2nd Quarter 2016 Highlights:
- Revenue Increased 33 Percent Year-over-Year to $47.1 Million; Non-GAAP Revenues Increased Nine Percent Year-over-Year
- Gross Margins Increased to 64 Percent; Non-GAAP Gross Margins Increased to 66 Percent
- GAAP Net Income was $2.3 Million, or $0.07 Per Fully Diluted Common Share; Non-GAAP Net Income was $4.3 Million, or $0.13 Per Fully Diluted Common share
I’m pleased to report the second quarter was an outstanding success on several fronts, with record revenues and growth for the Company. The company posted exceptionally strong financial results and is tracking significantly ahead of schedule on several key operational initiatives, due in large part to the acquisition and speedy integration of On-X Life Technologies (On-X). Our expanded U.S. cardiac surgery sales force is increasing the awareness and availability of the On-X product portfolio to a broader customer base while also driving sales of BioGlue® and our tissue preservation services. Outside of the U.S., we are now selling On-X through our direct sales force, rather than through distributors, in all of the markets in which we sell through direct sales. Our decision to streamline our focus and product portfolio on the cardiac surgery market, combined with selling direct in more markets than ever before, is driving significantly improved performance and strengthening our competitive position globally. We also continue to benefit from the enhancements to our tissue processing operations that we began implementing last year. These enhancements combined with our revenue performance contributed to strong gross margin and profitability in the second quarter. On the clinical front, we recently received FDA approval for the updated protocol for our PerClot® IDE trial and expect to restart patient enrollment later this year, keeping us on track for potential FDA approval in the first half of 2019. Given our strong overall performance and momentum through the first half of the year, we increased on guidance for 2016 on revenue, gross margin, and EPS guidance and remain very confident in our ability to capitalize on the large opportunity our markets offer.
Regarding the specifics of our financial performance, our revenues for the second quarter of 2016 increased 33 percent to $47.1 million, compared to $35.5 million for the second quarter of 2015. The increase was primarily driven by the acquisition of On-X in January 2016, along with revenue increases in cardiac and vascular tissues and BioGlue. Non-GAAP revenues for the second quarter of 2016 increased nine percent compared to the second quarter of 2015.
Revenues for the first half of 2016 increased 30 percent to $90.1 million, compared to $69.4 million for the first half of 2015. The increase was primarily driven by the acquisition of On-X, along with revenue increases in vascular tissues and BioGlue. Non-GAAP revenues for the first half of 2016 increased nine percent compared to the first half of 2015.
GAAP net income for the second quarter of 2016 was $2.3 million, or $0.07 per basic and fully diluted common share, compared to net loss of ($502,000), or ($0.02) per basic and fully diluted common share, for the second quarter of 2015. Non-GAAP net income for the second quarter of 2016 was $4.3 million, or $0.13 per fully diluted common share, compared to non-GAAP net income of $1.3 million, or $0.04 per fully diluted common share for the second quarter of 2015.
GAAP net income for the first half of 2016 was $4.9 million, or $0.15 per basic and fully diluted common share, compared to net loss of ($776,000), or ($0.03) per basic and fully diluted common share, for the first half of 2015. Non-GAAP net income for the first half of 2016 was $7.6 million, or $0.23 per fully diluted common share, compared to non-GAAP net income of $1.5 million, or $0.05 per fully diluted common share for the first half of 2015.
Based on our financial results through the first half of 2016, as I indicated above, the Company raised its 2016 financial guidance as summarized below.
|2016 Financial Guidance Summary|
|Total revenues||$178 million – $180 million
Year-over-year mid-single digit % non-GAAP revenue increase
|$180 million – $182 million
Year-over-year mid to upper single digit % non-GAAP revenue increase
|Product revenues||Year-over-year mid-single digit % non-GAAP revenue increase||Year-over-year mid to upper single digit % non-GAAP revenue increase|
|Tissue processing revenues||Year-over-year mid-single digit % non-GAAP revenue increase||Year-over-year mid-single digit % non-GAAP revenue increase|
|Gross margins||Approximately 63%||Approximately 64%|
|R&D expenses||$13.0 million – $15.0 million||$13.0 million – $15.0 million|
|Non-GAAP adjusted income per common share||$0.29 – $0.32||$0.32 – $0.34|
We continue to see the significant benefits of the initiatives that we have implemented in the last two years, none of which would have been successful without the dedication, commitment and hard work of our employees. Thank you once again for all you do in helping to improve patients’ lives and for making this quarter another successful one.
Very truly yours,
J. Patrick Mackin
Chairman, President & CEO
Statements made in this update that look forward in time or that express management’s beliefs, expectations, or hopes are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements reflect the views of management at the time such statements are made and are subject to a number of risks, uncertainties, estimates, and assumptions that may cause actual results to differ materially from current expectations. These statements include those regarding the timing of patient enrollment in our PerClot IDE clinical trial and the potential market opportunity for PerClot. The risks and uncertainties affecting these statements include that there is no guarantee that the FDA will approve the surgical version of PerClot for distribution in the U.S. in accordance with our expected timeframe, or at all; our PerClot and other clinical trials are subject to a number of risks, including unanticipated reactions or results, delays, and cost overages, and PerClot and other trials may ultimately be unsuccessful; there is no guarantee that we will be able to attain the levels of revenue and profitability that we anticipate for PerClot; as part of our patent litigation against Medafor, Inc. regarding PerClot (the “Medafor Litigation”), we have been enjoined from selling, marketing, and distributing PerClot in the U.S.; there is no guarantee that we will ultimately prevail in the Medafor Litigation, and if we do not prevail, we will continue to be prohibited from selling PerClot in the U.S., or we may have to pay substantial royalties to sell PerClot in the U.S. until Medafor’s patent expires. These risks and uncertainties include the risk factors detailed in our Securities and Exchange Commission filings, including our Form 10-K for the year ended December 31, 2014 and our subsequent filings with the SEC. CryoLife does not undertake to update its forward-looking statements.