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Aspect Reports 2008 Results

Aspect Medical Systems, Inc. (Aspect) has reported total revenues of $99.3 million for the full year of 2008, compared with the total revenues of $97.3 million in the previous year-end. It has also reported a net income of $11.1 million, or $0.56 per diluted share, for the full year of 2008, compared with the net income of $2.3 million, or $0.11 per diluted share, in the previous year-end.

Highlights of Q4 2008 against Q4 2007

Sensor revenue up 6% to $21.3 million

Worldwide installed base of BIS monitors and modules up 19% to more than 56,000 units

GAAP operating loss was $3.0 million in Q4 2008 against operating income of $0.1 million in Q4 2007

Non-GAAP operating loss was $1.2 million in Q4 2008 against operating income of $2.3 million in Q4 2007

Other income includes an $18.0 million gain from the company’s repurchase of its convertible notes

The company ended 2008 with total cash and investments of $83.5 million and debt of $65.0 million as against total cash and investments of $109.5 million and debt of $125.0 million at the end of 2007

GAAP net income was $8.4 million, or $0.40 per diluted share, in Q4 2008, against $0.4 million, or $0.02 per diluted share in Q4 2007

Non-GAAP net income (which is exclusive of stock-based compensation) was $10.2 million in Q4 2008, or $0.48 per diluted share, against $2.1 million, or $0.12 per diluted share, in Q4 2007

Highlights of Q4 2008 against Q4 2007

Sensor revenue up 6% to $21.3 million

Worldwide installed base of BIS monitors and modules up 19% to more than 56,000 units

GAAP operating loss was $3.0 million in Q4 2008 against operating income of $0.1 million in Q4 2007

Non-GAAP operating loss was $1.2 million in Q4 2008 against operating income of $2.3 million in Q4 2007

Other income includes an $18.0 million gain from the company’s repurchase of its convertible notes

The company ended 2008 with total cash and investments of $83.5 million and debt of $65.0 million as against total cash and investments of $109.5 million and debt of $125.0 million at the end of 2007

GAAP net income was $8.4 million, or $0.40 per diluted share, in Q4 2008, against $0.4 million, or $0.02 per diluted share in Q4 2007

Non-GAAP net income (which is exclusive of stock-based compensation) was $10.2 million in Q4 2008, or $0.48 per diluted share, against $2.1 million, or $0.12 per diluted share, in Q4 2007 Highlights of Q4 2008 Compared with Q4 2007

Gross margin and operating expenses

GAAP gross margin declined to 74.6% in Q4 2008 as against 75.2% in Q4 2007. Non-GAAP gross margin declined to 75.1% in Q4 2008 as against 75.8% in Q4 2007. The decline was principally the result of increased costs related to investment in the Equipment Placement Program and a one-time write off of inventory placed with an international distributor.

Total GAAP and non-GAAP operating expenses increased by 21% and 25%, respectively, in Q4 2008 against Q4 2007.

The increase in total GAAP and non-GAAP operating expenses was due primarily to increases in sales and marketing expenses as part of our domestic sales force expansion and retention plans as well as growth in international sales and marketing programs, increased costs associated with research collaborations and one time costs associated with personnel transitions.

Other Income

Interest income was $0.6 million in Q4 2008, a down of 63% against Q4 2007, due to a decline in the balances of cash, cash equivalents, and investments primarily the result of our repurchases of convertible notes and reduced investment returns. Interest expense was $0.7 million in Q4 2008, compared to $1.0 million in Q4 2007. The decrease was due to the reduction of outstanding convertible notes for the comparable periods. Other income includes an $18.0 million gain from the company’s repurchase of $35.0 million of convertible notes at a discount partially offset by realized losses of $0.7 million from the sale of investments.

Income Taxes

In Q4 2008, the company recognized income tax expense of approximately $5.8 million on a GAAP basis and $5.9 million on a non-GAAP basis. This translates to a Q4 effective tax rate of 41% for GAAP and 37% for non-GAAP. The full year 2008 effective tax rates are 46% on a GAAP basis and 39% on a non-GAAP basis. The Q4 2008 effective tax rates are lower than the full year effective tax rates due to the impact of the $18.0 million gain recognized in Q4 2008. The GAAP effective tax rates are higher than the non-GAAP effective tax rates because of the tax treatment of incentive stock options (or ISOs). The expense associated with these options is recorded as they vest, but a tax benefit is only recognized when they are exercised and sold under specific circumstances.

Liquidity and capital resources

At December 31, 2008, the company had cash, cash equivalents, restricted cash and investments of $83.5 million and $65.0 million in debt which consisted of 2.50% convertible senior notes due 2014. At December 31, 2007, the company had cash, cash equivalents, restricted cash, and investments of $109.5 million and debt which consisted of $125.0 million in convertible senior notes. The outstanding convertible notes decreased by $60.0 during 2008 due to the company’s repurchases during Q2 2008, Q3 2008, and Q4 2008 at an aggregate repurchase price of $30.0 million.

Guidance for the first quarter of 2009

The company’s guidance for the first quarter of 2009 is as follows:

Total revenue is projected to be within a range of $24.5 million to $25.5 million;

GAAP net loss per share is expected to be within a range of ($0.06) to ($0.08); and Non-GAAP net income per share is expected to be within a range of breakeven to $0.02 income per share

All non-GAAP amounts are exclusive of stock-based compensation. See below under the heading “Use of Non-GAAP Financial Measures” for a discussion of the Company’s use of such measures. See attached table for the reconciliation of GAAP to non-GAAP items for Q4 2008 and outlook for Q1 2009.