MGC Diagnostics Corporation Reports 2013 Fourth Quarter and Year End Operating Results

MGC Diagnostics Corporation Reports 2013 Fourth Quarter and Year End Operating
                                   Results

PR Newswire

SAINT PAUL, Minn., Dec. 19, 2013

SAINT PAUL, Minn., Dec. 19, 2013 /PRNewswire/ --MGC Diagnostics Corporation
(NASDAQ: MGCD), a global medical technology company, today reported financial
results for the fourth quarter and year ended October 31, 2013.

Fourth Quarter Highlights:

  oFourth quarter revenue of $9.1 million, an 11% increase over the fiscal
    2012 fourth quarter. Sequential quarterly revenue growth of 15% from the
    fiscal 2013 third quarter;
  oFourth quarter operating income increased to $875,000, compared to $7,000
    in the fourth quarter of 2012;
  oNet income for the fourth quarter of $836,000, or $0.20 per diluted share,
    compared to net income of $790,000, of which $785,000 was generated from
    income from discontinued operations, or $0.20 per diluted share in the
    2012 fourth quarter;
  oFourth quarter service revenue increased 24% on a year-over-year basis,
    while service gross margin improved 180 basis points to 70.1%, compared to
    68.3% in the fiscal 2012 fourth quarter;
  oFourth quarter gross margin improved 270 basis points to 57.8%, compared
    to 55.1% in last year's fourth quarter;
  oThe fourth quarter Attachment Rate of point-of-sale extended service
    contracts improved to 31%, compared to 10% in last year's fourth quarter;
    and
  oFourth quarter 2013 recurring revenue (service and supplies revenues)
    totaled $3.1 million, or 34% of total fourth quarter revenue.

Fiscal Year 2013 Highlights:

  oFiscal 2013 revenue increased 17% to $31.6 million, compared to $27.2
    million in fiscal 2012;
  oFiscal 2013 competitive conversions totaled 102 accounts representing $6.3
    million of recognized revenue;
  oFiscal 2013 net income of $1.4 million, or $0.34 per diluted share,
    compared to fiscal 2012 net loss of $1,000, or $0.00 per diluted share;
  oStrong balance sheet with $10.6 million in cash and cash equivalents,
    $15.4 million of working capital and no long-term debt; and
  oAt October 31, 2013, the Company had federal net operating loss carry
    forwards of approximately $12.8 million that may be used to offset a
    portion of the Company's future tax liability.

Fourth quarter fiscal 2013 total revenues increased 11% to $9.1 million,
compared to $8.2 million in the fiscal 2012 fourth quarter. Domestic 2013
fourth quarter sales increased 15% to $7.6 million, compared to $6.6 million
in the 2012 fourth quarter, while international sales decreased 4% to $1.58
million from $1.64 million for last year's fourth quarter. Fourth quarter
Group Purchasing Organization ("GPO") sales increased 23% to $5.9 million,
compared to $4.8 million in the prior year's fourth quarter.

Fourth quarter equipment, supplies and accessories sales totaled $7.7 million,
an increase of 9%, compared to $7.1 million for last year's fourth quarter.
Service revenues for the fourth quarter totaled $1.4 million, compared to $1.1
million for last year's fourth quarter. The Attachment Rate, which reflects
the percentage of Extended Service Contracts added at the point of sale to
customer equipment purchases, was 31% for the fiscal 2013 fourth quarter,
compared to 10% for the same period last year. Backlog at October 31, 2013 was
$504,000, an improvement from $413,000 at the end of the 2012 fourth quarter.

Gross margin for the quarter was 57.8%, compared to 55.1% for the 2012 fourth
quarter. Gross margin for equipment, supplies and accessories was 55.6% for
the quarter, compared to 53.0% for the prior year's quarter. Gross margin for
services increased to 70.1% for the quarter, compared to 68.3% for the prior
year's quarter, primarily due to improved pricing and service mix.

Fourth quarter 2013 general and administrative expenses totaled $1.2 million,
or 12.7% of revenue, compared to $1.2, or 14.1% of revenue in the comparable
quarter last year. Sales and marketing expenses were $2.9 million, or 31.6% of
revenue, compared to $2.5 million, or 30.0% of revenue in the 2012 fourth
quarter. Research and development expenses were $363,000, or 4.0% of revenue,
compared to $791,000, or 9.6% of revenue in last year's fourth quarter. This
decrease is primarily due to a $294,000 expense reduction attributed to claims
for expense credits under the State of Minnesota Credit for Increasing
Research Activities, which the Company will be filing for fiscal years 2011,
2012 and 2013. In fiscal 2013, the Company invested approximately $1.4
million in new research and product development initiatives. During the 2013
fourth quarter, the Company capitalized $150,000 of software development
expenses, compared to $161,000 for the same quarter last year.

Fourth quarter operating income improved to $875,000, compared to operating
income of $7,000 in the 2012 fourth quarter. For the 2013 fourth quarter, the
Company reported net income of $836,000, or $0.20 per diluted share, versus
net income of $790,000, or $0.20 per diluted share, in the 2012 fourth
quarter. During the fourth quarter of 2012, the Company recognized income from
discontinued operations totaling $785,000, or $0.20 per diluted share.

Gregg O. Lehman, Ph D., president and chief executive officer of MGC
Diagnostics, said, "Fiscal 2013 was an important year for MGC Diagnostics, as
we achieved a number of milestones. With the Company reconfigured and our
strategic plan firmly in place, we challenged our sales force to focus on two
main goals during fiscal 2013: increase our market share through competitive
conversions and increase the number of customers that purchase a point-of-sale
Extended Service Contract. Stepping up to meet that challenge, the sales team
converted 102 competitive accounts totaling $6.3 million of recognized
revenue. Included in this group of conversions are a number of highly
recognized national healthcare institutions. With regards to Extended Service
Contracts, the Attachment Rate, which we define as the percentage of
instrument sales that include a point-of-sale Extended Service Contract,
dramatically increased to 31% in the fourth quarter of fiscal 2013 versus 10%
in last year's fourth quarter and increased to 27% for the fiscal year
compared to 6% last year. I am very proud of the sales team's performance and
their contribution to the excellent operational and financial results of the
fiscal year."

"We remain dedicated to reengineering our existing products and developing new
products to more effectively address the needs of the evolving healthcare
market, both domestically and internationally," continued Dr. Lehman. "During
fiscal 2013, we invested approximately 10% of total sales into R&D projects to
enhance and expand our product offerings. We will continue to appropriately
allocate resources to keep our products and technologies on the leading edge
of the market."

"As we look forward to fiscal 2014 and beyond," concluded Dr. Lehman, "growing
our business organically and driving consistent profitability are our main
priorities. With three consecutive quarters of profitability under our belt,
we are on our way toward the consistency that we seek. We maintain a strong
balance sheet with no long-term debt, which permits us to effectively operate
our business from internally generated cash flow. It also provides us the
ability to remain opportunistic in our pursuit of strategic partnerships,
licensing arrangements and merger and acquisition opportunities that can
strengthen our position within the industry. We have made great progress at
MGC Diagnostics in the past two years in terms of becoming a competitive force
in the market and enhancing shareholder value. In the coming years, we look
forward to continuing our business growth and improving our competitive
position among the market leaders."

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 reclassified its results for prior periods to eliminate from its
consolidated statements 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." In the fiscal
2012 fourth quarter, the Company recognized income from discontinued
operations of $785,000, which includes a gain on sale of discontinued
operations of $816,000.

Net Operating Loss Carry Forward
At October 31, 2013, the Company had federal net operating loss carry forwards
of approximately $12.8 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, December 19, 2013 at
11:00 a.m. ET to discuss its financial results for the fourth quarter and
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
code10037949, through December 26, 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
October 31, 2013 and October 31, 2012
(In thousands, except share and per share data)
                                                     October 31,  October 31,
                                                     2013         2012
Assets
Current Assets:
Cash and cash equivalents                            $  10,574    $  9,665
Accounts receivable, net of allowance for doubtful
accounts of $147 and $98, respectively                  8,048        5,710
Inventories, net of obsolescence reserve of $306 and
$373, respectively                                      3,499        3,721
Prepaid expenses and other current assets               1,102        697
Total current assets                                    23,223       19,793
Property and equipment, net of accumulated
depreciation of $4,094 and $3,876, respectively         779          578
Intangible assets, net                                  2,189        1,492
Other non-current assets                                —            85
Total Assets                                         $  26,191    $  21,948
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable                                     $  1,871     $  2,094
Employee compensation                                   1,945        1,749
Deferred income                                         3,091        1,927
Other current liabilities and accrued expenses          905          533
Total current liabilities                               7,812        6,303
Long-term liabilities:
Long-term deferred income and other                     2,535        895
Total Liabilities                                       10,347       7,198
Commitments and Contingencies
Shareholders' Equity:
Common stock, $0.10 par value, authorized 25,000,000
shares, 4,193,990 and 3,986,350 shares issued and
4,127,896 and 3,885,279 shares outstanding in 2013
and 2012, respectively                                  413          388
Undesignated shares, authorized 5,000,000 shares,
no shares issued and outstanding                        —            —
Additional paid-in capital                              22,606       21,046
Accumulated deficit                                     (7,175)      (6,684)
Total Shareholders' Equity                              15,844       14,750
Total Liabilities and Shareholders' Equity           $  26,191    $  21,948



MGC DIAGNOSTICS CORPORATION AND SUBSIDIARY
Consolidated Statements of Comprehensive Income (Loss)
(In thousands, except per share data)
                                       Three Months ended  Year Ended
                                       October 31,         October 31,
                                       2013       2012     2013      2012
Revenues
Equipment, supplies and accessories    $  7,739   $ 7,101  $ 26,516  $ 22,839
revenues
Service revenues                          1,402     1,131    5,124     4,319
                                          9,141     8,232    31,640    27,158
Cost of revenues
Cost of equipment, supplies and           3,438     3,338    12,423    10,902
accessories revenues
Cost of service revenues                  419       359      1,511     1,445
                                          3,857     3,697    13,934    12,347
Gross margin                              5,284     4,535    17,706    14,811
Operating expenses:
Selling and marketing                     2,884     2,471    9,256     8,029
General and administrative                1,157     1,158    4,762     4,146
Research and development                  363       791      2,241     3,246
Amortization of intangibles               5         108      21        437
                                          4,409     4,528    16,280    15,858
Operating income (loss)                   875       7        1,426     (1,047)
Interest income                           —         2        1         9
Income (loss) from continuing             875       9        1,427     (1,038)
operations before taxes
Provision for taxes                       39        4        70        25
Income (loss) from continuing             836       5        1,357     (1,063)
operations
Discontinued operations
Income (loss) from discontinued           —         (31)     —         246
operations
Gain on sale of discontinued              —         816      —         816
operations
Income from discontinued operations       —         785      —         1,062
Net income (loss)                         836       790      1,357     (1)
Other comprehensive loss; net of tax
Unrealized loss on securities             —         —        —         (2)
Comprehensive income (loss)            $  836     $ 790    $ 1,357   $ (3)
Income (loss) per share:
Basic
 From continuing operations           $  0.20    $ —      $ 0.34    $ (0.28)
 From discontinued operations            —         0.20     —         0.28
 Total                              $  0.20    $ 0.20   $ 0.34    $ —
Diluted
 From continuing operations           $  0.20    $ —      $ 0.34    $ (0.28)
 From discontinued operations            —         0.20     —         0.28
 Total                              $  0.20    $ 0.20   $ 0.34    $ —
Weighted average common shares
outstanding:
Basic                                     4,091     3,885    3,982     3,828
Diluted                                   4,192     3,929    4,045     3,828
Dividends declared per share           $  —       $ —      $ 0.45    $ —



MGC DIAGNOSTICS CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows
(In thousands)
                                                        Year ended October 31,
                                                        2013         2012
Cash flows from operating activities:
Net income (loss)                                       $  1,357     $ (1)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation                                               247         234
Amortization                                               119         437
Stock-based compensation                                   445         411
Increase in allowance for doubtful accounts                49          2
Decrease in inventory obsolescence reserve                 (67)        (58)
Gain on disposal of discontinued operation                 —           (816)
(Gain) loss on disposal of equipment                       (2)         3
Changes in operating assets and liabilities:
Accounts receivable                                        (2,387)     246
Inventories                                                289         35
Prepaid expenses and other current assets                  (470)       (312)
Accounts payable                                           (223)       72
Employee compensation                                      196         268
Deferred income                                            2,712       222
Other current liabilities and accrued expenses             231         171
Net cash provided by operating activities                  2,496       914
Cash flows from investing activities:
Sales of investments                                       —           721
Net proceeds from sale of discontinued operations          150         665
Proceeds from sale of property and equipment               3           —
Purchases of property and equipment and intangible         (1,055)     (1,131)
assets
Net cash (used in) provided by investing activities        (902)       255
Cash flows from financing activities:
Dividends paid                                             (1,805)     —
Proceeds from issuance of common stock under employee
stock
purchase plan                                              128         50
Proceeds from the exercise of stock options                1,044       97
Repurchase of common stock                                 —           (66)
Repurchase of common stock upon vesting of restricted      (52)        (46)
stock awards
Net cash (used in) provided by financing activities        (685)       35
Net increase in cash and cash equivalents                  909         1,204
Cash and cash equivalents at beginning of period           9,665       8,461
Cash and cash equivalents at end of period              $  10,574    $ 9,665
Cash paid for taxes                                     $  29        $ 21
Supplemental non-cash items:
Current and non-current liabilities issued for             210         —
leasehold improvements
Common stock issued for long-term liability                67          42
Other current and non-current assets from sale of          —           235
discontinued operations
Accrued dividends                                          43          —





SOURCE MGC Diagnostics Corporation