Spectranetics Reports Record Fourth Quarter Revenue, Up 11% to $29.7 Million

Spectranetics Corporation (Nasdaq:SPNC) today reported financial results for the quarter and full year ended December 31, 2009.

Revenue for the fourth quarter of 2009 was $29.7 million, up 11% compared with revenue of $26.6 million for the fourth quarter of 2008.

"The fourth quarter was highlighted by several important developments and achievements – including the resolution of the 16-month federal investigation with no charges filed against the Company, reaching the highest quarterly revenue in our history and recording an adjusted pre-tax profit for the second quarter in a row,” said Emile J. Geisenheimer, Chairman, President and Chief Executive Officer. "We are positioned for further growth in 2010 and look forward to the introduction of the Turbo-Tandem™ for above-the-knee treatments. In addition, we continue to work with the Food and Drug Administration as they review our 510(k) application seeking clearance to market certain products for the treatment of in-stent restenosis in the legs.”

The pre-tax loss for the fourth quarter of 2009 was $5,514,000, compared with a pre-tax loss of $1,135,000 for the fourth quarter of 2008. The pre-tax loss during the fourth quarter of 2009 includes $6,121,000 of special items, consisting of:

• a $5,000,000 federal settlement;
• a $1,100,000 impairment of auction rate securities we continue to hold;
• a $540,000 realized loss on the sale of auction rate securities;
• $76,000 of costs associated with a previously announced litigation settlement; and
• a $595,000 credit, due to an insurance reimbursement related to federal investigation costs.

The pre-tax loss during the fourth quarter of 2008 included $2,028,000 of costs associated with the federal investigation. Excluding these special items in both periods, adjusted pre-tax income was $607,000 in the fourth quarter of 2009, compared with adjusted pre-tax income of $893,000 in the fourth quarter of 2008. A further description of these special items and a reconciliation of these non-GAAP financial measures to the most directly comparable financial measure calculated in accordance with GAAP is provided immediately following the financial tables under Reconciliation of Non-GAAP Financial Measures.

Fourth Quarter Revenue Review

Vascular intervention revenue rose 5% to $15.2 million, lead management revenue increased 33% to $10.0 million, laser equipment revenue declined 15% to $2.0 million, and service and other revenue increased 5% to $2.5 million, all compared with the fourth quarter of 2008. Vascular intervention sales include three product lines — atherectomy, which decreased 5%, crossing solutions, which increased 19%, and thrombectomy, which increased 24%, all compared with the fourth quarter of 2008.

On a geographic basis, revenue in the United States was $24.4 million in the fourth quarter of 2009, an increase of 7% from the prior year fourth quarter. International revenue totaled $5.3 million, an increase of 38% from the fourth quarter of 2008.

Reflecting the Company’s emphasis on sales to existing accounts, laser placements to new customers were anticipated to decline compared with prior year levels. During the quarter ended December 31, 2009, the Company placed 28 laser systems with new customers compared with 35 placements during the fourth quarter of 2008. Of those new laser placements, 15 laser systems were transfers from the existing installed base during the fourth quarter of 2009, compared with 10 transfers during the fourth quarter of 2008. As of December 31, 2009 the worldwide installed base of laser systems totaled 902 (699 in the United States).

2009 Full Year Financial Results

Revenue for year ended December 31, 2009 rose 10% to $114.8 million, from $104.0 million in 2008.

Vascular intervention revenue in 2009 was $61.9 million, up 8% compared with $57.4 million in 2008; and lead management revenue was $36.8 million in 2009, up 27% compared with $28.9 million in 2008. Laser equipment revenue declined 21% to $6.8 million, from $8.6 million in 2008. Service and other revenue in 2009 was $9.3 million, up 3% compared with $9.0 million in 2008.

On a geographic basis, revenue in the United States was $96.9 million in 2009, an increase of 7% over 2008. International revenue totaled $17.9 million, an increase of 30% from 2008.

The pre-tax loss for 2009 was $13,247,000, compared with a pre-tax loss of $4,661,000 in 2008. The pre-tax loss during 2009 includes $11,779,000 of special items, consisting of:

• a $5,000,000 federal settlement;
• $2,362,000 of costs associated with the federal investigation;
• $1,166,000 of costs associated with a previously announced litigation settlement;
• a $1,100,000 impairment of auction rate securities we continue to hold;
• $1,075,000 relating to the discontinuation of the marketing and sales of the Safe-Cross® product line;
• a $540,000 realized loss on the sale of auction rate securities; and
• $536,000 of employee termination and lease abandonment costs.

The pre-tax loss during 2008 included $6,299,000 of special items, consisting of:

• $3,849,000 of in-process research and development costs and
• $2,450,000 of costs associated with the federal investigation.

Excluding these special items in both periods, adjusted pre-tax loss was $1,468,000 in 2009, compared with adjusted pre-tax income of $1,638,000 in 2008. A further description of these special items and a reconciliation of these non-GAAP financial measures to the most directly comparable financial measure calculated in accordance with GAAP is provided immediately following the financial tables under Reconciliation of Non-GAAP Financial Measures.

Cash, cash equivalents and current investment securities totaled $19.1 million at December 31, 2009, compared with $18.3 million at September 30, 2009 and $20.5 million at December 31, 2008.

2010 Outlook

The Company continues to expect revenue growth during 2010 in both the vascular intervention and lead management business units and expects higher growth rates internationally than in the United States.

Excluding any impact of the Turbo-Tandem product launch, the vascular intervention revenue growth rate is anticipated to be in the low to mid-single digits during 2010 as compared with 2009. Including the impact of the Turbo-Tandem product launch, the vascular intervention revenue growth rate is anticipated to be in the high single digits to low-teens. The lead management revenue growth rate in 2010 as compared with 2009 is anticipated to be in the mid-teens.

Laser equipment revenue and service and other revenue are expected to grow in the low to mid-single digits during 2010 as compared with 2009.

Gross margin is expected to be in the range of 71% to 72% during 2010.

A pre-tax loss is anticipated for the three months ended March 31, 2010 and management expects a pre-tax profit for the year ended December 31, 2010.

Conference Call

Management will host an investment-community conference call today beginning at 9:00 a.m. Mountain time, 11:00 a.m. Eastern time, to discuss these results. Individuals interested in listening to the conference call should dial (888) 803-8271 for domestic callers, or (706) 634-2467 for international callers. The live conference call will also be available via the Internet on the investor relations section of www.spectranetics.com. A slide presentation will accompany the webcast.

A telephone replay will be available for 48 hours following the conclusion of the call by dialing (800) 642-1687 for domestic callers, or (706) 645-9291 for international callers and entering reservation code 54934938. The web site replay will be available for 14 days following the completion of the call.

About Spectranetics

Spectranetics manufactures and markets the only Excimer Laser System approved in the United States, Canada, Europe and Japan for use in minimally invasive interventional procedures within the cardiovascular system. More than 900 Spectranetics laser systems are used in hospitals worldwide.

The Company’s Vascular Intervention (VI) products include a range of peripheral and cardiac laser catheters for ablation of occluded arteries above and below the knee and within coronary arteries. The Company also markets aspiration catheters for the removal of thrombus and support catheters to facilitate crossing of coronary and peripheral arterial blockages.

The Lead Management (LM) product line includes excimer laser sheaths and cardiac lead management accessories for the removal of pacemaker and defibrillator cardiac leads.

For more information, visit www.spectranetics.com.

Safe Harbor Statement

This news 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. Such statements are based on current assumptions that involve risks and uncertainties that could cause actual outcomes and results to differ materially. These risks and uncertainties may include adverse results of the securities litigation or the stockholder derivative litigation in which the Company or any of its officers or directors is a party, insufficient insurance coverage or the denial of insurance coverage related to legal costs or any settlement or judgment in connection with these proceedings, adverse impact to our business of healthcare reform and related legislation, if enacted, continued or worsening adverse conditions in the general domestic and global economic markets and continued volatility and disruption of the credit markets, which, among other things, affects the ability of hospitals and other health care systems to obtain credit and may impede our access to capital and has rendered our investments in auction rate securities illiquid, market acceptance of excimer laser atherectomy technology, increasing price and product competition, increased pressure on expense levels resulting from expanded sales, marketing, product development and clinical activities, uncertain success of the Company's strategic direction, dependence on new product development, intellectual property claims of third parties, availability of inventory from suppliers, adverse outcome of FDA inspections, the receipt of FDA approval to market new products or applications and the timeliness of any approvals, market acceptance of new products or applications, product defects, ability to manufacture sufficient volumes to fulfill customer demand, availability of vendor-sourced components at reasonable prices, unexpected delays or costs associated with the Company’s relocation and consolidation of its manufacturing operations, and price volatility due to the initiation or cessation of coverage, or changes in ratings, by securities analysts. For a further list and description of such risks and uncertainties that could cause the actual results, performance or achievements of the Company to be materially different from any anticipated results, performance or achievements, please see the Company's previously filed SEC reports. Spectranetics disclaims any intention or obligation to update or revise any financial projections or forward-looking statements, whether as a result of new information, future events or otherwise.

Use of Non-GAAP Financial Measures

To supplement the Company’s consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP), Spectranetics uses certain non-GAAP financial measures in this release. Reconciliations of the non-GAAP financial measures used in this release to the most directly comparable U.S. GAAP measures for the respective periods, and an explanation of the Company’s use of these non-GAAP measures, can be found in Reconciliation of Non-GAAP Financial Measures immediately following the financial tables. Non-GAAP financial measures have limitations as analytical tools and should not be considered in isolation or as a substitute for the Company’s financial results prepared in accordance with GAAP.

Reconciliation of Non-GAAP Financial Measures

To supplement the Company’s condensed consolidated financial statements prepared in accordance with GAAP, Spectranetics uses certain non-GAAP financial measures in this release. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures for the respective periods can be found in the tables below. An explanation of the manner in which the Company’s management uses these non-GAAP measures to conduct and evaluate its business and the reasons why management believes that these non-GAAP measures provide useful information to investors is provided following the reconciliation tables.

__________________

* Per share amounts may not add due to rounding.

The following table shows associated income tax benefit on special items that were excluded from net income to arrive at non-GAAP adjusted net income. In 2009, the Company did not record an income tax benefit for any of these special items. For 2008, amounts are tax effected at the Company’s marginal tax rate of 38%.

Spectranetics uses the non-GAAP financial measures described above as supplemental measures of performance and believes these measures facilitate operating performance comparisons from period to period and company to company by factoring out potential differences caused by unusual or infrequent charges not related to the Company’s regular, ongoing business. The Company’s management uses the non-GAAP financial measures used in this release to analyze the underlying trends in the Company’s business, assess the performance of the Company’s core operations, establish operational goals and forecasts that are used in allocating resources and evaluate the Company’s performance period over period and in relation to its competitors’ operating results.

Spectranetics believes that presenting the non-GAAP financial measures used in this release provides investors greater transparency to the information used by management for its financial and operational decision-making and allows investors to see the Company’s results "through the eyes” of management. Spectranetics also believes that providing this information better enables the Company’s investors to understand the Company’s operating performance and evaluate the methodology used by management to evaluate and measure such performance. The Company’s management believes that non-GAAP financial measures are useful to investors to evaluate the Company’s performance period over period and in relation to its competitors’ operating results.

Non-GAAP financial measures have limitations as analytical tools and should not be considered in isolation or as a substitute for the Company’s financial results prepared in accordance with GAAP. Some of the limitations associated with the Company’s use of these non-GAAP financial measures are:

• Items such as purchased IPR&D and the loss on the sale of auction rate securities reflect economic costs to the Company which are not reflected in non-GAAP adjusted net income and non-GAAP adjusted net income per share.
• Items such as the federal investigation settlement, federal investigation legal and other costs, litigation settlement, and employee termination and lease abandonment costs that are excluded from non-GAAP net income and non-GAAP net income per share can have a material impact on cash flows and GAAP net income and net income per share.
• Intangible asset impairment charges and inventory write-offs related to the Safe-Cross discontinuation represent a reduction in value of intangible and tangible assets. The other-than-temporary impairment of our auction rate securities also represents a reduction in value of these assets. The expense associated with these reductions in value is not included in the Company’s non-GAAP net income or non-GAAP net income per share.
• Non-GAAP financial measures are not based on any comprehensive set of accounting rules or principles and therefore other companies may calculate similarly titled non-GAAP financial measures differently than Spectranetics, limiting the usefulness of those measures for comparative purposes.
• The Company’s management exercises judgment in determining which types of charges or other items should be excluded from the non-GAAP financial measures Spectranetics uses.

Spectranetics provides detailed reconciliations of each non-GAAP measure to its most directly comparable GAAP measure. Spectranetics encourages investors to review these reconciliations.