CYBX

Cyberonics, Inc. (CYBX)

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Industry: Health Care
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Cyberonics (CYBX)

Q3 2013 Earnings Call

February 22, 2013 9:00 am ET

Executives

Daniel J. Moore - Chief Executive Officer, President and Executive Director

Darren W. Alch - Vice President, Corporate Counsel, Compliance Officer and Assistant Secretary

Gregory H. Browne - Chief Financial Officer, Principal Accounting Officer and Senior Vice President of Finance

Analysts

Matthew O'Brien - William Blair & Company L.L.C., Research Division

Raj Denhoy - Jefferies & Company, Inc., Research Division

Brooks E. West - Piper Jaffray Companies, Research Division

James Sidoti - Sidoti & Company, LLC

William J. Plovanic - Canaccord Genuity, Research Division

Charles Haff - Craig-Hallum Capital Group LLC, Research Division

Suraj Kalia - Northland Capital Markets, Research Division

Stephen G. Brozak - WBB Securities, LLC, Research Division

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Cyberonics Q3 Fiscal Year 2013 Earnings Conference Call. My name is Mimi, and I'll be your operator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to your host, Mr. Dan Moore, President and Chief Executive Officer. Please proceed.

Daniel J. Moore

Thank you, Mimi. And welcome to Cyberonics' Fiscal 2013 Third Quarter Conference Call. Joining me today are Greg Browne, our Chief Financial Officer; and Darren Alch, our Vice President and Corporate Counsel, who will read the Safe Harbor statements.

Darren W. Alch

Thank you, Dan. This presentation and earnings call includes forward-looking statements. Forward-looking statements may be identified by the use of forward-looking terminology including may, believe, will, expect, anticipate, estimate, plan, intend and forecast or other similar words. Statements in this presentation are based on information presently available to us and assumptions that we believe to be reasonable.

Investors are cautioned that all such statements involve risks and uncertainties. Forward-looking statements in this presentation and on this call include statements concerning building shareholder value through consistent sales growth and profitability worldwide, meeting clinical and product development objectives, evaluating and advancing other medical device and neuroscience opportunities and maintaining leadership in medical devices for epilepsy; growing our epilepsy sales, including investing in market development and achieving new patient and replacement cycle growth in the U.S., Europe and Japan, expansion of and continued progress on our new product pipeline and improvements in sales and reimbursement in key international markets, including Europe, Latin America, including Brazil, Russia, and Asia, including India, Japan and China; obtaining reimbursement for the treatment-resistant depression indication for VNS Therapy; conducting and timely completing R&D, clinical and regulatory projects, including completing enrollment of the E-36 clinical study and commencing enrollment of the E-37 clinical study this fiscal year for the AspireSR generator, completing clinical and development projects related to the ProGuardian monitoring system and completing the enrollment and follow-up in our ANTHEM chronic heart failure clinical study; completing the previously announced stock the previously announced stock repurchase programs; and fiscal guidance for net sales, unit sales, replacement unit sales, gross profit margin, income from operations, adjusted net income, capital expenditures, operating expenses, equity compensation expenses, R&D expenses, diluted shares outstanding, adjusted earnings per share, available tax losses, cash taxes and future reported tax rate. Our actual results may differ materially.

For a detailed discussion of the factors that may cause our actual results to differ, please refer to our most recent filings with the SEC, including our Annual Report on Form 10-K for the fiscal year ended April 27, 2012, and our quarterly report on Form 10-Q for the fiscal periods ended January 27, 2012, and October 26, 2012.

With that, I'll turn the call back over to Dan for a business update. Dan?

Daniel J. Moore

Thanks, Darren. My comments may be shorter than your Safe Harbor. Good morning. The Cyberonics team continues to execute well on our plans with consistent and strong results, including near-record quarterly revenues of $62.7 million, a 15% increase over the third quarter of last fiscal year; worldwide sales of VNS Therapy generators in a single quarter again exceeding 3,200 units; U.S. epilepsy revenue growth of 11% and unit growth of 6%; a strong international performance with revenue growth of 37% and unit growth of 36%; seventh quarter of double-digit unit and revenue growth in Europe despite the difficult economic environment; and adjusted EBITDA of $23.8 million, an increase of 14% over the third quarter of last year.

In the area of market development, we continued to make good progress in our global market development efforts. Our fiscal 2013 plan in Japan is based on moderately increasing levels of implants and product sales throughout the year, and ensuring that fiscal 2014 commences with a strong foundation in terms of market acceptance. We will continue to evaluate progress and offer our support wherever possible to increase penetration in this important market. We have continued with significant efforts around our global peer-to-peer events and believe these are important in helping physicians adopt and utilize VNS therapy as a more routine part of their practice for patients with refractory epilepsy.

Moving into the area of product development, providing an update here. We also continue to make good progress with our new product development pipeline. Let me highlight a few of our key projects. First, the AspireHC. The value of our product development effort is reinforced by the fact that 20% of our U.S. unit sales in the most recent quarter came from AspireHC, the newest VNS Therapy generator. The product is also available in a limited commercial release in Europe and is experiencing increasing utilization and adoption.

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