Aspect Medical Systems (MM) (NASDAQ:ASPM)
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From Oct 2019 to Oct 2024
Aspect Medical Systems, Inc. (NASDAQ: ASPM), reported today that
product revenue was $24.4 million for Q1 2008, a 9% increase from $22.4
million in Q1 2007, and that total revenue was $24.4 million for Q1
2008, a 1% increase from $24.1 million in Q1 2007.
With the adoption of Statement of Financial Accounting Standards
No.123(R), or “SFAS No.123R”,
as of January 1, 2006, Aspect began reporting non-GAAP financial results
that exclude the impact of stock-based compensation. See below under the
heading “Use of non-GAAP Financial Measures”
for a discussion of the Company’s use of such
measures. The reconciliation of GAAP (U.S. generally accepted accounting
principles) to non-GAAP measures is contained in an attached table.
Key GAAP operating results for Q1 2008 include:
Product margin was 73.4% compared with 72.9% in Q1 2007;
Operating expenses were $18.1 million, an increase of 1% compared with
$17.9 million in Q1 2007; and
Net loss was $235,000, or $0.01 loss per share, compared with net
income of $517,000, or income of $0.02 per diluted share, in Q1 2007.
Key non-GAAP operating results for Q1 2008 include:
Product margin was 73.9% compared with 73.5% in Q1 2007;
Operating expenses were $16.3 million, an increase of 3% compared with
$15.9 million in Q1 2007; and
Net income was $1.1 million, or $0.06 per share, compared with $2.0
million, or $0.09 per diluted share, in Q1 2007.
“We are encouraged with our results for the
quarter, and we believe that the growth in sensor revenue reflects very
positively on the changes we have made in the focus of our U.S. sales
organization, and the success of our customer education and training
programs,” said Nassib Chamoun, president and
CEO of Aspect.
“We are also pleased with our customers’
response to the negative tone of the New England Journal of Medicine
article that was published in March. The publication created a great
opportunity to communicate with many of our customers, and most have
reaffirmed their belief in the value of BIS monitoring, and have said
that the article will not change the way they use our technology. BIS
monitoring enables them to personalize anesthesia for each of their
patients and to balance the need to reduce the risk of awareness with
other important endpoints – including
minimizing excessive exposure to anesthetics, improving patient
satisfaction, and optimizing the quality and efficiency of patient care.”
Chamoun continued, “Looking forward, we are
optimistic that the adverse impact of this article will be limited to a
small number of existing and prospective customers. For the rest, we
believe that the dialogue generated by the article will support our
efforts to increase the use of our technology over time.”
Revenue Analysis – (see attached unaudited
consolidated revenue data)
U.S. product revenue was $17.1 million in Q1 2008, an increase of 2%
over Q1 2007. U.S. sensor revenue increased 13% in Q1 2008 compared with
Q1 2007 due to a 13% increase in sensor unit volume. U.S. equipment
revenue declined 54% in Q1 2008 as expected, due to the strategic shift
of our sales organization to develop stronger sensor utilization among
our existing customer base. The Q1 2008 decline was the result of a 59%
reduction in monitor and module units sold and an 8% decline in other
equipment revenues. There was no strategic alliance revenue in Q1 2008
compared with $1.7 million in Q1 2007. This was due to the termination
and repurchase agreement entered into with Boston Scientific in Q2 2007
which terminated all of the rights and obligations of the Company and
Boston Scientific under the 2002 OEM product development agreement and
the 2005 neurosciences strategic alliance.
International revenue was $7.4 million in Q1 2008, an increase of 28%
over Q1 2007. International sensor revenue increased 36% in Q1 2008 as
compared with Q1 2007 due to a 36% increase in sensor unit volume.
International equipment revenue increased by 26% in Q1 2008 due to a 19%
increase in combined monitor and module units sold which was partially
offset by a 27% decline in other equipment revenue.
Product Margin and Operating Expenses
GAAP product margin (product revenue less costs of revenue, then divided
by product revenue) increased to 73.4% in Q1 2008 as compared with 72.9%
in Q1 2007. Non-GAAP product margin increased to 73.9% in Q1 2008 as
compared with 73.6% in Q1 2007. These changes were principally the
result of favorable changes in the mix of sales of sensors to hardware.
Total GAAP and non-GAAP operating expenses increased by 1% and 3%,
respectively, in Q1 2008 compared with Q1 2007. The increase in total
GAAP and non-GAAP operating expenses was due primarily to increases in
selling, general and administrative expenses. The increase in GAAP
operating expenses was partially offset by a 12% decrease in stock-based
compensation expense.
Interest Income and Expense
Interest income was $1.3 million in Q1 2008, an increase of 30% compared
with Q1 2007, due to increased cash, cash equivalents and marketable
securities resulting from the $125.0 million convertible debt offering
completed by the Company during June 2007. Interest expense was $0.9
million in Q1 2008 due to the interest payable on such convertible debt.
There was no interest expense in Q1 2007.
Income Taxes
In Q1 2008, the Company recognized income tax expense of approximately
$0.4 million on a GAAP basis and $1.0 million on a non-GAAP basis. This
translates to a Q1 2008 effective tax rate of 224% for GAAP and 48% for
non-GAAP. Q1 2008 GAAP and non-GAAP tax expense includes a $0.3 million
charge for the reduction of tax credits. Excluding this charge, the GAAP
and non-GAAP Q1 2008 effective tax rates are 79% and 35%, respectively.
The Q1 2008 GAAP effective tax rates are higher because of the tax
treatment of incentive stock options (or ISO’s).
The expense associated with these options is recorded as they vest, but
a tax benefit is only recognized when they are exercised and sold under
specific circumstances.
Liquidity and Capital Resources
At March 29, 2008, the Company had cash, cash equivalents, restricted
cash and marketable securities of $110.8 million compared with $109.5
million at December 31, 2007. The Company had debt in the form of $125.0
million aggregate principal amount of 2.50% convertible senior notes due
2014 at March 29, 2008 and at December 31, 2007.
Outlook for the Second Quarter of 2008
The Company’s outlook for the second quarter
of 2008 is as follows:
Total revenue and product revenue is expected to be within a range of
$24.4 million to $25.4 million;
GAAP net loss per share is expected to be within a range of ($0.03) to
($0.01); and
Non-GAAP net income per fully-diluted share is expected to be within a
range of $0.03 to $0.05.
All non-GAAP amounts are exclusive of stock-based compensation. 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 items for Q1 2008 and
guidance for Q2 2008.
Use of non-GAAP Financial Measures
In addition to disclosing financial results calculated in accordance
with GAAP, this earnings release contains non-GAAP financial measures
that exclude the effects of share-based compensation and the
requirements of Statement of Financial Accounting Standards No. 123(R),
or “SFAS No. 123R”.
Stock-based compensation related to stock options, restricted stock
and other stock-based awards is excluded from the Company’s
non-GAAP costs of revenue, non-GAAP gross profit margin, non-GAAP gross
profit margin percent, non-GAAP product margin percent, non-GAAP total
operating expenses (research and development, sales and marketing and
general and administrative), non-GAAP income from operations, non-GAAP
operating margin, non-GAAP income before income taxes, non-GAAP income
before income taxes per diluted share, non-GAAP income tax expense,
non-GAAP effective income tax rate, non-GAAP net income, and non-GAAP
diluted earnings per share:
Stock-based compensation expenses consist of expenses for stock options,
restricted stock and other stock-based awards under SFAS No.123R. The
Company excludes these stock-based compensation expenses and the related
tax effects from non-GAAP measures primarily because they are non-cash
expenses, because of the complexity and considerable judgment involved
in calculating their values, and because they have in the past and are
expected in the future to be driven by a different set of factors than
other expenses in these categories.
The manner in which management uses the non-GAAP financial measure
to conduct or evaluate its business:
The non-GAAP financial measures used by management and disclosed by the
Company exclude the income statement effects of all forms of share-based
compensation. Reconciliations of the GAAP to non-GAAP income statement
financial measures for the three months ended March 29, 2008 and March
31, 2007 and expected net income per diluted share for the second
quarter of 2008 are set forth in the financial tables attached to this
earnings release and the reconciliations to those GAAP financial
measures should be carefully considered.
The Company applied the modified prospective method of adoption of SFAS
No. 123R, under which the effects of SFAS No. 123R are reflected in the
Company’s GAAP financial statement
presentations for the three months ended March 29, 2008 and March 31,
2007. Gross profit, gross profit margin, product margin, costs of
revenue, total operating expenses (research and development, sales and
marketing, general and administrative), operating income, operating
margin, net income before taxes per share, net income and net income per
share (referred to as earnings per share, or EPS) are the primary
financial measures management uses for planning and forecasting future
periods that are affected by share-based compensation. Because
management reviews these financial measures in a manner calculated
without taking into account the effects of SFAS No.123R, these financial
measures are treated as “non-GAAP financial
measures” under Securities and Exchange
Commission rules. Management uses the non-GAAP financial measures for
internal managerial purposes, including as a means to compare
period-to-period results on a consolidated basis and as a means to
evaluate the Company’s results on a
consolidated basis compared to those of other companies. In addition,
management uses certain of these measures when publicly providing
forward-looking statements on expectations regarding future consolidated
financial results. Management and the Board of Directors will continue
to compare the Company’s historical
consolidated results of operations (revenue, costs of revenue, gross
profit margin, gross profit margin percent, product margin percent,
research and development expenses, sales and marketing expenses, general
and administrative expenses, total operating expenses, operating margin,
income before income taxes, income before income taxes per diluted
share, income tax expense, effective income tax rate, operating income
as well as net (loss) income and (loss) earnings per diluted share),
excluding stock-based compensation, to financial information prepared on
the same basis during the Company’s budget
and planning process, to assess the business, make resource allocation
decisions and to compare consolidated results to the objectives
identified for the Company. The Company’s
budget and planning process culminates with the preparation of a
consolidated annual budget that includes these non-GAAP financial
measures. This budget, once finalized and approved, serves as the basis
for allocation of resources and management of operations. While
share-based compensation is a significant expense affecting the Company’s
results of operations, management excludes share-based compensation from
the Company’s consolidated budget and
planning process to facilitate period to period comparisons and to
assess changes in gross margin, net income and earnings per share
targets in relation to changes in forecasted revenue.
Profit-dependent cash incentive pay to employees, including senior
management, also is calculated using formulae that incorporate the
Company’s annual results excluding
share-based compensation expense.
The economic substance behind management’s
decision to use such non-GAAP financial measures:
The Company discloses non-GAAP information to the public to enable
investors to more easily assess the Company’s
performance on the same basis applied by management and to ease
comparison on both a GAAP and non-GAAP basis among other companies that
separately identify share-based compensation expenses. In particular,
the Company believes that it is useful to investors to understand how
the expenses and other adjustments associated with the application of
SFAS No. 123R are being reflected on the Company’s
income statements.
Why management believes the non-GAAP financial measure provides
useful information to investors:
Management believes that each of the non-GAAP measures reveals important
information about the economic model of the Company and the Company
discusses each of these items with the public on a regular basis on both
a GAAP and non-GAAP basis. The Company discloses this information to the
public to enable investors to more easily assess the Company’s
past performance and estimate future performance on the same basis
applied by management and to ease comparison on both a GAAP and non-GAAP
basis among other companies that separately identify share-based
compensation expense. In particular, the Company believes that it is
useful to investors to understand how the expenses and other adjustments
associated with the application of SFAS No. 123R are being reflected on
the Company’s income statements.
The material limitations associated with use of non-GAAP financial
measure as compared to the use of the most directly comparable GAAP
financial measures:
The non-GAAP financial measures disclosed by the Company 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
disclosed by the Company may be different from, and therefore may not be
comparable to, similar measures used by other companies.
Although these non-GAAP financial measures adjust expense, and diluted
share items to exclude the accounting treatment of share-based
compensation, they should not be viewed as a pro-forma presentation
reflecting the elimination of the underlying share-based compensation
programs, as those programs are an important element of the Company’s
compensation structure and generally accepted accounting principles
indicate that all forms of share-based payments should be valued and
included as appropriate in results of operations.
The manner in which management compensates for these limitations
when using non-GAAP financial measures:
Management takes into consideration the limitations in using non-GAAP
financial measures by evaluating the dilutive effect of the Company’s
share-based compensation arrangements on the Company’s
basic and diluted earnings per share calculations and by reviewing other
quantitative and qualitative information regarding the Company’s
share-based compensation arrangements. Management also uses these
non-GAAP measures in conjunction with GAAP measures to assess the impact
of share-based compensation.
Conference Call Scheduled for 10:00 a.m. ET Today
Aspect will hold a conference call to discuss the results of the first
fiscal quarter of 2008 and management's outlook for the second fiscal
quarter of 2008 at 10:00 a.m. Eastern Time today, Thursday, April 17,
2008. The call can be accessed live by dialing 1-888-715-1402 (domestic),
1-913-981-5573 (international), or via the webcast at http://www.aspectmedical.com
on the Investor page, or http://www.earnings.com.
It also will be available for replay until April 24, 2008, by dialing
1-888-203-1112 (domestic), or 1-719-457-0820 (international), access
code 8430175. The webcast 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. (NASDAQ: ASPM) is a global market leader in
brain monitoring technology. To date, the Company’s
Bispectral Index (BIS) technology has been used to assess approximately
26 million patients and has been the subject of more than 3,300
published articles and abstracts. BIS technology is installed in
approximately 80 percent of hospitals listed in the July 2007 U.S.
News and World Report ranking of America’s
Best Hospitals and in approximately 60 percent of all U.S. operating
rooms. In the last twelve months BIS technology was used in
approximately 19 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 eight
leading manufacturers of patient monitoring systems.
Cautionary Statement Regarding Forward Looking Information
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
regarding the impact of the recent adverse NEJM article on the Company’s
products and on market perception of the benefits of BIS-guided
anesthesia, and the Company’s Q2 2008
guidance with respect to total revenue, product revenue and GAAP and
non-GAAP net income (loss) per fully diluted share. 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 product revenue.
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’s business and operating results may
be adversely affected by the recent NEJM article and related publicity
comparing the Company’s BIS-monitoring
products to other anesthesia monitoring approaches. 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 and products based upon its neuroscience
technology such as its ATR biomarker under development. In addition, the
Company’s ability to remain profitable will
depend upon its ability to successfully 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. The Company has incurred substantial indebtedness in
connection with the issuance of convertible notes in June 2007 and a
substantial portion of its cash flows from operations may be dedicated
to interest and principal payments on such notes. 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, 2007 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...
FINANCIAL TABLES FOLLOW...
ASPECT MEDICAL SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts and Percentages)
Three Months Ended
March 29, 2008
March 31, 2007
(Unaudited)
(Unaudited)
Product revenue
$
24,428
$
22,435
Strategic alliance revenue
-
1,684
Total revenue
24,428
24,119
Costs of revenue
6,486
6,079
Gross profit
17,942
18,040
% of revenue
73.4
%
74.8
%
Operating expenses:
Research and development
3,939
4,221
Sales and marketing
10,202
10,045
General and administrative
3,942
3,663
Total operating expenses
18,083
17,929
(Loss) income from operations
(141
)
111
Other income (expense):
Interest income
1,278
982
Interest expense
(948
)
-
Income before income taxes
189
1,093
Income tax provision
424
576
Net (loss) income
$
(235
)
$
517
Net (loss) income per share:
Basic
$
(0.01
)
$
0.02
Diluted
$
(0.01
)
$
0.02
Shares used in computing net (loss) income per share:
Basic
17,148
22,411
Diluted
17,148
23,027
ASPECT MEDICAL SYSTEMS, INC.
CONSOLIDATED REVENUE DATA
(In Thousands, Except Unit Amounts and Percentages)
Three Months Ended
March 29, 2008
March 31, 2007
% Change
(Unaudited)
(Unaudited)
REVENUE
WORLDWIDE
Sensors
$
20,636
$
17,554
18
%
Monitors
2,097
2,895
(28
%)
Modules
981
1,117
(12
%)
Other Equipment
714
869
(18
%)
Equipment
3,792
4,881
(22
%)
Total product revenue
24,428
22,435
9
%
Strategic alliance
-
1,684
(100
%)
Total Worldwide
$
24,428
$
24,119
1
%
U.S.
Sensors
$
15,815
$
14,004
13
%
Monitors
634
1,820
(65
%)
Modules
223
440
(49
%)
Other Equipment
391
426
(8
%)
Equipment
1,248
2,686
(54
%)
Total Product revenue
17,063
16,690
2
%
Strategic alliance
-
1,684
(100
%)
Total U.S.
$
17,063
$
18,374
(7
%)
INTERNATIONAL
Sensors
$
4,821
$
3,550
36
%
Monitors
1,463
1,075
36
%
Modules
758
677
12
%
Other Equipment
323
443
(27
%)
Equipment
2,544
2,195
16
%
Total International
$
7,365
$
5,745
28
%
UNITS
WORLDWIDE
Sensors
1,486,000
1,237,000
20
%
Monitors
718
958
(25
%)
Modules (a)
1,560
1,474
6
%
Installed Base (b)
49,295
41,515
19
%
U.S.
Sensors
961,000
851,000
13
%
Monitors
180
528
(66
%)
Modules (a)
205
401
(49
%)
Installed Base (b)
28,532
24,787
15
%
INTERNATIONAL
Sensors
525,000
386,000
36
%
Monitors
538
430
25
%
Modules (a)
1,355
1,073
26
%
Installed Base (b)
20,763
16,728
24
%
(a) Represents module shipments to OEM customers
(b) Includes end-user module placements by OEM customers
ASPECT MEDICAL SYSTEMS, INC.
UNAUDITED RECONCILIATION OF GAAP to NON-GAAP FINANCIAL MEASURES
(In Thousands, Except Per Share Amounts and Percentages)
Three Months Ended
March 29, 2008
March 31, 2007
GAAP costs of revenue
$
6,486
$
6,079
Stock-based compensation expense
(119
)
(145
)
Non-GAAP costs of revenue
$
6,367
$
5,934
GAAP gross profit margin
$
17,942
$
18,040
Stock-based compensation expense
119
145
Non-GAAP gross profit margin
$
18,061
$
18,185
GAAP gross profit margin percent
73.4
%
74.8
%
Stock-based compensation expense
0.5
%
0.6
%
Non-GAAP gross profit margin percent
73.9
%
75.4
%
GAAP product margin percent
73.4
%
72.9
%
Stock-based compensation expense
0.5
%
0.7
%
Non-GAAP product margin percent
73.9
%
73.6
%
GAAP research and development expenses
$
3,939
$
4,221
Stock-based compensation expense
(469
)
(524
)
Non-GAAP research and development expenses
$
3,470
$
3,697
GAAP sales and marketing expenses
$
10,202
$
10,045
Stock-based compensation expense
(676
)
(808
)
Non-GAAP sales and marketing expenses
$
9,526
$
9,237
GAAP general and administrative expenses
$
3,942
$
3,663
Stock-based compensation expense
(678
)
(740
)
Non-GAAP general and administrative expenses
$
3,264
$
2,923
GAAP total operating expenses
$
18,083
$
17,929
Stock-based compensation expense
(1,823
)
(2,072
)
Non-GAAP total operating expenses
$
16,260
$
15,857
GAAP (loss) income from operations
$
(141
)
$
111
Stock-based compensation expense
1,942
2,217
Non-GAAP income from operations
$
1,801
$
2,328
ASPECT MEDICAL SYSTEMS, INC.
UNAUDITED RECONCILIATION OF GAAP to NON-GAAP FINANCIAL MEASURES
(CONT.)
(In Thousands, Except Per Share Amounts and Percentages)
Three Months Ended
March 29, 2008
March 31, 2007
GAAP operating margin
(0.6
%)
0.5
%
Stock-based compensation expense
8.0
%
9.2
%
Non-GAAP operating margin
7.4
%
9.7
%
GAAP income before income tax
$
189
$
1,093
Stock-based compensation expense
1,942
2,217
Non-GAAP income before income tax
$
2,131
$
3,310
GAAP income before income tax per diluted share
$
0.01
$
0.05
Stock-based compensation expense
0.11
0.09
Non-GAAP income before income tax per diluted share
$
0.12
$
0.14
GAAP income tax expense
$
424
$
576
Stock-based compensation expense
597
693
Non-GAAP income tax expense
$
1,021
$
1,269
GAAP effective income tax rate
224
%
53
%
Stock-based compensation expense
(176
%)
(15
%)
Non-GAAP effective income tax rate
48
%
38
%
GAAP net (loss) income
$
(235
)
$
517
Stock-based compensation expense
1,345
1,524
Non-GAAP net income
$
1,110
$
2,041
GAAP diluted (loss) income per share
$
(0.01
)
$
0.02
Stock-based compensation expense
0.07
0.07
Non-GAAP diluted income per share
$
0.06
$
0.09
Guidance for Q2 2008
GAAP net loss per share
($0.03) – ($0.01)
Stock-based compensation expense
$0.04 – $0.08
Non-GAAP net income per diluted share
$ 0.03 – $0.05
ASPECT MEDICAL SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
March 29,
December 31,
2008
2007
(Unaudited)
(Unaudited)
ASSETS
Current assets:
Cash, cash equivalents and marketable securities (A)
$
96,393
$
102,966
Accounts receivable, net
13,270
12,544
Inventory, net
6,012
7,113
Deferred tax assets
4,729
4,729
Other current assets
4,635
4,150
Total current assets
125,039
131,502
Property and equipment, net
8,571
8,455
Long-term marketable securities (A)
14,454
6,518
Deferred financing fees
4,050
4,213
Long-term deferred tax assets
19,958
20,171
Other assets
2,265
2,618
Total assets
$
174,337
$
173,477
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities
$
10,275
$
11,559
Other current liabilities
62
115
Total current liabilities
10,337
11,674
Other long-term liabilities
118
128
Long-term debt
125,000
125,000
Stockholders' equity
38,882
36,675
Total liabilities and stockholders' equity
$
174,337
$
173,477
(A) Investments with maturities beyond twelve months are
included in long-term investments.