declined 1% to $46.2 million. Within Vascular Intervention sales, atherectomy was essentially flat, crossing solutions decreased 2%, and thrombectomy decreased 6%, all compared with the first nine months of 2009.

On a geographic basis, revenue in the United States was $76.3 million during the nine months ended September 30, 2010, an increase of 5% from the comparable period last year. International revenue totaled $12.3 million, a decrease of 2% from the first nine months of 2009, or essentially flat on a constant currency basis.

The pre-tax loss for the first nine months of 2010 was $7.4 million, compared with a pre-tax loss of $7.7 million in the first nine months of 2009. Excluding special items in both periods, adjusted pre-tax income was $1.1 million in the first nine months of 2010, compared with an adjusted pre-tax loss of $2.1 million in the first nine months of 2009.

The pre-tax loss in the first nine months of 2010 included $8.4 million of special items, consisting of $6.8 million in legal and accrued indemnification costs related to the federal investigation, an asset impairment charge of $0.9 million, and employee termination costs of $0.7 million. The pre-tax loss during the first nine months of 2009 included $5.7 million of special items, consisting of $3.0 million of costs associated with the federal investigation, $1.1 million of costs associated with previously announced litigation unrelated to the federal investigation, $1.1 million relating to the discontinuation of the marketing and sales of the Safe-Cross® product line, and $0.5 million in employee termination and lease abandonment costs.

The net loss for the first nine months of 2010 was $13.6 million, or $0.41 per share, compared with a net loss of $7.6 million, or $0.24 per share, in the first nine months of 2009. The net loss in the first nine months of 2010 includes an increase in the valuation allowance of $6.1 million against the deferred tax asset. Excluding the increase in the valuation allowance against the deferred tax asset and special items discussed above, adjusted net income in the first nine months of 2010 was $1.0 million, or $0.03 per diluted share, compared with an adjusted net loss of $2.0 million, or $0.06 per share, in the first nine months of 2009.

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 are provided immediately following the financial tables under "Reconciliation of Non-GAAP Financial Measures."

Cash, cash equivalents and current investment securities were $26.4 million at September 30, 2010, up from $19.1 million at December 31, 2009. In addition, the Company held $4.4 million of auction-rate securities at September 30, 2010, a decrease from $9.8 million at December 31, 2009 due primarily to the sale of auction rate security positions during the first and third quarters of 2010. These securities are included as "investment securities - non-current" on the balance sheet.

2010 Outlook

The Company has updated its outlook for 2010 full year performance, as follows:

Management anticipates its Lead Management revenue will grow 11% to 14% during 2010 as compared with 2009; this compares with previous guidance for growth in the mid-teens.

Laser equipment revenue and service and other revenue are expected to increase 0% to 2% in 2010 compared with 2009; this compares with previous guidance for a decline of approximately 5%.

Vascular Intervention revenue during 2010 as compared with 2009 is now anticipated to decrease by approximately 1% to 3%. Peripheral atherectomy, which is the largest product category within Vascular Intervention, is anticipated to grow 3% to 5%; this compares with previous guidance for growth of 11% to 13%. Our revised outlook for Vascular Intervention revenue reflects a challenging economic and competitive environment and the transition associated with the realignment of certain sales territories implemented in September 2010.

Gross margin is expected to be approximately 71% for 2010; this compares with previous guidance of approximately 72%.

The Company estimates total revenue for the fourth quarter of 2010 to be in the range of $29.1 million to $30.1 million, which would bring full year 2010 revenue within the range of $117.7 million to $118.7 million. The Company expects to be profitable on an adjusted pre-tax basis for the fourth quarter and full year, excluding special items.

Source: Spectranetics Corporation