Cyberonics Earnings Call NUGGETS: AspireHC, Softness in International Markets

On Tuesday, Cyberonics, Inc. (NASDAQ:CYBX) reported its first quarter earnings and discussed the following topics in its earnings conference call. Take a look.


Thomas Gunderson – Piper Jaffray: I’ll ask two questions and then just listen in. The first is AspireHC, that’s impressive number to-date. Dan, do you think there are some backlog patients that are getting upgraded to HC and that 15% might level off or said another way, where should we anticipate HC going? The second question is can you give us a little bit more color on Japan. What do you think the holdup is and what are you doing to (indiscernible) that in 2013?

Daniel J. Moore – President and CEO: First question related to AspireHC, no. We don’t think there is a backlog of patients there. We expect going forward for HC to be between 15% and 20% of sales. Second, Japan, I think most of the things that we’ve done have taken longer than we anticipated to (grow the) pipeline of patients in the U.S., for example of new patients in the U.S. and the same with Europe. I think the situation in Japan is it’s further complicated by going through a third-party, but we’re working closely with our distributor Nihon Kohden and expect to turn that around over time. The formula is much the same, it’s just working that formula through that third-party and that formula is about market development that’s why we were emphasizing during the call the amount of market development and having Japanese physicians and patients to attend sessions that talk about VNS. So, we expect it to turnaround over time, which is taking time.

Softness in International Markets

Raj Denhoy – Jefferies: Wonder if I could ask a little bit about international as well. I think you mentioned that Europe you still saw double-digit unit growth and yet I think units overall were slightly down. So, I guess, I am curious where you are seeing the softness at this point in international markets?

Daniel J. Moore – President and CEO: Yes, Raj. The answer to your question is throughout international in the other regions with the exception of Europe and the Middle East. As mentioned in the call, we had strong growth in Europe again but when we look at the other areas like Latin America, like Asia, like Japan we were down in those areas.

Raj Denhoy – Jefferies: Is there any thought about when those regions could recover outside of Japan, obviously which you’ve addressed, but is there any thoughts that those might be temporary slowdown or is it really something structural taking place?

Daniel J. Moore – President and CEO: I don’t think it is anything structural, but going back to Tom’s question around Japan and progress there. The first place we made progress was the U.S. and we focus on the next largest opportunity Europe. Now, we are really focused on Japan and we hope the other regions will come along, but those are clearly behind Japan on our priority list I think to turnaround, and for size and scope we are talking about regions that are about the size of the U.S. territory.

Raj Denhoy – Jefferies: Then just one question on cash, I think, it was first quarter where your cash balance ticked above $100 million. Any broader thoughts on what you could do with this, I know you’ve made some strategic investments in some smaller properties, but do you have any thoughts about what you will do with cash at this point?

Daniel J. Moore – President and CEO: We continue to remain very active and looking for products, projects that will accelerate our pipeline, that’s our first priority and will remain our first priority. So we could use cash to do deals, we’ve done in total 20 deals with 15 different parties over the past five years. The second thing that we always consider is the – when we think about things like free cash flow and returning that to shareholders, we’ve used that money to buy back stock, we’ve bought back about $47 million worth of stock in the last 12 months. So we’ll continue to look for things that will accelerate our pipeline first, hopefully find some products for the bag and then use free cash flow to do things like buying back stock. It was just in this last quarter, we did another deal with Imricor, which will give us some MRI capabilities that we are pretty excited about putting into our product line although that will take time to get it into – to get the Imricor Technology into our product line.

Raj Denhoy – Jefferies: Then just lastly, so I just want the impression, I know it’s interesting closer here to resubmission, in anticipation of that, is there anything that you’re doing other than waiting for the publication of these papers. Is there additional work that needs to be done or anything that you guys are doing proactively in a sense to maybe increase the (skids) here a little bit?

Daniel J. Moore – President and CEO: Well, the things that were need to be done is, one, on the product development side, modifying the product and the packaging somewhat. So we considered when we would do that, if things continue in a positive way. Then second, we started to consider commercially what we would need to do and we’re thinking about that, but we’ve taken no action in either area, because as you know, this is going to be a binary event to a large degree and we haven’t submitted yet. So we know what we would need to do and when for providing that things continue to progress well.