Cyberonics announces results for fourth quarter and fiscal year 2015

Jun 4 2015

Cyberonics, Inc. (NASDAQ: CYBX) today announced results for the fourth quarter and fiscal year ended April 24, 2015.

Annual highlights

Operating results for fiscal 2015 compared to fiscal 2014, and other achievements to date include:

• Worldwide sales of $291.6 million, a constant currency increase of 6.8% over prior year sales, excluding the single-country order and license fee from prior year sales;
• Worldwide unit sales of 14,515, an increase of 5.5% over prior year unit sales, as adjusted;
• International unit sales reached a record 4,665 units, a 15.4% increase over the FY14 international unit sales adjusted for the single-country order;
• Record adjusted non-GAAP income from operations of $99.5 million, an increase of 15.7%;
• Adjusted non-GAAP income from operations margin of 34.1%;
• Adjusted non-GAAP income per diluted share increased by 21.4% to $2.44;
• Sales of AspireSR^® generator reached 15% of all international unit sales in the first full year during a staged launch;
• U.S. Food & Drug Administration ("FDA") approval of the AspireSR generator;
• CE Mark approval, and first commercial implant, of the VITARIA™ generator, which provides Autonomic Regulation Therapy ("ART") for chronic heart failure;
• First shipments from the new international manufacturing facility in Costa Rica; and
• Share repurchases on the open market of 0.9 million shares for $49 million.

Quarterly highlights

Operating results for the fourth quarter of fiscal 2015 compared to the fourth quarter of fiscal 2014, and other achievements, include:

• Worldwide net sales of $74.1 million, a constant currency increase of 5.0% over sales adjusted for the prior year to exclude the single-country order;
• U.S. net product sales of $59.4 million, an increase of 2.0% over the comparable quarter of the prior year;
• International net sales of $14.7 million, an increase of 17.5% on a constant currency basis over sales adjusted for the single-country order;
• Record worldwide unit sales of 3,753;
• Record international unit sales of 1,320 units, an 18.4% increase over sales adjusted for the single-country order;
• Adjusted non-GAAP income from operations increased by 13.1% to a record $26.5 million;
• Adjusted non-GAAP income per diluted share of $0.64 compared with adjusted non-GAAP income per diluted share of $0.55, an increase of 16.4%; and
• Our first direct employee in Japan started in April.

Results and objectives

"For the seventh consecutive year, the Cyberonics team delivered record net sales and operating income," commented Dan Moore, Cyberonics' President and Chief Executive Officer. "We are pleased to report continuation of our consistent multi-year sales and profit growth. We achieved our two most important regulatory approvals with the recent announcement of our U.S. approval for the AspireSR generator, along with the CE Mark approval of the VITARIA™ generator announced earlier this year. These two products provide a solid foundation for continued growth for the company.

"With the additional opportunities arising from the pending merger with Sorin, expected to close by the end of September 2015, we plan to increase our efforts to bring these important products to patients with epilepsy and CHF. In advance of the expected closing of our proposed merger, we made several changes to senior management at the start of the 2016 fiscal year.

• Jason Richey, Vice President and General Manager International, has assumed responsibility for all U.S. commercial activity, including sales, marketing and reimbursement.
• Mark Verratti, Vice President for Worldwide Sales, will assume the International role from Jason, and in addition, be responsible for planning the international commercial integration, as well as international CHF commercialization.
• Sherrie Perkins, Vice President, New Business Development, has assumed the Project Manager role on the integration team.

"Both Jason and Mark will report directly to Rohan Hoare, Chief Operating Officer. Jason's experience with the launch of the AspireSR generator in Europe and EMMEA brings significant benefit to the U.S. sales team as we launch this new, technologically-advanced product in our largest market.

"Further, we are pleased to announce the addition of John Murphy, Ph.D., as Vice President, Research & Development. John has more than 19 years of relevant product design and engineering experience at large medical device companies and in a range of industries, including telecommunications and defense-related companies. In his most recent company, John's positions included Vice President, R&D, Neuromodulation; Vice President, Hardware Engineering Implantable Electrical Systems Division (IESD); and Vice President, Electrical Engineering & Power Component for IESD.

"International growth continued its strong trajectory, with adjusted revenue growth for fiscal 2015 of approximately 17% on a constant currency basis, and all regions achieving very robust sales growth. The AspireSR generator provided a significant contribution, with penetration increasing substantially as the year progressed. The AspireSR generator accounted for 17% of all international unit sales in the third quarter and grew to 23% in the fourth quarter. We are especially pleased that in U.K. and Germany, where the product was initially launched, the AspireSR generator accounted for over 50% of unit sales in the fourth quarter, and many accounts have converted all their purchases to the new generator.

"Our U.S. sales were disappointing for the year, with new-patient activity weaker than planned. We expect significant improvement in fiscal 2016 following a refocused approach under Jason Richey's leadership and are also excited that AspireSR will now be available for our sales force.

"We have also made progress with the ProGuardian™ product, and recently shipped the first systems to the U.K. to commence a limited market evaluation, now underway. Following an internal review of the Centro™ generator, we concluded that additional design improvements were warranted. As a result of the decision to redesign the product, we wrote-down some of the assets associated with the original Centro program. As evidenced in cardiac rhythm management, we continue to believe that the functionality of a wireless-enabled generator will be important addition to our future product offering.

"With the previously announced CE Mark approval to market the VITARIA System in Europe to treat patients suffering from chronic heart failure, we initiated a limited commercial launch and achieved our first commercial implant. We formed a dedicated sales team to market this new product in Europe. Our second study, ANTHEM-HFpEF, focused on heart failure patients with preserved ejection fraction, is also progressing," concluded Mr. Moore.

Stock Repurchase Update

Cyberonics purchased 875,000 shares for $49 million on the open market in fiscal 2015. This program was suspended after the announcement of our proposed merger with Sorin S.p.A. on February 26, 2015.

Fiscal 2016 guidance

We are not providing revenue or operating income guidance for fiscal year 2016 as a result of potential disclosure obligations imposed by the UK Listing Authority, arising from our proposed merger with Sorin S.p.A., as well as a planned change in our fiscal year end following the closing of the proposed merger. With the launch of the VITARIA generator in Europe and the launch of the AspireSR generator in the U.S. market, we have confidence that, on a constant currency basis, sales growth rates will be higher in fiscal 2016 than in the recently completed fiscal year and more in line with our historical averages.