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Sirona Reports Fiscal 2007 Second Quarter and Year-to-Date Results
Second Quarter Fiscal 2007 vs. Second Quarter Fiscal 2006 Financial Results
Revenue was $150.2 million, an increase of $18.3 million or 13.9% (up 7.1% on a constant currency basis) with growth rates for the Company's business segments as follows: Imaging Systems increased 92% (up 80% constant currency); Instruments increased 6% (down 2% constant currency); Treatment Centers declined 12% (down 19% constant currency); and Dental CAD/CAM Systems declined 11% (down 14% constant currency). Revenue in the United States increased by 34%. Outside the United States, revenue increased 6% (down 3% constant currency). Imaging Systems and United States revenue growth was mainly attributable to the June 2006 acquisition of Schick Technologies Inc., the continued adoption of digital radiography and the first deliveries of our Galileos 3D imaging unit.
Gross profit increased by $5.5 million to $70.5 million, up 8.5%. Operating income was $5.6 million compared to $20.0 million, as the increase in gross profit was more than offset by higher SG&A and R&D expense. The year-over-year increase in SG&A and R&D expense was driven by the inclusion of Schick's operations, increased expense associated with major product launches, the bi-annual International Dental Show trade show in Cologne and additional expenses following the Schick acquisition (including option expenses, costs related to the preparation and review of U.S. GAAP financial statements, and Sarbanes-Oxley compliance).
Net income was $0.4 million compared to $4.4 million. The effective tax rate represents an estimation of 35% for fiscal year 2007, a significant improvement compared to the prior year.
At March 31, 2007 the Company had cash and cash equivalents of $43.3 million and total debt of $528.7 million, resulting in net debt of $485.4 million. This compares to net debt of $452.8 million at September 30, 2006. Of the $32.6 million increase in net debt, approximately half of it was due to currency fluctuations.
Chairman, President & CEO Jost Fischer commented, "As we expected, second quarter performance reflected dentists' delayed equipment purchases in anticipation of Sirona's product launches and the International Dental Show in Cologne at the end of March. We expect strong revenue growth in the second half of Fiscal 2007 due to the ramp up of manufacturing and sales of our new CEREC product offerings and our Galileos 3D imaging system. We are reaffirming our Fiscal 2007 guidance, which we initially gave in our December 8, 2006 earnings press release."
First Half Fiscal 2007 vs. First Half Fiscal 2006 Financial Results
Revenue was $325.0 million, an increase of $57.2 million or 21.4% (up 14.7% constant currency) with growth rates for the Company's business segments as follows: Imaging Systems increased 96% (up 84% constant currency); Instruments increased 21% (up 12% constant currency); Treatment Centers increased 11% (up 3% constant currency); and Dental CAD/CAM Systems declined 11% (down 14% constant currency). Revenue in the United States increased 33%. Outside the United States, revenue increased 16% (up 7% constant currency). Imaging Systems and United States revenue growth was attributable to the inclusion of the Schick operations and the continued adoption of digital radiography.
Gross profit increased by $23.4 million to $154.6 million, up 17.8%. Operating income was $31.7 million compared to $46.8 million as the increase in gross profit was more than offset by higher SG&A and R&D expense. The year-over-year increase in SG&A and R&D expense was driven by the inclusion of Schick's operations, increased expense associated with major product launches, the bi-annual IDS trade show in Cologne and additional expenses following the Schick acquisition (including option expenses, costs related to the preparation and audit of U.S. GAAP financial statements, and Sarbanes-Oxley compliance).
Net income was $2.7 million compared to $7.8 million. First half 2007 net income includes a one-time charge related to the early extinguishment of debt of $21.1 million ($13.3 million after tax) and a foreign exchange gain of $3.9 million ($2.5 million after tax) resulting from the re-financing. The effective tax rate represents an estimation of 35% for fiscal year 2007.
Conference Call/Webcast Information
Sirona will hold a conference call to discuss its financial results at 9:00 a.m. Eastern Daylight Time on May 10, 2007. The teleconference can be accessed by calling 866 543 6408 (domestic) or +1 617 213 8899 (international) using passcode # 43928357. The webcast will be available via the Internet at www.sirona.com. A replay of the conference call will be available through June 9, 2007 by calling 888 286 8010 (domestic) or +1 617 801 6888 (international) using passcode # 52120778. A web archive will be available for 30 days at www.sirona.com.
About Sirona Dental Systems, Inc.
Recognized as a leading global manufacturer of technologically advanced, high quality dental equipment, Sirona has served equipment dealers and dentists worldwide for more than 125 years. Sirona develops, manufactures, and markets a complete line of dental products, including the CAD/CAM restoration equipment (CEREC), digital and film-based intra-oral, panoramic and cephalometric X-ray imaging systems, dental treatment centers and handpieces. Visit http://www.sirona.com for more information about Sirona and its products.
This release contains forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements are information of a nonhistorical nature and are subject to risks and uncertainties that are beyond the Company's ability to control. The matters discussed in this news release are subject to various factors which could cause actual events and results to differ materially from such statements. Such factors include uncertainties as to the future sales volume of the Company's products, the possibility of changing economic, market and competitive conditions, dependence on products, dependence on key personnel, technological developments, intense competition, market uncertainties, dependence on distributors, ability to manage growth, dependence on key suppliers, and other risks and uncertainties including those detailed in the Company's filings with the Securities and Exchange Commission. The Company undertakes no obligation and does not intend to update these forward-looking statements to reflect events or circumstances occurring after this release. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this release.
SIRONA DENTAL SYSTEMS, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
Three months Six months
ended ended
March 31, March 31,
2007 2006 2007 2006
----------- ----------- ----------- -----------
$'000s (except per share amounts)
Revenue $ 150,168 $ 131,843 $ 324,967 $ 267,725
Cost of sales 79,622 66,816 170,349 136,480
----------- ----------- ----------- -----------
Gross profit 70,546 65,027 154,618 131,245
Selling, general
and
administrative
expense 52,877 35,339 100,378 67,642
Research and
development 12,054 8,026 22,334 14,973
(Benefit)/
provision for
doubtful accounts
and notes
receivable (68) 322 233 182
Net other
operating
expenses/(income) 122 1,376 (28) 1,684
----------- ----------- ----------- -----------
Operating income 5,561 19,964 31,701 46,764
Foreign currency
transactions
(gain)/loss, net (1,889) (3,377) (8,955) 1,880
Loss/(gain) on
derivative
instruments 911 (1,647) 420 (1,372)
Interest expense,
net 6,207 13,545 15,166 29,000
Loss on debt
extinguishment - - 21,145 -
----------- ----------- ----------- -----------
Income before
taxes and
minority interest 332 11,443 3,925 17,256
Income tax
provision 125 6,976 1,374 9,480
Minority interest (143) 23 (117) 22
----------- ----------- ----------- -----------
Net income $ 350 $ 4,444 $ 2,668 $ 7,754
=========== =========== =========== ===========
Income per share
- Basic $ 0.01 $ 0.12 $ 0.05 $ 0.21
=========== =========== =========== ===========
- Diluted $ 0.01 $ 0.12 $ 0.05 $ 0.21
=========== =========== =========== ===========
Weighted average
shares - basic 54,683,295 36,972,480 54,652,557 36,972,480
=========== =========== =========== ===========
Weighted average
shares - diluted 54,890,447 36,972,480 54,869,481 36,972,480
=========== =========== =========== ===========
SIRONA DENTAL SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, September 30,
2007 2006
------------- -------------
(unaudited)
$'000s (except share amounts)
ASSETS
Current assets
Cash and cash equivalents $ 43,266 $ 80,560
Restricted cash 791 953
Accounts receivable, net of
allowance for doubtful accounts
of $1,146 and $837, respectively 87,866 66,090
Inventories, net 72,677 57,303
Deferred tax assets 6,433 4,671
Prepaid expenses and other current
assets 15,856 16,074
Income tax receivable 3,124 -
------------- -------------
Total current assets 230,013 225,651
Property, plant and equipment, net
of accumulated depreciation and
amortization of $22,330 and
$18,139, respectively 67,328 61,042
Goodwill 634,625 613,549
Investments 1,152 750
Intangible assets, net of
accumulated amortization of
$109,308 and $66,242, respectively 602,582 618,993
Other non-current assets 5,064 17,370
Deferred tax assets 6,118 3,649
------------- -------------
Total assets $ 1,546,882 $ 1,541,004
============= =============
LIABILITIES, MINORITY INTEREST AND
SHAREHOLDERS' EQUITY
Current liabilities
Trade accounts payable $ 29,815 $ 30,303
Short-term debt and current portion
of long-term debt 12,864 14,738
Income taxes payable 7,502 10,434
Deferred tax liabilities 1,530 3,208
Accrued liabilities and deferred
income 74,083 65,203
------------- -------------
Total current liabilities 125,794 123,886
Long-term debt 515,833 518,634
Deferred tax liabilities 230,771 243,491
Other non-current liabilities 11,783 18,128
Pension related provisions 51,513 48,167
Deferred income 95,000 100,589
------------- -------------
Total liabilities 1,030,694 1,052,895
------------- -------------
Minority interest 160 263
Shareholders' equity
Preferred stock ($0.01 par value;
5,000,000 shares authorized;
none issued and outstanding) - -
Common stock ($0.01 par value;
95,000,000 shares authorized:
54,733,488 and 54,608,134 shares
issued and outstanding,
respectively) 547 546
Additional paid-in capital 594,011 582,447
Excess of purchase price over
predecessor basis (49,103) (49,103)
Accumulated deficit (44,738) (47,406)
Accumulated other comprehensive
income 15,311 1,362
------------- -------------
Total shareholders' equity 516,028 487,846
------------- -------------
Total liabilities, minority interest
and shareholders' equity $ 1,546,882 $ 1,541,004
============= =============
SIRONA DENTAL SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six months
ended
March 31,
2007 2006
--------- ---------
$'000s
Cash flows from operating activities
Net income $ 2,668 $ 7,754
Adjustments to reconcile net income
to net cash used in operating activities
Minority interest (116) -
Depreciation and amortization 44,992 30,035
Loss on disposal of property, plant and
equipment 31 -
Losses/(gains) on derivate instruments 420 (1,372)
Foreign currency transactions (gain)/loss (8,955) 1,880
Accreted interest on long term debt 4,449 11,318
Deferred income taxes (22,691) (3,975)
Amortization of debt issuance cost 2,374 4,078
Loss on debt extinguishment 19,964 -
Compensation expense from stock options 6,711 -
Changes in assets and liabilities
Accounts receivable (19,067) (19,825)
Inventories (13,166) (3,684)
Prepaid expenses and other current assets 5,999 20,714
Restricted Cash 204 47
Other non-current assets (4,924) (2,953)
Trade accounts payable (509) (1,383)
Accrued liabilities and deferred income (4,358) (10,665)
Other non-current liabilities (6,212) 3,228
Income taxes receivable (3,106) -
Income taxes payable (2,102) 9,457
--------- ---------
Net cash provided by operating activities 2,606 44,654
Cash flows from investing activities
Investment in property, plant and equipment (9,326) (6,011)
Proceeds from sale of property, plant and
equipment 215 6
Restricted short term investments/securities - 741
Purchase of intangible assets (57) (372)
Purchase of long-term investments (402) -
--------- ---------
Net cash used in investing activities (9,570) (5,636)
Cash flows from financing activities
Repayments of long-term debt (559,294) (36,153)
Proceeds from borrowings 529,747 -
Debt issuance cost (5,381) -
Common shares issued under share based
compensation plans 1,092 -
Tax effect of common shares exercised under
share based compensation plans 1,173 -
--------- ---------
Net cash used in financing activities (32,663) (36,153)
Change in cash and cash equivalents (39,627) 2,865
Effect of exchange rate change on cash and cash
equivalents 2,333 (555)
Cash and cash equivalents at beginning of
period 80,560 65,941
--------- ---------
Cash and cash equivalents at end of period $ 43,266 $ 68,251
========= =========
Supplemental information
Interest paid $ 25,584 $ 14,939
- thereof accreted interest paid on repayment
of long-term debt 8,594 -
Interest capitalized 205 69
Income taxes paid 26,249 3,268
Other Financial Data (unaudited)
Three months ended Six months ended
March 31, March 31,
2007 2006 2007 2006
-------- -------- -------- --------
$'000s $'000s
Net income $ 350 $ 4,444 $ 2,668 $ 7,754
Net interest expense 6,207 13,545 15,166 29,000
Provision for income taxes 125 6,976 1,374 9,480
Depreciation 2,109 3,973 5,732 6,919
Amortization 19,141 11,932 39,089 23,116
-------- -------- -------- --------
EBITDA $ 27,932 $ 40,870 $ 64,029 $ 76,269
======== ======== ======== ========
Supplemental Information
Three months ended Six months ended
March 31, March 31,
2007 2006 2007 2006
-------- -------- -------- --------
$'000s $'000s
Transaction related costs $ - $ (220) $ - $ -
Fair value increase in
inventory - (922) - -
Loss on debt
extinguishment - - 21,145 -
Share-based compensation 3,635 - 6,711 -
Unrealized, non-cash
(gain) on revaluation of
the carrying value of the
$-denominated exclusivity
fee (912) (174) (4,866) (174)
Foreign currency exchange
(gain) on the early
extinguishment of $-
denominated bank debt - - (3,885) -
Unrealized, non-cash
(gain) on revaluation of
the carrying value of $-
denominated bank loans
and short-term
shareholder loans (762) (3,359) (1,353) (443)
-------- -------- -------- --------
$ 1,961 $ (4,675) $ 17,752 $ (617)
======== ======== ======== ========
Notes to Tables Above
EBITDA is a non-GAAP financial measure that is reconciled to net income, its most directly comparable GAAP measure, in the accompanying financial tables. EBITDA is defined as net earnings before interest, taxes, depreciation and amortization. Sirona's management utilizes EBITDA as an operating performance measure in conjunction with GAAP measures, such as net income and gross margin calculated in conformity with GAAP. EBITDA should not be considered in isolation or as a substitute for net income prepared in conformity with GAAP. There are material limitations associated with making adjustments to Sirona's earnings to calculate EBITDA and using this non-GAAP financial measure as compared to the most directly comparable GAAP financial measure. For instance, EBITDA does not include:
- interest expense, and because Sirona has borrowed money in order to finance its operations, interest expense is a necessary element of its costs and ability to generate revenue;
- depreciation and amortization expense, and because Sirona uses capital assets, depreciation and amortization expense is a necessary element of its costs and ability to generate revenue; and
- tax expense, and because the payment of taxes is part of Sirona's operations, tax expense is a necessary element of costs and impacts Sirona's ability to operate.
In addition, other companies may define EBITDA differently. EBITDA, as well as the other information in this filing, should be read in conjunction with Sirona's financial statements and footnotes contained in the documents that Sirona files with the U.S. Securities and Exchange Commission.
In addition to EBITDA, the accompanying financial tables also set forth certain supplementary information that Sirona believes is useful for investors in evaluating Sirona's underlying operations. This supplemental information includes gains/losses recorded in the periods presented relating to early extinguishment of debt, stock option grants, revaluation of the carrying value of the dollar-denominated exclusivity payment and borrowings where the functional currency is Euro, and the Schick acquisition. Sirona's management believes that these items are either nonrecurring or noncash in nature, and should be considered by investors in assessing Sirona's financial condition, operating performance and underlying strength.
Sirona's management uses EBITDA together with this supplemental information as an integral part of its reporting and planning processes and as one of the primary measures to, among other things:
(i) monitor and evaluate the performance of Sirona's business operations;
(ii) facilitate management's internal comparisons of the historical operating performance of Sirona's business operations;
(iii) facilitate management's external comparisons of the results of Sirona's overall business to the historical operating performance of other companies that may have different capital structures and debt levels;
(iv) analyze and evaluate financial and strategic planning decisions regarding future operating investments; and
(v) plan for and prepare future annual operating budgets and determine appropriate levels of operating investments.
Sirona's management believes that EBITDA and the supplemental information provided is useful to investors as it provides them with disclosure of Sirona's operating results on the same basis as that used by Sirona's management.
Constant Currency: We have included certain revenue information in this press release on a constant currency basis. This information is a non-GAAP financial measure. We supplementally present revenue on a constant currency basis because we believe it facilitates a comparison of our operating results from period to period without regard to changes resulting solely from fluctuations in currency rates. Sirona calculates constant currency revenue growth by comparing current period revenues to prior period revenues with both periods converted at the Euro/U.S. $ average foreign exchange rate for the current period.
The exchange rates used in converting Euro denominated revenues into U.S. $ in the Company's financial statements prepared in accordance with U.S. GAAP were: $1.310 and $1.203 for the three months ended March, 31, 2007 and 2006, respectively, and $1.299 and $1.196 for the six months ended March 31, 2007 and 2006, respectively.
SOURCE: Sirona Dental Systems, Inc.
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