ZILA Zila (MM)

Zila, Inc. (Nasdaq: ZILA) today reported financial results for its fiscal 2009 first quarter ended October 31, 2008. Fiscal 2009 First Quarter Financial Results -- Net revenues were $9.6 million compared with $11.4 million for the first quarter of fiscal 2008. Sales of ViziLite� Plus were $3.2 million compared with $3.1 million for the first quarter of fiscal 2008. -- Gross profit was $5.9 million, or 61% of net revenues, compared with $6.9 million, or 60% of net revenues, in the first quarter of fiscal 2008. -- Marketing and selling expense decreased to $4.4 million from $5.3 million in the first quarter of fiscal 2008, reflecting a lower level of commissions and bonuses for the sales force on reduced sales levels and reductions in expenditures in non-direct selling related expenses. -- General and administrative expense decreased to $2.2 million from $3.5 million for the first quarter of fiscal 2008, primarily due to headcount and salary reductions, as well as the deferral or elimination of non-critical programs across the organization. -- Research and development (R&D) expense was $167,000, compared with $1.2 million for the first quarter of fiscal 2008. R&D in last year's first quarter was primarily comprised of costs associated with the OraTest� regulatory program. In the first quarter of fiscal 2008, the company closed enrollment in the OraTest� clinical trial and reduced related expenditures. -- Net loss significantly narrowed to $2.8 million, or $0.28 per share, from a net loss of $4.9 million, or $0.55 per share, for the first quarter of fiscal 2008. -- Adjusted EBITDA loss narrowed to $623,000 from $2.8 million for the first quarter of fiscal 2008. -- Cash and cash equivalents at October 31, 2008 was $3.2 million, compared with $4.5 million at July 31, 2008. The decrease primarily reflects cash used in operations of $990,000, of which $367,000 resulted from working capital changes for the decline in accounts payable and accrued liabilities. Working capital was $5.7 million at October 31, 2008, compared with $6.6 million at July 31, 2008. �While cost reduction measures significantly lowered operating expenses, the recent economic downturn negatively impacted revenues in the fiscal 2009 first quarter,� said David Bethune, chairman and chief executive officer of Zila. �Our business is sensitive to general economic conditions. Accordingly, dental offices started deferring purchases of equipment, such as scalers, and patients postponed discretionary services, including oral cancer screening. Given that weak economic conditions are expected to continue, we are working to further reduce expenses over the next several quarters.� Bethune said that during the fiscal 2009 first quarter, the company added 800 new ViziLite� Plus customers and certified 193 dental practices, bringing the total number of certified ViziLite� Plus practices across the U.S. to 3,515. Reorders of ViziLite� Plus however, declined approximately ten percent due to decreased adult patient traffic. Recent Events In November, Sun Life and Always Care Dental were added to the growing list of dental plans offering ViziLite� Plus exam coverage, bringing the estimate of total covered lives in the U.S. to 24 million. The company said it is actively working with the insurance companies to increase awareness among providers and patients of the ViziLite Plus coverage. Conference Call Dial-In Information Zila will host a conference call to review the results of operations for the first quarter ended October 31, 2008 today at 1:30 p.m. PT (4:30 p.m. ET). To participate on the call, interested parties should call 800 257-3401 (domestic) or 303 262-2202 (international) approximately ten minutes prior to the above start time. The conference call is also available through a live audio Internet broadcast at the "Investors" in the "Investor Relations Home" section of Zila's website, www.zila.com and www.opencompany.info. For those unable to listen to the live broadcast, a playback of the webcast will be available at both websites for approximately 90 days beginning shortly after the conclusion of the call. A telephonic replay will be available for approximately 48 hours following the conclusion of the call by dialing 800 405-2236 (domestic) or 303 590-3000 (international), and entering passcode 11123210#. About Zila, Inc. Zila, Inc., headquartered in Phoenix, Arizona, is a diagnostic company dedicated to the prevention, detection and treatment of oral cancer and periodontal disease. Zila manufactures and markets ViziLite� Plus with TBlue� (�ViziLite� Plus�), the company�s flagship product for the early detection of oral abnormalities that could lead to cancer. ViziLite� Plus is an adjunctive medical device cleared by the FDA for use in a population at increased risk for oral cancer. In addition, Zila designs, manufactures and markets a suite of proprietary products sold exclusively and directly to dental professionals for periodontal disease, including the Rotadent� Professional Powered Brush, the Pro-Select Platinum� ultrasonic scaler and a portfolio of oral pharmaceutical products for both in-office and home-care use. All of Zila�s products are marketed and sold in the United States and Canada primarily through the company�s direct field sales force and telemarketing organization. The company�s products are marketed and sold in other international markets through the direct sales forces of third party distributors. Zila�s marketing programs reach most U.S. dental offices and include continuing education seminars for dentists and their staffs. This press release may contain 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, can be affected by inaccurate assumptions and are subject to various business risks and known and unknown uncertainties, a number of which are beyond the Company's control. Therefore, actual results could differ materially from the forward-looking statements contained herein. A wide variety of factors could cause or contribute to such differences and could adversely affect revenue, profitability, cash flows and capital needs. There can be no assurance that any 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 Form 10-K for its fiscal year ended July 31, 2008 and Form 10-Q for the quarter ended October 31, 2008. For more information about the Company and its products, please visit www.zila.com. FINANCIAL TABLES FOLLOW ZILA, INC. AND SUBSIDIARIES Consolidated Statements of Operations (Unaudited) (in thousands - except for per share data) � � Three Months Ended October 31, � 2008 � � 2007 � � Net revenues $ 9,641 $ 11,440 Cost of products sold � 3,776 � � 4,581 � � Gross profit 5,865 6,859 � Operating costs and expenses: Marketing and selling 4,371 5,297 General and administrative 2,223 3,473 Research and development 167 1,202 Depreciation and amortization � 924 � � 915 � � Total operating costs and expenses � 7,685 � � 10,887 � � Loss from operations � (1,820 ) � (4,028 ) � Other income (expense): Interest income 16 124 Interest expense (922 ) (767 ) Derivative expense - (24 ) Other income (expense) � (48 ) � 23 � � Other expense - net � (954 ) � (644 ) � Loss from continuing operations before income taxes (2,774 ) (4,672 ) Income tax expense � (13 ) � (11 ) � Loss from continuing operations (2,787 ) (4,683 ) Loss from discontinued operations � (11 ) � (172 ) � Net loss (2,798 ) (4,855 ) Preferred stock dividends � 10 � � 10 � � Net loss attributable to common shareholders $ (2,808 ) $ (4,865 ) � Basic and diluted net loss per common share: Loss from continuing operations $ (0.28 ) $ (0.53 ) Loss from discontinued operations � - � � (0.02 ) � Net loss attributable to common shareholders $ (0.28 ) $ (0.55 ) � Weighted average common shares outstanding - basic and diluted � 9,945 � � 8,772 � ZILA, INC. AND SUBSIDIARIES Condensed Consolidated Balance Sheets (in thousands) � � October 31, July 31, 2008 2008 (Unaudited) � Current assets $ 12,850 $ 14,675 Property and equipment - net 5,038 5,317 Goodwill and other intangible assets - net 27,967 28,565 Other assets � 1,614 � 1,813 � Total assets $ 47,469 $ 50,370 � Current liabilities $ 7,172 $ 8,116 Long-term liabilities 9,408 8,974 Shareholders' equity � 30,889 � 33,280 � Total liabilities and shareholders' equity $ 47,469 $ 50,370 ZILA, INC. AND SUBSIDIARIES EBITDA and Adjusted EBITDA Reconciliation (in thousands) � � Below is a discussion and reconciliation of EBITDA and Adjusted EBITDA, which are non-GAAP financial measures, to net cash used in operating activities, the comparable GAAP measure. � EBITDA (earnings (loss) before interest, taxes, depreciation and amortization) is a key indicator that management uses to evaluate the company�s operating performance and cash flows. In addition, the company utilizes EBITDA, as defined under the Second Amended and Restated Note Agreement (�Adjusted EBITDA�), to monitor compliance with the covenants contained in the company�s senior secured convertible debt. Adjusted EBITDA is calculated as Consolidated Net Income, as defined in the Second Amendment Agreement, plus, without duplication and to the extent reflected as a charge in the statement of Consolidated Net Income for such period, the sum of (a) income tax expense, (b) interest expense, amortization or write-off of debt discount and debt issuance costs and commissions, discounts and other fees and charges associated with indebtedness, (c) depreciation and amortization expense, (d) amortization of intangibles (including, but not limited to, goodwill) and organization costs and (e) other non-cash items reducing Consolidated Net Income and minus, to the extent included in the statement of such Consolidated Net Income for such period, (x) interest income and (y) all other non-cash items increasing Consolidated Net Income, all as determined on a consolidated basis. The Second Amended and Restated Secured Notes are material agreements to Zila and, therefore, the covenants are material to an investor�s understanding of the company�s financial condition and liquidity. Although the company uses EBITDA and Adjusted EBITDA as a financial measure and as a measure to monitor compliance with debt covenants, neither EBITDA nor Adjusted EBITDA include certain material costs, expenses and other items necessary to operate the company�s business. Because these non-GAAP measures do not include these items, a stockholder, potential investor or other user of Zila�s financial information should not consider these non-GAAP financial measures as a substitute for net cash used in operating activities or as the sole indicator of Zila�s financial performance since net cash used in operating activities provides a more complete measure of Zila�s financial performance. In other words, EBITDA and Adjusted EBITDA should only be used on a supplemental basis combined with GAAP results when evaluating Zila�s financial performance. The calculations the company uses to determine these non-GAAP measures may differ in method of calculation from similarly titled measures used by other companies. � The following is a reconciliation of EBITDA and Defined EBITDA to the comparable GAAP measure, which is net cash used in operating activities (in thousands): � Three Months Ended October 31, � 2008 � � 2007 � � Net loss $ (2,798 ) $ (4,855 ) Interest expense 922 767 Interest income (16 ) (124 ) Income taxes 13 11 Depreciation and amortization � 1,042 � � 1,023 � � EBITDA (837 ) (3,178 ) Non-cash stock-based compensation expense 190 453 Non-cash derivative expense - 24 Other non-cash items - net � 24 � � (50 ) � Adjusted EBITDA (623 ) (2,751 ) Interest income 16 124 Interest expense (922 ) (767 ) Income tax expense (13 ) (11 ) Amortization of financing costs 226 99 Amortization of debt discounts 449 447 Non-cash interest 245 - Changes in operating assets and liabilities: Trade receivables 650 (1,946 ) Inventories (384 ) 47 Prepaid expenses and other assets 477 183 Accounts payable and accrued liabilities � (1,111 ) � 248 � � Net cash used in operating activities $ (990 ) $ (4,327 )