ZVXI Zevex International (MM)

ZEVEX International Inc. (NASDAQ: ZVXI) reported financial results for the three and six months ended June 30, 2006. Net income for the second quarter of 2006 was $1.5 million, or $0.24 per share, compared with net income of $168,000, or $0.03 per share, for the same period of 2005. For the six-month period ended June 30, 2006, net income was $3.0 million, or $0.48 per share, compared with net income of $214,000, or $0.04 per share, for the same period in 2005. Revenue for the second quarter of 2006 increased by 54% to $10.5 million, compared with revenue of $6.8 million for the second quarter of 2005. For the six-month period ended June 30, 2006, revenue increased by 65%, to $21.1 million, compared with $12.8 million for the same period of 2005. Total revenue from the Therapeutics division for the second quarter of 2006 increased by 78%, to $6.4 million, compared with $3.6 million for the same period of 2005. Domestic Therapeutics revenue, which is primarily derived from the sale of enteral pumps and disposable sets, increased by 10%, to $3.2 million, compared with $2.9 million for the second quarter of 2005. International Therapeutics revenue from pumps, pump service and disposable products in the same period increased more than four-fold, to $3.3 million, compared with $748,000 for the second quarter of 2005. Revenue from the Therapeutics division accounted for 61% of the company's total revenue in the second quarter of 2006. For the first six months of 2006, total revenue from the Therapeutics division increased by 105%, to $13.3 million, compared with $6.5 million for the same period of 2005. Domestic Therapeutics revenue increased by 17%, to $6.2 million, compared with $5.3 million for the first six months of 2005. International Therapeutics revenue in the same period increased more than six-fold, to $7.2 million, compared with $1.2 million for the first six months of 2005. Revenue from the Therapeutics division accounted for 63% of the company's total revenue in the first six months of 2006. Total revenue from the Applied Technology division for the second quarter of 2006 increased by 27%, to $4.0 million, compared with $3.2 million for the same period of 2005. Revenue from sensors and handpieces increased by 43%, to $3.3 million, compared with $2.3 million for the second quarter of 2005, while revenue from medical systems declined by 32%, to $529,000, compared with $778,000 for the same period of 2005. Revenue from engineering services increased by 133%, to $210,000, compared with $90,000 for the second quarter of 2005. Revenue from the Applied Technology division accounted for 39% of the company's total revenue in the second quarter of 2006. For the first six months of 2006, total revenue from the Applied Technology division increased by 23%, to $7.8 million, compared with $6.3 million for the same period of 2005. Revenue from sensors and handpieces increased by 38%, to $6.2 million, compared with $4.5 million for the first six months of 2005, while revenue from medical systems declined by 33%, to $1.1 million, compared with $1.6 million for the same period of 2005. Revenue from engineering services increased by 148%, to $440,000, compared with $177,000 for the first six months of 2005. Revenue from the Applied Technology division accounted for 37% of the company's total revenue in the first six months of 2006. Operating income increased to $912,084, or 9% of revenue, in the second quarter of 2006, compared with operating income of $213,223, or 3% of revenue, for the second quarter of 2005. Operating income increased to $1,959,775, or 9% of revenue, for the first six months of 2006, compared with operating income of $287,693, or 2% of revenue, for the first six months of 2005. These increases in operating income and net income during the second quarter and first six months of 2006, compared with the same periods of 2005, are primarily the result of the increase in revenue in 2006 and the resulting increase in gross profit, which was partially offset by increased selling, general and administrative expenses. In addition to increases in operating income, net income for the second quarter and first six months of 2006 also includes $948,000 in pre-tax income (net of legal fees) from a patent infringement settlement, as well as a benefit for income taxes from the reversal of a valuation allowance from a prior period, that resulted in a reduction in overall tax expense. David J. McNally, ZEVEX's president and CEO, said, "We are delighted to report another quarter of record net income and strong revenue growth. Both our Applied Technology and Therapeutics divisions continued to perform well during the second quarter. Our largest Applied Technology customers contributed significantly to the 43% growth in the sales of our surgical handpieces and sensors. Our domestic Therapeutics sales team drove sales growth of 10%, based upon the continued strength of our EnteraLite(R) Infinity(R) and EnteraLite(R) portable feeding pumps, as well as our stationary pumps. The robust growth of the international revenue in our Therapeutics division was primarily driven by strong sales of Flocare(R) Infinity(R) portable feeding pumps and disposable set components to our largest customer and international distribution partner, Nutricia Clinical, as well as by revenue that we receive from providing maintenance services on those pumps. "During the second quarter, we are again delighted to report record net income," continued McNally. "I would like to remind investors that we enjoyed a tax benefit of $302,000 during the second quarter, which more than offset a stock option expense of approximately $91,000 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 million, as we have previously described in our SEC Form 8-K. This $1 million payment was reflected in this quarter's Statement of Operations as other income, net of legal fees, for additional pre-tax income of $948,000. "Based upon the outstanding performance from both of our divisions during the first half of 2006," continued Mr. McNally, "we are raising our projection for year-over-year revenue growth in 2006 to 30%. We have achieved strong revenue growth through the first half of 2006, and we believe that we can continue to grow during the second half of the year. We note that for the rest of 2006 we will be comparing revenue in the third and fourth quarters to strong revenue in the third and fourth quarters of 2005. For this reason, we expect that increases in revenue for the third and fourth quarters, expressed in growth percentages over the same periods of 2005, will be less than the percentage increases reported during the first and second quarters of 2006. Also, due to the appreciation of our stock, our market capitalization based upon non-affiliate shareholders exceeded $75 million on June 30, 2006. Therefore, we have met the qualification requirements for Sarbanes-Oxley Section 404 compliance by year-end. As a result, we expect to incur $200,000 to $300,000 in additional consulting and auditing expenses related to compliance during the second half of 2006." -0- *T ZEVEX INTERNATIONAL INC. CONSOLIDATED BALANCE SHEETS June 30, Dec. 31, 2006 2005 ASSETS (unaudited) ------------------------- Current assets Cash and cash equivalents $2,137,666 $1,284,218 Designated cash for sinking fund payment on industrial development bond 48,388 89,037 Accounts receivable, net of allowance for doubtful accounts of $154,000 at June 30, 2006, and $130,000 at Dec. 31, 2005 8,109,931 5,641,229 Inventories 5,085,130 4,586,418 Deferred income taxes 528,661 - Prepaid expenses and other current assets 365,699 213,612 ------------ ------------ Total current assets 16,275,475 11,814,514 Property and equipment, net 4,898,012 4,639,136 Patents, trademarks and other intangibles, net 344,540 348,467 Goodwill, net 4,048,264 4,048,264 Deferred income taxes, non-current 241,648 - ------------ ------------ Total assets $25,807,939 $20,850,381 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable $2,611,542 $2,462,071 Other accrued liabilities 1,695,576 1,293,876 Deferred revenue - 52,081 Current portion of industrial development bond 100,000 100,000 Current portion of other long-term debt 57,767 56,219 ------------ ------------ Total current liabilities 4,464,885 3,964,247 Industrial development bond 1,000,000 1,100,000 Other long-term debt 680,868 710,143 Stockholders' equity Common stock; $.001 par value, 22,000,000 authorized shares, 5,689,207 issued and 5,630,505 outstanding at June 30, 2006, and 5,349,890 issued and 5,291,040 outstanding at Dec. 31, 2005 5,689 5,350 Additional paid in capital 18,353,263 16,719,396 Unrealized loss on marketable securities (7,650) - Treasury stock, 58,702 shares (at cost) at June 30, 2006, and 58,850 shares (at cost) at Dec. 31, 2005 (89,085) (89,422) Retained earnings (accumulated deficit) 1,399,969 (1,559,333) ------------ ------------ Total stockholders' equity 19,662,186 15,075,991 ------------ ------------ Total liabilities and stockholders' equity $25,807,939 $20,850,381 ============ ============ ZEVEX INTERNATIONAL INC. CONSOLIDATED STATEMENTS OF OPERATIONS Three months ended Six months ended June 30 June 30, 2006 2005 2006 2005 (unaudited) (unaudited) (unaudited) (unaudited) ------------ ----------- ------------ ------------ Revenue: Product sales $10,265,661 $6,645,727 $20,596,216 $12,527,181 Engineering services 210,155 151,926 472,757 254,636 ------------ ----------- ------------ ------------ Total revenue 10,475,816 6,797,653 21,068,973 12,781,817 Cost of sales 6,785,085 4,329,168 13,629,557 8,126,827 ------------ ----------- ------------ ------------ Gross profit 3,690,731 2,468,485 7,439,416 4,654,990 Operating expenses: General and administrative 1,360,955 1,153,933 2,726,222 2,128,612 Selling and marketing 1,002,557 857,357 2,029,173 1,673,057 Research and development 415,135 243,972 724,246 565,628 ------------ ----------- ------------ ------------ Total operating expenses 2,778,647 2,255,262 5,479,641 4,367,297 Operating income 912,084 213,223 1,959,775 287,693 Other income (expense): Interest and other income 11,618 13,426 24,068 16,555 Patent infringement settlement 947,760 - 947,760 - Interest expense (41,057) (58,181) (70,118) (87,992) ------------ ----------- ------------ ------------ Income before income taxes 1,830,405 168,468 2,861,485 216,256 (Provision) benefit for income taxes (346,418) - 99,889 (2,635) ------------ ----------- ------------ ------------ Net income $1,483,987 $168,468 $2,961,374 $213,621 ============ =========== ============ ============ Basic net income per share $0.27 $0.03 $0.54 $0.04 ============ =========== ============ ============ Weighted average shares outstanding 5,539,550 5,107,984 5,436,555 5,104,733 ============ =========== ============ ============ Diluted net income per share $0.24 $0.03 $0.48 $0.04 ============ =========== ============ ============ Diluted weighted average shares outstanding 6,283,047 5,259,914 6,123,246 5,265,177 ============ =========== ============ ============ *T CONFERENCE CALL ZEVEX International Inc. invites all those interested to join the ZEVEX management team for its earnings conference call for the second quarter ended June 30, 2006. The call will be held Monday, July 31, 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: 1-800-240-2134 International: 1-303-262-2137 A live webcast and a rebroadcast of the conference call will be available at http://events.acttel.com/zevexq2. To listen to the live broadcast, please enter the site 10-15 minutes prior to the call in order to download any necessary software. The webcast will be archived for replay. 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 Applied Technology division 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.