12 Feb TomoTherapy reports fourth quarter financial results
Strong Quarterly Revenue; Positive Cash Flow; Backlog of $176 Million
MADISON – TomoTherapy Incorporated, producer of the Hi·Art® treatment system for advanced radiation therapy, today released financial results for the fourth quarter ended December 31, 2008.
Fourth Quarter Results
The company reported fourth quarter 2008 revenue of $86.3 million, a quarterly record for the company and an increase of 10% from $78.7 million in the prior-year period. Operating income for the three months ended December 31, 2008 was $7.1 million, a 44% increase from $5.0 million in the same period of last year. The company incurred a net loss of $11.5 million, or $0.22 per share for the fourth quarter of 2008, compared to net income of $4.8 million, or $0.09 per share, for the fourth quarter of 2007. The 2008 quarterly results include a charge of $20.6 million related to the establishment of a valuation allowance against deferred tax assets. Excluding this charge, the company would have reported net income of $9.1 million, or $0.17 per diluted share, for the fourth quarter of 2008.
“We are pleased that we achieved performance consistent with previous guidance for revenue, earnings and cash flow,” said Fred Robertson, TomoTherapy’s CEO. “Importantly, our new process for tracking orders that we implemented during the second quarter continues to provide improved accuracy in determining backlog and predicting the timing of shipments.”
The company continues to maintain a strong financial position, closing the year with $155 million of cash, cash equivalents and short-term investments, after generating $13 million of cash during the fourth quarter. The company also renewed its $50 million revolving line of credit during the quarter. There were no borrowings under the credit line during 2008.
The value of new sales orders received during the fourth quarter of 2008 was $37 million. As of December 31, 2008, TomoTherapy had a revenue backlog of $176 million, a 29% decrease from the $248 million backlog as of December 31, 2007. However, the two figures are not comparable, because the company modified its backlog definition during the second quarter of 2008. Backlog now only includes firm orders that have installation sites identified and that the company believes are likely to ship within the next two years. Backlog does not include any revenue from service contracts, which represent a growing portion of the company’s revenue.
Robertson continued, “Although fourth quarter financial performance was in line with our expectations, we experienced weakness in new sales orders. While we achieved strong order growth in Europe, we saw a slowdown in U.S. orders momentum. We are intently focused on initiatives to drive future sales, while at the same time reducing spending to better align costs with near-term revenue expectations. We remain committed to strong management of cash flows and currently believe the company will be marginally cash flow negative in 2009.”
“During the quarter, we made solid progress in strengthening service performance,” added Robertson. “We achieved average uptime across all sites of 97.9% in the fourth quarter and expect the favorable trend in uptimes to continue. More importantly, thanks to our investments in training, diagnostic capabilities and component re-design, the average cost per service contract declined 13% year-over-year. As a result, excluding the cost of the service organization’s infrastructure, our service contracts generated positive margins for the first time in 2008. We anticipate this trend will continue.”
Deferred Tax Valuation Allowance
During the fourth quarter of 2008, the company recorded a charge of $20.6 million related to the establishment of a valuation allowance against its deferred tax assets. Under applicable accounting rules, management concluded that a valuation allowance should be established due to the company’s three-year historical cumulative taxable loss as of the end of 2008, the projected loss for 2009, and the challenging near-term economic conditions that make it more difficult to accurately forecast future results of operations.
“It is important to note that the establishment of a valuation allowance does not reflect a change in our view of the company’s long-term financial outlook,” said Stephen C. Hathaway, CFO. “We remain optimistic about the company’s future prospects. We believe we have the best technology in the market and expect TomoDirect™ to significantly improve our competitive position and better position the company to utilize its deferred tax assets in the future.”
Full Year Results
For the twelve months ended December 31, 2008, the company reported revenue of $204.6 million, a 12% decrease from $232.8 million for the twelve months ended December 31, 2007. The company’s 2008 net loss was $37.5 million, or $0.74 per share, compared to pro forma net income of $10.7 million, or $0.21 per diluted share, for 2007, which excludes the effects of redeemable convertible preferred stock accretion. Including the preferred stock accretion of $237.6 million, the net loss attributable to common shareholders was $226.9 million, or $6.35 per share, for 2007. The 2008 results include the $20.8 million charge related to the establishment of the deferred tax valuation allowance. Excluding this charge, the company would have reported a loss of $16.7 million, or $0.33 per share, for 2008.
Management has established its 2009 guidance for revenue in the range of $180 million to $210 million, with a loss in the range of $0.60 to $0.85 per share (excluding any income tax benefits). The company’s quarterly revenue is driven by the installation of a relatively small number of units. Thus, if a few customers defer installation of a Hi·Art system for even a short period of time, recognition of a significant amount of revenue may be deferred to a subsequent period. Even though the company has improved its ability to project its conversion of backlog into revenue, it is particularly difficult to predict the effects of certain external factors such as construction delays and credit issues, which can also affect the timing of deliveries. Given the current global economic volatility and ongoing credit crisis, revenue has become even more difficult to predict. Thus, consistent with prior years, management is not providing specific quarterly guidance at this time. However, similar to last year, 2009 is expected to be back-end loaded based on the timing of expected customer deliveries. As in 2008, management currently anticipates 30% to 40% of its revenue will be generated in the first half of the year, including a somewhat soft first quarter.
Robertson concluded, “Despite the near-term challenges we are facing, we remain confident in TomoTherapy’s technology leadership position. As we look to the future, there are many factors that we believe should accelerate sales performance. First, initial customer response to our new TomoDirect offering has been positive. We are taking orders for both new placements and upgrades, and are on track for product shipment in the second half of 2009. Second, in December, Ralph Vaello joined the company as vice president of global sales. He is well-respected in the radiation oncology market and brings strong leadership and many new ideas to TomoTherapy. Third, our recently signed agreement with Hitachi should re-open the Japanese market, the second largest radiation therapy market in the world. The company had little sales and order activity in Japan in 2008 due to the distributor transition. Finally, our European operations continue to perform well. In addition, we also have a robust pipeline in the areas of adaptive therapy, motion management, proton therapy and other initiatives that we believe will drive innovation, expand our global market presence, and enhance quality and reliability.”
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