Aspect Medical Systems, Inc. Reports Operating Results for Second Quarter Ended July 1, 2006
NEWTON, Mass.--July 26, 2006--Aspect Medical Systems, Inc. :Highlights of the Quarter Compared with Q2 2005
-- Worldwide total revenue increased 21%
-- Worldwide product revenue increased 17%
-- Worldwide sensor revenue increased 21%
-- Worldwide monitor and module sales exceeded 2,480 units, an increase of 25% with the first full quarter of BIS VISTA sales
-- Worldwide installed base of BIS monitors and modules exceeded 36,000 units which represents an increase of 31% from the end of Q2 2005
-- GAAP net income per diluted share was $0.09 in Q2 2006
-- Non-GAAP net income per diluted share (which is exclusive of stock-based compensation) was $0.16 in Q2 2006 compared with $0.07 in Q2 2005
Aspect Medical Systems, Inc. , reported today that revenue was $22.6 million for the second quarter of 2006, an increase of 21% over revenue of $18.7 million in the second quarter of 2005. Product revenue was $21.2 million, a 17% increase from $18.2 million in the second quarter of 2005.
With the adoption of Statement of Financial Accounting Standards No.123R (SFAS No.123R) as of January 1, 2006, Aspect began reporting additional non-GAAP financial results that exclude the impact of stock-based compensation. The reconciliation of GAAP (U.S. generally accepted accounting principles) to non-GAAP results and guidance is contained in an attached table.
Key GAAP operating results for the second quarter of 2006 include:
-- Gross profit margin was 76.1% compared with 74.3% in the second quarter of 2005
-- Operating expenses were $15.9 million compared with $12.7 million in the second quarter of 2005
-- Net income was $2.1 million compared with $1.6 million in the second quarter of 2005
-- Net income per diluted share was $0.09 compared with $0.07 in the second quarter of 2005
Key non-GAAP operating results for the second quarter of 2006 include:
-- Gross profit margin improved to 76.6% compared with 74.3% in the second quarter of 2005
-- Operating expenses were $14.3 million, an increase of 13% from $12.7 million in the second quarter of 2005
-- Net income was $3.8 million compared with $1.6 million in the second quarter of 2005
-- Net income per diluted share was $0.16 compared with $0.07 in the second quarter of 2005
"We are pleased with several facets of our performance in Q2: the very successful launch of our new monitor, the BIS VISTA; rapid growth in our installed base; and continued improvement in operating margins and earnings per share. Having said that, growth in sensor revenue has moderated," said Nassib Chamoun, president and chief executive officer. "However, we remain confident about our future. We believe that attitudes towards brain monitoring are changing in a very positive direction, and that several of our initiatives, coupled with environmental factors, are likely to significantly expand the use of brain monitoring in the years ahead. Given our market leadership, the size of our installed base, and the rate it is growing, we believe we are very well-positioned to take full advantage."
Revenue Analysis - (see attached unaudited consolidated revenue data)
Domestic revenue was $17.8 million for the second quarter and $34.7 million for the six months ended July 1, 2006, an increase of 25% and 27%, respectively, over comparable periods in 2005. Domestic sensor revenue increased 18% for the second quarter of 2006 as compared to the second quarter of 2005. The increase resulted from a 16% increase in sensor unit volume combined with a 2% increase in sensor average unit price. Domestic equipment revenue increased by 27% due to a 143% increase in monitor and module units sold partially offset by a 43% decrease in average unit prices of the monitors as the result of significant BIS VISTA upgrade unit sales which are at a lower price point. Domestic strategic alliance revenue increased to $1.4 million in the second quarter of 2006 compared with $588,000 in the second quarter of 2005 as research and development activities under the Company's strategic research alliance with Boston Scientific increased.
International revenue was $4.8 million for the second quarter and $9.9 million for the six months ended July 1, 2006, an increase of 7% and 14%, respectively, over comparable periods in 2005. The growth in international revenue in the second quarter of 2006 from the second quarter of 2005 reflects a 34% increase in sensor revenue due to a 28% increase in sensor units sold and a 5% increase in average selling price. International growth is partially offset by a 19% reduction in equipment revenue due mainly to a 14% decline in monitor and module units sold.
Liquidity and Capital Resources
At July 1, 2006, the Company had cash, cash equivalents and marketable securities of $66.0 million compared to a balance of $61.3 million at December 31, 2005. The Company had no debt at July 1, 2006 and at December 31, 2005.
Outlook for the Third Quarter of 2006
For the third quarter of 2006, the Company is forecasting that total revenue will be within a range of $22.0 million to $22.75 million, product revenue will be within a range of $20.75 million to $21.5 million, and that net income per diluted share will be within a range of $0.07 - $0.09 on a GAAP basis. On a non-GAAP basis, the Company expects that net income per diluted share will be within a range of $0.14 to $0.16. See below under the heading "Use of Non-GAAP Financial Measures" for a discussion of the Company's use of such measures. See attached table for the reconciliation of GAAP to non-GAAP for the three and six months ended July 1, 2006.
Use of Non-GAAP Financial Measures
In addition to financial measures prepared in accordance with GAAP, this press release also contains non-GAAP income statement financial measures, which exclude the impact of stock-based compensation expense and the requirements of SFAS No.123R. The non-GAAP financial measures included in this press release are not meant to be considered superior to or a substitute for results of operations prepared in accordance with GAAP.
The non-GAAP financial measures included in this press release may be different from, and therefore may not be comparable to, similar measures used by other companies. Reconciliations of the GAAP to non-GAAP income statement financial measures for the second quarter of 2006 and expected net income per diluted share for the third quarter of 2006 used in this press release are set forth in the attached financial tables and the reconciliations to those tables should be carefully considered.
For additional information regarding the non-GAAP financial measures included herein, including reasons why management believes the presentation of non-GAAP financial measures provides useful information to investors and additional purposes for which Aspect uses the additional non-GAAP financial measures, please see Aspect's Form 8-K filed on July 26, 2006 with the Securities and Exchange Commission.
Conference Call Scheduled for 10:00 a.m. ET Today
Aspect will hold a conference call to discuss the results of the second fiscal quarter of 2006 and management's outlook for the third fiscal quarter of 2006 at 10:00 a.m. Eastern Time today, Wednesday, July 26, 2006. The call can be accessed live by dialing 1-800-819-9193 (domestic), 1-913-981-4911 (international), or access the webcast at http://www.aspectmedical.com on the Investor page, or http://www.earnings.com. It also will be available for replay until August 3, 2006, by dialing 1-888-203-1112 (domestic), or 1-719-457-0820 international), access code 5732485. The web cast replay will also be available on Aspect's website at http://www.aspectmedical.com on the investor page.
About the Company
Aspect Medical Systems, Inc. is a global market leader in brain monitoring technology. To date, the Company's Bispectral Index (BIS) technology has been used to assess more than 16.3 million patients and has been the subject of approximately 2,370 published articles and abstracts. BIS technology is installed in approximately 68 percent of hospitals listed in the July 2006 U.S News and World Report ranking of America's Best Hospitals and in approximately 49 percent of all domestic operating rooms. In the last twelve months BIS technology was used in approximately 15 percent of all U.S. surgical procedures requiring general anesthesia or deep sedation. BIS technology is available in more than 160 countries. Aspect Medical Systems has OEM agreements with seven leading manufacturers of patient monitoring systems.
Safe Harbor Statement
Certain statements in this release are forward-looking and may involve risks and uncertainties, including without limitation statements with respect to the Company's expectations with respect to revenue and net income for the third quarter of 2006 on both a GAAP and Non-GAAP basis, expected stock-based compensation expenses for the third quarter of 2006 and the Company's expectation that the Company's new VISTA monitoring product will achieve market acceptance and increase the installed base of BIS monitors in future periods. There are a number of factors that could cause actual results to differ materially from those indicated by these forward-looking statements. For example, the Company may not be able to control expenses or grow its sales force. The Company may also not be able to achieve widespread market acceptance of its BIS monitoring technology, or to compete with new products or alternative techniques that may be developed by others, including third-party anesthesia monitoring products approved by the FDA. The Company also faces competitive and regulatory risks relating to its ability to successfully develop and introduce enhancements and new products including the BIS VISTA monitor. In addition, the Company's ability to remain profitable will depend upon its ability to promote frequent use of the BIS system so that sales of its BIS sensors increase. The Company will not remain profitable if hospitals and anesthesia providers do not buy and use its BIS systems in sufficient quantities. Cases of awareness with recall during monitoring with the BIS system and significant product liability claims are among the factors that could limit market acceptance. There are other factors that could cause the Company's actual results to vary from its forward-looking statements, including without limitation those set forth under the heading "Risk Factors" in the Company's Annual Report on Form 10-K for the year ended December 31, 2005 and the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended April 1, 2006, each as filed with the Securities and Exchange Commission.
In addition, the statements in this press release represent the Company's expectations and beliefs as of the date of this press release. The Company anticipates that subsequent events and developments may cause these expectations and beliefs to change. However, while the Company may elect to update these forward-looking statements at some point in the future, it specifically disclaims any obligation to do so. These forward-looking statements should not be relied upon as representing the Company's expectations or beliefs as of any date subsequent to the date of this press release.
For further information regarding Aspect Medical Systems, Inc., visit the Aspect Medical Systems, Inc. website at www.aspectmedical.com.
ASPECT MEDICAL SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts)
Three Months Ended Six Months Ended
----------------------- -----------------------
July 1, July 2, July 1, July 2,
2006 2005 2006 2005
----------- ----------------------- -----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Product revenue $21,181 $18,153 $41,623 $35,081
Strategic alliance
revenue 1,450 588 2,896 744
----------- ----------- ----------- -----------
Total revenue 22,631 18,741 44,519 35,825
----------- ----------- ----------- -----------
Costs of revenue 5,411 4,814 10,757 9,255
----------- ----------- ----------- -----------
Gross profit margin 17,220 13,927 33,762 26,570
----------- ----------- ----------- -----------
% of revenue 76.1% 74.3% 75.8% 74.2%
Operating expenses:
Research and
development 3,568 2,397 7,215 4,385
Sales and marketing 9,105 7,493 17,861 14,769
General and
administrative 3,203 2,826 6,141 5,437
----------- ----------- ----------- -----------
Total operating
expenses 15,876 12,716 31,217 24,591
----------- ----------- ----------- -----------
Income from operations 1,344 1,211 2,545 1,979
Interest income 781 418 1,517 793
Interest expense - (14) - (27)
----------- ----------- ----------- -----------
Net Income $2,125 $1,615 $4,062 $2,745
=========== =========== =========== ===========
Net income per share:
Basic $0.09 $0.08 $0.18 $0.13
Diluted $0.09 $0.07 $0.17 $0.12
Shares used in computing net income
per share:
Basic 22,442 21,400 22,389 21,157
Diluted 23,513 23,827 23,784 23,518
ASPECT MEDICAL SYSTEMS, INC.
CONSOLIDATED REVENUE DATA
(In Thousands, Except Unit Amounts)
Three Months Ended
---------------------------------
July 1, July 2,
2006 2005 % Change
----------- ----------- ---------
(Unaudited) (Unaudited)
REVENUE
-------
WORLDWIDE
Sensors $15,868 $13,140 21%
Monitors 3,670 3,157 16%
Modules 1,173 1,211 (3%)
Other Equipment 470 645 (27%)
----------- -----------
Equipment 5,313 5,013 6%
----------- -----------
Total product revenue 21,181 18,153 17%
Strategic alliance 1,450 588 147%
----------- -----------
Total Worldwide $22,631 $18,741 21%
=========== ===========
DOMESTIC
Sensors $12,944 $10,959 18%
Monitors 2,753 2,116 30%
Modules 391 185 111%
Other Equipment 307 409 (25%)
----------- -----------
Equipment 3,451 2,710 27%
----------- -----------
Total Product revenue 16,395 13,669 20%
Strategic alliance 1,450 588 147%
----------- -----------
Total Domestic $17,845 $14,257 25%
=========== ===========
INTERNATIONAL
Sensors $2,924 $2,181 34%
Monitors 917 1,041 (12%)
Modules 782 1,026 (24%)
Other Equipment 163 236 (31%)
----------- -----------
Equipment 1,862 2,303 (19%)
----------- -----------
Total International $4,786 $4,484 7%
=========== ===========
UNITS
-----
WORLDWIDE
Sensors 1,124,000 944,000 19%
Monitors 1,193 754 58%
Modules (a) 1,294 1,239 4%
Installed Base (b)
DOMESTIC
Sensors 795,000 686,000 16%
Monitors 825 360 129%
Modules (a) 379 135 181%
Installed Base (b)
INTERNATIONAL
Sensors 329,000 258,000 28%
Monitors 368 394 (7%)
Modules (a) 915 1,104 (17%)
Installed Base (b)
(a) Represents module shipments to OEM customers
(b) Includes end-user module placements by OEM customers
Six Months Ended
---------------------------------
July 1, July 2,
2006 2005 % Change
----------- ----------- ---------
(Unaudited) (Unaudited)
REVENUE
-------
WORLDWIDE
Sensors $31,453 $25,623 23%
Monitors 6,318 5,845 8%
Modules 2,771 2,358 18%
Other Equipment 1,081 1,255 (14%)
----------- -----------
Equipment 10,170 9,458 8%
----------- -----------
Total product revenue 41,623 35,081 19%
Strategic alliance 2,896 744 289%
----------- -----------
Total Worldwide $44,519 $35,825 24%
=========== ===========
DOMESTIC
Sensors $25,783 $21,422 20%
Monitors 4,256 3,748 14%
Modules 938 416 125%
Other Equipment 789 862 (8%)
----------- -----------
Equipment 5,983 5,026 19%
----------- -----------
Total Product revenue 31,766 26,448 20%
Strategic alliance 2,896 744 289%
----------- -----------
Total Domestic $34,662 $27,192 27%
=========== ===========
INTERNATIONAL
Sensors $5,670 $4,201 35%
Monitors 2,062 2,097 (2%)
Modules 1,833 1,942 (6%)
Other Equipment 292 393 (26%)
----------- -----------
Equipment 4,187 4,432 (6%)
----------- -----------
Total International $9,857 $8,633 14%
=========== ===========
UNITS
-----
WORLDWIDE
Sensors 2,211,000 1,823,000 21%
Monitors 2,045 1,425 44%
Modules (a) 2,794 2,274 23%
Installed Base (b) 36,226 27,625 31%
DOMESTIC
Sensors 1,584,000 1,345,000 18%
Monitors 1,267 665 91%
Modules (a) 566 285 99%
Installed Base (b) 22,081 17,227 28%
INTERNATIONAL
Sensors 627,000 478,000 31%
Monitors 778 760 2%
Modules (a) 2,228 1,989 12%
Installed Base (b) 14,145 10,398 36%
(a) Represents module shipments to OEM customers
(b) Includes end-user module placements by OEM customers
ASPECT MEDICAL SYSTEMS, INC.
RECONCILIATION OF GAAP to NON-GAAP NET INCOME
(In Thousands, Except Per Share Amounts)
Three Months Ended July 1, 2006
---------------------------------------------
GAAP Net Stock-Based Non-GAAP Net
Income Compensation Income
-------------- --------------- --------------
(Unaudited) (Unaudited) (Unaudited)
Product revenue $21,181 $- $21,181
Strategic alliance
revenue 1,450 - 1,450
-------------- --------------- --------------
Total revenue 22,631 - 22,631
-------------- --------------- --------------
Costs of revenue 5,411 (106) 5,305
-------------- --------------- --------------
Gross profit margin 17,220 106 17,326
-------------- --------------- --------------
% of revenue 76.1% - 76.6%
Operating expenses:
Research and
development 3,568 (373) 3,195
Sales and marketing 9,105 (601) 8,504
General and
administrative 3,203 (573) 2,630
-------------- --------------- --------------
Total operating
expenses 15,876 (1,547) 14,329
-------------- --------------- --------------
Income from operations 1,344 1,653 2,997
Interest income 781 - 781
-------------- --------------- --------------
Net Income $2,125 $1,653 $3,778
============== =============== ==============
Net income per share:
Basic $0.09 $0.07 $0.17
Diluted $0.09 $0.07 $0.16
Shares used in
computing net income
per share:
Basic 22,442 22,442 22,442
Diluted 23,513 23,513 23,513
Six Months Ended July 1, 2006
---------------------------------------
GAAP Net Stock-Based Non-GAAP
Income Compensation Net Income
----------- --------------- -----------
(Unaudited) (Unaudited) (Unaudited)
Product revenue $41,623 $- $41,623
Strategic alliance revenue 2,896 - 2,896
----------- --------------- -----------
Total revenue 44,519 - 44,519
----------- --------------- -----------
Costs of revenue 10,757 (211) 10,546
----------- --------------- -----------
Gross profit margin 33,762 211 33,973
----------- --------------- -----------
% of revenue 75.8% - 76.3%
Operating expenses:
Research and
development 7,215 (743) 6,472
Sales and marketing 17,861 (1,228) 16,633
General and administrative 6,141 (1,111) 5,030
----------- --------------- -----------
Total operating expenses 31,217 (3,082) 28,135
----------- --------------- -----------
Income from operations 2,545 3,293 5,838
Interest income 1,517 - 1,517
----------- --------------- -----------
Net Income $4,062 $3,293 $7,355
=========== =============== ===========
Net income per share:
Basic $0.18 $0.15 $0.33
Diluted $0.17 $0.14 $0.31
Shares used in computing net
income per share:
Basic 22,389 22,389 22,389
Diluted 23,784 23,784 23,784
----------------------------------------------------------------------
----------------------------------------------------------------------
Guidance for Q3 2006
-------------- --------------- --------------
Stock-Based
GAAP Compensation Non - GAAP
-------------- --------------- --------------
Net income per diluted
share $0.07 - $0.09 $0.07 $0.14 - $0.16
============== =============== ==============
ASPECT MEDICAL SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
July 1, December 31,
2006 2005
----------- -----------
(Unaudited) (Unaudited)
ASSETS
Current assets:
Cash, cash equivalents and marketable
securities (A) $54,749 $43,773
Accounts receivable, net 11,206 11,717
Current portion of investment in sales-type
leases 1,521 1,623
Inventory, net 6,458 5,117
Other current assets 2,489 1,484
----------- -----------
Total current assets 76,423 63,714
Property and equipment, net 4,992 3,727
Long-term marketable securities (A) 11,299 17,568
Long-term investment in sales-type leases 2,300 2,123
----------- -----------
Total assets $95,014 $87,132
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $9,461 $12,589
Deferred revenue 5,031 3,137
----------- -----------
Total current liabilities 14,492 15,726
Long-term portion of deferred revenue 3,750 3,983
Stockholders' equity 76,772 67,423
----------- -----------
Total liabilities and stockholders'
equity $95,014 $87,132
=========== ===========
(A) Investments with maturities beyond twelve months are included
in long-term investments.