Cytyc Reports Record Second Quarter 2006 Results; Revenue Increases 20 Percent to $150.4 Million; Diluted Earnings Per Share Grows to $0.27.MARLBOROUGH Marl·bor·ough or Marl·bo·ro A city of east-central Massachusetts east-northeast of Worcester. Settled in 1657, it was nearly destroyed in 1676 during King Philip's War. Population: 38,100. , Mass. -- Cytyc Cytyc Corporation (NASDAQ: CYTC) engages in the design, development, manufacture, and marketing of clinical products that focus on women’s health. Its products cover a range of women's health applications, including cervical cancer screening, breast cancer risk Corporation (Nasdaq: CYTC), a leading women's health Women's Health Definition Women's health is the effect of gender on disease and health that encompasses a broad range of biological and psychosocial issues. company, today announced results for the second quarter ended June June: see month. 30, 2006. Revenue for the quarter ended June 30, 2006 rose to $150.4 million, compared to revenue of $125.4 million for the same period of 2005. Net income for the quarter was $31.7 million, or $0.27 per diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. share, compared to net income for the same period in 2005 of $28.0 million, or $0.23 per diluted share, an increase of 14 percent. Adjusted net income for the quarter, excluding the impact of stock-based compensation expense, was $35.5 million, or $0.29 per diluted share, an increase of 25 percent over the same period of 2005. Second Quarter Highlights: --Domestic surgical products revenue increased 42 percent over second quarter 2005 to $50.0 million, representing 33 percent of total Company revenue. --Domestic diagnostic products revenue increased 9 percent over second quarter 2005 to $84.1 million and included the shipment of 9 million ThinPrep ThinPrep™ Cytology A proprietary system–Cytec, Inc, in which specimens are obtained with a special fluid collection system and the slides for cytologic examination are spread in one-cell-thick layers. See thin prep. (R) Pap Tests Pap test, Pap smear, or Papanicolaou test (păp'ənē`kəlou), medical procedure used to detect cancer of the uterine cervix. and 25 ThinPrep(R) Imaging Systems for a total of 69 units shipped year-to-date Year-to-date (YTD) The period beginning at the start of the calendar year up to the current date. . --International diagnostic and surgical products revenue increased 23 percent over second quarter 2005 to $16.3 million. --The business generated cash from operations of $31.4 million in the second quarter, bringing year-to-date cash from operations to $72.6 million. --The Company announced a $150 million credit facility to provide maximum financial flexibility to grow the business and to benefit from the favorable fa·vor·a·ble adj. 1. Advantageous; helpful: favorable winds. 2. Encouraging; propitious: a favorable diagnosis. 3. conditions in the credit markets. Patrick J. Sullivan, Cytyc's chairman, president, and chief executive officer, stated, "I am very pleased with our second quarter results. Our 20 percent year-over-year revenue growth was primarily driven by robust domestic sales of our NovaSure(R) Endometrial Ablation Endometrial ablation is a medical procedure that is used to remove (ablate) or destroy the endometrial lining of a woman's uterus. This technique is most often employed for women who suffer from excessive or prolonged bleeding during their menstrual cycle but can not or do not wish product and continued strong performance of our diagnostics (1) Software routines that test hardware components (memory, keyboard, disks, etc.). Diagnostics are often stored in ROM chips and activated on startup. (2) Error messages in a programmer's source code that refer to statements or syntax that the compiler or assembler business. Domestic NovaSure sales grew 47 percent. Second quarter growth was complemented by 35 percent revenue growth of our MammoSite(R) Radiation Therapy System. Our international business also made substantial progress, with sales growing 23 percent based largely on continued expansion of our ThinPrep business and NovaSure growth in the United Kingdom and Canada Canada (kăn`ədə), independent nation (2001 pop. 30,007,094), 3,851,787 sq mi (9,976,128 sq km), N North America. Canada occupies all of North America N of the United States (and E of Alaska) except for Greenland and the French islands of ." Mr. Sullivan concluded, "Overall, the second quarter results underline underline an animal's ventral profile; the shape of the belly when viewed from the side, e.g. pendulous, pot-belly, tucked up, gaunt. the success of our strategy to diversify diversify To acquire a variety of assets that do not tend to change in value at the same time. To diversify a securities portfolio is to purchase different types of securities in different companies in unrelated industries. our revenue sources, led by strong growth from our domestic surgical products and our international business." The Company's segment revenue was as follows:
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------------------------
2006 2005 % Change 2006 2005 % Change
----------------------------------------------
($ in millions) ($ in millions)
Domestic Diagnostic
Products $84.1 $77.0 9% $164.8 $152.0 8%
Domestic Surgical
Products 50.0 35.1 42% 94.7 61.0 55%
International 16.3 13.3 23% 31.4 25.8 22%
----------------------------------------------
Total Company Revenue $150.4 $125.4 20% $290.9 $238.8 22%
==============================================
Domestic diagnostic products revenue consists primarily of revenue from sales of the ThinPrep Pap Test and use of the ThinPrep Imaging System. Domestic surgical products revenue consists of revenue from sales of the NovaSure Endometrial Ablation System and the MammoSite and GliaSite(R) Radiation Therapy Systems. International revenue consists primarily of revenue from sales outside of the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. of the NovaSure Endometrial Ablation System, the MammoSite Radiation Therapy System, the ThinPrep Pap Test, and use of the ThinPrep Imaging System. During the second quarter, the business generated $31.4 million of cash flow from operations Cash flow from operations A firm's net cash inflow resulting directly from its regular operations (disregarding extraordinary items such as the sale of fixed assets or transaction costs associated with issuing securities), calculated as the sum of net income plus noncash expenses , bringing the total cash and investments at the end of the quarter to $189.8 million. The Company invested $56.3 million in a share repurchase Share Repurchase A program by which a company buys back its own shares from the marketplace, reducing the number of outstanding shares. This is usually an indication that the company's management thinks the shares are undervalued. program in the second quarter of 2006. Non-GAAP Information The table below shows the impact of stock-based compensation expense, which began in January January: see month. 2006.
Reconciliation of Non-GAAP Measures
(in thousands, except per share data)
Three Months Ended
June 30,
2006 2005
------------------
Net income reconciliation:
----------------------------------------------------
Net income, as reported $31,680 $28,035
Stock-based compensation under new accounting
rules (1) 3,848 --
------------------
Adjusted net income $35,528 $28,035
==================
Net income per common share reconciliation:
----------------------------------------------------
Net income per common share, diluted, as reported $0.27 $0.23
Stock-based compensation under new accounting
rules (1) 0.02 --
------------------
Adjusted net income per common share, diluted $0.29 $0.23
==================
Weighted average diluted shares outstanding
reconciliation:
----------------------------------------------------
Weighted average diluted shares outstanding, as
reported 123,582 124,796
Stock-based compensation under new accounting
rules (1) 2,155 --
------------------
Adjusted weighted average diluted shares outstanding 125,737 124,796
==================
Notes to Reconciliation of Non-GAAP Measures:
----------------------------------------------------------------------
(1) Cytyc adopted new accounting guidelines requiring expensing of
stock-based compensation beginning in January 2006, which resulted
in expense of $5.7 million, before tax benefit of $1.9 million
during the three months ended June 30, 2006. These new rules also
resulted in a reduction of weighted average diluted shares
outstanding of 2.2 million shares.
In addition to disclosing results determined in accordance Accordance is Bible Study Software for Macintosh developed by OakTree Software, Inc.[] As well as a standalone program, it is the base software packaged by Zondervan in their Bible Study suites for Macintosh. with generally accepted accounting principles The standard accounting rules, regulations, and procedures used by companies in maintaining their financial records. Generally accepted accounting principles (GAAP) provide companies and accountants with a consistent set of guidelines that cover both broad accounting , or GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). , Cytyc also discloses adjusted, or non-GAAP, results of operations that exclude certain items. By disclosing this non-GAAP information, management intends to provide investors with additional information to further analyze an·a·lyze v. 1. To examine methodically by separating into parts and studying their interrelations. 2. To separate a chemical substance into its constituent elements to determine their nature or proportions. 3. Cytyc's performance and underlying trends. In order to better assess operating trends, management utilizes a measure of adjusted net income and adjusted diluted net income per common share on a non-GAAP basis that excludes for the applicable period stock options expensed under new accounting guidelines guidelines, n.pl a set of standards, criteria, or specifications to be used or followed in the performance of certain tasks. adopted January 1, 2006, net of tax effects, and a charge, net of tax effects, related to the DEKA DEKA Dean Kamen (of DEKA Research and Development Corporation, Manchester, NH, USA) DEKA Deutsche Kapitalanlagegesellschaft Mbh (German investment fund) Products Limited Partnership arbitration panel arbitration panel A group of individuals charged with resolving a dispute between individuals and/or organizations. Arbitration panels to resolve investment disputes are sponsored by self-regulatory organizations such as NASD. decision in the first quarter of 2005. Management believes adjusted net income provides useful supplemental information to management and investors regarding the performance and underlying trends of Cytyc's business operations Business operations are those activities involved in the running of a business for the purpose of producing value for the stakeholders. Compare business processes. The outcome of business operations is the harvesting of value from assets and facilitates comparisons to its historical operating results. Management uses this information internally for forecasting, budgeting, evaluating the effectiveness of Cytyc's operational strategies, and performance measurement for compensation of management and employees. Management believes it is important to provide investors with the same metrics metrics Managed care A popular term for standards by which the quality of a product, service, or outcome of a particular form of Pt management is evaluated. See TQM. used by management to measure operating performance, which assists investors in analyzing the underlying trends in Cytyc's business over time. Non-GAAP information should not be viewed as a substitute for, or superior to, net income or other data prepared in accordance with GAAP as measures of Cytyc's profitability or liquidity. Users of this financial information should consider the types of events and transactions for which adjustments have been made. See the tables in this press release for a reconciliation of non-GAAP amounts to amounts reported under GAAP. Cytyc management will discuss second quarter results, business highlights and future expectations during a conference call on July July: see month. 27, at 8:30 a.m. (Eastern). The call will be hosted by Patrick J. Sullivan, chairman, president, and chief executive officer; Daniel Daniel, book of the Bible Daniel, book of the Bible. It combines "court" tales, perhaps originating from the 6th cent. B.C., and a series of apocalyptic visions arising from the time of the Maccabean emergency (167–164 B.C. J. Levangie, executive vice president and chief commercial officer; and Timothy Timothy, epistles in the New Testament Timothy, two letters of the New Testament. With Titus they comprise the Pastoral Epistles, in which St. Paul addresses his coworkers as the guardians and transmitters of his teaching. M. Adams Adams, town (1990 pop. 9,445), Berkshire co., NW Mass., in the Berkshires, on the Hoosic River; inc. 1778. Its manufactures include chemicals, textiles, and paper products. The Berkshire region attracts tourists year-round. , chief financial officer. A live webcast of the call may be accessed at Cytyc's website, http://ir.cytyc.com, and the event will be available for replay at this site approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. two hours following the call until August 10, 2006. Those without web access may access the call by dialing 201-689-8470. A telephonic replay of the call will be available through August 10, 2006, by dialing 201-612-7415; enter account # 3055 and conference ID # 207653. Cytyc Corporation is a leading women's health company that designs, develops, manufactures, and markets innovative and clinically effective products for cervical cancer Cervical Cancer Definition Cervical cancer is a disease in which the cells of the cervix become abnormal and start to grow uncontrollably, forming tumors. screening, breast cancer risk assessment, treatment of excessive menstrual menstrual /men·stru·al/ (men´stroo-al) pertaining to the menses or to menstruation. men·stru·al or men·stru·ous adj. Of or relating to menstruation. bleeding bleeding /bleed·ing/ (-ing) 1. the escape of blood, as from an injured vessel. 2. phlebotomy. dysfunctional uterine bleeding , and treatment of breast cancer. Cytyc is traded on The Nasdaq Stock Market Nasdaq stock market The first electronic stock market listing over 5000 companies. The Nasdaq stock market comprises two separate markets, namely the Nasdaq National Market, which trades large, active securities and the Nasdaq Smallcap Market that trades emerging growth companies. under the symbol CYTC. Cytyc is a registered trademark of Cytyc Corporation. Forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. in this press release are made pursuant to the provisions of Section 21E of the Securities Exchange Act of 1934. Investors are cautioned that statements in this press release which are not strictly historical statements, including, without limitation, statements relating to relating to relate prep → concernant relating to relate prep → bezüglich +gen, mit Bezug auf +acc Cytyc's future financial condition, operating results and economic performance, and management's expectations regarding key customer relationships, future growth opportunities, product acceptance and business strategy, constitute forward-looking statements. These statements are based on current expectations, forecasts and assumptions that are subject to risks and uncertainties, which could cause actual outcomes and results to differ materially from those statements. Risks and uncertainties include, among others, dependence on key personnel and customers as well as reliance on proprietary technology, uncertainty of product development efforts and product acceptance, management of growth and product diversification Diversification A risk management technique that mixes a wide variety of investments within a portfolio. It is designed to minimize the impact of any one security on overall portfolio performance. Notes: Diversification is possibly the greatest way to reduce the risk. , entry into new market segments domestically and new markets internationally, risks associated with litigation An action brought in court to enforce a particular right. The act or process of bringing a lawsuit in and of itself; a judicial contest; any dispute. When a person begins a civil lawsuit, the person enters into a process called litigation. , the effective integration of acquired businesses and technologies, competition and competitive pricing pressures, risks associated with the FDA FDA abbr. Food and Drug Administration FDA, n.pr See Food and Drug Administration. FDA, n.pr the abbreviation for the Food and Drug Administration. regulatory reg·u·late tr.v. reg·u·lat·ed, reg·u·lat·ing, reg·u·lates 1. To control or direct according to rule, principle, or law. 2. approval processes and healthcare reimbursement Reimbursement Payment made to someone for out-of-pocket expenses has incurred. policies in the United States and abroad, introduction of technologies that are disruptive disruptive /dis·rup·tive/ (-tiv) 1. bursting apart; rending. 2. causing confusion or disorder. to Cytyc's business and operations, the impact of new accounting requirements and governmental rules and regulations, as well as other risks detailed in Cytyc's filings with the Securities and Exchange Commission, including those under the heading "Risk Factors" in its 2005 Annual Report on Form 10-K Form 10-K A report required by the SEC from exchange-listed companies that provides for annual disclosure of certain financial information. Form 10-K See 10-K. and its most recent Quarterly Report on Form 10-Q Form 10-Q See 10-Q. filed with the Commission. Cytyc cautions readers not to place undue reliance on any such forward-looking statements, which speak only as of the date they were made. Cytyc disclaims any obligation to publicly update or revise any such statements to reflect any change in its expectations or events, conditions, or circumstances CIRCUMSTANCES, evidence. The particulars which accompany a fact. 2. The facts proved are either possible or impossible, ordinary and probable, or extraordinary and improbable, recent or ancient; they may have happened near us, or afar off; they are public or on which any such statements may be based, or that may affect the likelihood that actual results will differ from those set forth in the forward-looking statements.
Cytyc Corporation
Condensed Consolidated Statements of Income
(in thousands, except per share data)
(unaudited)
----------------------------------------------------------------------
Three Months Ended
June 30,
2006 2005
--------- ---------
Net sales $150,397 $125,381
Cost of sales (1) 33,063 26,106
--------- ---------
Gross profit 117,334 99,275
--------- ---------
Operating expenses:
Research and development (1) 10,681 7,958
Sales and marketing (1) 41,989 33,708
General and administrative (1) 14,809 11,490
--------- ---------
Total operating expenses 67,479 53,156
--------- ---------
Income from operations 49,855 46,119
Other income (expense), net:
Interest income 1,826 526
Interest expense (1,792) (1,792)
Other expense - (703)
--------- ---------
Total other income (expense), net 34 (1,969)
--------- ---------
Income before provision for income taxes 49,889 44,150
Provision for income taxes (1) 18,209 16,115
--------- ---------
Net income $31,680 $28,035
========= =========
Net income per common and potential common share:
Basic $0.28 $0.25
========= =========
Diluted $0.27 $0.23
========= =========
Weighted average common and potential common
shares outstanding:
Basic 114,356 113,173
========= =========
Diluted 123,582 124,796
========= =========
(1) Balance includes stock-based compensation
expense under Statement of Financial Accounting
Standards No. 123R as follows:
Cost of sales $344 $-
Research and development 803 -
Sales and marketing 2,525 -
General and administrative 2,066 -
--------- ---------
Stock-based compensation expense, gross 5,738 -
Effect on income taxes (1,890) -
--------- ---------
Stock-based compensation expense, net $3,848 $-
========= =========
Cytyc Corporation
Condensed Consolidated Statements of Income
(in thousands, except per share data)
(unaudited)
----------------------------------------------------------------------
Six Months Ended
June 30,
2006 2005
--------- ---------
Net sales $290,937 $238,786
Cost of sales (1) 62,852 50,033
--------- ---------
Gross profit 228,085 188,753
--------- ---------
Operating expenses:
Research and development (1) 20,992 14,757
Sales and marketing (1) 82,122 63,391
General and administrative (1) 28,834 22,197
Arbitration decision - 7,807
--------- ---------
Total operating expenses 131,948 108,152
--------- ---------
Income from operations 96,137 80,601
Other expense, net:
Interest income 3,656 1,418
Interest expense (3,584) (3,584)
Other expense (77) (1,386)
--------- ---------
Total other expense, net (5) (3,552)
--------- ---------
Income before provision for income taxes 96,132 77,049
Provision for income taxes (1) 35,088 28,123
--------- ---------
Net income $61,044 $48,926
========= =========
Net income per common and potential common share:
Basic $0.53 $0.43
========= =========
Diluted $0.51 $0.41
========= =========
Weighted average common and potential common
shares outstanding:
Basic 114,917 113,417
========= =========
Diluted 125,014 125,281
========= =========
(1) Balance includes stock-based compensation
expense under Statement of Financial Accounting
Standards No. 123R as follows:
Cost of sales $705 $-
Research and development 1,647 -
Sales and marketing 5,176 -
General and administrative 4,235 -
--------- ---------
Stock-based compensation expense, gross 11,763 -
Effect on income taxes (3,853) -
--------- ---------
Stock-based compensation expense, net $7,910 $-
========= =========
Cytyc Corporation
Condensed Consolidated Balance Sheets
(in thousands)
June 30, December 31,
2006 2005
----------- -----------
(unaudited)
Assets:
Current assets:
Cash and investment securities $189,837 $220,619
Accounts receivable, net 86,006 82,833
Inventories, net 26,531 24,033
Other current assets 17,310 9,805
----------- -----------
Total current assets 319,684 337,290
----------- -----------
Property and equipment:
Property and equipment 112,017 101,604
Equipment under customer usage agreements 80,672 66,832
Less: accumulated depreciation and
amortization (66,084) (54,826)
----------- -----------
Total property and equipment, net 126,605 113,610
----------- -----------
Goodwill and other intangible assets, net 575,330 581,957
Other assets, net 9,786 7,022
----------- -----------
Total Assets $1,031,405 $1,039,879
=========== ===========
Liabilities and Stockholders' Equity:
Current liabilities $54,034 $89,183
Long-term debt and other non-current
liabilities 331,874 322,345
Stockholders' equity 645,497 628,351
----------- -----------
Total Liabilities and Stockholders' Equity $1,031,405 $1,039,879
=========== ===========
Cytyc Corporation
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
Six Months Ended
June 30,
2006 2005
--------- ---------
Cash flows from operating activities:
Net income $61,044 $48,926
Stock-based compensation expense pursuant to SFAS
No. 123R 11,763 -
Amortization of intangible assets 4,904 2,614
Depreciation and amortization of property and
equipment and other non-cash expense 11,134 27,460
Accounts receivable (2,630) (4,440)
Inventories (2,374) (4,899)
Other assets and liabilities (12,916) 9,745
Tax benefit from exercise of stock options and
employee stock purchase plan 1,682 3,836
--------- ---------
Net cash provided by operating activities 72,607 83,242
--------- ---------
Cash flows from investing activities:
Acquisition of Proxima, net (21,074) (161,798)
(Increase) decrease in other assets (981) 439
Increase in equipment under customer usage
agreements (13,458) (14,185)
Purchases of property and equipment, net (8,624) (7,392)
Sales and maturities of investment securities, net 7,406 102,525
Increase in patents and developed technology (473) -
--------- ---------
Net cash used in investing activities (37,204) (80,411)
--------- ---------
Cash flows from financing activities:
Purchase of treasury shares (78,577) (50,056)
Proceeds from exercise of stock options and
issuance of shares under employee stock
purchase plan 18,816 13,676
Payments relating to securing line of credit
facility (609) -
Excess tax benefit from exercise of stock options
and employee stock purchase plan 1,386 -
--------- ---------
Net cash used in financing activities (58,984) (36,380)
--------- ---------
Effect of exchange rate changes on cash 145 (375)
--------- ---------
Net decrease in cash and cash equivalents (23,436) (33,924)
Net decrease in investment securities (7,346) (101,415)
--------- ---------
(30,782) (135,339)
Beginning cash and investment securities 220,619 232,295
--------- ---------
Ending cash and investment securities $189,837 $96,956
========= =========
Cytyc Corporation
Reconciliation of Net Income per Common Share
(in thousands, except per share data)
(unaudited)
The following tables provide reconciliations of the net income and
weighted average common shares used in calculating basic and diluted
net income per share (using the if-converted method):
Three Months Ended Six Months Ended
June 30, June 30,
2006 2005 2006 2005
-------- -------- -------- --------
Numerator:
Net income, as reported, for basic
earnings per share $31,680 $28,035 $61,044 $48,926
Interest expense, net of tax 1,138 1,138 2,276 2,276
----------------- -----------------
Net income, as adjusted, for
diluted earnings per share $32,818 $29,173 $63,320 $51,202
================= =================
Denominator:
Basic weighted average common
shares outstanding 114,356 113,173 114,917 113,417
Dilutive effect of assumed exercise
of stock options 800 3,197 1,671 3,438
Dilutive effect of assumed
conversion of convertible debt 8,426 8,426 8,426 8,426
----------------- -----------------
Weighted average common shares
outstanding assuming dilution 123,582 124,796 125,014 125,281
================= =================
Basic net income per common share $0.28 $0.25 $0.53 $0.43
================= =================
Diluted net income per common and
potential common share $0.27 $0.23 $0.51 $0.41
================= =================
Cytyc Corporation
Reconciliation of Non-GAAP Measures
(in thousands, except per share data)
(unaudited)
Six Months Ended
June 30,
2006 2005
----------------
Net income reconciliation:
-----------------------------------------------------
Net income, as reported $61,044 $48,926
Stock-based compensation under new
accounting rules (1) 7,910 -
Arbitration decision charge (2) - 4,957
----------------
Adjusted net income $68,954 $53,883
================
Net income per common share reconciliation:
-----------------------------------------------------
Net income per common share, diluted, as reported $0.51 $0.41
Stock-based compensation under new
accounting rules (1) 0.05 -
Arbitration decision charge (2) - 0.04
----------------
Adjusted net income per common share, diluted $0.56 $0.45
================
Weighted average diluted shares outstanding
reconciliation:
-----------------------------------------------------
Weighted average diluted shares outstanding, as
reported 125,014 125,281
Stock-based compensation under new
accounting rules (1) 1,770 -
----------------
Adjusted weighted average diluted shares
outstanding 126,784 125,281
================
(1) Cytyc adopted new accounting guidelines requiring expensing of
stock-based compensation beginning in January 2006, which resulted
in expense of $11.8 million, before tax benefit of $3.9 million
during the six months ended June 30, 2006. These new rules also
resulted in a reduction of weighted average diluted shares
outstanding of 1.8 million shares.
(2) Charge in the first quarter of 2005 related to the DEKA
Partnership arbitration panel decision, which was $7.8 million,
offset by the related $2.8 million tax benefit.
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