MGC Diagnostics Corporation Reports 2013 Third Quarter Operating Results

   MGC Diagnostics Corporation Reports 2013 Third Quarter Operating Results

PR Newswire

SAINT PAUL, Minn., Aug. 29, 2013

SAINT PAUL, Minn., Aug. 29, 2013 /PRNewswire/ --MGC Diagnostics Corporation
(NASDAQ: MGCD), a global medical technology company, today reported financial
results for the third quarter ended July 31, 2013.

Third Quarter Highlights:

  oRobust third quarter revenue of $7.9 million, a 15% increase over the
    fiscal 2012 third quarter. Sequential quarterly revenue growth of 4.8%
    from the fiscal 2013 second quarter;
  oNet income for the third quarter of $652,000, or $0.16 per diluted share,
    compared to a net loss of $133,000, or ($0.03) per diluted share in the
    2012 third quarter. Represents the highest net income result since the
    fiscal 2007 first quarter;
  oThird quarter service revenue increased 29% on a year-over-year basis,
    while service gross margin improved to 70.8%, compared to 65.3% in the
    fiscal 2012 third quarter;
  oThird quarter gross margin improved 170 basis points to 55.4%, compared to
    53.7% in last year's third quarter;
  oThe third quarter Attachment Rate of point-of-sale extended service
    contracts improved to 26%, compared to 3% in last year's third quarter;
  oThird quarter 2013 recurring revenue (service and supplies revenues)
    totaled $3.0 million, or 38% of total third quarter revenue;
  oStrong balance sheet with $8.8 million in cash and cash equivalents, $13.6
    million of working capital and no long-term debt;
  oAt October 31, 2012, the Company had federal net operating loss carry
    forwards of approximately $14.5 million that may be used to offset a
    portion of the Company's future tax liability.

Third quarter fiscal 2013 total revenues increased 15% to $7.9 million,
compared to $6.9 million in the fiscal 2012 third quarter. Domestic 2013 third
quarter sales increased 12% to $6.3 million, compared to $5.6 million in the
2012 third quarter, while international sales increased 29% to $1.6 million
from $1.3 million in last year's third quarter, due primarily to sales
improvements in Canada and Latin America. Third quarter Group Purchasing
Organization ("GPO") sales increased 21% to $4.3 million, compared to $3.6
million in the prior year's third quarter.

Third quarter equipment, supplies and accessories sales totaled $6.6 million,
an increase of 12.5%, compared to $5.9 million during last year's third
quarter. Service revenues for the third quarter totaled $1.3 million, compared
to $1.0 million during last year's third quarter. The Attachment Rate, which
reflects the percentage of Extended Service Contracts added at the point of
sale to customer equipment purchases, was 25.7% for the fiscal 2013 third
quarter, compared to 2.7% for the same period last year. Backlog at July 31,
2013 was $709,000, and has steadily improved over the past nine months from
$541,000 at the end of the 2013 second quarter and $415,000 at the end of the
2012 fourth quarter.

Gross margin for the quarter was 55.4%, compared to 53.7% in the 2012 third
quarter. Gross margin for equipment, supplies and accessories was 52.3% for
the quarter, compared to 51.8% in the prior year's quarter. Gross margin for
services increased to 70.8% for the quarter, compared to 65.3% for the prior
year's quarter, primarily as a result of improved pricing and service mix.

Third quarter 2013 general and administrative expenses totaled $973,000, or
12.3% of revenue, compared to $913,000, or 13.2% of revenue in the comparable
quarter last year. Sales and marketing expenses were $2.2 million, or 27.1% of
revenue, compared to $2.1 million, or 30.9% of revenue in the 2012 third
quarter. Research and development expenses were $591,000, or 7.5% of revenue,
compared to $825,000, or 12.0% of revenue in last year's third quarter. This
decrease is due primarily to expense reductions attributed to management level
personnel changes and the conversion of consultant services to full-time,
internal personnel. Year to date, the Company has invested approximately $1.3
million in new research and product development initiatives. During the
quarter, the Company capitalized $153,000 of software development expenses,
compared to $216,000 for the same quarter last year. Even though research and
development expenses have decreased, the Company continues to invest in new
product development to ensure that its future product pipeline remains robust.

Third quarter operating income improved to $669,000, compared to an operating
loss of $276,000 in the 2012 third quarter. For the 2013 third quarter, the
Company reported net income of $652,000, or $0.16 per diluted share, versus a
net loss of $133,000, or ($0.03) per diluted share, in the 2012 third quarter.

Gregg O. Lehman, Ph D., president and chief executive officer of MGC
Diagnostics, said, "I am pleased to report that we generated solid
double-digit revenue growth and achieved the highest quarterly profit since
the first quarter of fiscal 2007. We grew across most revenue categories and
geographies, with domestic and international revenue increasing 12% and 29%,
respectively. Equipment, supplies and accessories revenue increased 12% and
service revenue increased 29%. Gross margins improved for all revenue sources
and operating expenses as a percent of revenue fell to 46.9% compared to 57.8%
for last year's third quarter. These results are in line with our internal
expectations and we look forward to continued improvements during the quarters
ahead."

"Our initiative to obtain new sales from accounts held by our competition
gained additional traction during the third quarter," continued Dr. Lehman.
"For the first nine months of the fiscal year, we have converted 71 accounts
that previously used equipment provided by our competitors, representing
approximately $3.9 million of revenue. We are pleased with this result
because a large part of our growth strategy was to gain market share."

"We were also happy with the Attachment Rate of new extended service contracts
during the quarter. These contracts, which have terms ranging from one to
five years, will result in higher service revenue in future periods once the
initial twelve month warranty expires."

"We have been successful in increasing our cash flow. For the nine months, net
cash provided by operating activities was $1.3 million, compared to $222,000
for the first nine months of fiscal 2012. Our cash position remains strong,
even after payment of the special, one-time dividend in the 2013 second
quarter. We are pleased with the financial results of the first nine months,
and we expect to complete the year on a strong note," concluded Dr. Lehman.

Discontinued Operations
On August 28, 2012, the Company completed the sale of the assets of its New
Leaf business to Life Time Fitness, Inc. for $1.235 million. As a result, the
Company has reclassified its results for prior periods to eliminate from its
statement of comprehensive income (loss) all fiscal 2012 revenues and expenses
associated with its New Leaf business and presented the income from New Leaf
activities as "discontinued operations."

Net Operating Loss Carry Forward
At October 31, 2012, the Company had federal net operating loss carry forwards
of approximately $14.5 million, not subject to IRC annual limitations on use.
These loss carry forwards will expire in years 2018 through 2032.

Conference Call
The Company has scheduled a conference call for Thursday, August 29, 2013 at
4:30 p.m. ET to discuss its financial results for the third quarter of fiscal
year 2013.

Participants can dial (877) 317-6789 or (412) 317-6789 to access the
conference call, or listen via a live Internet webcast on the Company's
website at www.mgcdiagnostics.com. A replay of the conference call will be
available by dialing (877) 344-7529 or (412) 317-0088, confirmation
code10032923, through September 5, 2013. A webcast replay of the conference
call will be accessible on the Company's website at www.mgcdiagnostics.com for
90 days.

About MGC Diagnostics
MGC Diagnostics Corporation (NASDAQ: MGCD), (formerly Angeion Corporation), is
a global medical technology company dedicated to cardiorespiratory health
solutions. The Company, through its subsidiary Medical Graphics Corporation,
develops, manufactures and markets non-invasive diagnostic systems. This
portfolio of products provides solutions for disease detection, integrated
care, and wellness across the spectrum of cardiorespiratory healthcare. The
Company's products are sold internationally through distributors and in the
United States through a direct sales force targeting heart and lung
specialists located in hospitals, university-based medical centers, medical
clinics, physicians' offices, pharmaceutical companies, medical device
manufacturers, and clinical research organizations (CROs). For more
information about MGC Diagnostics, visit www.mgcdiagnostics.com.

Cautionary Statement Regarding Forward Looking Statements
From time to time, in reports filed with the Securities and Exchange
Commission, in press releases, and in other communications to shareholders or
the investing public, MGC Diagnostics Corporation may make forward-looking
statements concerning possible or anticipated future financial performance,
business activities or plans that include the words "believes," "expects,"
"anticipates," "intends" or similar expressions. For these forward-looking
statements, the Company claims the protection of the safe harbor for
forward−looking statements contained in federal securities laws. These
forward-looking statements are subject to a number of factors, risks and
uncertainties, including those disclosed in our periodic filings with the SEC,
that could cause actual performance, activities or plans after the date the
statements are made to differ significantly from those indicated in the
forward-looking statements. For a list of these factors¸ see the sections
entitled "Risk Factors" and "Cautionary Note Regarding Forward Looking
Statements," in the Company's Form 10-K for the year ended October 31, 2012,
and any updates in subsequent filings on Form 10-Q or Form 8-K under the
Securities Exchange Act of 1934.

Contact: Wesley W. Winnekins         Joe Dorame, Robert Blum, Joe Diaz
         MGC Diagnostics Corporation Lytham Partners, LLC
         Chief Financial Officer     (602) 889-9700
         (651) 484-4874              mgcd@lythampartners.com

(Financial Tables to Follow)



MGC DIAGNOSTICS CORPORATION AND SUBSIDIARY
Consolidated Balance Sheets
July 31, 2013 and October 31, 2012
(In thousands, except share and per share data)
                                                      July 31,     October 31,
                                                      2013         2012
Assets                                                (Unaudited)
Current Assets:
Cash and cash equivalents                             $  8,831     $  9,665
Accounts receivable, net of allowance for doubtful       6,723        5,710
accounts of $102 and $98, respectively
Inventories, net of obsolescence reserve of $310 and     3,896        3,850
$373, respectively
Prepaid expenses and other current assets                626          568
Total current assets                                     20,076       19,793
Property and equipment, net of accumulated               832          578
depreciation of $4,047 and $3,876, respectively
Intangible assets, net                                   2,071        1,492
Other non-current assets                                 —            85
Total Assets                                          $  22,979    $  21,948
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable                                      $  1,510     $  2,094
Employee compensation                                    1,517        1,749
Deferred income                                          2,696        1,927
Warranty reserve                                         146          91
Other current liabilities and accrued expenses           575          442
Total current liabilities                                6,444        6,303
Long-term liabilities:
Long-term deferred income and other                      2,266        895
Total Liabilities                                        8,710        7,198
Commitments and Contingencies
Shareholders' Equity:
Common stock, $0.10 par value, authorized 25,000,000                 
shares, 4,111,794 and 3,986,350 shares issued and
4,037,300 and 3,885,279 shares outstanding in 2013       403          388
and 2012, respectively
Undesignated shares, authorized 5,000,000 shares, no     —            —
shares issued and outstanding
Additional paid-in capital                               21,885       21,046
Accumulated deficit                                      (8,019)      (6,684)
Total Shareholders' Equity                               14,269       14,750
Total Liabilities and Shareholders' Equity            $  22,979    $  21,948





MGC DIAGNOSTICS CORPORATION AND SUBSIDIARY
Consolidated Statements of Comprehensive Income (Loss)
(Unaudited in thousands, except per share data)
                                       Three Months ended  Nine Months ended
                                       July 31,            July 31,
                                       2013      2012      2013      2012
Revenues
Equipment, supplies and accessories    $  6,611  $ 5,876   $ 18,777  $ 15,738
revenues
Service revenues                          1,317    1,019     3,722     3,188
                                          7,928    6,895     22,499    18,926
Cost of revenues
Cost of equipment, supplies and           3,154    2,835     8,985     7,564
accessories revenues
Cost of service revenues                  384      354       1,092     1,086
                                          3,538    3,189     10,077    8,650
Gross margin                              4,390    3,706     12,422    10,276
Operating expenses:
Selling and marketing                     2,152    2,132     6,372     5,558
General and administrative                973      913       3,605     2,988
Research and development                  591      825       1,878     2,455
Amortization of intangibles               5        112       16        329
                                          3,721    3,982     11,871    11,330
Operating income (loss)                   669      (276)     551       (1,054)
Interest income                           —        3         1         7
Income (loss) from continuing             669      (273)     552       (1,047)
operations before taxes
Provision for taxes                       17       7         31        21
Income (loss) from continuing             652      (280)     521       (1,068)
operations
Income from discontinued operations       —        147       —         277
Net income (loss)                         652      (133)     521       (791)
Other comprehensive loss; net of tax
Unrealized loss on securities             —        —         —         (2)
Comprehensive income (loss)            $  652    $ (133)   $ 521     $ (793)
Income (loss) per share:
Basic
 From continuing operations           $  0.16   $ (0.07)  $ 0.13    $ (0.28)
 From discontinued operations            —        0.04      —         0.07
Total                                  $  0.16   $ (0.03)  $ 0.13    $ (0.21)
Diluted
 From continuing operations           $  0.16   $ (0.07)  $ 0.13    $ (0.28)
 From discontinued operations            —        0.04      —         0.07
Total                                  $  0.16   $ (0.03)  $ 0.13    $ (0.21)
Weighted average common shares
outstanding:
Basic                                     4,015    3,847     3,945     3,808
Diluted                                   4,083    3,847     4,009     3,808
Dividends declared per share           $  —      $ —       $ 0.45    $ —





MGC DIAGNOSTICS CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited in thousands)
                                                    Nine Months Ended July 31,
                                                    2013             2012
Cash flows from operating activities:
Net income (loss)                                   $   521          $  (791)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation                                            177             182
Amortization                                            86              329
Stock-based compensation                                332             269
Increase (decrease) in allowance for doubtful           3               (51)
accounts
(Decrease) increase in inventory obsolescence           (63)            70
reserve
(Gain) loss on disposal of equipment                    (3)             1
Changes in operating assets and liabilities:
Accounts receivable                                     (1,016)         1,289
Inventories                                             17              (432)
Prepaid expenses and other current assets               27              (315)
Accounts payable                                        (584)           (435)
Employee compensation                                   (232)           (114)
Deferred income                                         1,950           32
Warranty reserve                                        55              (47)
Other current liabilities and accrued expenses          22              235
Net cash provided by operating activities               1,292           222
Cash flows from investing activities:
Sales of investments                                    —               721
Purchases of property and equipment and intangible      (883)           (730)
assets
Net cash used in investing activities                   (883)           (9)
Cash flows from financing activities:
Dividends paid                                          (1,805)         —
Proceeds from issuance of common stock under            129             50
employee stock purchase plan
Proceeds from the exercise of stock options             485             97
Repurchase of common stock                              —               (66)
Repurchase of common stock upon vesting of              (52)            (46)
restricted stock awards
Net cash (used in) provided by financing activities     (1,243)         35
Net (decrease) increase in cash and cash                (834)           248
equivalents
Cash and cash equivalents at beginning of period        9,665           8,461
Cash and cash equivalents at end of period          $   8,831        $  8,709
Cash paid for taxes                                 $   30           $  22
Supplemental non-cash items:
Current and non-current liabilities issued for          210             —
leasehold improvements
Common stock issued for long-term liability             —               42
Accrued dividends                                       51              —



SOURCE MGC Diagnostics Corporation

Website: http://mgcdiagnostics.com
 
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