Home Diagnostics announces financial results for third quarter 2009; reports decreased gross margin

Home Diagnostics, Inc. (Nasdaq:HDIX), a leading manufacturer and marketer of diabetes testing supplies, today announced financial results for the third quarter ended September 30, 2009.

Total revenue for the third quarter was $34.5 million, a decrease of 3.0% from $35.6 million in the third quarter of 2008. Retail channel sales increased 8.3%, driven by the continued national rollout of the TRUEresult® and TRUE2go™ blood glucose monitoring systems and an expanded product offering at Walmart. Mail service channel sales increased 14.4% as a result of the continued success of the private label, no-code blood glucose system offered through Liberty Medical and our other mail service providers who promote the TRUEbalance™ no-code blood glucose system. Distribution channel sales decreased 16.9% as a result of customers’ continued focus on reducing inventory days supply on hand. International sales increased 19.8%, driven primarily by the launch of TRUEbalance in several European markets.

Gross profit for the third quarter of 2009 was $17.9 million, compared to $21.6 million in the third quarter of 2008. As a percentage of sales, gross margin decreased to 51.8% compared to 60.8% in the prior year period. As the Company previously guided, gross margin was negatively impacted by the continued investment in the roll out of the new no-code products in the retail and mail service channels. Gross margin was also impacted by lower pricing in the mail service and distribution channels.

Selling, general and administrative expenses were $11.6 million for the third quarter of 2009, compared with $13.4 million in the third quarter of 2008. The decrease in selling, general and administrative expenses was primarily due to lower sales and marketing expenses following the initial launch of the TRUE2go and TRUEresult systems last year and cost reduction initiatives.

Research and development expenses were $2.1 million for the third quarter of 2009, compared with $2.0 million in the third quarter of 2008.

Operating income for the third quarter of 2009 was $4.2 million, compared to operating income of $6.2 million for the third quarter of 2008.

For the three-month period ended September 30, 2009, the Company reported net income of $2.9 million, or $0.17 per diluted share, based on weighted average shares outstanding of 17.6 million. Net income for the three-month period ended September 30, 2008 was $4.5 million, or $0.24 per diluted share, based on 18.8 million weighted average shares outstanding.

Joseph Capper, President and Chief Executive Officer of Home Diagnostics, said, “We are pleased with the results in the retail and mail service channels, underscoring the success of our new no-code products and marketing initiatives. Importantly, we continue to gain domestic market share, driven by the demand for our high-quality and value-priced blood glucose monitoring TRUE-family of products. International business was up 20% for the quarter. Our focus on operating cost controls contributed to solid bottom line results. We are encouraged by increased demand for our products reflected by record outsales in the distribution and retail channels. Accordingly, we are on schedule to triple our manufacturing capacity to support this growing demand for TRUEtest™. This investment, along with a focus on well defined strategic initiatives, positions us well to achieve sales growth in all of our business channels in 2010.”

2009 Financial Guidance

Based on the third quarter 2009 results and challenging market conditions, specifically in the distribution channel, the Company is adjusting its full year 2009 guidance. It now expects total revenue to be in the range of $126 million to $127 million and diluted earnings per share to be in the range of $0.30 to $0.32 from the previous estimate of $129 million to $131 million and diluted earnings per share in the range of $0.36 to $0.38.

Conference Call

Home Diagnostics will hold a conference call on Thursday, November 5, 2009 at 8:30 a.m. ET to discuss its operating results. The dial-in numbers are 1-877-407-0789 for domestic callers and 1-201-689-8562 for international callers. A live Webcast of the conference call will be available online from the investor relations page of the Company’s corporate Website at www.homediagnostics.com.

After the live Webcast, the call will remain available on Home Diagnostics’ Website, www.homediagnostics.com, through December 5, 2009. In addition, a telephonic replay of the call will be available until November 12, 2009. The replay dial-in numbers are 1-877-660-6853 for domestic callers and 1-201-612-7415 for international callers. Please use account number 3055 and conference ID number 334965.