Company Achieves 20% Sales Growth over Q3 FY 08 and Record Quarterly Operating Income

HOUSTON, Feb. 18 /PRNewswire-FirstCall/ -- Cyberonics, Inc. (Nasdaq: CYBX) today announced results for the quarter ended January 23, 2009.

Quarterly highlights

Results for the third quarter of fiscal 2009 compared to the third quarter of fiscal 2008 include:

• Net sales of $35.3 million, a 20% increase from $29.3 million, with foreign currency translations reducing third quarter sales by an estimated $0.8 million,
• Net U.S. product sales attributable to the epilepsy indication increased by an estimated 31% to $28.3 million,
• US unit sales attributable to the epilepsy indication grew by 19%,
• Gross profit margin increased to 86.0% from 82.7%,
• Adjusted net income of $4.1 million (excluding a net gain of $5.7 million on early extinguishment of debt adjusted for tax impact), and net income of $9.8 million compared with a net loss of $1.0 million.

As discussed below under 'Use of Non-GAAP Financial Measure,' the company presents a non-GAAP financial measure, adjusted net income, in this release. Investors should consider non-GAAP measures in addition to, and not as a substitute for, or superior to, financial performance measures prepared in accordance with GAAP. Please refer to the attached reconciliation between GAAP and non-GAAP financial measures.

Sales

Worldwide sales for the third quarter of fiscal 2009 were $35.3 million compared to $29.3 million in the comparable period of fiscal 2008, an increase of 20%. On a constant currency basis, the year-over-year sales increase was 24%.

Product sales in the quarter attributable to the epilepsy indication were an estimated $34.4 million, a 22% increase, or $6.1 million, over the third quarter of fiscal 2008. Product sales exclude income from licensing.

U.S. product sales attributable to the epilepsy indication increased to an estimated $28.3 million, compared with $21.6 million in the comparable period of fiscal 2008, an increase of $6.8 million, or 31%.

International sales declined by 10% in the third quarter of fiscal 2009 to $6.2 million, down from $6.9 million in the third quarter of the prior fiscal year, primarily due to the impact of foreign currency movements.

Sales for the nine months ended January 23, 2009 were $105.0 million, an increase of $17.7 million, or 20%, when compared to the same period in fiscal 2008. Product sales in the nine-month period attributable to the epilepsy indication were an estimated $102.0 million, an increase of $19.5 million, or 24%, over the comparable period of fiscal 2008.

Gross profit

The gross profit for the third quarter of fiscal 2009 represented 86.0% of net sales compared to 82.7% in the third quarter of fiscal 2008. This increase is primarily a result of higher prices and production volumes.

Operating expenses

Operating expenses increased by $1.3 million to $25.3 million for the third quarter of fiscal 2009 from the $24.0 million recorded in the comparable period of fiscal 2008 and were lower by $1.0 million from the second quarter of the current fiscal year. Operating expenses for the quarter ended January 23, 2009 included $2.2 million for stock-based compensation, lower by $0.4 million from the comparable period of fiscal 2008.

For the nine-month period ended January 23, 2009, operating expenses totaled $77.8 million, a reduction of $5.6 million over the same period of fiscal 2008.

Operating income

For the fifth consecutive quarter, the company reported operating income. During the third quarter of fiscal 2009, the company's income from operations was $5.0 million compared with $0.3 million in the comparable period of fiscal 2008. This operating profit is the highest ever recorded by the company.

For the nine-month period ended January 23, 2009, income from operations of $12.3 million compared to a loss from operations of $11.3 million in the same period of fiscal 2008.

Debt repurchase / other income

During the recently completed quarter, the company repurchased $19.8 million of its outstanding convertible debt for total cash consideration of $13.6 million, and recorded a net gain of $5.7 million, including the impact of tax and the accelerated amortization of deferred issuance costs. In the last five quarters, the Company has retired a total of $67.7 million of debt, including $60.2 million of convertible debt.

Net income

The company reported net income of $9.8 million, or $0.15 per diluted share, for the third quarter, compared with a net loss of $1.0 million, or $0.04 cents per share, in the third quarter of fiscal 2008. Although the gain on early extinguishment of the convertible debt is included in the calculation of net income, it is excluded from the calculation of net income per diluted share as per the applicable accounting rules.

Balance sheet and cash flow

The company generated positive operating cash flow of $7.7 million during the quarter. Despite the expenditure of $13.6 million on repurchasing notes during the recently completed quarter, overall cash decreased by only $6.4 million to $62.9 million.

Results and objectives

'Fiscal 2009 performance continues to be strong,' commented Dan Moore, Cyberonics' President and Chief Executive Officer. 'Our financial results have improved in each of the last seven quarters. Our core U.S. epilepsy business showed excellent growth, with revenues increasing by an estimated 31% over the prior year. Considerable restructuring of the international operations has taken place over the last few quarters, and we expect to see a return to overall unit growth in fiscal 2010.