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| 8-K/A - 8-K/A - SPECTRANETICS CORP | a20118kaq4earningsrelease.htm |
Exhibit 99.2
THE SPECTRANETICS CORPORATION
Condensed Consolidated Statements of Operations
(000's, except per share data and percentages)
(unaudited)
Three Months Ended December 31, | Twelve Months Ended December 31, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Revenue | $ | 32,524 | $ | 29,305 | $ | 127,287 | $ | 117,917 | ||||||||
Cost of products sold | 8,800 | 8,638 | 35,723 | 34,031 | ||||||||||||
Gross profit | 23,724 | 20,667 | 91,564 | 83,886 | ||||||||||||
Gross margin % | 73 | % | 71 | % | 72 | % | 71 | % | ||||||||
Operating expenses: | ||||||||||||||||
Selling, general and administrative | 17,795 | 15,229 | 70,502 | 66,665 | ||||||||||||
Research, development and other technology | 4,066 | 4,016 | 17,729 | 14,900 | ||||||||||||
Federal investigation legal and accrued indemnification costs | (370 | ) | (22 | ) | (370 | ) | 6,798 | |||||||||
Settlement costs -- license agreement dispute | 1,821 | — | 1,821 | — | ||||||||||||
Litigation charge | — | — | 596 | — | ||||||||||||
Asset impairment charge | — | — | — | 939 | ||||||||||||
Employee termination costs | — | 966 | — | 1,630 | ||||||||||||
Total operating expenses | 23,312 | 20,189 | 90,278 | 90,932 | ||||||||||||
Operating income (loss) | 412 | 478 | 1,286 | (7,046 | ) | |||||||||||
Litigation-related interest expense | — | — | (230 | ) | — | |||||||||||
Other income (expense), net | (64 | ) | 55 | 69 | 215 | |||||||||||
Total other income (expense) | (64 | ) | 55 | (161 | ) | 215 | ||||||||||
Income (loss) before taxes | 348 | 533 | 1,125 | (6,831 | ) | |||||||||||
Income tax benefit (expense) | 7 | (20 | ) | (231 | ) | (6,232 | ) | |||||||||
Net income (loss) | $ | 355 | $ | 513 | $ | 894 | $ | (13,063 | ) | |||||||
Income (loss) per common and common equivalent share: | ||||||||||||||||
Basic | $ | 0.01 | $ | 0.02 | $ | 0.03 | $ | (0.39 | ) | |||||||
Diluted | $ | 0.01 | $ | 0.02 | $ | 0.03 | $ | (0.39 | ) | |||||||
Weighted average shares outstanding: | ||||||||||||||||
Basic | 33,720 | 33,116 | 33,458 | 33,091 | ||||||||||||
Diluted | 34,614 | 34,011 | 34,370 | 33,091 | ||||||||||||
THE SPECTRANETICS CORPORATION
Condensed Consolidated Balance Sheets
(000's)
December 31, 2011 | December 31, 2010 | ||||||
(unaudited) | |||||||
ASSETS | |||||||
Current assets: | |||||||
Cash, cash equivalents and investment securities | $ | 39,638 | $ | 33,662 | |||
Accounts receivable, net | 18,123 | 15,664 | |||||
Inventories, net | 8,542 | 8,054 | |||||
Deferred income taxes, net | 610 | 163 | |||||
Other current assets | 2,421 | 1,568 | |||||
Total current assets | 69,334 | 59,111 | |||||
Property and equipment, net | 27,249 | 28,669 | |||||
Goodwill | 11,569 | 5,569 | |||||
Other assets | 884 | 346 | |||||
Total assets | $ | 109,036 | $ | 93,695 | |||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||
Current liabilities | $ | 27,960 | $ | 18,599 | |||
Non-current liabilities | 1,566 | 598 | |||||
Stockholders’ equity | 79,510 | 74,498 | |||||
Total liabilities and stockholders’ equity | $ | 109,036 | $ | 93,695 | |||
THE SPECTRANETICS CORPORATION |
Supplemental Financial Information |
(Unaudited) |
Financial Summary | 2010 | 2011 | ||||||||||||||||||
(000's, except laser sales and installed base amounts) | 4th Qtr | 1st Qtr | 2nd Qtr | 3rd Qtr | 4th Qtr | |||||||||||||||
Disposable products revenue: | ||||||||||||||||||||
Vascular Intervention revenue | $ | 14,063 | $ | 14,679 | $ | 15,848 | $ | 15,860 | $ | 15,877 | ||||||||||
Lead Management revenue | 10,597 | 11,282 | 11,505 | 11,800 | 11,893 | |||||||||||||||
Total disposable products revenue | 24,660 | 25,961 | 27,353 | 27,660 | 27,770 | |||||||||||||||
Service and other revenue | 2,452 | 2,520 | 2,544 | 2,517 | 2,541 | |||||||||||||||
Laser revenue: | ||||||||||||||||||||
Equipment sales | 825 | 617 | 1,024 | 719 | 909 | |||||||||||||||
Rental fees | 1,368 | 1,324 | 1,293 | 1,231 | 1,304 | |||||||||||||||
Total laser revenue | 2,193 | 1,941 | 2,317 | 1,950 | 2,213 | |||||||||||||||
Total revenue | 29,305 | 30,422 | 32,214 | 32,127 | 32,524 | |||||||||||||||
Net income (loss) | 513 | (154 | ) | 584 | 109 | 355 | ||||||||||||||
Non-GAAP adjusted net income excluding special items (1) | 1,437 | N/A | N/A | 935 | 1,310 | |||||||||||||||
Cash flow generated by operating activities | 3,556 | 142 | 3,212 | 338 | 3,051 | |||||||||||||||
Total cash and current investment securities | 33,662 | 33,493 | 35,655 | 36,154 | 39,638 | |||||||||||||||
Laser sales summary: | ||||||||||||||||||||
Laser sales from inventory | 4 | 3 | 6 | 4 | 5 | |||||||||||||||
Laser sales from evaluation/rental units | 2 | 3 | 2 | 3 | 3 | |||||||||||||||
Total laser sales | 6 | 6 | 8 | 7 | 8 | |||||||||||||||
(1) Non-GAAP adjusted net income excluding special items is a non-GAAP financial measure. Please refer to the non-GAAP reconciliation tables following this table. There were no special items reported in the first or second quarters of 2011. | ||||||||||||||||||||
Worldwide Installed Base Summary: | ||||||||||||||||||||
Laser sales from inventory | 4 | 3 | 6 | 4 | 5 | |||||||||||||||
Rental placements | 10 | 30 | 20 | 19 | 21 | |||||||||||||||
Evaluation placements | 2 | 8 | 3 | 6 | 4 | |||||||||||||||
Laser placements during quarter | 16 | 41 | 29 | 29 | 30 | |||||||||||||||
Buy-backs/returns during quarter | (8 | ) | (21 | ) | (16 | ) | (10 | ) | (13 | ) | ||||||||||
Net laser placements during quarter | 8 | 20 | 13 | 19 | 17 | |||||||||||||||
Total lasers placed at end of quarter | 942 | 962 | 975 | 994 | 1,011 | |||||||||||||||
Reconciliation of Non-GAAP Financial Measures
To supplement our condensed consolidated financial statements prepared in accordance with GAAP, we use certain non-GAAP financial measures in this release. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures for the respective periods can be found in the tables below. An explanation of the manner in which our management uses these non-GAAP measures to conduct and evaluate our business and the reasons why management believes that these non-GAAP measures provide useful information to investors is provided following the reconciliation tables.
THE SPECTRANETICS CORPORATION | |||||||||||||||||||||||||||
Reconciliation of Net Income (Loss) to Non-GAAP Adjusted Net Income and Net Income (Loss) per Share to Non-GAAP Adjusted Net Income per Share (000’s, except per share data) (unaudited) | |||||||||||||||||||||||||||
Three Months Ended December 31, | Twelve Months Ended December 31, | ||||||||||||||||||||||||||
2011 | 2010 | 2011 | 2010 | ||||||||||||||||||||||||
Net income | Per diluted share (1) | Net income | Per diluted share (1) | Net income | Per diluted share (1) | Net (loss) income | Per diluted share (1) | ||||||||||||||||||||
Net income (loss), as reported | $ | 355 | $ | 0.01 | $ | 513 | $ | 0.02 | $ | 894 | $ | 0.03 | $ | (13,063 | ) | $ | (0.39 | ) | |||||||||
Federal investigation legal and accrued indemnification costs (2) | (370 | ) | (0.01 | ) | (22 | ) | (0.00 | ) | (370 | ) | (0.01 | ) | 6,798 | 0.20 | |||||||||||||
Settlement costs -- license agreement dispute (3) | 1,821 | 0.05 | — | — | 1,821 | 0.05 | — | — | |||||||||||||||||||
Litigation charge (4) | — | — | — | — | 596 | 0.02 | — | — | |||||||||||||||||||
Litigation-related interest expense (4) | — | — | — | — | 230 | 0.01 | — | — | |||||||||||||||||||
Asset impairment charge (5) | — | — | — | — | — | — | 939 | 0.03 | |||||||||||||||||||
Employee termination costs (6) | — | — | 966 | 0.03 | — | — | 1,630 | 0.05 | |||||||||||||||||||
Increase (decrease) in valuation allowance against deferred tax asset (7) | (496 | ) | (0.01 | ) | (20 | ) | (0.00 | ) | (496 | ) | (0.01 | ) | 6,090 | 0.18 | |||||||||||||
Non-GAAP adjusted net income | $ | 1,310 | $ | 0.04 | $ | 1,437 | $ | 0.04 | $ | 2,675 | $ | 0.08 | $ | 2,394 | $ | 0.07 | |||||||||||
__________________
1) | Per share amounts may not add due to rounding. Per diluted share is calculated for the special items based on the fully diluted weighted average shares that would have been considered outstanding for all periods based on the non-GAAP adjusted net income. The fully diluted weighted average shares used in the calculations were 34,614,334 and 34,010,511 for the three months ended December 31, 2011 and 2010, respectively, and 34,370,124 and 34,205,702 for the twelve months ended December 31, 2011 and 2010, respectively. |
2) | Following the indictment in the third quarter of 2010 of three former employees with whom we have indemnification agreements, we accrued a $6.5 million charge to record our estimated liability related thereto. In the fourth quarter of 2011, we reversed $0.4 million of the original accrual based on recent developments, including the conclusion of the |
trial of two of the defendants and the dismissal of charges against a third defendant. In the twelve months ended December 31, 2010, we also recorded $0.3 million of legal costs related to a federal investigation that has since been resolved.
3) | In January 2012, we entered into a Termination and Mutual Release (“Agreement”) with Medtronic, Inc. The Agreement terminated the License Agreement between us and Medtronic dated February 28, 1997. Under the Agreement, we paid to Medtronic $3.0 million in January 2012. We had accrued royalty expenses in the amount of $1.2 million prior to the settlement; therefore, the amount of $1.8 million was recorded as settlement costs—license agreement dispute. The Agreement includes a mutual release and no further royalty expenses will be incurred subsequent to the effective date of the Agreement. |
4) | In the third quarter of 2011, the Dutch Court of Appeal issued a ruling in favor of Cardiomedica S.p.A., requiring us to pay $0.6 million plus $0.2 million of interest to Cardiomedica. Further information regarding this matter is included in our Annual Report on Form 10-K for the year ended December 31, 2010 and other periodic filings with the SEC. |
5) | In the third quarter of 2010, we wrote-off a capital project in process that was no longer expected to be completed and utilized, due to an EPA ruling which effectively limited the useful life of the asset. |
6) | Effective November 1, 2010, Emile J. Geisenheimer retired from his positions as our Chairman, President, and Chief Executive Officer. In connection with Mr. Geisenheimer's retirement and release of claims, we paid to Mr. Geisenheimer a lump sum payment of $0.5 million, equal to one-year's salary. In addition, outstanding stock options held by Mr. Geisenheimer covering 140,279 shares of our common stock became fully vested in accordance with their terms in connection with his termination of employment, resulting in non-cash stock compensation expense of $0.4 million. These amounts, along with certain health insurance premiums, were recorded in the three months ended December 31, 2010. In the third quarter of 2010, we realigned certain of our sales territories thereby eliminating certain positions in our Vascular Intervention sales organization. As a result, we recorded severance obligations totaling $0.7 million for the three months ended September 30, 2010. |
7) | In the fourth quarter of 2011, we entered into a strategic tax transaction with the approval of the Dutch tax authority that effectively extended the life of a portion of a net operating loss (NOL) carryforward in the Netherlands, which had previously been scheduled to expire on December 31, 2011 and which had previously been fully reserved. As a result, we recorded a $0.5 million tax benefit representing our estimate of the actual utilization of the extended deduction in future years. |
In the third quarter of 2010, based on our historical GAAP net losses and the uncertainty of future taxable income due primarily to indemnification costs related to the indictments of former employees, we recorded a full valuation allowance against our U.S. deferred tax asset.
THE SPECTRANETICS CORPORATION Reconciliation of revenue by geography to non-GAAP revenue by geography on a constant currency basis (000's, except percentages) (unaudited) | ||||||||||||||||||
Three Months Ended | ||||||||||||||||||
December 31, 2011 | December 31, 2010 | Change | ||||||||||||||||
Revenue, as reported | Foreign exchange impact as compared to prior period | Revenue on a constant currency basis | Revenue, as reported | As reported currency basis | Constant currency basis | |||||||||||||
United States | $ | 27,050 | $ | — | $ | 27,050 | $ | 24,719 | 9 | % | 9 | % | ||||||
International | 5,474 | (43 | ) | 5,431 | 4,586 | 19 | % | 18 | % | |||||||||
Total revenue | $ | 32,524 | $ | (43 | ) | $ | 32,481 | $ | 29,305 | 11 | % | 11 | % | |||||
Twelve Months Ended | ||||||||||||||||||
December 31, 2011 | December 31, 2010 | Change | ||||||||||||||||
Revenue, as reported | Foreign exchange impact as compared to prior period | Revenue on a constant currency basis | Revenue, as reported | As reported currency basis | Constant currency basis | |||||||||||||
United States | $ | 105,933 | $ | — | $ | 105,933 | $ | 101,008 | 5 | % | 5 | % | ||||||
International | 21,354 | (904 | ) | 20,450 | 16,909 | 26 | % | 21 | % | |||||||||
Total revenue | $ | 127,287 | $ | (904 | ) | $ | 126,383 | $ | 117,917 | 8 | % | 7 | % | |||||
We use the non-GAAP financial measures described in this release as supplemental measures of performance and believe these measures facilitate operating performance comparisons from period-to-period and company-to-company by factoring out potential differences caused by unusual or infrequent charges not related to our regular, ongoing business. Our management uses the non-GAAP financial measures to analyze the underlying trends in our business, assess the performance of our core operations, establish operational goals and forecasts that are used in allocating resources and evaluate our performance period over period and in relation to our competitors' operating results.
The impact of foreign exchange rates is highly variable and difficult to predict. We use a constant currency basis to show the impact from foreign exchange rates on current period revenue compared to prior period revenue using the prior period's foreign exchange rates. In order to properly understand the underlying business trends and performance of our ongoing operations, we believe that investors may find it useful to consider the impact of excluding changes in foreign exchange rates from our revenue.
We believe that presenting the non-GAAP financial measures used in this release provides investors greater transparency to the information used by our management for financial and operational decision-making and allows investors to see our results “through the eyes” of management. We also believe that providing this information better enables our investors to understand our operating performance and evaluate the methodology used by management to evaluate and measure such performance.
Non-GAAP financial measures have limitations as analytical tools and should not be considered in isolation or as a substitute for our financial results prepared in accordance with GAAP. Some of the limitations associated with our use of these non-GAAP financial measures are:
• | Our management exercises judgment in determining which types of charges or other items should be excluded from the non-GAAP financial measures we use. |
• | Items such as the federal investigation legal and accrued indemnification costs, the settlement costs—license agreement dispute, the litigation charge and related interest, and employee termination costs that are excluded from net income (loss) and net income (loss) per share can have a material impact on cash flows, GAAP net income (loss) and net income (loss) per share and reflect economic costs to us that are not reflected in non-GAAP adjusted net income and non-GAAP adjusted net income per share. |
• | The asset impairment charge and increase (decrease) in the valuation allowance against the deferred tax assets represent a change in the value of assets. The expense associated with these changes in value is not included in our non-GAAP net income or non-GAAP net income per share. |
• | Revenue growth rates stated on a constant currency basis, by their nature, exclude the impact of foreign exchange, which may have a material impact on GAAP revenue. |
• | Non-GAAP financial measures are not based on any comprehensive set of accounting rules or principles and therefore other companies may calculate similarly titled non-GAAP financial measures differently than we do, limiting the usefulness of those measures for comparative purposes. |
We provide detailed reconciliations of each non-GAAP measure to its most directly comparable GAAP measure. We encourage investors to review these reconciliations.
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