CYBX

Cyberonics, Inc. (CYBX)

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Cyberonics, Inc. (CYBX)

Q1 2009 Earnings Call

August 21, 2008 9:00 am ET

Executives

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

Analysts

Amy Sullivan - Piper Jaffray

Keay Nakae - Collins Stewart

Steve Brozak - WBB Securities

Bill Plovanic - Canaccord Adams

Anthony Petrone - Maxim Group

Jonathan Block - SunTrust

Assaf Guterman - Lazard Capital Markets

Presentation

Operator

Good morning. My name is Courtney and I will be your conference operator today. At this time, I would like to welcome everyone to the Cyberonics Quarterly Investor Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator Instructions). Thank you.

Mr. Moore, you may begin your conference.

Daniel J. Moore - President and Chief Executive Officer

Thank you, Courtney. Good morning, and welcome to our Q1 fiscal year 2009 review conference call. I’m Dan Moore. I’ll be joined this morning with comments by Greg Browne and David Wise, our General Counsel, who will begin by reading the Safe Harbor statement.

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

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,” 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 sales growth of 10 to 20% per year and consistent earnings growth; revenue guidance for fiscal 2009; achieving an operating margin of 25% by fiscal 2011; growing our epilepsy sales, including growth through geographic expansion, evolving replacement cycle, increased market penetration, improved pricing, and new patient growth; executing the plan to set up and fund a separate entity for the depression indication; conducting and completing new clinical and R&D projects, including projects related to efficacy improvement, seizure detection, telemedicine and efficacy prediction; maintaining Medicare and third-party reimbursement for our products; and developing new indications and collaborations with partners. 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 ended April 25, 2008.

Daniel J. Moore - President and Chief Executive Officer

Thank you, David. For those of you who are joining -- watching the presentation from the website, I’ll begin with slide three and open up with the four topics that we intend to discuss today. I’ll open with the Q1 fiscal year 2009 overview where I’ll discuss our progress and the sales analysis. Greg will follow up on that topic by discussing the financials. He’ll move on to updates on a couple of projects that we have currently underway before I move into the epilepsy strategic focus. And then as usual, we’ll close with the questions and answers session.

First, in the area of progress. We’ve had another solid quarter of progress in the area of profitability. We’ve achieved quarterly net income for the second quarter in a row. We’ve improved our gross margins to approximately 85%, while continuing to control our expenses and positioning some of our funding in areas that will help us in the future.

For epilepsy, our base business, Q1 revenues were up 16% over the prior year. US unit sales growth was up 12% in Q1 fiscal year 2009 versus fiscal year of 2008. We again saw robust international revenues. Our DEMIPULSE launch continues, and with the rollout, we had about 31% of our global unit sales were in the DEMIPULSE product line. And once again this quarter, we did increase our average selling prices. In the area of new business development -- as you know, we’ve been searching for a partner for depression. And I’m happy to say that that search is nearing completion. Greg will be providing additional detail, but we are on schedule to have this done by the end of the year.

In the area of seizure detection, we talked about that being an important capability to add to our portfolio for epilepsy. We’ve signed an agreement on the R&D side for a partnership there. The Cyberonics team overall continues to execute on our strategic business plan, and we’re bringing improved quality of life for patients. When we speak about quality of life, there are a lot of ways to define success, and I’ll touch on more of those later.

As we add patients and improve their quality of life, we have a potential impact on growing our replacement business. Every time we add a patient, if we look back to the model 101, it would suggest that we have a two-in-three chance of that patient receiving a replacement down the line. Again, overall good progress by the Cyberonics team.

Looking specifically in the sales analysis, if you go to slide seven, the quarterly revenues -- you can see total revenues for the quarter were $33.7 million, a 16% increase over prior-year. Looking specifically at epilepsy, a 22% increase, with 23% in the US, over $25 million in epilepsy sales, and international, close to $7 million, a 16% increase.

Our depression sales were pretty much level with the prior quarter at about $720,000. Overall, our global epilepsy revenues being up 22% represented a $5.8 million increase in Q1 versus Q1 of the prior year.

Moving on to slide seven, quarter unit sales. Overall, our epilepsy units grew by an estimated 7% versus Q1 of 2008 that consisted of about 12% in US unit sales increase and international showed a 4% decline, primarily due to one large order that we had received in Q1 of 2008. Taking that order out, international would have grown by approximately 33%.

Read the rest of this transcript for free on seekingalpha.com