Vascular Solutions second-quarter net income increases 6% to $1.475M or 0.09 per diluted share

Vascular Solutions, Inc. (Nasdaq: VASC) today reported financial results for the second quarter ended June 30, 2010. Highlights of the second quarter and other recent events include:

• Achieved record net revenue of $19.5 million, an increase of 14% from the second quarter of 2009.
• Highlighted the clinical success of the GuideLiner® catheter at a symposium held at the EuroPCR meeting in Paris in May, with GuideLiner catheter sales increasing by 46% sequentially from the first quarter of 2010.
• Completed the acquisition of the SMARTNEEDLE® and pdACCESS® products on April 30, 2010, and immediately launched both products in the U.S. through Vascular Solutions' existing direct sales force.
• Achieved net income of $1,475,000, or $0.09 per diluted share, an increase of 6% from the second quarter of 2009.
• Issued guidance for continued double digit percentage revenue growth to between $19.6 million and $20.0 million in the third quarter of 2010 with net income of between $0.09 and $0.11 per share, while re-affirming annual guidance for 2010.

Commenting on the results, Vascular Solutions' Chief Executive Officer Howard Root said: "Vascular Solutions' multi-product business strategy and focus on execution have resulted in consistent sales growth and increasing profitability, a track record that we continued to post in the second quarter. An important benefit of this strategy is our ability to focus our sales resources on growth products while maintaining sales of products not currently in a growth mode. In the second quarter we emphasized our GuideLiner catheter, which is our most important new product launch since 2006, and our Pronto® LP extraction catheter. Supplementing this organic growth, in the second quarter we completed our first material acquisition of a product line using our free cash flow, an additional growth tactic that we expect to continue to employ with accretive results."

Gross margin across all product lines was 66.2% in the second quarter of 2010, up from 65.6% in the second quarter of 2009 due to a selling mix of products favoring higher gross margin products in 2010.

Second quarter net income increased 6% to $1,475,000, or $0.09 per share, compared to net income of $1,386,000 or $0.09 per share in the second quarter of 2009. Additional R&D expenses as the result of testing required by the FDA on two new hemostat products combined with transaction and amortization expenses associated with the SMARTNEEDLE and pdACCESS acquisition and marketing expenses related to the GuideLiner symposium resulted in approximately $450,000 of extraordinary expenses in the second quarter ($279,000 after-tax, or $0.02 per share). Net income for the second quarter of 2010 included $558,000 of non-cash stock-based compensation ($346,000 after-tax, or $0.02 per share), $59,000 of non-cash amortization ($37,000 after-tax) and $931,000 of non-cash income tax expense ($0.05 per share) based on a 38% tax rate.

Second Quarter Net Revenue by Product Line

Net sales of catheter products were $10.3 million in the second quarter, an increase of 37% over the second quarter of 2009. "Sales of our LP, or low profile version of the Pronto extraction catheter grew by 59% over the second quarter of 2009, driving our sales growth in extraction catheters. On the specialty catheter side, sales of our new GuideLiner catheter and expanding sales of our Minnie® support catheter resulted in a 69% increase in specialty catheter sales from the second quarter of 2009. We continue to receive very favorable responses to the clinical utility of our GuideLiner, with multiple physicians reporting that it makes impossible cases possible. With this response, we now believe the potential of the GuideLiner catheter is over $30 million in annual sales at full commercialization, and we already are working on new and improved versions. Our access products further added to our sales growth with a 59% increase from the second quarter of 2009, led by $847,000 in initial sales of the recently acquired SMARTNEEDLE and pdACCESS products," Mr. Root stated.

Net sales of hemostat products (primarily consisting of the D-Stat® Dry, D-Stat Flowable and D-Stat Radial products) were $6.2 million in the second quarter, a decrease of 3% from the second quarter of 2009. "We continue to face substantial price competition in the hemostat patch market, but our sales force has used our D-Stat Dry's outstanding clinical data to maintain our leading market share. The decline in sales of our legacy Duett product and a decline in sales of our non-cath lab hemostat products were the main reasons for the decline in sales of our hemostat products from 2009," commented Mr. Root.

Net sales of vein products (primarily consisting of the Vari-Lase® laser console and kits) were $2.7 million in the second quarter, a decrease of 4% from the second quarter of 2009. "Sales of our disposable kits continued to be well maintained by our sales force in spite of continued price competition by some of our laser competitors, a situation we believe may change with their patent litigation that is scheduled for trial in October. We plan to continue to maintain our vein market position and look for opportunities to grow as our laser competitors are forced to adjust to the new environment," commented Mr. Root.

Financial Guidance

Regarding future guidance, net revenue for the third quarter of 2010 is expected to be between $19.6 million and $20.0 million. Due to higher costs of purchase of the SMARTNEEDLE and pdACCESS products prior to the transition to Vascular Solutions' internal manufacturing (which is expected to be completed for sales starting in October), gross margin on product sales in the third quarter of 2010 is expected to be between 65% and 66%. Corresponding net income for the third quarter is expected to be between $0.09 and $0.11 per fully diluted share. Guidance for 2010 is maintained at between $78 million and $80 million in revenue, with corresponding net income of between $0.55 and $0.59 per fully diluted share, including the $0.13 one-time litigation gain recognized in the first quarter.