SAN DIEGO, April 6 /PRNewswire-FirstCall/ -- CardioDynamics , the innovator and leader of Impedance Cardiography (ICG) technology, today reported financial results for fiscal first quarter 2006. Net sales for the first quarter 2006 were $6.5 million, a decrease of 33% from net sales of $9.7 million for the same quarter last year. Despite the downturn in first quarter financial performance, highlights included the opening of Medicare’s reconsideration for broadening ICG hypertension coverage, publication acceptance of two important ICG studies, Cleveland Clinic’s ED-IMPACT and PREDICT, a 21-center prognostic heart failure trial, and the release of the Company’s new, proprietary advanced sensor system, BioZ AdvaSense(TM), which commenced shipments in early second quarter, 2006.
The Company also announced it has executed a letter of intent for the sale of $4 million of convertible debt securities to its largest institutional shareholder. The three-year, subordinated convertible note will bear interest at an annual rate of 8% and will be convertible into common stock at a fixed price of $1.15 per share. The investors will have the right to make a follow-on investment of $1.25 million in subordinated convertible notes within 18 months of closing at a conversion price of $1.40 per share. The Company anticipates completion of legal documentation and closing of the financing within one week.
Additionally, the Company announced the consolidation and reduction early in the second quarter of support services, operations, and research staff totaling approximately 12% of ICG personnel to better balance operating expenses with current revenue levels. The workforce reduction, coupled with not filling previously open positions and deferral of certain project expenses, is expected to save approximately $3 million in cash expenditures in 2006.
First Quarter 2006 Results:
Net sales for the first quarter 2006 were $6.5 million, a decrease of 33% from net sales of $9.7 million for first quarter 2005. ICG revenue decreased 43% from the same period in 2005 primarily due to the ongoing effects of Medicare’s restriction of ICG hypertension coverage and a large percentage of new sales and sales management personnel who were not fully productive in the quarter. The Company reported a net loss of $3.5 million, or ($0.07) per diluted share for the first quarter of 2006, compared with net loss of $644,000, or ($0.01) per diluted share reported in the same quarter last year. During the quarter, net cash used in operating activities was $711,000, and the Company ended the quarter with $2.7 million in cash.
Operating expenses for first quarter 2006 decreased 4% to $7.0 million compared with $7.3 million for the same period in 2005. The lower operating costs were due to decreased ICG research and development expenditures associated with the BioZ Dx product which was released in 2005 and reduced selling and marketing expenses resulting from lower headcount levels and streamlining of sales management. These expense reductions were largely offset by an increase of $392,000 in general and administrative expenses, the majority of which was driven by regulatory compliance costs associated with Section 404 of the Sarbanes-Oxley Act and year-end audit fees. The Company estimates the regulatory compliance costs associated with Sarbanes-Oxley and year-end audit fees were approximately $1.0 million in first fiscal quarter 2006.
Overall gross margin for the first quarter 2006 was 56% compared with 65% in the first quarter 2005. Gross margin in the ICG business was 68% and for the electrocardiograph (ECG) business was 36%, down from 73% and 45% respectively, in the same quarter last year. The overall gross margin percentage decline resulted from a greater mix of lower gross margin ECG sensor products and lower-priced U.S. BioZ factory-certified unit sales.
Operating Highlights:
During the first quarter 2006, sales of ICG devices totaled 135 units, including 101 ICG monitors, 47 of which were BioZ Dx systems, 39 BioZ monitors, and 15 Medis ICG monitors. In addition to Company sales of 34 ICG modules in the quarter, General Electric Medical Systems sold through 128 modules to end users during the period. The number of ICG systems and modules sold to date totals over 6,000, an increase of 18% over sales to date as of first quarter 2005. At the end of the first quarter 2006, field associates totaled 62 people, including 38 U.S. territory managers and 16 clinical application specialists.
Combined ICG and ECG sensor revenue in the first quarter 2006 was $3.9 million, representing 60% of consolidated net sales as compared to first quarter 2005 revenue of $4.1 million, representing 42% of consolidated net sales. During the quarter, Vermed contributed $2.4 million to consolidated net sales. ICG sensor revenue for the first quarter 2006 was $1.5 million (37% of ICG net sales), a decrease of 7%, compared with $1.6 million (22% of ICG net sales) in the same quarter last year.
CEO Comments and Outlook:
Michael K. Perry, Chief Executive Officer, stated, “Although we anticipated a decrease in first quarter sales due to a number of factors, the impact was much greater than expected. Our first quarter is historically our slowest, following completion of our prior year-end sales push. Additionally, there are reduced selling days due to our national sales meeting and December holidays, as well as limited physician access during that time. The transition of our sales management team and the recent hiring of a large percentage of new sales representatives further impacted first quarter revenue and was the result of our efforts to strengthen the clinical knowledge of our sales team. Collectively, 80% of sales management and over 35% of the direct sales force entered the quarter with less than six months’ experience in their positions. We now have a full sales leadership team in place, complete with rigorous management processes, and are already seeing a sizable increase in ICG capital sales in early second quarter. We also have taken the necessary steps to reduce our expenses as we work to restore revenue levels and growth to the business.”
Perry continued, “Despite the weaker than expected first quarter, we are optimistic about our future. We are encouraged by the opening of Medicare’s reconsideration process for hypertension and the planned $4 million investment to provide additional cash resources to grow our business. We were very pleased to have the recent publications of two important clinical trials, our 11-center CONTROL study and Cleveland Clinic’s ED-IMPACT study. The CONTROL trial demonstrated that BioZ-directed therapy was more than two times better than standard care for achievement of blood pressure control. The ED-IMPACT trial showed that there was a 13% diagnosis change and 39% treatment change in shortness of breath patients when physicians used BioZ data after initial assessment. We also anticipate the June publication of PREDICT, a 21-center ICG prognostic heart failure study, which identified ICG as the most powerful predictor of short-term heart failure hospitalization or death. These three studies represent the strongest scientific evidence in the Company’s history which we believe should further drive ICG’s clinical importance, visibility, market adoption, and ultimately a broadened national Medicare policy.”
Conference Call Information:
Michael K. Perry, Chief Executive Officer, and Steve P. Loomis, Chief Financial Officer, will host a summary of CardioDynamics’ first quarter 2006 results in a conference call today at 4:30 p.m. (EDT). To access the conference call, dial 800-346-7359 (Code 7784). International participants can call 973-528-0008 (Code 7784). A replay of the call will be available for one month following the call at 800-332-6854 (Code 7784). The international replay number is 973-528-0005 (Code 7784). The Internet webcast can be accessed through the Investor Relations section of the Company’s website at www.cdic.com or at http://phx.corporate-ir.net/phoenix.zhtml?p=irol- eventDetails&c=86923&eventID=1280902.
About CardioDynamics:
CardioDynamics , the ICG Company, is the innovator and leader of an important medical technology called impedance cardiography (ICG). The Company develops, manufactures and markets noninvasive ICG products and medical device electrodes. The Company’s ICG Systems are being used by physicians around the world to help battle the number one killer of men and women -- cardiovascular disease. Partners include GE Healthcare and Philips Medical Systems. For additional information, please refer to the company’s Web site at www.cdic.com.
Forward-Looking (Safe Harbor) Statement:
Except for historical and factual information contained herein, this press release contains forward-looking statements, such as preliminary quarterly operating results, future reimbursement, future financing, publication of clinical trials, and sales growth, the accuracy of which is necessarily subject to uncertainties and risks including the Company’s primary dependence on the BioZ product line, and various uncertainties characteristic of early growth companies, as well as other risks detailed in the Company’s filings with the SEC, including its 2005 Form 10-K. The Company does not undertake to update the disclosures contained in this press release.
CardioDynamics International Corporation In thousands, except per share data (unaudited) Selected Consolidated Operational Results Three Months Ended February 28, 2006 2005 Net Sales $6,528 $9,678 Cost of Sales 2,876 3,347 Gross Margin 3,652 6,331 Research and Development 608 664 Selling and Marketing 4,568 5,184 General and Administrative 1,729 1,337 Amortization of Intangible Assets 119 130 Loss from Operations (3,372) (984) Other Expense, net (79) (58) Loss before Income Taxes and Minority Interest (3,451) (1,042) Minority Interest in Income of Subsidiary (6) (29) Income Tax Benefit (Provision) (29) 427 Net Loss $(3,486) $(644) Net Loss per Common Share: Basic and Diluted $(0.07) $(0.01) Weighted-Average Number of Shares Used in Per Share Calculation: Basic and Diluted 48,804 48,748 Selected Consolidated Balance Sheet Data February 28, November 30, Change 2006 2005 Cash and Cash Equivalents $2,672 $3,615 (26%) Accounts Receivable, net 4,672 7,359 (37%) Inventory, net 5,982 5,379 11% Current Assets 15,160 18,203 (17%) Long-term Assets 21,249 21,795 (3%) Total Assets 36,409 39,998 (9%) Current Liabilities 7,689 7,217 7% Long-term Liabilities 2,082 2,777 (25%) Total Liabilities 9,771 9,994 (2%) Minority Interest 249 241 3% Shareholders’ Equity 26,389 29,763 (11%)
CardioDynamics
CONTACT: Cindy Presar, Investor Relations of CardioDynamics,+1-800-778-4825, ext. 1031, cpresar@cardiodynamics.com
Web site: http://www.cdic.com//
