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ATS Medical Announces Fourth Quarter 2008 Results

- Company generates non-GAAP operating profit excluding litigation settlement

- Fourth quarter 2008 vs. fourth quarter 2007:

* Revenue increases 27% to $18.0 million

* Heart valve therapy revenue rises 26%

* CryoMaze cryoablation revenue grows 30%

* Record gross profit margin of 65.7% vs. 58.2%

MINNEAPOLIS, Feb. 23 /PRNewswire-FirstCall/ -- ATS Medical, Inc. (Nasdaq: ATSI), manufacturer and marketer of state-of-the-art cardiac surgery products and services, today reported financial results for the fourth quarter ended December 31, 2008.


Fourth Quarter 2008 Results

Revenue from the Company's heart valve therapy products, consisting of mechanical valves, tissue valves and repair products, was up 26% on a year-over-year basis to $13.0 million. The growth reflected a 23% increase in mechanical valve revenue, a 164% increase in tissue valve revenue and a 57% increase in valve repair revenue. Revenue from the Company's ATS CryoMaze(TM) cryoablation products for the treatment of cardiac arrhythmias grew 30% to $4.6 million. Total revenue growth excluding the impact of foreign currency fluctuations was approximately 30%.

Gross profit margin for the fourth quarter of 2008 was a record of 65.7%, representing significant improvement from 58.2% in the fourth quarter of 2007. Year-over-year gross profit margin improvements were due to lower mechanical valve product costs resulting from increased production as well as growth in the Company's surgical ablation business.

The GAAP operating loss for the fourth quarter of 2008 was $7.3 million compared with a GAAP operating loss of $4.9 million in the fourth quarter of 2007. The GAAP operating loss in the fourth quarter of 2008 includes a one-time charge of $7.5 million related to the Company's settlement of long standing litigation. Excluding the litigation settlement the Company earned a non-GAAP operating profit of $171,000. The GAAP net loss for the fourth quarter of 2008 was $8.5 million, or $0.13 per share, compared with $6.2 million, or $0.10 per share in the fourth quarter of 2007. Excluding the impact of the litigation settlement, the non-GAAP net loss per share for the fourth quarter would have been $0.02.

"The fourth quarter was a milestone quarter for ATS Medical as strong revenue growth and record gross profit margin performance enabled us to generate a non-GAAP operating profit excluding non-recurring charges," said Michael Dale, Chairman, President and Chief Executive Officer. "Over the last six years the ATS team has worked tirelessly to build a strategically relevant, high growth, diversified, and ultimately profitable cardiac surgery franchise. Every ATS employee deserves credit and can take great pride in the achievement of this important accomplishment."

Recent and Upcoming Product Highlights

Tissue Heart Valves

  • During the fourth quarter of 2008 the Company received FDA approval of the ATS 3f Aortic Bioprosthesis, the Company's first tissue valve offering in the United States. The Company is conducting a limited commercial launch of the valve in the United States beginning in the first quarter of 2009.
  • The Company expects its sutureless tissue valve, the ATS 3f Enable Aortic Bioprosthesis, to receive a CE Mark in 2009. The Enable valve is designed to allow less invasive surgery for the general population of aortic valve replacement patients.

Surgical Ablation

  • The Company announced the formation of its Cryoablation Scientific Advisory Board in January this year. This board met for the first time in December 2008 to develop a consensus around the preferred procedural approach to perform a complete Cox Maze III procedure. The objective was to recommend a standard set of lesions that would yield the best possible, reproducible patient outcomes. In January, the board publicly unveiled their recommended procedural steps at the ATS Frontiers in Cryoablation Symposium at the annual meeting of the Society of Thoracic Surgery in San Francisco. The board's procedural recommendations will be the basis for clinical studies, training and marketing programs.

2008 Full Year Results

For the full year 2008 revenue increased 32.7% to $65.8 million compared to $49.6 million in 2007. Heart valve therapy revenue increased 23.4% and CryoMaze revenue increased 74.3%. Gross profit margin was 61.6% for the full year 2008 compared to 56.9% for 2007. The Company reported a GAAP net loss for 2008 of $19.3 million, or $0.31 per share, compared to a GAAP net loss of $23.0 million, or $0.44 per share, in 2007. The net loss for 2008 included a charge of $7.5 million related to the Company's settlement of longstanding litigation. The net loss for 2007 included charges of $3.5 million for acquired in-process research and development related to the acquisition of our surgical cryoablation business and $0.8 million related to discontinuing our PARSUS development program.

2009 Guidance

For the full year 2009 the Company expects:

  • Revenue growth of 17.0% to 21.5% which translates into a revenue range of $77 to $80 million. The Company's revenue guidance includes an unfavorable impact of approximately 2% related to declining foreign exchange rates.
  • Gross margin in the range of 64% to 66%
  • The Company expects to generate an operating profit on an annual basis.
  • The Company expects to generate net income in the fourth quarter of 2009.

Conference Call Today

ATS management will host a conference call today, February 23, 2009, at 5:00 p.m. ET to discuss its 2008 fourth quarter and full year financial results and current corporate developments. The dial-in number for the conference call is 866-953-6851 for domestic participants and 619-399-3475 for international participants. A live webcast of the call can also be accessed at by clicking on the Investors icon.

A taped replay of the conference call will also be available beginning approximately one hour after the call's conclusion and will remain available for seven days. The replay can be accessed by dialing 888-286-8010 for domestic participants and 617-801-6888 for international callers, using the passcode 88772935#.

Disclosure of Non-GAAP Financial Measures

ATS reports its financial results in accordance with generally accepted accounting principles ("GAAP"). In addition, from time to time, we include other measures in our releases which are not prepared in accordance with GAAP. Investors should consider these non-GAAP measures in addition to, not as a substitute for or as superior to, financial reporting measures prepared in accordance with GAAP. In this release we have included adjusted versions of our operating profit (loss), net loss and net loss per share for the fourth quarter of 2008. These non-GAAP measures do not reflect the impact of a $7.5 million charge related to the Company's settlement of long standing litigation because we believe that this charge will not be incurred on a regular basis. We use the adjusted operating loss, adjusted net loss and adjusted net loss per share measures in our internal analysis and review of our operational performance. We believe that these non-GAAP measures provide investors with useful information in comparing our performance over different periods, particularly when comparing one of these periods to a period in which we did not incur this kind of charge. By using these non-GAAP measures we believe investors get a better picture of the performance of our underlying business. We have also included as an attachment to this release a schedule which reconciles our operating loss, net loss and net loss per share prepared in accordance with GAAP to our adjusted operating loss, adjusted net loss and adjusted net loss per share presented above.

About ATS Medical

ATS Medical, Inc. is dedicated to 'Advancing The Standards' of cardiac surgery through the development, manufacturing and marketing of innovative products and services for the treatment of structural heart disease. ATS Medical serves the cardiac surgery community by focusing on two distinct but operationally synergistic market segments: heart valve disease therapy and surgical ablation of cardiac arrhythmias.

ATS was originally founded to develop the ATS Open Pivot(R) heart valve as a new mechanical heart valve standard of care. Today the Open Pivot heart valve is the preferred mechanical heart valve in many markets around the world and the fastest growing mechanical prosthesis in the market. Building on this legacy and addressing the largest market segment in heart valve therapy, the ATS 3f(R) brand encompasses an innovative tissue heart valve portfolio to address conventional open surgery requirements as well as the growing demand for less invasive, sutureless procedures. The ATS 3f(R) portfolio includes offerings at various stages including early product development, pivotal clinical trials, and market commercialization. Completing the portfolio in heart valve therapy is the ATS Simulus(R) annuloplasty product line. Simulus products assist the surgeon in repairing a patient's native heart valve as an alternative to replacement. Continuing ATS Medical's focus on serving the cardiac surgery community are the ATS CryoMaze(TM) products for surgical cryoablation of cardiac arrhythmias. ATS CryoMaze(TM) products are used by surgeons to treat patients suffering from cardiac arrhythmias, the largest and fastest growing form of structural heart disease in populations over 60 years of age. The ATS Medical web site is

Safe Harbor

This Press Release contains forward-looking statements that may include statements regarding intent, belief or current expectations of the Company and its management. Actual results could differ materially from those projected in the forward looking statements as a result of a number of important factors, including the results of clinical trials, the timing of regulatory approvals, the integration of 3f Therapeutics, the Enclose product line and the surgical cryoablation business of CryoCath Technologies, Inc., regulatory actions, competition, pricing pressures, supplier actions and management of growth. For a discussion of these and other risks and uncertainties that could affect the Company's activities and results, please refer to the Company's filings with the Securities and Exchange Commission, including its Form 10-K for the year ended December 31, 2007 and its most recent quarterly report on Form 10-Q.

    ATS Medical, Inc.
    Condensed Consolidated Statements of Operations
    (in thousands except per share amounts)

                                       Quarter Ended         Year Ended
                                      ---------------     -----------------
                                    December  December   December   December
                                       31,       31,        31,        31,
                                      2008      2007       2008       2007
                                      ---------------     -----------------
    Net sales                       $18,032   $14,217    $65,821    $49,587
    Cost of goods sold                6,190     5,937     25,267     21,348
                                      -----     -----     ------     ------
    Gross profit                     11,842     8,280     40,554     28,239

    Operating expenses:
          Sales and marketing         6,680     7,019     27,373     24,633
          Research and development    1,864     2,173      8,215      7,546
          In-process research
           and development                -         -          -      3,500
          General and administrative  2,310     3,099     10,509     10,417
          Litigation settlement       7,500         -      7,500          -
          Amortization of intangibles   817       885      3,489      2,516
          Intangible asset impairment     -         -          -        755
                                        ---       ---        ---        ---
               Total operating
                expenses             19,171    13,176     57,086     49,367
                                     ------    ------     ------     ------
    Operating loss                   (7,329)   (4,896)   (16,532)   (21,128)
                                    -------   -------   --------   --------

    Interest expense, net              (763)     (555)    (2,739)    (1,822)
    Other income (expense), net        (224)     (594)       413         61
                                      -----     -----        ---         --

    Net loss before income taxes     (8,316)   (6,045)   (18,858)   (22,889)
    Income tax expense                 (197)     (116)      (481)      (119)
                                      -----     -----      -----      -----

    Net loss                        ($8,513)  ($6,161)  ($19,339)  ($23,008)
                                   ========  ========  =========  =========

    Net loss per share:
       Basic and diluted             ($0.13)   ($0.10)    ($0.31)    ($0.44)
                                    =======   =======    =======    =======

    Weighted average number of shares
       Basic and diluted             63,580    59,412     61,440     52,589
                                     ======    ======     ======     ======

    ATS Medical, Inc.
    Condensed Consolidated Balance Sheets
    (in thousands)

                                              December 31,     December 31,
                                                   2008             2007
                                                --------         --------
    Cash and short-term investments              $20,895          $14,669
    Accounts receivable                           14,532           11,186
    Inventories, net                              20,208           18,743
    Prepaid expenses                                 958            1,143
                                                     ---            -----
        Total current assets                      56,593           45,741

    Property and equipment, net                    7,031            7,739
    Intangible assets                             49,131           50,779
    Other assets                                   2,226            1,638
                                                   -----            -----
    Total assets                                $114,981         $105,897
                                                ========         ========

    Liabilities & shareholders' equity
    Accounts payable                              $4,054           $4,794
    Accrued compensation                           3,537            2,361
    Other accrued liabilities                      2,257            2,095
    Current maturities of bank notes payable       2,646            2,457
    Payable to CryoCath Technologies Inc.          1,910                -
    Payable to CarboMedics Inc.                    4,500                -
    Warrant liability                                  -            3,913
                                                     ---            -----
        Total current liabilities                 18,904           15,620

    Convertible senior notes payable              17,533           17,436
    Bank notes payable                             3,969            6,143
    Payable to CryoCath Technologies Inc.              -            1,742

    Shareholders' equity                          74,575           64,956
                                                  ------           ------
    Total liabilities & shareholders' equity    $114,981         $105,897
                                                ========         ========

    ATS Medical, Inc.
    Consolidated Condensed Statements of Cash Flow
    (in thousands)

                                                          Year Ended
                                                  December 31, December 31,
                                                       2008        2007
                                                     -------    --------
    Operating activities
    Net loss                                        ($19,339)   ($23,008)
    Adjustments to reconcile net loss to net
     cash used in operating activities:
        Depreciation and amortization                  5,623       4,622
        Stock based compensation expense               1,676       1,454
        Acquired in-process research and development       -       3,500
        Impairment of intangibles                          -         755
        Deferred income taxes                            192          95
        Non-cash interest expense                        743         546
        Change in value of common stock appreciation
         rights and convertible senior notes
         derivative liabilities                         (294)        554
        Changes in operating assets and liabilities   (1,005)      1,939
                                                     -------       -----
    Net cash used in operating activities            (12,404)     (9,543)

    Investing activities
        Maturities of short-term investments, net
         of purchases                                  4,189       1,903
        Payments for business acquisitions            (2,000)    (21,074)
        Business acquisition costs                         -      (1,791)
        Payments for technology licenses and other
         intangibles                                       -        (277)
        Purchases of furniture, machinery and
         equipment                                    (1,440)       (748)
        Other                                              -         (36)
                                                         ---        ----
    Net cash provided by (used in) investing
     activities                                          749     (22,023)

    Financing activities
        Advances on bank notes payable                     -       8,600
        Repayments on notes payable                   (1,985)     (2,327)
        Net proceeds from sales of common stock and
         warrants                                     23,943      31,196
        Other                                            162         168
                                                         ---         ---
        Net cash provided by financing activities     22,120      37,637

    Effect of foreign exchange rate changes              (50)       (203)
                                                        ----       -----
    Increase in cash and cash equivalents            $10,415      $5,868
                                                     =======      ======

    ATS Medical, Inc.
    Selected Revenue Information
    (in thousands)

                                       Quarter Ended         Year Ended
                                      ---------------     -----------------
                                    December  December   December   December
                                       31,       31,        31,        31,
                                      2008      2007       2008       2007
                                      ---------------     -----------------
    Heart valve therapy             $13,047   $10,336     $47,576   $38,560
    Surgical arrhythmia               4,643     3,576      16,888     9,690
    Surgical tools & accessories        342       305       1,357     1,337
                                        ---       ---       -----     -----

      Total revenue                 $18,032   $14,217     $65,821   $49,587
                                    =======   =======     =======   =======

    ATS Medical, Inc.
    Reconciliation of GAAP Financial Measures to Non-GAAP Financial Measures
    (in thousands except per share amounts)

                                            Quarter ended
                                             December 31,
    Operating loss, as reported                $(7,329)
    Adjustments to operating loss:
      Litigation settlement                      7,500

    Operating income, as adjusted                 $171

    Net loss, as reported                      $(8,513)
     Adjustments to net loss:
      Litigation settlement                      7,500

    Net loss, as adjusted                      $(1,013)

    Net loss per share, as reported:
      Basic and diluted                         $(0.13)
    Adjustments to net loss per share:
      Litigation settlement                       0.12
    Net loss per share, as adjusted:
      Basic and diluted                         $(0.02)

    Weighted average number of shares
     outstanding, basic and diluted             63,580

SOURCE ATS Medical, Inc.
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