Micrus Endovascular reports 24% increase in fourth-quarter neurovascular revenues

Micrus Endovascular Corporation (Nasdaq: MEND) today reported financial results for the three and 12 months ended March 31, 2010 and introduced fiscal 2011 financial guidance.

“We are proud to report another quarter of record neurovascular revenues, up 24% compared with the prior year. Sales of neurovascular products increased 25% in the highly competitive U.S. market and increased 36% in Europe, which we attribute primarily to continued market share gains and consistent hemorrhagic procedural volume”

Highlights for the fiscal 2010 fourth quarter and full year include the following (all comparisons are with the comparable periods for fiscal 2009):

• Total neurovascular revenues increased 24% (or 21% in constant currencies) to $25.6 million for the fourth quarter, and increased 18% (also 18% in constant currencies) to $91.1 million for the year
• Neurovascular revenues from the United States increased 25% to $12.4 million for the fourth quarter, and increased 18% to $44.7 million for the year
• Revenues from the Americas increased 24% to $14.1 million for the fourth quarter, and increased 14% to $50.1 million for the year
• Revenues from Europe increased 36% (or 26% in constant currencies) to $8.3 million for the fourth quarter, and increased 21% (or 20% in constant currencies) to $28.5 million for the year
• Revenues from Asia Pacific decreased 4% to $3.2 million for the fourth quarter, and increased 17% to $12.5 million for the year
• Operating income was $2.7 million for the fourth quarter and included technology licensing costs of $912,000, compared with operating income of $987,000 for the prior-year period; operating income for fiscal 2010 was $10.2 million compared with an operating loss of $9.7 million for fiscal 2009
• Cash and cash equivalents as of March 31, 2010 were $30.1 million, up $13.0 million from March 31, 2009 after repaying a line of credit of $2.5 million

Net income for the fourth quarter of fiscal 2010 was $2.3 million, or $0.13 per diluted share on 17.4 million weighted-average shares outstanding. This included $912,000 or $0.05 per diluted share in upfront payments related to the licensing of stent delivery technology and a new coil technology. Net income for the fourth quarter of 2010 included $1.2 million or $0.07 per diluted share of non-cash stock-based compensation expense. Net income for the fourth quarter of fiscal 2009 was $0.6 million, or $0.04 per diluted share on 16.1 million weighted-average shares outstanding, and included $1.3 million or $0.08 per diluted share of non-cash stock-based compensation expense.

"We are proud to report another quarter of record neurovascular revenues, up 24% compared with the prior year. Sales of neurovascular products increased 25% in the highly competitive U.S. market and increased 36% in Europe, which we attribute primarily to continued market share gains and consistent hemorrhagic procedural volume," said John Kilcoyne, Chairman and CEO of Micrus Endovascular Corporation. "We executed well throughout fiscal 2010, introducing value-added new products, growing sales, managing expenses and achieving our first year of profitability. We also bolstered our cash by $15.5 million during the year.

"Products we introduced in the past 24 months represented 34% of fourth quarter revenues, with the greatest contribution coming from those based on our novel Delta Wind™ technology. Our bare platinum and Cerecyte^® DeltaPaq™ filling microcoils represented 19% of revenues, and bare platinum and Cerecyte DeltaPlush™ finishing microcoils, which were fully launched in mid January 2010, comprised 9% of quarterly revenues. We are also gaining momentum with our Ascent^® occlusion balloon catheters. Ascent marks our entry into a new product category with a differentiated product and is providing us with access to new accounts and incremental revenue opportunities," he added.

"We are pleased to announce that Dr. Andy Molyneux, the principal investigator of the Cerecyte Coil Trial, has advised us that he intends to present interim data from the trial at the American Society of Neuroradiology in Boston on May 20, 2010. The Cerecyte Coil Trial is a 500 patient randomized study comparing results of coiling with our Cerecyte microcoils against Micrus bare platinum microcoils. Based on our preliminary discussions with Dr. Molyneux, we believe that he will present interim data demonstrating that, based on the core lab assessment of angiographic success, the Cerecyte and Micrus bare platinum groups are superior to those of the ISAT study and that the safety outcomes for Micrus Cerecyte and Micrus bare platinum coils are also superior to the coiling results reported in the ISAT study, as well as all other published randomized data. In addition, Dr. Molyneux has advised us that due to the strong performance of Micrus bare platinum coils, it is unlikely that the data will demonstrate a statistically significant difference in angiographic outcome between the two groups," said Mr. Kilcoyne.

Fiscal Fourth Quarter Financial Results

For the fourth quarter of fiscal 2010, total neurovascular revenues were $25.6 million, up 24% from the comparable prior-year period. Gross margin for the fourth quarter of fiscal 2010 was 75%, up from 72% for the fourth quarter of fiscal 2009.

Research and development expenses for the fourth quarter of fiscal 2010 were $3.4 million, compared with $2.0 million for the comparable prior-year period. The increase was primarily due to costs associated with upfront payments to obtain license technologies and higher consulting fees and product testing.

Sales and marketing expenses for the fourth quarter of fiscal 2010 were $7.6 million, compared with $6.3 million for the fourth quarter of fiscal 2009. The increase was primarily due to increases in sales incentives resulting from higher sales, personnel expenses and product launch and meeting costs.

General and administrative expenses for the fourth quarter of fiscal 2010 were $5.4 million, compared with $5.2 million for the comparable prior-year period. The increase was primarily due to higher personnel expenses.

Operating income for the fourth quarter of fiscal 2010 was $2.7 million, compared with operating income of $1.0 million for the fourth quarter of fiscal 2009.

Other expense, net, was $525,000 for the fourth quarter of fiscal 2010, compared with $422,000 for the fourth quarter of fiscal 2009. These expenses were primarily due to losses resulting from the remeasurement of foreign currency transactions.

Fiscal Year 2010 Financial Results

For the fiscal year ended March 31, 2010, total neurovascular revenues were $91.1 million, up 18% from fiscal year 2009, reflecting higher sales of microcoil products. Gross margin for fiscal 2010 was 75%, up from 73% for fiscal 2009. Operating expenses for fiscal 2010 were $58.5 million, down from $67.0 million for the prior fiscal year. Operating income for fiscal 2010 was $10.2 million, compared with an operating loss of $9.7 million for the prior year. Other income, net, was $2.1 million for fiscal 2010, which included recognition of a deferred gain of $1.9 million in connection with the sale of non-neurological assets to Merit Medical Systems, Inc. in January 2008. Other expense, net, was $2.1 million for the fiscal year ended March 31, 2009.

Net income for fiscal 2010 was $11.5 million, or $0.69 per diluted share on 16.7 million weighted-average shares outstanding. Net income included $6.0 million or $0.36 per diluted share of non-cash stock-based compensation expense. This compares with a net loss of $11.1 million, or $0.70 per share on 15.7 million weighted-average shares outstanding, for the comparable prior-year period. The net loss included $5.6 million or $0.36 per share of non-cash stock-based compensation expense.

As of March 31, 2010, Micrus had cash and cash equivalents of $30.1 million, stockholders' equity of $65.3 million and working capital of $46.6 million. During the fourth quarter of fiscal 2010, Micrus repaid its outstanding borrowings of $2.5 million under its line of credit facility.

Use of Non-GAAP Financial Information

A reconciliation of the Company's non-GAAP financial measures to the corresponding GAAP measures, and an explanation of the use of non-GAAP measures, is included at the end of this news release. There are limitations in using this non-GAAP financial measure because it is not prepared in accordance with GAAP and may be different from non-GAAP financial measures used by other companies. These non-GAAP financial measures should not be considered in isolation or as a substitute for GAAP financial measures. Investors and potential investors should consider non-GAAP financial measures only in conjunction with the Company's consolidated financial statements prepared in accordance with GAAP and the reconciliation of the non-GAAP financial measures provided in the attached schedule.

Fiscal Year 2011 Financial Guidance

For fiscal 2011, Micrus Endovascular expects total revenues to be in the range of $100 million to $107 million, representing an increase of 10% to 17% compared with fiscal 2010 total revenues. This guidance does not include any revenues from product sales to the Company's distributor in China. The Company also expects to report operating margins in the range of 10% to 15% for the full fiscal year, excluding one-time charges.