Analogic Corporation
Mar 2, 2016

Analogic Announces Results for the Second Quarter Ended January 31, 2016 and Declares Quarterly Cash Dividend

Improved Product Mix and Operational Cost Focus Drive Margin Expansion Despite Lower Revenues

PEABODY, Mass., March 02, 2016 (GLOBE NEWSWIRE) -- Analogic Corporation (Nasdaq:ALOG), enabling the world's medical imaging and aviation security technology, today announced results for its second quarter ended January 31, 2016.

Highlights during the second quarter (comparisons are against Q2 of fiscal 2015) included:

Revenue for the second quarter of fiscal 2016 was $127.9 million, a decrease of 5% or 4% on constant currency, compared with revenue of $133.9 million in the second quarter of fiscal 2015. GAAP net loss for the second quarter of fiscal 2016 was ($3.0) million, or ($0.24) per diluted share, compared with net income of $9.8 million, or $0.78 per diluted share, in the second quarter of fiscal 2015. Included in GAAP net loss and diluted EPS for the second quarter is a pre-tax accrual of $13.3 million, or $1.07 per diluted share, associated with the inquiry involving our Danish subsidiary BK Medical and a pre-tax restructuring charge of $3.1 million, or $0.25 per diluted share, associated with the 2016 Restructuring Plan previously announced in the fourth quarter of fiscal 2015.

Non-GAAP net income for the second quarter was $14.9 million, or $1.18 per diluted share, compared with $13.6 million, or $1.08 per diluted share, in the prior year's second quarter. A reconciliation of GAAP to non-GAAP results is included as an attachment to this press release.

For the first six months of fiscal 2016, revenue totaled $242.8 million, down 4% or 3% on constant currency, from the same period in the prior year. Fiscal year-to-date GAAP net loss was ($1.6) million, or ($0.13) per diluted share, compared with net income of $13.5 million, or $1.07 per diluted share, from the same period in 2015. Included in GAAP net loss and diluted EPS for the first six months was a pre-tax accrual of $13.3 million, or $1.07 per diluted share, associated with the inquiry involving our Danish subsidiary BK Medical and a pre-tax restructuring charge of $6.4 million, or $0.52 per diluted share, associated with the 2016 Restructuring Plan previously announced in the fourth quarter of fiscal 2015. Year-to-date non-GAAP net income was $21.9 million, or $1.73 per diluted share, compared with $21.5 million, or $1.70 per diluted share, in the same period last year.

Jim Green, president and CEO, commented, "As expected, revenues in our second quarter were below last year, due primarily to lower legacy ultrasound probes and timing of Security shipments, but our profitability continued to improve with mid-teens non-GAAP operating margins driving a significant increase in non-GAAP earnings per share. Our Security segment continued to exhibit volatility due to shifting schedules from our OEM customers and Rapid DNA payment delays affecting revenue recognition. Medical Imaging performed as expected, with demand for our private label CT product increasing in China, and our performance in direct Ultrasound continues with strong growth and improved margins driven by North America and China."

Green continued, "Looking to the second half of the fiscal year, we see Ultrasound building momentum as we begin selling our new bk3500 into point-of-care settings and we begin layering on ultrasound product revenues from our technology partner as they penetrate the broader general imaging market. Our new telehealth initiative, through the acquisition of Oncura Partners, further accelerates ultrasound growth. After the close of the quarter, I am very pleased to say that we received our first commercial order for our Sonic Window used for dialysis, another incremental driver for long-term growth."

Green added, "In the second half we continue to expect strong Ultrasound growth and solid Medical Imaging, impacted by declines in Security. For the full year we now expect revenue to be down mid-single digits, low single digits on constant currency, with favorable mix and cost focus driving continued non-GAAP operating margin expansion of over one point."

Segment Revenues

Medical Imaging segment revenue was $73.5 million for the second quarter of fiscal 2016, consistent with revenue of $73.1 million in the same period of fiscal 2015, due primarily to growth in mammography and MR offset by timing of shipments in CT despite solid growth in our private label CT shipments to China.  

Ultrasound segment revenue was $43.3 million for the second quarter of fiscal 2016, up 2% (up 5% in constant currency) from revenue of $42.5 million in the same period of fiscal 2015, due to strong growth (11% in constant currency) in direct sales offset by the decline in OEM probes.

Security and Detection segment revenue was $11.1 million for the second quarter of fiscal 2016, down 39% from revenue of $18.3 million in the same period of fiscal 2015, on timing of high-speed system shipments and payment delays from Rapid DNA systems.

Investigation Regarding our BK Medical Subsidiary

As initially disclosed in our Annual Report on Form 10-K for the fiscal year ended July 31, 2011, we identified certain transactions involving our Danish subsidiary BK Medical ApS, or BK Medical, and certain of its foreign distributors, with respect to which we have raised questions concerning compliance with law, including Danish law and the U.S. Foreign Corrupt Practices Act, and our business policies. We are engaged in discussions with the SEC, the DOJ and the Danish Government concerning a final resolution of these matters. In the second quarter of fiscal 2016, we accrued a charge of $13.3 million, of which $10.1 million was classified as general and administrative expense and $3.2 million was classified as other expense, net in our Consolidated Statements of Operations, in connection with these matters. This is in addition to a $1.6 million charge that we accrued in the fourth quarter of fiscal 2015, of which $1.0 million was classified as general and administrative expense and $0.6 million was classified as other expense, net in our Consolidated Statements of Operations. Any resolution of these matters, and the terms of and amounts payable in connection with any such resolution is subject to negotiation and approval of agreements with each of the SEC, the DOJ, and the Danish government.

Quarterly Cash Dividend

On February 26, 2016, Analogic's Board of Directors declared a $0.10 cash dividend for each common share for its second fiscal quarter ended January 31, 2016. The cash dividend will be payable on March 25, 2016, to shareholders of record on March 11, 2016.

Use of Non-GAAP Financial Measures

This document includes non-GAAP financial measures that are not in accordance with, nor an alternative to, Generally Accepted Accounting Principles and may be different from non-GAAP measures used by other companies. In addition, these non-GAAP measures are not based on any comprehensive set of accounting rules or principles.

Non-GAAP financial measures should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. They are limited in value because they exclude charges that have a material effect on our reported results and, therefore, should not be relied upon as the sole financial measures to evaluate our financial results. The non-GAAP financial measures are meant to supplement, and to be viewed in conjunction with, GAAP financial results. An explanation and a reconciliation of our non-GAAP measures are provided at the end of this press release.

Forward-Looking Statements

Any statements about future expectations, plans, and prospects for the Company, including statements containing the words "believes," "anticipates," "plans," "expects," and similar expressions, constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by such forward-looking statements as a result of various important factors, including risks relating to product development and commercialization, limited demand for the Company's products, limited number of customers, risks associated with competition, uncertainties associated with regulatory agency approvals, competitive pricing pressures, downturns in the economy, the risk of potential intellectual property litigation, acquisition related risks, and other factors discussed in our most recent quarterly and annual reports filed with the Securities and Exchange Commission. In addition, the forward-looking statements included in this presentation represent the Company's views as of the date of this document. While the Company anticipates that subsequent events and developments will cause the Company's views to change, the Company specifically disclaims any obligation to update these forward-looking statements. These forward-looking statements should not be relied upon as representing the Company's views as of any later date.

Conference Call

Analogic will conduct an investor conference call on Wednesday, March 2, 2016 at 5:00 p.m. (ET) to discuss the second quarter and outlook for fiscal 2016. To participate in the conference call, dial 1-866-823-6992, or 1-334-323-7225 for international callers, approximately ten minutes before the conference is scheduled to begin. Inform the operator that you wish to join the Analogic conference, passcode 42748. You will then be asked for your name, organization, and telephone number, and be connected to the conference. The earnings release and, just prior to the call, presentation materials related to the quarterly financial information will be posted on the Company's website at http://investor.analogic.com/.

The call will also be available via webcast in listen-only mode. To listen to the webcast, visit investor.analogic.com approximately five to ten minutes before the conference is scheduled to begin. A telephone digital replay will be available approximately two hours after the call is completed through midnight Saturday April 2, 2016. To access the digital replay, dial 1-877-919-4059 or 1-334-323-0140 for international callers. The passcode is 91121902.

A replay of the conference call webcast will be archived on the Company's website at www.analogic.com approximately three hours after the call is completed and will be available through midnight April 2, 2016. For more information on the conference call, visit www.analogic.com, call 978-326-4058, or email investorrelations@analogic.com.  

About Analogic

Analogic (Nasdaq:ALOG) provides leading-edge healthcare and security technology solutions to advance the practice of medicine and save lives. We are recognized around the world for advanced imaging and real-time guidance technologies used for disease diagnosis and treatment as well as for automated threat detection. Our market-leading ultrasound systems, led by our flagship BK Ultrasound brand, used in procedure-driven markets such as urology, surgery, and point-of-care, are sold to clinical practitioners around the world. Our advanced imaging technologies are also used in computed tomography (CT), magnetic resonance imaging (MRI), and digital mammography systems, as well as automated threat detection systems for aviation security. Analogic is headquartered just north of Boston, Massachusetts. For more information, visit www.analogic.com.

Analogic and the globe logo are registered trademarks of Analogic Corporation.

          
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
          
   Three Months Ended Six Months Ended
(In thousands, except per share data)  January 31, 2016 January 31, 2015 January 31, 2016 January 31, 2015
          
Net revenue:         
Product  $ 125,938  $ 131,272  $ 240,067  $ 248,207 
Engineering    1,931    2,673    2,750    4,054 
Total net revenue    127,869    133,945    242,817    252,261 
Cost of sales:         
Product    68,123    74,077    131,070    139,215 
Engineering    967    2,375    2,029    3,554 
Total cost of sales    69,090    76,452    133,099    142,769 
          
Gross profit    58,779    57,493    109,718    109,492 
Operating expenses:         
Research and product development   16,566    16,425    33,805    33,794 
Selling and marketing    15,249    15,846    30,482    31,355 
General and administrative    22,308    13,073    35,504    27,295 
Restructuring    3,147    (152)   6,430    (210)
Total operating expenses    57,270    45,192    106,221    92,234 
          
Income from operations    1,509    12,301    3,497    17,258 
Total other income (expense), net    (3,507)   (169)   (3,965)   (51)
Income (loss) before income taxes    (1,998)   12,132    (468)   17,207 
(Benefit from) provision for income taxes    987    2,302    1,141    3,723 
Net income (loss)  $ (2,985) $ 9,830  $ (1,609) $ 13,484 
          
Net income (loss) per share         
Basic  $ (0.24) $ 0.79  $ (0.13) $ 1.09 
Diluted  $ (0.24) $ 0.78  $ (0.13) $ 1.07 
          
Dividends declared and paid per share  $ 0.10  $ 0.10  $ 0.20  $ 0.20 
          
Weighted-average shares outstanding:         
Basic    12,418    12,378    12,422    12,393 
Diluted    12,418    12,558    12,422    12,588 


     
CONDENSED CONSOLIDATED BALANCE SHEETS 
(Unaudited) 
     
(In thousands)    
     
Assets: January 31, 2016 July 31, 2015
Cash and cash equivalents $ 120,067  $ 123,800 
Accounts receivable, net   95,239    119,301 
Inventory   149,685    132,712 
Other current assets   25,016    20,765 
Total current assets   390,007    396,578 
Property, plant, and equipment, net   103,565    106,299 
Intangible assets and goodwill, net   123,368    106,949 
Other non-current assets   18,218    14,753 
Other assets   141,586    121,702 
Total Assets $ 635,158  $ 624,579 
     
Liabilities and Stockholders' Equity:    
Accounts payable $ 30,115  $ 30,493 
Accrued liabilities   49,963    40,110 
Other current liabilities   8,714    9,191 
Total current liabilities   88,792    79,794 
Long-term liabilities   25,092    13,375 
Stockholders' equity   521,274    531,410 
Total Liabilities and Stockholders' Equity$ 635,158  $ 624,579 
     


         
NON-GAAP STATEMENTS OF OPERATIONS RECONCILIATION 
         
(In thousands, except per share data)Three Months Ended Six Months Ended 
 January 31, 2016 January 31, 2015 January 31, 2016 January 31, 2015 
         
GAAP Income From Operations$ 1,509  $ 12,301  $ 3,497  $ 17,258  
Share-based compensation expense (Note 1)  1,760    2,424    4,143    5,015  
Acquisition-related revenues and expenses (Note 2)  2,492    2,257    4,554    4,547  
BK Medical distributor matter inquiry related costs (Note 3)  10,208    376    10,234    1,146  
Restructuring (Note 4)  3,147    (152)   6,430    (210) 
Non-GAAP Income From Operations$ 19,116  $ 17,206  $ 28,857  $ 27,756  
Percentage of Total Net Revenue 15%  13%  12%  11% 
         
GAAP Other Income (Expense), net $ (3,507) $ (169) $ (3,965) $ (51) 
BK Medical distributor matter inquiry related costs (Note 3)  3,211    -    3,211    -  
Non-GAAP Other Income (Expense), net$ (296) $ (169) $ (754) $ (51) 
Percentage of Total Net Revenue 0%  0%  0%  0% 
         
GAAP Net Income (Loss)$ (2,985) $ 9,830  $ (1,609) $ 13,484  
Share-based compensation expense (Note 1)  1,228    1,710    2,912    3,531  
Acquisition-related revenues and expenses (Note 2)  1,989    1,903    3,711    3,841  
BK Medical distributor matter inquiry related costs (Note 3)  12,640    239    12,657    728  
Restructuring (Note 4)  2,010    (96)   4,181    (133) 
Non-GAAP Net Income$ 14,882  $ 13,586  $ 21,852  $ 21,451  
Percentage of Total Net Revenue 12%  10%  9%  9% 
         
GAAP Diluted Net Income (Loss) Per Share$ (0.24) $ 0.78  $ (0.13) $ 1.07  
Effect of non-GAAP adjustments  1.43    0.30    1.86    0.63  
Non-GAAP Diluted Net Income Per Share$ 1.18  $ 1.08  $ 1.73  $ 1.70  
         
         
Note 1: Exclusion of variable share-based compensation expense allows consistency of operating results between periods and between other companies. 
  
Note 2: During fiscal year 2016, we incurred acquisition related costs associated with the Ultrasonix Medical Corporation, PocketSonics, Inc., and Oncura Partners Diagnostics, LLC acquisitions, which we closed on March 2, 2013, September 20, 2013, and January 8, 2016, respectively. Pre-tax costs consisted of the amortization of intangibles and legal fees of $2.5 million and $4.6 million for the three and six months ended January 31, 2016, respectively. 
 
Note 3: During the three and six months ended January 31, 2016, we incurred pre-tax inquiry-related costs of $10.3 million within operating expenses and $3.2 million within Other Income (expense), respectively, associated with the BK Medical distributor matter, as initially disclosed in our annual report on Form 10-K for the fiscal year ended July 31, 2011. This matter relates to transactions we identified involving our Danish subsidiary, BK Medical, and certain of its foreign distributors, regarding compliance with the law.
 
Note 4: During the three and six months ended January 31, 2016, we incurred pre-tax restructuring charges of $3.1 million and $6.4 million, respectively, primarily due to severance and related costs for employees who were involuntary terminated or elected to participate in the Voluntary Retirement Program.
  
For Further Information:

Investor and Financial Media Contact:
Mark Namaroff
Director of Investor Relations
(978) 326-4058
investorrelations@analogic.com