Cyberonics, Inc. (CYBX)

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Cyberonics, Inc. (CYBX)

F3Q08 Earnings Call

February 20, 2008 9:00 am ET


Daniel J. Moore - President and Chief Executive Officer

Gregory H. Browne - Vice President, Finance and Chief Financial Officer

David S. Wise - Vice President, General Counsel and Secretary


Thomas Gunderson - Piper Jaffray

Keay Nakae - Collins Stewart LLC

Steven Lichtman - Banc Of America Securities

Anthony Petrone - Maxim Group

Andrew Cowen - Tricadia

[Avi Danitar - RHO Capital]



At this time I would like to welcome everyone to the Cyberonics Investor Conference Call. After the speakers remarks there will be a question and answer session. (Operator Instructions) Mr. Dan Moore, President and CEO, you may begin your conference.

Daniel J. Moore

Thank you Constance. Thanks to all for joining and welcome to all to our third quarter conference call. I will be joined by Greg Browne. To begin I will ask David Wise our General Council to read the Safe Harbor statement.

David S. Wise

Thank you, 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, intend, forecast and 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 concerning maintaining cash flow positive operations and achieving GAAP profitability, growing our epilepsy sales including full commercial launch of the demipulse generator by the end of Q4 FY ‘08, executing the plan to set and fund a separate TRD entity, conducting new clinical studies in TRD, developing new indications and collaborations with partners, resolving legal and financial issues, and improving communications with external stake holders. 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 ending April 27, 2007.

Daniel J. Moore

Thanks, David. For those of you who need a printed out presentation or are viewing the presentation from the website, I will be starting on page 3 with the topics. I will review the progress on our strategic priority and give an overview of the sales analysis and then I will ask Greg to highlight the financials for last quarter and for the year to date before we move into our direction going forward for the rest of 2008 and into 2009. Then we will open it up for the usual questions and answers.

It was about a year ago this time when the new board came together and [Quinton] gave us 5 strategic priorities. I joined the company on May 1 to address those 5 strategic priorities. Those were first and foremost to achieve cash flow and GAAP positive P&L. Second, to grow our core epilepsy business. The third was to figure out what our depression strategy should be going forward. The fourth was to look at our intellectual property and explore partnership opportunities. The fifth was to build a new company for the future. I am pleased again to report significant progress on all of those objectives. I trust that by the end of this call you will agree. Let me start with the leadership team. As I said, I joined the company in May. I was fortunate enough to be able to get Greg Browne to join in July as our chief financial officer. In August we were joined by James Reinstein who has lead Sales, Marketing, and International.

I also want to report with mixed emotion the retirement of Richard Rudolf. The mixed emotion comes because before Richard came to Cyberonics he had an objective to be able to retire within 5 to 7 years. I am happy to say that he is able to do that and happier to say that he has agreed to stay on with us part time to help us in any areas of his expertise including depression. The four of us will be joined by George Parker, Randy, and David to make up the senior management team as we search for Richard’s replacement. The leadership team remains strong, growing and getting stronger.

The second objective around profitability. We are ahead of plan when it comes to profitability and I am pleased to report our operating profit in the last 3 years. Also, we achieved positive cash flow from operations, again the first in 3 years. We are on the road to profitability and our goal for Q4 remains GAAP profitability as well. Third area is epilepsy. We have talked about the need to grow the epilepsy business and I am pleased to report that James Reinstein and his sales team have grown US unit sales in Q3 by 9% over the prior year. We also witnessed again strong international unit sales growth of 17%. In the last month of the quarter in January we took our first price increase in 3 years. While that price increase had minimal impact on Q3, we do expect significant benefit from that price increase in future quarters.

Fourth, in the area of depression. We told you in the last call that we would provide more color to our strategy. We have made significant progress in 3 areas. First the clinical pathway. We believe we have solidified the approach by working with both our physician advisors and our external consultants. We have identified a path to reimbursement. Second, we analyzed the situation as a management team, we came up with a recommendation and the board agreed that the best thing to do is to consider a standalone entity and to seek a financial partner for the execution of the plan that we put together. Third we have chosen an investment banker to work with us on this process. So, good progress in depression overall. The demipulse generator remains in limited release and we are still on our goal of full commercial release by the end of this quarter.

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