ZVXI Zevex International (MM)

ZEVEX International Inc. (NASDAQ: ZVXI) reported financial results for the three months ended March 31, 2006. Revenue for the first quarter of 2006 increased 77% to $10.6 million, compared with revenue of $6.0 million for the first quarter of 2005. Net income was a record $1.5 million, or $0.36 per share, compared with net income of $45,000, or $0.01 per share, for the first quarter of 2005. Notably, net income for the first quarter of 2006 reflects a $95,000 charge relating to outstanding stock options, as newly required under the accounting rules. Total revenue from the company's Therapeutics division for the first quarter of 2006 increased by 140% to $6.9 million, compared with $2.9 million for the first quarter of 2005. Specifically, sales of domestic enteral feeding pumps and disposable delivery sets increased by 22%, or $531,000, compared with last year's first quarter, while international sales of pumps and sets in the same period increased by $3.5 million, or 841%. The increase in these international sales was due primarily to increased revenue from Nutricia Clinical, a division of Royal Numico and the company's largest strategic international distribution partner. Sales from the company's Therapeutics division in the first quarter of 2006 accounted for 65% of the company's total revenue. Total revenue from the company's Applied Technology division for the first quarter of 2006 increased by 19% to $3.7 million, compared with $3.1 million for the first quarter of 2005. Revenue from sensors and handpieces grew by $732,000, or 33%, over the first quarter of 2005, while revenue from medical systems declined by $278,000, or 34%. Revenue from engineering services increased by 164%, or $143,000, over the first quarter of 2005. Sales from the company's Applied Technology division in the first quarter of 2006 accounted for 35% of the company's total revenue. The increase in net income for the first quarter of 2006 was due primarily to the substantial increase in revenue and the resulting increase in gross profit. In addition, in the first quarter, the company recorded a tax benefit of $446,000, which was related to the partial reversal of a valuation allowance from a prior period. Operating expenses increased to approximately $2.7 million during the first quarter of 2006, compared with $2.1 million for the first quarter of 2005. This increase in operating expenses was primarily due to increased investments in sales and marketing, and to increased general and administrative expenses, including recruiting expenses, personnel and insurance costs, legal fees, stock option expenses and bonus incentive accruals. David J. McNally, ZEVEX's president and CEO, said, "We are delighted to report another quarter of record earnings, as well as record revenue for the first quarter of 2006. Both our Applied Technology and Therapeutics divisions are performing well. Our largest Applied Technology customers contributed significantly to the 33% growth in the sales of our surgical handpieces and sensors. Our domestic Therapeutics sales team drove growth of 22%, based upon the strength of our EnteraLite(R) Infinity(R) and EnteraLite(R) portable feeding pumps. International sales revenue in our Therapeutics division exceeded our expectations, based upon the accelerated introduction of Flocare(R) Infinity(R) portable feeding pumps by Nutricia Clinical in Europe. This was also the first full quarter that we recognized service revenue associated with the servicing of these pumps for Nutricia Clinical, which added over $800,000 in new service revenue for the quarter. "Our current outlook for 2006 remains positive," continued McNally. "Our Applied Technology customers are forecasting continuing demand for our products at a level that is consistent with the level that we achieved in the first quarter of 2006. Our domestic Therapeutics sales force has been performing well, building upon last year's successful market introduction of our EnteraLite Infinity product line. Internationally, we expect that our business with Nutricia Clinical -- both our sales revenue and our service revenue -- will be strong during the next three quarters. During the first quarter of 2006, we achieved $3.5 million in revenue from our pump shipments and service to Nutricia Clinical. As a result, we are increasing our Nutricia forecast from $8 million to $10 million for the full year 2006. Based upon our current outlook, we are raising our projection for overall year-over-year revenue growth in 2006 to 25%. "During the first quarter, we achieved record income," continued McNally. "I would like to remind investors that we enjoyed a substantial tax benefit of $446,000 during the first quarter, which more than offset a stock option expense of approximately $95,000 for the quarter under the new accounting rules. Also, significantly, in the second quarter of 2006, we successfully defended our patent rights for which we received a settlement payment of $1,000,000, as we have described in our SEC Form 8-K, which we filed earlier this month. This $1,000,000 payment will be reflected as other income, offset by less than $100,000 in legal fees, in our second quarter financials." -0- *T ZEVEX INTERNATIONAL INC. CONSOLIDATED STATEMENTS OF OPERATIONS Three months ended March 31, 2006 2005 (unaudited) (unaudited) ---------------------------- Revenue: Product sales $10,330,555 $5,881,454 Engineering services 262,602 102,710 ------------- ------------ Total revenue 10,593,157 5,984,164 Cost of sales 6,844,472 3,797,659 ------------- ------------ Gross profit 3,748,685 2,186,505 Operating expenses: General and administrative 1,365,267 974,679 Selling and marketing 1,026,616 815,700 Research and development 309,111 321,656 ------------- ------------ Total operating expenses 2,700,994 2,112,035 Operating income 1,047,691 74,470 Other income (expense): Interest and other income 12,450 3,129 Interest expense (29,061) (29,811) ------------- ------------ Income before income taxes 1,031,080 47,788 Benefit (provision) for income taxes 446,307 (2,635) ------------- ------------ Net income $1,477,387 $45,153 ============= ============ Basic net income per share $0.42 $0.01 ============= ============ Weighted average shares outstanding 3,555,870 3,400,964 ============= ============ Diluted net income per share $0.36 $0.01 ============= ============ Diluted weighted average shares outstanding 4,073,315 3,512,433 ============= ============ ZEVEX INTERNATIONAL INC. CONSOLIDATED BALANCE SHEETS March 31, Dec. 31, 2006 2005 ASSETS (unaudited) -------------------------- Current assets Cash and cash equivalents $926,567 $1,284,218 Designated cash for sinking fund payment on industrial development bond 123,126 89,037 Accounts receivable, net of allowance for doubtful accounts of $130,000 7,806,475 5,641,229 Inventories 4,962,231 4,586,418 Marketable securities 19,350 20,250 Deferred income taxes 449,902 0 Prepaid expenses and other current assets 216,026 193,362 ------------ ------------- Total current assets 14,503,677 11,814,514 Property and equipment, net 4,890,240 4,639,136 Patents, trademarks and other intangibles, net 341,367 348,467 Goodwill, net 4,048,264 4,048,264 ------------ ------------- Total assets $23,783,548 $20,850,381 ============ ============= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable $3,583,287 $2,462,071 Other accrued liabilities 1,297,287 1,290,911 Deferred revenue 20,830 52,081 Current portion of industrial development bond 100,000 100,000 Income taxes payable 6,560 2,965 Current portion of other long-term debt 56,988 56,219 ------------ ------------- Total current liabilities 5,064,952 3,964,247 Industrial development bond 1,100,000 1,100,000 Other long-term debt 695,605 710,143 Stockholders' equity Common stock; $.001 par value, 10,000,000 authorized shares, 3,656,145 issued and 3,616,912 outstanding at March 31, 2006, and 3,566,593 issued and 3,527,360 outstanding at Dec. 31, 2005 3,656 3,567 Additional paid in capital 17,089,820 16,719,396 Unrealized loss on marketable securities (900) - Treasury stock, 39,233 shares (at cost) at March 31, 2006, and Dec. 31, 2005 (89,422) (89,422) Accumulated deficit (80,163) (1,557,550) ------------ ------------- Total stockholders' equity 16,922,991 15,075,991 ------------ ------------- Total liabilities and stockholders' equity $23,783,548 $20,850,381 ============ ============= *T CONFERENCE CALL ZEVEX International Inc. invites all those interested to join the ZEVEX management team for its earnings conference call for the first quarter ended March 31, 2006. The call will be held Wednesday, April 26, 2006, at 2:30 p.m. Mountain time (4:30 p.m. Eastern, 3:30 p.m. Central and 1:30 p.m. Pacific). The telephone numbers for the call are as follows: Domestic: 800-240-5318 International: 303-262-2141 A live webcast and a rebroadcast of the conference call will be available on the company's Web site at www.zevex.com and www.streetevents.com. To listen to the live broadcast, please enter the site 10-15 minutes prior to the call in order to download any necessary software, and then click on the "Live Webcast" link on the ZEVEX home page to access the call. The webcast will be archived on both sites. There is no other replay access to the call. ABOUT ZEVEX ZEVEX International Inc. (www.zevex.com), founded in 1986, is a diversified medical device company committed to creating products that transform life with patented and proprietary medical device technologies -- from sensors and surgical tools to medical electronic systems. Forward-Looking Statements Statements made in this press release, including those relating to anticipated growth and other statements regarding future performance, are forward-looking and are made pursuant to the safe harbor provisions of the Securities Litigation Reform Act of 1995. Such statements involve risks and uncertainties that may cause actual results to differ materially from those set forth in these statements. Among other things, the company's efforts to improve its sales and margins in its core businesses may not be effective or such efforts could be more difficult or expensive than the company currently anticipates. Moreover, the company could experience delays in orders for its contract manufacturing products or in the launch of planned new products that could delay the receipt of anticipated revenue. In addition to the foregoing, the economic, competitive, governmental, technological and other factors identified in the company's filings with the Securities and Exchange Commission, including the Form 10-K for the year ended Dec. 31, 2005, may cause actual results or events to differ materially from those described in the forward-looking statements in this press release.