Zila, Inc. (Nasdaq:ZILA) announced results for its third quarter of
fiscal 2005 that ended April 30, 2005. Highlights of those results,
compared with the third quarter of fiscal 2004 ended April 30,
2004, are as follows: -- Net revenues were $14.1 million, an
increase of 11%, compared to net revenues of $12.7 million.
Excluding sales of Zila Swab Technologies, Inc. ("IST") from both
periods, net revenues increased by 22%. -- Zila Nutraceuticals
revenues increased by $2.0 million, or 23%, to $10.4 million. Zila
Pharmaceuticals revenues decreased by $0.5 million, or 13%, to $3.6
million. The reduction in sales at IST led to that decline.
Excluding sales of IST from both periods, Zila Pharmaceuticals
revenues increased by 18%. Sales of ViziLite(R), Zila's screening
product for the identification of oral mucosal abnormalities in
populations at increased risk for oral cancer, were $0.4 million
during the third quarter of fiscal 2005. ViziLite sales increased
nearly five-fold over fiscal 2004's third quarter and by
approximately 100% over sales in the second quarter of fiscal 2005.
-- Gross profit increased to 67% in the third quarter of fiscal
2005 from 63% in the prior year period, driven primarily by lower
ascorbic acid costs, the major raw material in our Ester-C
products. Gross profit dollars increased by $1.6 million, or 20%,
to $9.5 million from $7.9 million. -- Marketing and selling expense
in the third quarter of fiscal 2005 increased by approximately 50%,
to $5.5 million, from $3.6 million, driven largely by Zila
Nutraceuticals' Ester-brand marketing efforts. -- Research and
development spending, primarily in connection with Zila's
OraTest(R) program, decreased by approximately 21%, to $1.6 million
from $2.1 million. R&D spending in the third quarter of fiscal
2005 was focused more on preparing to execute our new clinical
program and on re-developing our OraTest manufacturing capabilities
and less on the conduct of clinical trials and as a result it was
lower than in the prior year. -- General and administrative costs
increased 18% to $3.5 million from $2.9 million, due primarily to
consulting and professional fees in connection with our
Sarbanes-Oxley Section 404 compliance efforts. -- The net impact of
the items discussed above was a net loss for the quarter of $2.2
million, or five cents per share, compared to a loss of $1.6
million, or three cents per share in the third quarter of fiscal
2004. Zila's Chairman, President and CEO, Doug Burkett, Ph.D.,
said, "The third quarter was strong from the perspective of
revenues generated by our core businesses. Our revenues grew by 22%
excluding the impact of IST and all of our business units
contributed to that result. Sales of our ViziLite product continue
to increase as this product becomes more widely known and accepted
by the dental community. Our Zilactin(R) product line posted
double-digit revenue growth for the first time in years. Our gross
profit performance was also strong during the quarter. We remain
committed to our efforts to aggressively support Zila
Nutraceuticals, our growth business of today, and Zila
Pharmaceuticals and Zila Biotechnology, our growth businesses of
tomorrow, with the resources required to maximize long-term return.
Certain costs within those businesses have accelerated sharply over
the last year, as we are launching new products at Nutraceuticals
and Pharmaceuticals and advancing our OraTest regulatory effort.
While that means that our bottom line is likely to remain under
pressure for the near term, it's consistent with our strategy to
generate future growth and become profitable following completion
of the OraTest regulatory effort and eventual product launch. Zila
anticipates that the cost of the new regulatory program is well
within its cash availability." Zila Nutraceuticals Net revenues for
Zila Nutraceuticals for the three months ended April 30, 2005
increased 23% to $10.4 million compared to $8.5 million for the
three months ended April 30, 2004. The revenue gain was driven
largely by increased national TV and radio advertising spending,
timed to support the launch of Ester-E(R) and the completion of the
cold and flu season for Ester-C(R). Gross margins for Zila
Nutraceuticals increased to 70% for the three months ended April
30, 2005 compared to 65% for the three months ended April 30, 2004.
This increase was caused primarily by lower costs of ascorbic acid
resulting from lower-cost extended supply arrangements that
commenced late in fiscal 2004. Zila Pharmaceuticals Net revenues
for Zila Pharmaceuticals for the three months ended April 30, 2005
decreased 13%, to $3.6 million, compared to $4.2 million in the
prior year period. Sales for the IST subsidiary (net of
intercompany sales) were $222,000 compared to $1.3 million last
year, as the contract with its largest customer ended in March
2004. Revenues from our Zilactin line of products increased 12%
compared to the prior year, and a change in annualized purchasing
patterns by our largest Peridex(R) customer produced flat revenue
comparisons for that product, but we expect increased overall
annual Peridex sales to that customer. Sales of ViziLite were $0.4
million in the fiscal 2005 third quarter and were nearly five times
higher than sales in the comparable prior year quarter. Gross
margins for Zila Pharmaceuticals increased to 59% in the third
quarter of fiscal 2005 from 58% in the third quarter of fiscal
2004, due primarily to reductions in the cost of sales for Zilactin
and to improvements in the margins for ViziLite. Other operating
costs totaling $298,000 were incurred during the quarter in
connection with efforts to upgrade certain manufacturing and
quality control procedures at IST. Zila Biotechnology Total
operating expenses for Zila Biotechnology were $2.1 million for the
three months ended April 30, 2005, an 8% decrease compared to the
$2.3 million incurred for the three months ended April 30, 2004.
Research and development expenses related to the OraTest program
decreased 21% to $1.5 million. The clinical program cost in the
fourth quarter is expected to increase beyond the third quarter's
spending level as the company prepares to execute the new program.
Zila's new clinical program will include the evaluation of
OraTest's ability to improve the detection of cancer and
pre-cancers in a high-risk population of tobacco and/or alcohol
consumers. The study will be conducted by Quintiles, Inc. with
oversight by Zila's internal clinical and regulatory team. The
study is anticipated to require less than 4,000 readily available
subjects from approximately eleven sites within the United States.
It is feasible that the study could be completed within one year
from the time that all sites are enrolling patients. Zila continues
its communications with the Food and Drug Administration and
management is pleased with the recent progress that has been
achieved. We continue to believe that we may begin enrolling
patients in the new program late this summer. Nine Months Ended
April 30, 2005 Net sales for the nine months ended April 30, 2005
increased 2% to $39.2 million compared to $38.3 million for the
comparable period of fiscal 2004. The increase was achieved despite
the loss of a major customer at the company's IST subsidiary which
resulted in IST net revenue declining to $531,000 in fiscal 2005
from $4.6 million in fiscal 2004. Excluding the impact of IST, net
sales increased 15% compared to the prior year period on the
strength of continued growth in Ester-C sales and substantial
improvement in ViziLite sales. Gross profit increased to $26.0
million for the nine months ended April 30, 2005 from $23.0 million
in the comparable prior year period. Net loss attributable to
common shareholders increased to $7.5 million from $4.1 million in
the comparable period of the prior year, due to increased spending
for marketing and selling costs and research and development costs
in the fiscal 2005 period. Fiscal 2004 also benefited from a
$470,000 gain on the sale of the Company's headquarters building.
Conference Call Zila, Inc. will host a conference call to discuss
these results today at 4:30 p.m. ET; 2:30 p.m. MT. This call is
open to the public. Domestic participants may dial 800-291-8929 up
to ten minutes before the scheduled start time and ask for the Zila
conference call. Participants calling from outside the United
States should dial 706-634-0478. A tape replay of the call will be
available for 48 hours beginning at 5:30 p.m. MT on June 9, 2005,
by dialing 800-642-1687 and providing the conference ID number
6713934. Participants calling from outside the United States should
dial 706-645-9291. In addition, the call will be broadcast over the
Internet and can be accessed at http://www.zila.com or
http://www.earnings.com. Investors should visit the website prior
to the call to download any necessary audio software. About Zila
Zila, Inc., headquartered in Phoenix, is an innovator in
preventative healthcare technologies and products, focusing on
enhanced body defense and the detection of pre-disease states. Zila
has three business units: -- Zila Biotechnology, a research,
development and licensing business specializing in
pre-cancer/cancer detection through its patented Zila(R) Tolonium
Chloride and OraTest(R) technologies. -- Zila Pharmaceuticals,
marketer of products to promote oral health and prevent oral
disease, including ViziLite(R) oral examination kits, Peridex(R)
prescription periodontal rinse and Zilactin(R) OTC oral care
products. -- Zila Nutraceuticals, manufacturer and marketer of
Ester-C(R) and Ester-E(R), branded, highly effective forms of
Advanced Protection vitamins C and E. For more information about
Zila, visit www.zila.com. This press release contains
forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange
Act of 1934. These forward-looking statements are based largely on
Zila's expectations or forecasts of future events, on the date of
this release, and are necessarily estimates reflecting the best
judgment of our senior management and involve a number of risks and
uncertainties, many of which are beyond the Company's control, that
could cause actual results to differ materially from the
forward-looking statements contained herein. A wide variety of
factors could cause or contribute to such differences and could
adversely impact revenues, margins, profitability, cash flows and
capital needs, the ability of the Company to maintain required cash
flows and cash availability to implement its business plan and
appreciation in the market value of Zila's common stock. Such
factors include, but are not limited to: increased competition from
current competitors and new market entrants; the Company's ability
to maintain, expand, or in certain cases, regain distribution
within new or existing channels of trade for its products; and the
market acceptance of the ViziLite(R) and Ester-E(R) products and
the future gross margins for such products. A wide variety of
factors will impact the length, size and expense of the OraTest(R)
clinical program; the FDA's ultimate decision regarding the
OraTest(R) clinical program and product; the limitations on the
indicated uses for the OraTest(R) product; and the ultimate market
reception of the OraTest(R) product. There can be no assurance that
the forward-looking statements contained in this press release
will, in fact, transpire or prove to be accurate. For a more
detailed description of these and other cautionary factors that may
affect Zila's future results, please refer to Zila's Report on Form
10-K for its fiscal year ended July 31, 2004, and its Form 10-Q for
the three months ended April 30, 2005, filed with the Securities
and Exchange Commission. In light of those risks and uncertainties
you are cautioned not to place undue reliance on these forward
looking statements, which speak only as of the date stated, or if
no date is stated, as of the date of this release. We are under no
obligation, nor do we intend, to update the forward looking
statements contained herein to reflect circumstances existing after
the date of this release. -0- *T ZILA, INC. AND SUBSIDIARIES Income
Statement (Unaudited) (in thousands - except for per share data)
Three months ended Nine months ended April 30, April 30,
------------------- ----------------- 2005 2004 2005 2004
---------- -------- -------- -------- Net revenues $14,068 $12,650
$39,180 $38,307 Cost of product sold 4,590 4,725 13,185 15,310
---------- -------- -------- -------- Gross Profit 9,478 7,925
25,995 22,997 Operating Costs and Expenses: Marketing and selling
5,468 3,646 16,323 10,897 General and administrative 3,475 2,935
9,528 9,959 Other operating costs 298 - 298 - Research and
Development 1,636 2,064 5,220 4,332 Depreciation and Amortization
713 707 2,065 2,089 ---------- -------- -------- -------- 11,590
9,352 33,434 27,277 ---------- -------- -------- -------- Loss from
Operations (2,112) (1,427) (7,439) (4,280) ---------- --------
-------- -------- Other Income (Expense): Interest income 35 25 129
77 Interest expense (44) (100) (144) (254) Gain on sale of assets -
- - 470 Other expense (30) (65) (63) (109) ---------- --------
-------- -------- (39) (140) (78) 184 ---------- -------- --------
-------- Pretax loss from operations (2,151) (1,567) (7,517)
(4,096) Income tax expense - - (2) - ---------- -------- --------
-------- Net Loss (2,151) (1,567) (7,519) (4,096) Preferred stock
dividends (10) (10) (29) (29) ---------- -------- -------- --------
Net loss attributable to common shareholders $(2,161) $(1,577)
$(7,548) $(4,125) ========== ======== ======== ======== Basic and
diluted net loss per common share $(0.05) $(0.03) $(0.17) $(0.09)
Weighted average shares outstanding - basic and diluted 45,600
45,373 45,551 45,297 EBITDA (a) $(1,429) $(785) $(5,437) $(1,830)
(a) EBITDA is defined as earnings (loss) before net interest, taxes
(income), depreciation and amortization. EBITDA Reconciliation (in
thousands) Three months ended Nine months ended April 30, April 30,
----------------- ------------------ 2005 2004 2005 2004 --------
-------- -------- --------- EBITDA $(1,429) $(785) $(5,437)
$(1,830) Interest income 35 25 129 77 Interest expense (44) (100)
(144) (254) Depreciation and amortization (713) (707) (2,065)
(2,089) Income tax expense - - (2) - -------- -------- --------
--------- Net Loss $(2,151) $(1,567) $(7,519) $(4,096) ========
======== ======== ========= Net Revenues by Business Unit Unaudited
(in thousands) Three months ended Nine months ended April 30, April
30, ----------------------- ------------------------ % % 2005 2004
Change 2005 2004 Change -------- ------- ------ -------- --------
------ Nutraceuticals $10,432 $8,471 23 $28,953 $24,073 20
Pharmaceuticals - including IST 3,636 4,179 (13) 10,227 14,232 (28)
IST 222 1,284 (83) 531 4,567 (88) -------- ------- --------
-------- Pharmaceuticals - excluding IST 3,414 2,895 18 9,696 9,665
- Total Company 14,068 12,650 11 39,180 38,307 2 Total Company -
excluding IST 13,846 11,366 22 38,649 33,740 15 Management believes
that the exclusion of the impact of IST's revenue decline is
meaningful information to provide to investors because it aids in
evaluating the revenue generated by the core units of the business
and because management continues to evaluate the long-term
strategic fit of the IST unit with respect to the rest of the
business. Balance Sheet Data Unaudited (in thousands) April 30,
July 31, 2005 2004 --------- -------- Current assets $25,029
$28,868 Property - net 9,284 9,142 Intangibles - net 23,094 23,680
Other 395 419 -------- -------- Total Assets $57,802 $62,109
======== ======== Current liabilities $11,006 $7,696 Long-term
liabilities 3,822 4,185 Shareholders' Equity 42,974 50,228 --------
-------- Total Liabilities and Equity $57,802 $62,109 ========
======== *T
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