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CryoLife Reports 2008 Results

CryoLife, Inc. (CryoLife), a developer of implantable medical devices, has reported revenues of $105.1 million for the full year of 2008, up 11%, compared with the revenues of $94.8 million in the previous year-end. It has posted a net income of $32.9 million, or $1.16 per diluted share, for the full year of 2008, compared with the net income of $7.2 million, or $0.26 per diluted share, in the previous year-end.

Excluding orthopaedic tissue processing revenues of $725,000 and $4.2 million in the years ended December 31, 2008 and December 31, 2007, respectively, total revenues up 15% for the year ended 2008.

Net income for the year ended December 31, 2008 includes a tax benefit of $20.1 million, or $0.71 per fully diluted common share, related to the reversal of the company’s valuation allowance on its deferred tax assets.

Revenues for the fourth quarter of 2008 increased 2% to $25.5 million against $25.1 million for the fourth quarter of 2007. Excluding orthopaedic tissue processing revenues of $63,000 and $552,000 for the fourth quarters of 2008 and 2007, respectively, total revenues increased 4% for the fourth quarter of 2008.

Net income for the fourth quarter of 2008 was $22.7 million, or $0.81 per basic and $0.80 per fully diluted common share, against $2.6 million, or $0.10 per basic and fully diluted common share for the fourth quarter of 2007. Net income for the fourth quarter of 2008 included a tax benefit of $20.1 million, or $0.71 per fully diluted common share, related to the reversal of the company’s valuation allowance on its deferred tax assets.

Tissue processing revenues for the fourth quarter of 2008 decreased 5% to $12.3 million against $13.0 million for the fourth quarter of 2007. Tissue processing revenues for the year ended December 31, 2008 increased 9% to $53.7 million against $49.0 million for the year ended December 31, 2007.

Combined cardiac and vascular tissue processing revenues for the fourth quarter of 2008 decreased 1% to $12.3 million against $12.4 million for the fourth quarter of 2007. The decrease in revenues was primarily due to a decrease in shipments of cardiac tissues, which management believes is due to the current economic conditions and its constraining effect on hospital budgets.

Combined cardiac and vascular tissue processing revenues for the year ended December 31, 2008 increased 18% to $52.9 million against $44.8 million for the year ended December 31, 2007. The increase in tissue processing revenues was due primarily to increased demand for the company’s cardiac and vascular processed tissues, the introduction of the CryoValve SG pulmonary human heart valve processed with the SynerGraft(R) technology and, to a lesser extent, fee increases.

Revenues from the distribution of CryoValve SG pulmonary human heart valves were $1.7 million and $5.1 million for the fourth quarter and year ended December 31, 2008, respectively.

BioGlue Surgical Adhesive revenues were $12.1 million for the fourth quarter of 2008 against $11.5 million for the fourth quarter of 2007, an increase of 5%. BioGlue revenues were $48.6 million for the year ended December 31, 2008 against $43.9 million for the year ended December 31, 2007, an increase of 11%.

US BioGlue revenues were $8.6 million and $8.1 million for the fourth quarters of 2008 and 2007, respectively. US BioGlue revenues were $34.4 million and $31.6 million for the years ended December 31, 2008 and December 31, 2007, respectively. International BioGlue revenues were $3.5 million and $3.4 million for the fourth quarters of 2008 and 2007, respectively. International BioGlue revenues were $14.2 million and $12.3 million for the years ended December 31, 2008 and 2007, respectively.

Other medical device revenues for the fourth quarter of 2008 were $906,000 against $105,000 for the fourth quarter of 2007. Other medical device revenues for the year ended December 31, 2008 were $1.9 million against $828,000 for the year ended December 31, 2007. Other medical device revenues for the fourth quarter and year ended December 31, 2008 included $806,000 and $1.5 million, respectively, in sales of Hemostase, which was added to the CryoLife product portfolio in the second quarter of 2008.

Total tissue processing and product gross margins were 64% for the fourth quarters of 2008 and 2007. Total tissue processing and product gross margins were 64% for the year ended December 31, 2008 against 62% for the year ended December 31, 2007.

Tissue processing gross margins for the fourth quarter of 2008 were 45% against 44% for the fourth quarter of 2007. Tissue processing gross margins for the year ended December 31, 2008 were 46% against 42% for the year ended 2007. Tissue processing gross margins improved in 2008 against 2007 primarily as a result of fee increases and a favorable tissue mix in 2008.

General, administrative, and marketing expenses for the fourth quarter of 2008 were $12.3 million against $12.1 million for the fourth quarter of 2007. General, administrative, and marketing expenses for the year ended December 31, 2008 were $48.8 million against $46.5 million for the year ended December 31, 2007.

The increase in general, administrative, and marketing expenses for the fourth quarter and year ended December 31, 2008 was primarily due to increased marketing expenses. These expenses included personnel costs, corporate advertising, physician education and training, and promotional materials to support the company’s expanding tissue processing service and product offerings, and revenue growth. Additionally, there were increases in stock compensation expense over the same periods in the prior year.

Research and development expenses were $1.4 million for the fourth quarter of 2008 against $1.3 million for the fourth quarter of 2007. Research and development expenses were $5.3 million and $4.5 million for the years ended December 31, 2008 and December 31, 2007, respectively. Research and development spending in 2008 primarily focused on the company’s SynerGraft tissues and products and protein hydrogel technologies.

As of December 31, 2008, the company had $22.8 million in cash, cash equivalents, and marketable securities, against $17.4 million at December 31, 2007.

“In spite of challenging economic conditions, 2008 represents our third consecutive year of profitability, with increased margins and operating results,” stated Steven G. Anderson, president and chief executive officer. “We believe that we are well positioned to set records in both revenue and operating income in 2009.”

2009 Financial outlook

The company’s GAAP revenues are composed of tissue processing and product revenues plus other revenues. The company expects total revenues for the full year of 2009 to be between $113.0 million and $119.0 million. The company expects tissue processing revenues to be between $58.0 million and $60.5 million and BioGlue revenues to be between $50.0 million and $52.0 million for the full year of 2009. Other medical device revenues, which consist primarily of sales of Hemostase, are anticipated to be between $4.5 million and $5.5 million in 2009. Tissue processing and product revenues could be affected by several factors, including but not limited to, the general economic environment and its effect on demand for the company’s tissues and products, and changes in foreign currency exchange rates and their effects on revenues generated in international markets.

Other revenues for 2009 may reach between $500,000 and $1.0 million, related to funding received from the Department of Defense in connection with the development of BioFoam.

The company expects general, administrative, and marketing expenses of between $52.0 million and $54.0 million and research and development expenses of between $5.0 million and $6.0 million for the full year of 2009. The research and development expectations include an projected $500,000 to $1.0 million to be funded by the Department of Defense in connection with the development of BioFoam.

The company expects its effective income tax rate to be about 40% in 2009. As a result, earnings per share in 2009 will be lower than in 2008, when the company reversed a significant portion of the valuation allowance on its deferred tax assets which resulted