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CryoLife, Inc. (CRY) Reports 13% Revenue Growth for Second Quarter 2012


7/31/2012 12:26:12 PM

ATLANTA, July 31, 2012 /PRNewswire/ -- CryoLife, Inc. (NYSE: CRY), a leading tissue processing and medical device company focused on cardiac and vascular surgery, announced today its results for the second quarter and first six months of 2012. Revenues for the second quarter of 2012 increased 13 percent to a record $33.2 million compared to $29.4 million for the second quarter of 2011. Revenues for the first six months of 2012 increased 10 percent to a record $65.5 million compared to $59.6 million for the first six months of 2011.

Steven G. Anderson, president and chief executive officer, said, "In the second quarter of 2012 we continued to execute on our strategic growth initiatives and delivered solid top and bottom line results. Total revenue was up 13 percent year-over-year, driven by another strong quarter in our product segment and better than expected results in our tissue processing segment. Gross margins were stable at 64 percent, and we continued prudent expense management, allowing us to grow net income for the second quarter to 12 cents per share.

"During the quarter we completed the acquisition of Hemosphere, further enhancing our growth trajectory and market opportunity. The acquisition provides us with the HeRO® Graft, the standard-of-care product in the $250 million worldwide market for permanent access for catheter dependent hemodialysis patients. The integration is progressing on schedule and we are encouraged with our initial experience, which has strengthened our confidence in the sales force leverage and cross-selling opportunity for the HeRO Graft and our existing CryoVein® and CryoArtery® preserved human tissues. On the legal front, our completed settlements for outstanding litigation were net beneficial and eliminated the ongoing legal exposure and costs related with these lawsuits. Accordingly, we are raising our full year revenue and EPS guidance to reflect the positive first half results, the addition of the HeRO Graft, and lower legal fees in the second half of the year, partially off-set by the expenses related to the acquisition and integration."

Net income for the second quarter of 2012 was $3.3 million, or $0.12 per basic and fully diluted common share, compared to net income of $1.8 million, or $0.06 per basic and fully diluted common share, for the second quarter of 2011. Net income for the second quarter of 2012 included a pretax benefit of $4.7 million related to the settlement of the litigation with Medafor, pretax charges of $3.6 million related to the settlement of the litigation with CardioFocus, $1.0 million in business development and integration charges primarily related to the acquisition of Hemosphere, and $2.1 million in litigation expenses offset by $3.1 million in reimbursement of certain litigation expenses from insurance carriers. Excluding these charges and benefits, proforma non-GAAP earnings per share would have been $0.10 in the second quarter of 2012. Net income for the second quarter of 2011 included $1.8 million in costs related to business development and integration, and a benefit of $216,000 for insurance reimbursements net of litigation expenses. Excluding these charges and benefits, proforma non-GAAP earnings per share would have been $0.12 in the second quarter of 2011.

Net income for the first six months of 2012 was $4.3 million, or $0.16 per basic and $0.15 per fully diluted common share, compared to net income of $3.5 million, or $0.12 per basic and fully diluted common share, for the first six months of 2011. Net income for the first six months of 2012 included a pretax benefit of $4.7 million related to the settlement of the litigation with Medafor, pretax charges of $4.1 million related to the settlement of the litigation with CardioFocus, $1.1 million in business development and integration charges primarily related to the acquisition of Hemosphere, and $3.6 million in litigation expenses offset by $3.4 million in reimbursement of certain litigation expenses from insurance carriers. Excluding these charges and benefits, proforma non-GAAP earnings per share would have been $0.17 in the first six months of 2012. Net income for the first six months of 2011 included $2.9 million in costs related to business development and integration, and $156,000 for litigation expenses net of insurance reimbursements. Excluding these charges, proforma non-GAAP earnings per share would have been $0.21 in the first six months of 2011.

Product revenues were $16.7 million for the second quarter of 2012, up 15 percent from $14.6 million in the second quarter of 2011. Product segment revenues were $33.2 million for the first six months of 2012, up 14 percent from $29.0 million in the first six months of 2011.

Surgical sealant and hemostat revenues, which consisted primarily of sales of BioGlue® and PerClot® in 2012, were $14.1 million for the second quarter of 2012 compared to $13.4 million for the second quarter of 2011, an increase of 5 percent. The increase in surgical sealant and hemostat revenues was primarily due to an increase in BioGlue shipments into international markets, largely Japan.

Surgical sealant and hemostat revenues were $28.5 million for the first six months of 2012 compared to $27.8 million for the first six months of 2011, an increase of 2 percent. The increase in surgical sealant and hemostat revenues was primarily due to an increase in BioGlue shipments, largely into Japan, partially offset by the lack of HemoStase revenues in the first six months of 2012. The Company discontinued U.S. and international sales of HemoStase at the end of the first quarter of 2011.

Revascularization technologies revenues were $1.9 million for the second quarter of 2012 compared to $1.2 million in the second quarter of 2011. Revascularization technologies revenues were $4.0 million for the first six months of 2012 compared to $1.2 million in the first six months of 2011. The Company acquired Cardiogenesis in May 2011.

HeRO Graft revenues were $635,000 for the second quarter of 2012 as a result of the Company's acquisition of Hemosphere in May 2012.

Preservation services revenues were $16.3 million for the second quarter of 2012 compared to $14.7 million for the second quarter of 2011, an increase of 11 percent. Cardiac preservation services revenues increased 10 percent for the second quarter of 2012 due to an increase in shipments of cardiac tissues and an increase in average preservation service fees. Vascular preservation service revenues increased 12 percent for the second quarter of 2012 due to an increase in shipments of vascular tissues.

Preservation services revenues were $32.0 million for the first six months of 2012 compared to $30.4 million in the first six months of 2011, an increase of 5 percent. Cardiac preservation services revenues increased 9 percent for the first six months of 2012 due to an increase in shipments of cardiac tissues and an increase in average preservation service fees. Vascular preservation service revenues increased 2 percent for the first six months of 2012 due to an increase in shipments of vascular tissues.

Total gross margins were 64 percent in the second quarter of 2012 compared to 65 percent in the second quarter of 2011. Preservation services gross margins were 44 percent for each of the second quarters of 2012 and 2011. Product gross margins were 84 percent and 85 percent for the second quarters of 2012 and 2011, respectively.

Total gross margins increased to 65 percent in the first six months of 2012, up from 63 percent in the first six months of 2011, driven by higher gross margins from the Company's existing tissues and products, an increase in the mix of higher margin products partially resulting from the acquisition of the Cardiogenesis and Hemosphere product lines, and the loss of lower margin HemoStase revenues. Preservation services gross margins were 45 percent and 43 percent for the first six months of 2012 and 2011, respectively. Product gross margins were 84 percent for each of the first six months of 2012 and 2011.

General, administrative, and marketing expenses for the second quarter of 2012 were $13.9 million compared to $13.7 million for the second quarter of 2011. General, administrative, and marketing expenses for the second quarter of 2012 increased compared to 2011 due to the cumulative effect of the following, as compared to 2011: settlement of the litigation with CardioFocus, business development and integration expenses primarily related to the acquisition of Hemosphere, an increase in marketing expenses, including costs of the Company's expanded sales staff and increases in spending on advertising, and an increase in litigation expenses, offset by a benefit from the settlement of the litigation with Medafor and the reimbursement of certain litigation expenses from insurance carriers. General, administrative, and marketing expenses for the second quarter of 2011 included approximately $1.8 million in business development and integration expenses.

General, administrative, and marketing expenses for the first six months of 2012 were $31.8 million compared to $28.0 million for the first six months of 2011. General, administrative, and marketing expenses for the first six months of 2012 increased compared to 2011 due to the cumulative effect of the following: the settlement of the litigation with CardioFocus, business development and integration expenses primarily related to the acquisition of Hemosphere, an increase in marketing expenses, including costs of the Company's expanded sales staff, increases in spending on advertising, and an increase in litigation expenses, offset by a benefit from the settlement of the litigation with Medafor and the reimbursement of certain litigation expenses from insurance carriers. General, administrative, and marketing expenses for the first six months of 2011 included approximately $2.9 million in business development and integration expenses.

Research and development expenses were $1.7 million and $1.6 million for the second quarters of 2012 and 2011, respectively. Research and development expenses were $3.4 million for each of the first six months of 2012 and 2011. Research and development spending in the second quarter and first six months of 2012 was primarily focused on PerClot, BioFoam Surgical Matrix, and SynerGraft® tissues and products.

During the second quarter of 2012, the Company purchased 343,000 shares of the Company's common stock at an average price of $5.06, resulting in aggregate purchases of $1.7 million. During the first six months of 2012, the Company purchased 626,000 shares of the Company's common stock at an average price of $5.14, resulting in aggregate purchases of $3.2 million.

As of June 30, 2012, the Company had $9.3 million in cash, cash equivalents, and restricted cash and securities, compared to $27.0 million at December 31, 2011. Of this $9.3 million in cash, cash equivalents, and restricted cash and securities, $878,000 was received from the U.S. Department of Defense as advance funding for the development of BioFoam protein hydrogel technology, and $5.0 million was designated as restricted cash and securities primarily due to a financial covenant requirement under the Company's credit agreement. The Company's net cash flows provided by operations were $3.1 million for the second quarter of 2012 and $4.0 million for the second quarter of 2011.

2012 Financial Guidance

The Company is updating its guidance for the full year of 2012 to reflect the actual results from the first half of 2012, the acquisition of Hemosphere, and the settlement of all of the Company's significant outstanding litigation during the quarter. The Company expects total revenues for the full year of 2012 to be between $129.0 million and $133.0 million, which include revenues of approximately $500,000 related to the use of funds received from the U.S. Department of Defense in connection with the development of BioFoam. This represents annual total revenue growth of 8 percent to 11 percent. This compares with prior full year 2012 revenue guidance of $126.0 million to $129.0 million, which represented growth of 5 percent to 8 percent.

The Company expects tissue processing revenues to increase in low to mid-single digits on a percentage basis for the full year of 2012 compared to 2011. Revenues from the Company's higher margin product segment are expected to grow between 12 percent and 15 percent for the full year of 2012. This includes expectations for BioGlue and BioFoam revenues to increase in the mid-single digits on a percentage basis in 2012 compared to 2011, and PerClot revenues to be between $2.5 million and $3.0 million. The Company expects revenues from revascularization technologies to be between $9.0 million and $10.0 million in 2012. The Company expects HeRO Graft revenues to be between $2.5 million and $3.5 million in 2012.

The Company expects general, administrative and marketing expenses for the full year of 2012 to be between $64.0 million and $66.0 million, which includes $2.7 million of integration costs resulting from the acquisition of Hemosphere in May 2012. Research and development expenses are expected to be between $9.0 million and $10.0 million in 2012 as a result of the Company's investments in its U.S. clinical trials for Perclot and BioFoam, and other research and development activities.

The Company expects earnings per share of between $0.20 and $0.23 in 2012, which includes a non-recurring net benefit of $424,000 related to litigation settlements and expenses, net of insurance reimbursements, and estimated non-recurring transaction and integration charges of approximately $2.7 million, of which approximately $1.6 million is expected to occur in the second half of 2012. This compares with prior full year 2012 GAAP earnings per share guidance of $0.14 to $0.18. The Company's earnings per share guidance excludes expenses related to additional business development and potential share repurchases, which cannot currently be estimated, although the Company is not currently repurchasing shares.

The Company expects the effective income tax rate for the second half of 2012 to be in the mid to upper thirty percent range.

The Company's financial guidance for the full year of fiscal 2012 is subject to the risks described below in the last paragraph of this press release, prior to the financial tables.

Webcast and Conference Call Information

The Company will hold a teleconference call and live webcast today at 10:00 a.m. Eastern Time to discuss the results followed by a question and answer session hosted by Mr. Anderson.

To listen to the live teleconference, please dial 201-689-8261 a few minutes prior to 10:00 a.m. A replay of the teleconference will be available from July 31 through August 7 and can be accessed by calling 877-660-6853 (toll free) or 201-612-7415. The account number for the replay is 244 and the conference number is 397253.

The live webcast and replay can be accessed by going to the Investor Relations section of the CryoLife Web site at www.cryolife.com and selecting the heading Webcasts & Presentations.

About CryoLife

Founded in 1984, CryoLife, Inc. is a leader in the processing and distribution of implantable living human tissues for use in cardiac and vascular surgeries throughout the U.S., certain countries in Europa, and Canada. CryoLife's CryoValve® SG pulmonary heart valve, processed using CryoLife's proprietary SynerGraft® technology, has FDA 510(k) clearance for the replacement of diseased, damaged, malformed, or malfunctioning native or prosthetic pulmonary valves. CryoLife's CryoPatch® SG pulmonary cardiac patch has FDA 510(k) clearance for the repair or reconstruction of the right ventricular outflow tract (RVOT), which is a surgery commonly performed in children with congenital heart defects, such as Tetralogy of Fallot, Truncus Arteriosus, and Pulmonary Atresia. CryoPatch SG is distributed in three anatomic configurations: pulmonary hemi-artery, pulmonary trunk, and pulmonary branch. CryoLife's BioGlue® Surgical Adhesive is FDA approved as an adjunct to sutures and staples for use in adult patients in open surgical repair of large vessels. BioGlue is also CE marked in the European Community for use in soft tissue repair and was recently approved in Japan for use in the repair of aortic dissections. Additional marketing approvals for BioGlue have been granted in several other countries throughout the world. CryoLife, through its subsidiary Cardiogenesis Corporation, specializes in the treatment of coronary artery disease for severe angina using a laser console system and single use, fiber-optic handpieces to perform a surgical procedure known as Transmyocardial Revascularization (TMR). In addition, CryoLife's subsidiary Hemosphere, Inc. markets the HeRO® Graft, which is a solution for end-stage renal disease in certain hemodialysis patients. CryoLife distributes PerClot®, an absorbable powder hemostat, in the European Community and other select international countries. CryoLife's BioFoam Surgical Matrix is CE marked in the European Community for use as an adjunct in the sealing of abdominal parenchymal tissues (liver and spleen) when cessation of bleeding by ligature or other conventional methods is ineffective or impractical.

For additional information about CryoLife, visit CryoLife's website, www.cryolife.com.


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