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VeriChip Corporation Announces Financial Results for 2007 First Quarter

Posted on: Thursday, 3 May 2007, 09:00 CDT

VeriChip Corporation ("VeriChip" or the "Company") (NASDAQ:CHIP), a provider of RFID systems for healthcare and patient-related needs, today reported financial results for its first quarter ended March 31, 2007.

Revenue for the first quarter of 2007 was $7.4 million compared to revenue of $6.6 million for the 2006 first quarter. Net loss in the 2007 first quarter was $(3.3) million, or $(0.47) per share, compared to a net loss of $(1.0) million, or $(0.18) per share, in the 2006 first quarter. The increase in the net loss is primarily due to non-cash equity compensation, severance and other exit costs related to the previously announced shutdown of the Company's Vancouver facility, increased spending on the build out of its VeriMed business, increased interest expense and increased expenses as a result of the Company becoming a public entity and higher research and development costs.

The Company's adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA"), a non-GAAP financial measure, was a loss of $(1.3) million in the first quarter of 2007 compared to a loss of $(0.3) million in the first quarter of 2006. The Company's increased adjusted EBITDA loss was the result of a $0.5 million increase in sales and marketing expenses related to the build out of the VeriMed business, $0.3 million of non-cash inventory charges recorded in the first quarter of 2007 resulting from the finalization of the Company's consolidation of its healthcare security business to Ottawa, Ontario, and increased costs related to the Company becoming a public entity in the first quarter of 2007.

Subsequent to the end of the 2007 first quarter, the Company received two orders for its hospital asset/staff location and identification system, which sales it expects to close in the 2007 second quarter.

Scott R. Silverman, Chairman and Chief Executive Officer of VeriChip, stated, "We continue to make noteworthy progress in our healthcare security businesses, as evidenced by the strong sales growth of our infant protection systems in the first quarter of 2007. In fact, we now have more than 1,200 installations of our infant protection systems across North America and are the leader in this industry. We also continue to make strides in our VeriMed Patient Identification System as we focus on increasing the number of hospitals in our network and specifically ensuring those hospitals have adopted the VeriMed protocol as part of the emergency treatment process."

Mr. Silverman continued, "Notably, in April we received orders for two hospital asset tracking systems totaling approximately $400,000."

The Company ended the first quarter of 2007 with cash and cash equivalents of $12.2 million compared to $1.0 million at year-end.

The highlights for the 2007 first quarter included:

The Company partnered with Alzheimer's Community Care to conduct a two-year, 200 patient study of the effectiveness of the VeriMed Patient Identification System in safeguarding Alzheimer's patients and their caregivers.

The number of hospitals enrolled in the VeriMed network increased by 31.4% in the 2007 first quarter, resulting in 515 hospitals enrolled at the end of the first quarter.

In February 2007, VeriChip completed its initial public offering, selling 3.1 million shares of its common stock at $6.50 per share.

In the first quarter of 2007, the number of infant protection systems sold by the Company increased 14%, while the number of infant protection systems sold to new customers increased 28% compared to the first quarter of 2006.

Non-GAAP Financial Measures

To supplement the Company's unaudited condensed consolidated financial statements presented in accordance with GAAP, the Company provides adjusted EBITDA and adjusted net loss, which are non-GAAP financial measures. Adjusted EBITDA is defined as net loss plus the provision for income taxes, interest expense, depreciation and amortization, and other non-cash items and non-recurring items as presented in the Company's Unaudited Condensed Consolidated Statement of Operations. Adjusted EBITDA should not be considered as an alternative to operating income or net income (as determined in accordance with generally accepted accounting principles ("GAAP")) as a measure of the Company's operating performance or to net cash provided by operating, investing and financing activities (as determined in accordance with GAAP) as a measure of the Company's ability to meet cash needs. The Company believes that adjusted EBITDA is a measure commonly reported and widely used by investors and other interested parties as a measure of a company's operating performance and debt servicing ability because it assists in comparing performance on a consistent basis without regard to capital structure, depreciation and amortization or non-operating factors (such as historical cost). Accordingly, as a result of the Company's capital structure, the Company believes adjusted EBITDA is a relevant measure. This information has been disclosed here to permit a more complete comparative analysis of the Company's operating performance relative to other companies. Adjusted EBITDA may not, however, be comparable in all instances to other similar types of measures. The presentation of adjusted net loss, which is defined as net loss plus non-cash items and non-recurring items, should be considered in addition to the Company's GAAP results and is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with GAAP. The Company believes that adjusted net loss is useful to investors to enhance the overall understanding of the Company's current financial performance and to allow for greater transparency with respect to supplemental information used by management in its financial and operational decision making.

For supplemental information to facilitate evaluation of the impact of non-cash charges, non-recurring charges, and comparisons with historical results, see the attached table showing the detailed reconciliation of results reported under GAAP to non-GAAP results for the 2007 first quarter and the 2006 first quarter.

Results Conference Call

The Company will host a conference call today for all interested parties at 9:00 a.m. EDT to discuss these results. Interested participants should call (800) 472-8309 within the United States or (706) 643-9561 internationally. Please use passcode 7146797. Alternatively, an audio-only, simultaneous Web cast of the live conference call can be accessed through the home page of the Company's Web site at www.verichipcorp.com. For persons unable to participate in either the conference call or the Web cast, a digitized replay will be available from May 3 at 11:00 a.m. EDT to May 10 at 11:59 p.m. EDT. For the replay, dial (800) 642-1687 (USA) or (706) 645-9291 (international), using access code 7146797. Alternatively, a replay can be accessed through the Media/Audio & Video link on the Company's Web site at www.verichipcorp.com

About VeriChip Corporation

VeriChip Corporation, headquartered in Delray Beach, Florida, develops, markets and sells radio frequency identification, or RFID, systems used to identify, locate and protect people and assets. VeriChip's goal is to become the leading provider of RFID systems for people in the healthcare industry. VeriChip sells passive RFID systems for identification purposes and active RFID systems for local-area location and identification purposes. VeriChip recently began to market its VeriMed(TM) Patient Identification System for rapidly and accurately identifying people who arrive in an emergency room and are unable to communicate. This system uses the first human-implantable passive RFID microchip, the implantable VeriChip(TM), cleared for medical use in October 2004 by the United States Food and Drug Administration.

VeriChip Corporation is majority-owned by Applied Digital Solutions, Inc. (NASDAQ:ADSX), which also owns a majority position in Digital Angel Corporation (AMEX:DOC). For more information on VeriChip, please call 1-800-970-2447, or email info@verichipcorp.com. Additional information can be found online at www.verichipcorp.com.

This press release contains certain "forward-looking" statements (as such term is defined in the Private Securities Litigation Reform Act of 1995). Forward-looking statements included in this press release include, without limitation, those concerning expectations for strong revenue growth of our healthcare security products, continued strengthening of our VeriMed infrastructure, success of the Company's marketing and sales initiative, including new third-party partnerships ,and expected growth in sales, earnings and improvement in gross margins. These forward-looking statements are based on the Company's current expectations and beliefs and are subject to a number of risks, uncertainties and assumption. Among the important factors that could actual results to differ materially from those expressed in, or implied by, the forward-looking statements are our ability to successfully implement our business strategy; our expectation that we will incur losses, on a consolidated basis, for the foreseeable future; the relative maturity in the United States and limited size of the markets for our infant protection and wander prevention systems and vibration monitoring instruments; the degree of success we have in leveraging our brand reputation, reseller network and end use customer base for our infant protection and wander prevention systems to gain inroads in the emerging market for asset/staff location and identification systems; the rate and extent of the U.S. healthcare industry's adoption of RFID asset/staff location and identification systems; the relative degree of market acceptance of our zonal, or cell ID, active RFID systems compared to competing technologies, such as lower power Ultra Wide Band-based location technologies; uncertainty as to whether we will be able to increase our sales of infant protection and wander prevention systems outside of North America; our reliance on third-party dealers to successfully market and sell our products; uncertainty as to whether a market for our VeriMed system will develop and whether we will be able to generate more than a nominal level of revenue from the sale of these systems; and market acceptance of our VeriMed system, which will depend in large part on the future availability of insurance reimbursement for the VeriMed system microchip implant procedure from government and private insurers, and the timing of such reimbursement, if it, in fact, occurs. Additional information about these and other factors that could affect the Company's business is set forth in the Company's various filings with the Securities and Exchange Commission, including those set forth in the Company's 10-K dated April 2, 2007 under the caption "Risk Factors." The Company undertakes no obligation to update or release any revisions to these forward-looking statements to reflect events or circumstances after the date of this statement or to reflect the occurrence of unanticipated events, except as required by law.

VeriChip Corporation

Condensed Unaudited Consolidated Statements of Operations Data

(Amounts in thousands except per share data)

 

Three Months Ended March 31,

2007 

2006 

Product revenue

$ 6,841 

$ 6,157 

Service revenue

532 

393 

Total revenue

7,373 

6,550 

 

Cost of product

3,239 

2,368 

Cost of services

271 

201 

Total cost of products and services

3,510 

2,569 

 

Gross profit

3,863 

3,981 

 

Operating costs and expenses:

Selling, general and administrative

5,397 

4,007 

Research and development

1,407 

885 

Total operating costs and expenses

6,804 

4,892 

 

 

Operating loss

(2,941)

(911)

 

Interest and other income

(61)

(18)

Interest expense

388 

128 

 

Loss before provision for income taxes

(3,268)

(1,021)

 

Provision for income taxes

45 

0 

 

Net loss

$ (3,313)

$ (1,021)

Net loss - basic and diluted

$ (0.47)

$ (0.18)

Weighted average number of shares outstanding - basic and diluted

7,106 

5,556 

 

Non-GAAP Reconciliation (Adjusted EBITDA to Operating Loss):

Operating loss

$ (2,941)

$ (911)

Depreciation and amortization

625 

574 

Non-cash equity compensation

667 

0 

Severance and other exit costs

345 

0 

Adjusted EBITDA

$ (1,304)

$ (337)

 

Non-GAAP Reconciliation (Adjusted Net Loss to Net Loss):

Net Loss

$ (3,313)

$ (1,021)

Non-cash equity compensation

667 

0 

Severance and other exit costs

345 

0 

Adjusted Net Loss

$ (2,301)

$ (1,021)

 

VeriChip Corporation

Condensed Unaudited Consolidated Balance Sheet Data

(Amounts in thousands)

 

March 31,

December 31,

Assets

2007 

2006 

Current Assets:

Cash & cash equivalents

$ 12,154 

$ 996 

Accounts receivable, net of allowance for doubtful accounts

4,686 

4,486 

Inventories, net of allowance

3,341 

3,698 

Deferred tax asset

520 

520 

Prepaid expenses, and other current assets

624 

567 

Total Current Assets

21,325 

10,267 

Equipment, net of accumulated depreciation

906 

950 

Intangible assets, net of accumulated amortization

18,107 

18,567 

Goodwill

16,025 

16,025 

Deferred offering costs

- 

5,079 

TOTAL ASSETS

$ 56,363 

$ 50,888 

 

Liabilities and Stockholders' Equity

Current Liabilities:

Bank indebtedness

$ 1,203 

$ 853 

Accounts payable

1,817 

3,671 

Accrued expenses and other current liabilities

4,395 

4,968 

Due to stockholder, current portion

518 

- 

Total Current Liabilities

7,933 

9,492 

Deferred tax liabilities

5,416 

5,415 

Due to stockholder

11,290 

13,635 

Total Liabilities

24,639 

28,542 

 

Stockholders' Equity

31,817 

22,346 

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$ 56,456 

$ 50,888 

VeriChip Corporation

Unaudited Segment Reporting Data

(Amounts in thousands)

 

Three Months Ended March 31, 2007

Healthcare

Security

Implantable

Industrial

Corporate

Total

 

Product revenue

$ 5,199 

$ 1 

$ 1,641 

$ - 

$ 6,841 

Service revenue

111 

- 

421 

- 

532 

Total revenue

5,310 

1 

2,062 

- 

7,373 

 

Gross profit

2,703 

1 

1,159 

- 

3,863 

 

Operating costs and expenses:

Selling, general and administrative

1,995 

1,177 

595 

1,630 

5,397 

Research and development

1,065 

0 

342 

0 

1,407 

Total operating expenses

3,060 

1,177 

937 

1,630 

6,804 

 

Operating income (loss)

$ (357)

$ (1,176)

$ 222 

$ (1,630)

$ (2,941)

 

Non-GAAP Reconciliation:

Operating income (loss)

$ (357)

$ (1,176)

$ 222 

$ (1,630)

$ (2,941)

Depreciation and amortization

430 

12 

171 

12 

625 

Non-cash equity compensation

0 

67 

0 

600 

667 

Severance and other exit costs

277 

0 

68 

0 

345 

Adjusted EBITDA

$ 350 

$ (1,097)

$ 461 

$ (1,018)

$ (1,304)

 

Three Months Ended March 31, 2006

Healthcare

Security

Implantable

Industrial

Corporate

Total

 

Product revenue

$ 4,697 

$ 90 

$ 1,370 

$ - 

$ 6,157 

Service revenue

69 

- 

324 

- 

393 

Total revenue

4,766 

90 

1,694 

- 

6,550 

 

Gross profit

2,877 

45 

1,059 

- 

3,981 

 

Operating costs and expenses:

Selling, general and administrative

2,004 

746 

520 

737 

4,007 

Research and development

581 

0 

304 

0 

885 

Total operating expenses

2,585 

746 

824 

737 

4,892 

 

Operating income (loss)

$ 292 

$ (701)

$ 235 

$ (737)

$ (911)

 

Non-GAAP Reconciliation:

Operating income (loss)

$ 292 

$ (701)

$ 235 

$ (737)

$ (911)

Depreciation and amortization

403 

9 

153 

9 

574 

Non-cash equity compensation

0 

0 

0 

0 

- 

Severance and other exit costs

0 

0 

0 

0 

- 

Adjusted EBITDA

$ 695 

$ (692)

$ 388 

$ (728)

$ (337)

Source: Business Wire

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