ZILAD Zila (MM)

Zila, Inc. (Nasdaq:ZILAD) today reported financial results for its fiscal 2008 fourth quarter and full year ended July 31, 2008. During the third and fourth quarters of fiscal 2008 the company implemented profit enhancement initiatives that helped it achieve Defined EBITDA of $1.0 million for the fiscal 2008 fourth quarter and exceed the debt covenant requirement of Defined EBITDA of $1.00 under the company�s senior secured convertible debt. As a result, this covenant is no longer required. Separately, on September 12, 2008, Zila�s shareholders approved a one for seven reverse split of the company�s common stock. As a result of the reverse split, each holder of seven outstanding shares of common stock received one share of common stock. The stock has traded above $1.00 for 10 consecutive trading days and is no longer subject to delisting under applicable Nasdaq Marketplace Rules. The reverse split has been retroactively applied to all applicable information presented in this news release. �Throughout fiscal 2008 we were vigilant about reducing costs and becoming a more efficient organization,� said David Bethune, chairman and chief executive officer of Zila. �These efforts included lowering corporate overhead, streamlining manufacturing and reorganizing our sales and marketing teams. In the latter part of the year, we added a number of new markets for our products and made progress on several key operational areas, including implementing programs for more efficient accounts receivable collections and maintaining lower inventory levels. Fiscal 2008 Fourth Quarter Financial Results Net revenues increased 14% to $11.9 million compared with $10.4 million for the fourth quarter of fiscal 2007. Sales of ViziLite� Plus grew 46% to $3.9 million compared with the fourth quarter of fiscal 2007, representing the eighth consecutive quarter of revenue growth for the ViziLite� Plus product line. Gross profit grew to $7.8 million, or 66% of net revenues, from $6.3 million, or 61% of net revenues, in the fourth quarter of fiscal 2007. Marketing and selling expense decreased to $4.5 million compared with $4.9 million in the fourth quarter of fiscal 2007, reflecting the efficiencies of the company�s re-engineered professional sales and marketing team and the deferral or elimination of non-critical marketing programs. General and administrative expense decreased to $3.4 million from $5.6 million for the fourth quarter of fiscal 2007, primarily due to recent 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 $187,000 compared with $1.7 million for the fourth quarter of fiscal 2007. R&D in last year�s fourth 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. Loss from continuing operations significantly narrowed to $2.4 million, or $0.26 per share, from a loss from continuing operations of $5.8 million, or $0.65 per share, for the fourth quarter of fiscal 2007. Fiscal 2008 Financial Results As a result of the divestitures of its Nutraceuticals business unit and Peridex� brand in the fiscal 2007 first quarter and fourth quarter, respectively, Zila�s business is reported, for all periods presented, on a continuing operations basis and the divested businesses are reported as discontinued operations. In addition, the company completed the acquisition of Pro-Dentec in November 2006. Accordingly, financial results for fiscal 2007 include only eight months of Pro-Dentec�s results of operations. Net revenues increased 57% to $45.1 million compared with $28.8 million for fiscal 2007. Sales of ViziLite� Plus grew 107% to $13.7 million compared with fiscal 2007. The overall revenue growth was largely driven by the acquisition of Pro-Dentec in November 2006, as well as selling directly to dental offices through the company�s national sales organization and the positive impact this had on sales of ViziLite� Plus. Gross profit grew to $27.7 million, or 62% of net revenues, from $16.9 million, or 59% of net revenues for fiscal 2007. Marketing and selling expense increased to $21.1 million compared with $14.4 million for fiscal 2007, largely due to the acquisition of Pro-Dentec in November 2006, as well as additional national sales representatives and an increased number of seminar programs. General and administrative (G&A) expense decreased to $13.3 million compared with $15.1 million for fiscal 2007. R&D expense was $2.4 million compared with $7.5 million for fiscal 2007. Loss from continuing operations improved to $16.1 million, or $1.80 per share, from a loss from continuing operations of $19.1 million, or $2.37 per share, for fiscal 2007. Cash and cash equivalents at July 31, 2008 was $4.5 million compared with $14.9 million at July 31, 2007. The decrease for fiscal 2008 reflects cash used in operations of $7.6 million, the repurchase of $1.4 million of common stock and warrants related to the restructuring of the company�s senior convertible notes in August 2007, $350,000 of principal payments on debt and $1.1 million for investing activities, primarily related to capital expenditures for new systems and equipment. Working capital was $6.6 million at July 31, 2008 compared with $14.3 million at July 31, 2007. Conference Call Dial-In Information Zila will host a conference call to review the results of operations for the fourth quarter and year ended July 31, 2008 today at 1:30 p.m. PT (4:30 p.m. ET). To participate on the call, interested parties should call 800-240-5318 (domestic) or 303-262-2139 (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 11120444#. 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. Zila is certified by the American Dental Association and the Academy of General Dentistry to provide continuing education seminars. 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. For more information about the Company and its products, please visit www.zila.com. ZILA, INC. AND SUBSIDIARIES Consolidated Statements of Operations (in thousands - except for per share data) � � Three Months Ended July 31, � Year Ended July 31, 2008 � 2007 2008 � 2007 (Unaudited) � Net revenues $ 11,885 $ 10,418 $ 45,061 $ 28,801 Cost of products sold � 4,099 � � 4,100 � � 17,363 � � 11,857 � � Gross profit 7,786 6,318 27,698 16,944 � Operating costs and expenses: Marketing and selling 4,519 4,928 21,082 14,412 General and administrative 3,397 5,574 13,281 15,141 Research and development 187 1,742 2,424 7,482 Depreciation and amortization � 1,206 � � 923 � � 4,017 � � 2,921 � � Loss from operations � (1,523 ) � (6,849 ) � (13,106 ) � (23,012 ) � Other income (expense): Interest income 7 153 231 550 Interest expense (881 ) (906 ) (3,235 ) (7,386 ) Derivative income (expense) - - (24 ) 1,059 Other income � 1 � � 45 � � 1 � � 16 � � Other expense - net � (873 ) � (708 ) � (3,027 ) � (5,761 ) � Loss from continuing operations before income taxes (2,396 ) (7,557 ) (16,133 ) (28,773 ) Income tax benefit (expense) � (13 ) � 1,790 � � 9 � � 9,668 � � Loss from continuing operations � (2,409 ) � (5,767 ) � (16,124 ) � (19,105 ) � Income (loss) from discontinued operations 67 (102 ) (254 ) (511 ) Gain on disposal of discontinued operations - 5,211 - 16,185 Income tax expense � - � � (1,789 ) � - � � (9,733 ) � Total income (loss) from discontinued operations 67 3,320 (254 ) 5,941 � Net loss (2,342 ) (2,447 ) (16,378 ) (13,164 ) Preferred stock dividends � 10 � � 10 � � 39 � � 39 � � Net loss attributable to common shareholders $ (2,352 ) $ (2,457 ) $ (16,417 ) $ (13,203 ) � Basic and diluted net income (loss) per common share: Loss from continuing operations $ (0.26 ) $ (0.65 ) $ (1.80 ) $ (2.37 ) Income (loss) from discontinued operations � 0.01 � � 0.37 � � (0.02 ) � 0.73 � � Net loss attributable to common shareholders $ (0.25 ) $ (0.28 ) $ (1.82 ) $ (1.64 ) � Weighted average common shares outstanding - basic and diluted � 9,447 � � 8,887 � � 8,956 � � 8,054 � ZILA, INC. AND SUBSIDIARIES Condensed Consolidated Balance Sheets (in thousands) � � July 31, � July 31, 2008 2007 � Current assets $ 14,675 $ 24,854 Property and equipment - net 5,317 6,219 Goodwill and other intangible assets - net 28,565 31,610 Other assets � 1,813 � 1,198 � Total assets $ 50,370 $ 63,881 � Current liabilities $ 8,116 $ 10,568 Long-term liabilities 8,974 7,334 Shareholders' equity � 33,280 � 45,979 � Total liabilities and shareholders' equity $ 50,370 $ 63,881 EBITDA and Defined EBITDA Reconciliation Below is a discussion and reconciliation of EBITDA and Defined 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 (�Defined EBITDA�), to monitor compliance with the covenants contained in the company�s senior secured convertible debt. Defined 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 Defined EBITDA as a financial measure and as a measure to monitor compliance with debt covenants, neither EBITDA nor Defined 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 Defined 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): � Year Ended July 31, � Quarter Ended 2008 � 2007 July 31, 2008 � Net loss $ (16,378 ) $ (13,164 ) $ (2,342 ) Interest expense 3,235 7,638 881 Interest income (231 ) (579 ) (7 ) Income taxes (9 ) 65 13 Depreciation and amortization � 4,479 � � 3,420 � � 1,325 � � EBITDA (8,904 ) (2,620 ) (130 ) Non-cash derivative (income) expense 24 (1,059 ) - Gain from disposition of discontinued operations - (16,185 ) - Non-cash stock-based compensation expense 2,055 1,774 674 Other non-cash items - net 360 203 320 Debt related expenses � 87 � � - � � 87 � � Defined EBITDA (6,378 ) (17,887 ) 951 Debt related expenses (87 ) - (87 ) Interest income 231 579 7 Interest expense (3,235 ) (7,638 ) (881 ) Income tax expense 9 (65 ) (13 ) Amortization of financing costs 477 2,513 183 Amortization of debt discounts 1,785 3,625 449 Non-cash interest 731 202 245 Changes in operating assets and liabilities: Trade receivables (979 ) 902 231 Inventories 968 (62 ) 1,007 Prepaid expenses and other assets 61 496 338 Accounts payable and accrued liabilities � (1,215 ) � 2,368 � � (1,300 ) � Net cash used in operating activities $ (7,632 ) $ (14,967 ) $ 1,130 �