SOURCE: Vital Images, Inc.

May 08, 2008 07:00 ET

Vital Images Announces First Quarter Results

MINNEAPOLIS, MN--(Marketwire - May 8, 2008) - Vital Images, Inc. (NASDAQ: VTAL)

--  First quarter revenue of $17.3 million;
    
--  First quarter net loss of $(594,000), or $(0.03) per diluted share;
    
--  Cash and investment position of $178.9 million as of March 31, 2008;
    
--  Authorizes $25.0 million share repurchase program; and
    
--  Revises 2008 annual guidance.
    

Vital Images, Inc. (NASDAQ: VTAL), a leading provider of enterprise-wide advanced visualization and analysis solutions, today reported revenue for the first quarter ended March 31, 2008 of $17.3 million, compared to $20.8 million in the first quarter of 2007. Net loss for the first quarter was $(594,000), or $(0.03) per diluted share, compared to net income of $2.4 million, or $0.14 per diluted share, in the first quarter of 2007.

Michael H. Carrel, Vital Images president and chief executive officer, said, "First quarter revenue improved sequentially over the fourth quarter of 2007. While we are operating in an uncertain industry environment, we have many initiatives underway to re-ignite growth including a new business model to provide complete enterprise availability to our customers and enable our strategic partners, Toshiba and McKesson, the ability to offer their customers the entire ViTAL Solution, including our web-based products.

"Our customers tell us that Vital Images clearly has the best advanced visualization and analysis solution on the market today, and we are investing in the right areas -- particularly PACS integration, full Web access to our solutions and ongoing customer education. We believe the industry will recover and our investments in research and development, customer service and international expansion will help position us for long term success."

Carrel continued, "Given our confidence in ViTAL's long-term prospects, this morning we announced a stock buyback of up to $25.0 million. We believe our stock is attractive at current levels and that this is a prudent use of resources. We are retaining ample cash for strategic opportunities, which could be investing in product development or responding promptly to advantageous business transactions that may present themselves. We are fortunate to have a strong balance sheet, and we want to maintain a healthy cash-per-share ratio."

Financial Summary

--  License fee revenue was $9.4 million in the first quarter of 2008,
    compared to $13.5 million for the same quarter last year.
--  License fee revenue from software options (including third-party
    software) was $5.9 million in the first quarter of 2008, compared to $8.6
    million for the same quarter last year. Top-selling options were CT
    Cardiac, General Vessel Probe and Automated Vessel Measurement - all
    cardiovascular solutions.
--  Maintenance and services revenue was $7.5 million during the first
    quarter of 2008 compared to $7.0 million for the same quarter last year.
--  First quarter 2008 revenue from Toshiba was $8.8 million, or 51
    percent of total revenue, compared to $9.9 million, or 48 percent of total
    revenue, for the same quarter last year.
--  First quarter 2008 revenue from the company's IT/PACS partnership with
    McKesson was $1.6 million, or 9 percent of total revenue, compared to $1.7
    million, or 8 percent of total revenue, for the same quarter last year.
--  Direct revenue (revenue generated outside of Toshiba and McKesson) in
    the first quarter of 2008 was $6.9 million, compared to $9.2 million for
    the same quarter last year.
--  International revenue, both direct and through reseller agreements,
    was $4.1 million, or 24 percent of total revenue, in the first quarter of
    2008, compared to $4.0 million, or 19 percent of total revenue, for the
    same quarter last year.
--  Gross margin was 77 percent for the first quarter of 2008, compared to
    79 percent for the same quarter last year.
--  Interest income for the first quarter of 2008 decreased to $1.7
    million, compared to $2.1 million for the same quarter last year.
--  Adjusted EBITDA (non-GAAP) for the first quarter of 2008 was $147,000
    compared to $4.0 million for the first quarter of 2007. See description and
    reconciliation on non-GAAP financial measure in the Non-GAAP Information
    section of this earnings release.
    

Operating Expense Summary

--  First quarter 2008 operating expenses totaled $16.0 million, compared
    to $15.1 million for the same quarter in 2007.
--  Sales and marketing expenses totaled $8.1 million in the first quarter
    of 2008, compared to $8.0 million for the same quarter last year. The
    increase was attributed primarily to additional personnel as a result of
    continued international expansion.
--  Research and development expenses increased to $4.3 million in the
    first quarter of 2008, compared to $3.5 million for the same quarter last
    year. The major drivers of higher research and development expenses were
    increased compensation expense as a result of additional employees and
    higher product development consulting expense.
--  General and administrative expenses totaled $3.7 million for the first
    quarter of 2008, compared to $3.5 million for the same quarter last year.
    The increase was attributed to higher consulting and overhead expenses
    incurred as a result of continued international expansion, which were
    offset in part by decreased bonus expense.
--  Equity-based compensation expense is summarized as follows:
    

                                                For the three months ended
                                                          March 31,
                                                ---------------------------
                                                     2008          2007
                                                ------------- -------------
Equity-based compensation expense (in
 thousands):
  Cost of revenue                               $          76 $          97
  Sales and marketing (1)                                 368           529
  Research and development (1)                            265           137
  General and administrative                              523           513
                                                ------------- -------------
Total equity-based compensation expense         $       1,232 $       1,276
                                                ============= =============

(1) The fluctuation from 2007 to 2008 is a result of a reallocation of
    resources.

Full Year 2008 Guidance Revised

Due to the uncertain market environment, the company has revised its 2008 guidance. This guidance and the factors below do not include the potential effects of any acquisitions.

                                                          2008 Guidance
                                                       -------------------
                                                2007     Low        High
                                              -------- -------     -------

Revenue (in millions)                         $   70.2 $  66.0  to $  72.0

Adjusted EBITDA (non-GAAP) (in millions) (1)  $    4.8 $     -  to $   5.0

Net income (loss) (in millions)               $    1.4 $  (4.9)    $  (1.7)
Net income (loss) per diluted share (2)       $   0.08 $ (0.30) to $ (0.10)

(1) See description and reconciliation on non-GAAP financial measure in the Non-GAAP Information section of this earnings release.

(2) Based on an estimate of 16.3 million to 16.5 million weighted average diluted common shares for 2008, which includes the estimated impact of the stock buyback.

Factors considered in preparing guidance include the following estimates for 2008:

--  Gross margin of approximately 76 percent to 77 percent.
--  Sales and marketing expenses of approximately 45 percent to 48 percent
    of total revenue.
--  Research and development expenses of approximately 24 percent to 26
    percent of total revenue.
--  General and administrative expenses of approximately 18 percent to 20
    percent of total revenue.
--  Equity-based compensation of approximately $5.3 million to $5.6
    million.
--  Depreciation and amortization of property and equipment of
    approximately $5.3 million to $5.6 million and estimated capital
    expenditures of $4.8 million to $5.1 million.
--  Amortization of acquired intangibles of $1.0 million.
--  Estimated interest income of $4.0 million to $5.0 million based on an
    estimated return on investment of 2.5 percent to 3.0 percent for the year,
    which is significantly lower than 2007 due to general market conditions;
    further interest rate changes would have a significant impact on results.
    This estimate includes the projected impact of the stock buyback.
--  An effective income tax rate of approximately 32 percent to 36 percent
    in 2008. Due to the utilization of deferred tax assets relating to net
    operating losses and tax deductions from the exercise of stock options, the
    company does not anticipate paying any significant federal income taxes for
    the next two to three years. Actual results could accelerate or defer the
    utilization of the company's deferred tax assets. Additionally, if Vital
    Images is unable to generate sufficient taxable income, causing management
    to believe that the company's deferred tax assets will not be utilized,
    additional valuation allowances may need to be established on the company's
    deferred tax assets, which could materially impact Vital Images' financial
    position and results of operations.
    

Conference Call and Webcast

Vital Images will host a live Webcast of its first quarter earnings conference call today, Thursday, May 8, 2008, at 10:30 a.m. CT. To access this Webcast, go to the investors' portion of the company's Website, www.vitalimages.com, and click on the Webcast icon. The Webcast replay will be available beginning at 1:00 p.m. CT on the same day.

If you wish to listen to an audio replay of the conference call, dial (800) 405-2236 and enter conference call ID # 11113831. The audio replay will be available beginning at 1:00 p.m. CT on Thursday, May 8, 2008, through 5:00 p.m. CT on Thursday, May 22, 2008.

About Vital Images

Vital Images, Inc., headquartered in Minneapolis, is a leading provider of enterprise-wide advanced visualization and analysis software solutions. The company's technology gives radiologists, cardiologists, oncologists and other medical specialists time-saving productivity and communications tools that can be accessed throughout the enterprise and via the Web for easy use in the day-to-day practice of medicine. Vital Images also has offices in Beijing, China and Den Haag, the Netherlands. For more information, visit www.vitalimages.com.

Non-GAAP Information

Vital Images provides certain non-GAAP information to supplement GAAP information. Adjusted EBITDA (non-GAAP) is defined as earnings before interest, taxes, depreciation, amortization and equity-based compensation. Adjusted EBITDA (non-GAAP) excludes certain items that are non-cash in nature and/or items that are affected by market forces that are difficult to predict and may not be within the control of management. Accordingly, management excludes these items from its internal operating forecasts and models when establishing internal operating budgets, supplementing the financial results and forecasts reported to the company's board of directors, determining a portion of bonus compensation for executive officers and certain other key employees, and evaluating short-term and long-term operating trends in the company's core operations. Management believes that this presentation facilitates the comparison of the company's current operating results to historical operating results.

Non-GAAP information is not prepared in accordance with GAAP and should not be considered a substitute for or an alternative to GAAP and may not be computed the same as similarly titled measures used by other companies. Management expects to continue to incur expenses similar to the non-GAAP adjustments described above, and the exclusion of these items from its non-GAAP net income should not be construed as an inference that these costs are unusual, infrequent or non-recurring.

The following is a reconciliation from GAAP earnings to Adjusted EBITDA for the periods ended March 31, 2008 and 2007:

                                                              For the year
                                  For the three months ended     ended
                                           March 31,          December 31,
                                  --------------------------  ------------
                                      2008          2007          2007
                                  ------------  ------------  ------------

(Loss) income before income taxes $       (905) $      3,546  $      1,718
Interest income                         (1,685)       (2,144)       (8,886)
Equity-based compensation                1,232         1,276         5,987
Depreciation                             1,244         1,026         4,517
Amortization                               261           326         1,447
                                  ------------  ------------  ------------
Adjusted EBITDA                   $        147  $      4,030  $      4,783
                                  ============  ============  ============

Forward-Looking Statements

Except for the historical information contained herein, the matters discussed in this news release are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and are intended to enjoy the protection of the safe harbor for forward-looking statements provided by that Act. These statements involve risks and uncertainties which could cause results to differ materially from those projected, including but not limited to dependence on market growth, challenges associated with international expansion, the ability to predict product, customer and geographic sales mix, fluctuations in interest rates, regulatory approvals, the timely introduction, availability and acceptance of new products, the impact of competitive products and pricing, dependence on major customers, the ability to successfully manage operating costs, fluctuations in quarterly results, approval of products for reimbursement and the level of reimbursement, and other factors detailed from time to time in Vital Images' SEC reports, including its annual report on Form 10-K for the year ended December 31, 2007. Vital Images encourages you to consider all of these risks, uncertainties and other factors carefully in evaluating the forward-looking statements contained in this release. As a result of these matters, changes in facts, assumptions not being realized or other circumstances, the company's actual results may differ materially from the expected results discussed in the forward-looking statements contained in this release. The forward-looking statements made in this release are made only as of the date of this release, and the company undertakes no obligation to update them to reflect subsequent events or circumstances.

Vital Images® is a registered trademark of Vital Images, Inc. Vital Images disclaims any proprietary interest in the marks and names of others.


Vital Images, Inc.
Condensed Consolidated Statements of Operations
(In thousands, except per share amounts)
(Unaudited)


                                                For the three months ended
                                                         March 31,
                                                ---------------------------
                                                    2008           2007
                                                ------------  -------------
Revenue:
  License fees                                  $      9,358  $      13,470
  Maintenance and services                             7,534          7,049
  Hardware                                               425            306
                                                ------------  -------------
     Total revenue                                    17,317         20,825

Cost of revenue:
  License fees                                         1,153          1,605
  Maintenance and services                             2,572          2,523
  Hardware                                               195            217
                                                ------------  -------------
     Total cost of revenue                             3,920          4,345

     Gross profit                                     13,397         16,480

Operating expenses:
  Sales and marketing                                  8,051          8,025
  Research and development                             4,285          3,541
  General and administrative                           3,651          3,512
                                                ------------  -------------
     Total operating expenses                         15,987         15,078

Operating (loss) income                               (2,590)         1,402

Interest income                                        1,685          2,144
                                                ------------  -------------
(Loss) income before income taxes                       (905)         3,546
(Benefit) provision for income taxes                    (311)         1,174
                                                ------------  -------------
Net (loss) income                               $       (594) $       2,372
                                                ============  =============

Net (loss) income per share - basic             $      (0.03) $        0.14
                                                ============  =============
Net (loss) income per share - diluted           $      (0.03) $        0.14
                                                ============  =============

Weighted average common shares outstanding -
 basic                                                17,075         16,845
                                                ============  =============
Weighted average common shares outstanding -
 diluted                                              17,075         17,533
                                                ============  =============



Vital Images, Inc.
Condensed Consolidated Balance Sheets
(In thousands, except per share amounts)
(Unaudited)


                                                  March 31,   December 31,
                                                     2008         2007
                                                ------------- ------------
Assets
Current assets:
  Cash and cash equivalents                     $     144,058 $    146,685
  Marketable securities                                31,280       31,709
  Accounts receivable, net                             16,266       15,962
  Deferred income taxes                                 3,472        3,472
  Prepaid expenses and other current assets             2,436        2,441
                                                ------------- ------------
     Total current assets                             197,512      200,269
Marketable securities                                   3,578            -
Property and equipment, net                            10,909       11,165
Deferred income taxes                                   8,924        8,621
Other intangible assets, net                            1,591        1,852
Goodwill                                                9,089        9,089
                                                ------------- ------------
     Total assets                               $     231,603 $    230,996
                                                ============= ============

Liabilities and Stockholders' Equity
Current liabilities:
  Accounts payable                              $       2,579 $      3,330
  Accrued compensation                                  3,052        3,092
  Accrued royalties                                     1,150        1,113
  Other current liabilities                             2,487        2,282
  Deferred revenue                                     16,825       16,547
                                                ------------- ------------
     Total current liabilities                         26,093       26,364
Deferred revenue                                        1,250        1,140
Deferred rent                                           1,178        1,276
                                                ------------- ------------
     Total liabilities                                 28,521       28,780
                                                ------------- ------------

Commitments and contingencies

Stockholders’ equity:
  Preferred stock: $0.01 par value; 5,000
   shares authorized; none issued or
   outstanding                                              -            -
  Common stock: $0.01 par value; 40,000 shares
   authorized; 17,177 issued and outstanding
   as of March 31, 2008; and 17,153 shares
   issued and outstanding as of December 31,
   2007                                                   172          172
  Additional paid-in capital                          201,054      199,625
  Retained earnings                                     1,826        2,420
  Accumulated other comprehensive income (loss)            30           (1)
                                                ------------- ------------
     Total stockholders’ equity                       203,082      202,216
                                                ------------- ------------
     Total liabilities and stockholders' equity $     231,603 $    230,996
                                                ============= ============


Vital Images, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)


                                                      For the three months
                                                         ended March 31,
                                                      --------------------
                                                         2008       2007
                                                      ---------  ---------
 Cash flows from operating activities:
    Net income (loss)                                 $    (594) $   2,372
    Adjustments to reconcile net income (loss) to net
     cash provided by operating activities:
      Depreciation and amortization of property and
       equipment                                          1,244      1,026
      Amortization of identified intangibles                261        326
      Provision for doubtful accounts                       135         53
      Deferred income taxes                                (311)     1,174
      Excess tax benefit from stock transactions            (66)      (958)
      Amortization of discount and accretion of
       premium on marketable securities                    (299)      (153)
      Employee stock-based compensation                   1,232      1,275
      Amortization of deferred rent                         (93)       (70)
      Changes in operating assets and liabilities:
           Accounts receivable                             (439)      (942)
           Prepaid expenses and other assets                  5       (144)
           Accounts payable                                (439)      (915)
           Accrued expenses and other liabilities            65     (1,292)
           Deferred revenue                                 388        876
           Deferred rent                                      -        199
                                                      ---------  ---------
             Net cash provided by operating
              activities                                  1,089      2,827
                                                      ---------  ---------

 Cash flows from investing activities:
    Purchases of property and equipment                  (1,300)    (1,937)
    Purchases of marketable securities                  (20,609)    (9,764)
    Proceeds from maturities of marketable securities    16,227     10,950
    Proceeds from sale of marketable securities           1,581          -
                                                      ---------  ---------
             Net cash used in investing activities       (4,101)      (751)
                                                      ---------  ---------

 Cash flows from financing activities:
    Proceeds from sale of common stock under stock
     plans                                                  319      1,292
    Excess tax benefit from stock transactions               66        958
                                                      ---------  ---------
             Net cash provided by financing
              activities                                    385      2,250
                                                      ---------  ---------

 Net increase (decrease) in cash and cash equivalents    (2,627)     4,326
 Cash and cash equivalents, beginning of period         146,685    144,382
                                                      ---------  ---------
 Cash and cash equivalents, end of period             $ 144,058  $ 148,708
                                                      =========  =========

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