Cyberonics, Inc. (CYBX)

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Cyberonics Inc. (CYBX)

F1Q10 (Qtr End 07/24/09) Earnings Call

August 20, 2009 9:00 am ET


Dan Moore - President & CEO

Greg Browne - Vice President, Finance & CFO

David Wise - General Counsel


Tom Gunderson - Piper Jaffray

Keay Nakae - Collins Stewart

Bill Plovanic - Canaccord Adams

Anthony Petrone - Maxim Group

Margaret Lovatt - Suntrust Robinson Humphrey



At this time, I would like to welcome everyone to the Cyberonics first quarter fiscal 2010 results conference call. (Operator Instructions). Thank you.

Mr. Dan Moore, you may begin the conference.

Dan Moore

Thank you, Regina, and let me add my good morning as well and thank you for all for attending this call. I'll be joined this morning by our CFO, Greg Browne and we'll begin with David Wise our General Counsel, reading the Safe Harbor statement.

David Wise

Thanks Dan. This presentation 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, intent 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 include statements concerning achieving consistent annual unit growth of 10% to 20% per year. Fiscal 2010 guidance for net sales, gross margin, income from operations, capital expenditures, equity compensation, depression expenses, R&D expenses, recognizing the value of our deferred tax asset and future reported tax expense, achieving an operating margin of 25% by fiscal 2011, growing our epilepsy sales including growth at Europe, Latin America and Asia.

Demipulse generator market penetration, conducting and completing clinical and R&D projects, including projects related to new generators leads and other hardware, new stimulation parameters, seizure detection and recording and responsive stimulation, securing regulatory approval in Japan, doubling our R&D investment epilepsy in fiscal year 2010 and maintaining leadership in the medical devices for epilepsy.

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 Form 10-K for the fiscal year at April 24, 2009.

Dan Moore

Thank you, David. For those of you who are following on slides, I'm on slide 3. I just want to give an overview of the task that we expect to cover today. First I'll cover the highlights of Q1, our first quarter of our fiscal year '10 and provide the overview. I'll specifically focus on sales before turning it over to, Greg Browne who will focus on our financials.

Our financial turnaround is largely complete after two years. We will begin to focus more on the future and from a strategic standpoint, discuss our customer focus, our international growth and expansion, and begin discussing more about our new product pipeline. We'll also provide our fiscal year 2010 guidance before we move to Q&A.

The highlights for the quarter from a financial standpoint, once again, we saw strong double-digit sales growth of 14% in our first quarter. Our quarterly operating margin stayed at 17%. We also once again made good progress in reducing our debt. We're now in a position where our cash is at $56 million exceeding our debt level of $47 million.

In the area of epilepsy, our core business, in Q1 our US net sales were up in the strong double-digits again at 19%. International units grew by 15%. Q1, 2010 represented the first quarter of our full launch of the new Demipulse product and our conversion rate now stands at 56%. And once again, despite the economy and reimbursement headwinds, we continue to grow our average selling prices in the US.

In the area of depression as previously announced, we were successful in discussing with the FDA, an idea to reduce our patient's requirement for the D-21 study from 460 patients to 330, allowing for earlier completion of that trial. Since the last patient was enrolled in February of 2009, we expect the 12-month follow up to be complete in March of 2010.

I'm moving on to slide 6, looking specifically at our quarterly net sales. James Reinstein and his global team have done once again an outstanding job of continuing to grow our sales. Our revenues for the quarter totaled $38.5 million, consistent with Q4 of last year growing by 14%.

In the US again consistent with last quarter, over $30 million in epilepsy sales, representing 19% growth over the same quarter last year. International, $7.2 million a 5% increase. Overall, we had sales in the US of $31 million, again consistent with last quarter and significantly stronger than one year ago, and international $7.2 million. Our international epilepsy net sales were up despite significant currency impact.

On slide 7, we are focusing on our most important product line in our most important market, that being US epilepsy generator units. And if you look over the two-year period, you will see consistent same quarter year-over-year growth, quarter-by-quarter and in Q1 we sold 1,665 units.

Moving to slide 8, you will see steady worldwide epilepsy unit growth in Q1 2010, versus Q1, 2009, for example that 1,665 units in the US represented 8% growth over the same quarter last year and international, we had impressive double-digit growth of 15% with 615 units. Overall our epilepsy business reached our goal or close to our goal of almost double-digits of 9.8%.

Equally important, we've had a lot of success over the last couple of years with our average selling prices and Q1 was no exception, where we saw 13% growth over the same quarter last year. If you remember, going back to January of this year, which would represent late Q3 '09 on a chart on page 9 or slide 9, we had a change in US reimbursement. Many expected price pressure and yet, we've had two full quarters of continued ASP increases.

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