DynaVox Reports Third Quarter Fiscal Year 2012 Results

Mon May 14, 2012 4:01pm EDT

* Reuters is not responsible for the content in this press release.

PITTSBURGH, May 14, 2012 (GLOBE NEWSWIRE) -- DynaVox (Nasdaq:DVOX), the world's leading provider of communication and education products for individuals with significant speech, language and learning disabilities, today announced results for the third quarter ended March 30, 2012.

For the third quarter ended March 30, 2012, net sales decreased 16% to $24.0 million, compared to net sales of $28.7 million for the third quarter ended April 1, 2011. Sales of the Company's speech generating devices decreased 9% to $20.7 million, and sales of its special education software declined 44% to $3.3 million from the prior year.

Gross profit for the third quarter of fiscal year 2012 decreased 13% to $17.4 million, compared to $19.9 million in the third quarter of the prior year. The Company's gross margin expanded 270 basis points to 72.3% in the third quarter, compared to 69.6% in the third quarter of the prior year. The gross margin expansion was primarily the result of lower device royalty costs related to the Company's EyeMax product and an inventory obsolescence charge recorded in the prior period.

Operating loss was $58.6 million in the third quarter of fiscal year 2012, compared to operating income of $3.8 million in the same period a year ago. The operating loss was mainly due to a $62.1 million impairment charge related to goodwill and other intangible assets the Company recorded during the third quarter of fiscal year 2012, compared to an impairment charge of $1.0 million recorded in the prior year. Excluding both of these impairment charges, the Company's operating expenses declined 8% during the third quarter, compared to the prior year, and its operating income for the third quarter declined 28% to $3.5 million, compared to $4.8 million in the prior year.

Third quarter GAAP net loss was $14.1 million, or $1.33 per share, compared to GAAP net income of $0.7 million, or $0.07 per share, for the same quarter a year ago. Adjusted pro forma net income, as defined below in Explanatory Note and Non-GAAP Financial Measures, was $1.8 million for the third quarter, compared to $2.6 million in the prior year, and adjusted pro forma net income per share for the third quarter was $0.06 per share, compared to $0.09 per share in the prior year.

Adjusted EBITDA, as defined below in Explanatory Note and Non-GAAP Financial Measures, decreased 23% year over year in the third quarter of 2012 to $5.0 million from $6.5 million in the previous year.

"The end of government supported funding under ARRA, as well as the US state and EU government budget constraints, significantly impacted our performance during the third quarter, resulting in lower than expected sales," said Ed Donnelly, DynaVox's Chief Executive Officer. "In the meantime, we continued to implement our revised strategies and to reduce operating costs, which helped us minimize this negative impact on our bottom line performance."

"While our operating environment remains very challenging and unpredictable, we still believe strongly in the large, significantly under penetrated markets in which we are the leader. We remain focused on serving our important customers and continue to invest in research and development to navigate these challenging times," concluded Mr. Donnelly.

Results for the Thirty-Nine Weeks Ended March 30, 2012

For the first thirty-nine weeks of fiscal 2012, net sales decreased 3% to $73.4 million from $75.8 million in the same period last year.

Gross profit for the first thirty-nine weeks of fiscal 2012 decreased 0.4% to $53.0 million. The Company's gross margin expanded 200 basis points to 72.2% from 70.2% in the same period last year.

Operating loss for the first thirty-nine weeks of fiscal year 2012 was $53.4 million, compared to operating income of $4.7 million in the prior year. Excluding the impairment charges in both thirty-nine week periods, the Company's operating income increased 52% to $8.7 million, compared to $5.8 million in the prior year.

GAAP net loss for the first thirty-nine weeks of fiscal year 2012 was $13.3 million, or $1.29 per share, compared to GAAP net income of $0.3 million, or $0.03 per share, a year ago. Adjusted pro forma net income was $4.4 million for the first thirty-nine weeks, compared to $2.1 million in the prior year, and adjusted pro forma net income per share for the first thirty-nine weeks was $0.15 per share, compared to $0.07 per share in the prior year.

For the first thirty-nine weeks of fiscal 2012, Adjusted EBITDA was $13.7 million, an increase of 23%, from $11.2 million in the same period last year.

Outlook

As a result of the market uncertainties that the Company has been experiencing and the impact that these uncertainties have continued to have on its business, as evidenced in the third quarter, the Company decided to suspend its previous policy of providing financial guidance.

Conference Call

The conference call is scheduled to begin at 4:45 p.m. EDT on May 14, 2012. The call will be broadcast live over the Internet, hosted at the Investor Relations section of DynaVox's website at http://ir.dynavoxtech.com/index.cfm, and will be archived online through May 28, 2012. In addition, listeners may dial (877) 312-5529 in North America, and international listeners may dial (253) 237-1147. Participants from the Company will be Ed Donnelly, Chief Executive Officer, and Ken Misch, Chief Financial Officer.

A telephonic playback will be available from 7:45 p.m. EDT, May 14, 2012 through May 28, 2012. To hear the playback participants may dial (855) 859-2056 and international listeners may dial (404) 537-3406. The conference ID number is 73827826.

Explanatory Note and Non-GAAP Financial Measures

DynaVox Inc. completed an initial public offering (IPO) on April 27, 2010. As a result of the IPO and certain other recapitalization transactions, DynaVox Inc. became the sole managing member of and has a controlling interest in DynaVox Systems Holdings LLC and its subsidiaries ("DynaVox Holdings").

This release presents adjusted pro forma net income (loss), which as defined by the Company represents net income (loss) before non-controlling interest and impairment loss and after pro forma corporate income tax expense applied at an assumed 38.0% rate, which includes a provision for U.S. federal income taxes, assumes the highest statutory rates apportioned to each state, local and/or foreign jurisdiction and assumes the full exchange of Holdings Units of DynaVox Holdings into Class A Common Stock. Adjusted pro forma net income (loss) per share consists of adjusted pro forma net income divided by the aggregate number of the Company's Class A Common Stock outstanding, assuming full exchange of Holdings Units of DynaVox Holdings into Class A Common Stock of DynaVox Inc. and giving effect to the dilutive impact, if any, of stock options and restricted stock awards. The Company believes that Adjusted Pro Forma Net Income (Loss), when presented together with the comparable measure presented in accordance with GAAP, is useful to investors to assist in their understanding of the effect of the Company's organizational structure on its reported results and also in comparing the Company's results across different periods.

This release also presents Adjusted EBITDA, as defined by the Company as the income (loss) before income taxes, interest income, interest expense, impairment loss, depreciation, amortization and other adjustments noted in the table below.

Adjusted EBITDA, adjusted pro forma net income (loss) and adjusted pro forma net income (loss) per share, however, do not represent and should not be considered as an alternative to net income (loss), net income (loss) per share or cash flow from operating activities, as determined in accordance with GAAP, and our calculations thereof may not be comparable to similarly entitled measures reported by other companies.

Forward-Looking Statements

This press release contains forward-looking statements which reflect our current views with respect to, among other things, our operations and financial performance. You can identify these forward-looking statements by the use of words such as "outlook," "believes," "expects," "projects", "potential," "continues," "may," "will," "should," "seeks," "approximately," "predicts," "intends," "plans," "estimates," "anticipates" or the negative version of these words or other comparable words. Such forward-looking statements are subject to various risks and uncertainties. Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in these statements. We believe these factors include but are not limited to those described under "Risk Factors" in our Annual Report on Form 10-K, as such factors may be updated from time to time in our periodic filings with the Securities and Exchange Commission (SEC), which are accessible on the SEC's website at www.sec.gov. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this release and in the Annual Report on Form 10-K and other filings. We undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise.

About DynaVox Inc.

DynaVox Inc. (Nasdaq:DVOX) is a publicly traded holding Company with its headquarters in Pittsburgh, Pennsylvania, whose primary operating entities are DynaVox Systems LLC and Mayer-Johnson LLC. DynaVox is the leading provider of speech generating devices and symbol-adapted special education software used to assist individuals in overcoming their speech, language and learning challenges. These solutions are designed to help individuals who have complex communication and learning needs participate in the home, classroom and community. Our mission is to enable our customers to realize their full communication and education potential by developing industry-leading devices, software and content and by providing the services to support them. We assist individuals, families, and professionals with an extensive field support organization, as well as centralized technical and reimbursement support. For more information, visit www.dynavoxtech.com.

DYNAVOX INC. AND SUBSIDIARIES
         
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars in thousands, except share and per share amounts)
         
         
  Thirteen Weeks Ended Thirty-Nine Weeks Ended
  March 30, April 1, March 30, April 1,
  2012 2011 2012 2011
         
NET SALES  $ 24,027  $ 28,668  $ 73,434  $ 75,763
COST OF SALES  6,649  8,726  20,415  22,547
         
GROSS PROFIT  17,378  19,942  53,019  53,216
         
OPERATING EXPENSES:        
 Selling and marketing  7,868  8,296  25,472  25,780
 Research and development  1,540  2,344  5,251  7,236
 General and administrative  4,388  4,350  13,222  14,114
 Amortization of certain intangibles  110  112  330  334
 Impairment loss  62,107  1,018  62,107  1,018
         
 Total operating expenses  76,013  16,120  106,382  48,482
         
INCOME (LOSS) FROM OPERATIONS  (58,635)  3,822  (53,363)  4,734
         
OTHER INCOME (EXPENSE):        
 Interest income  7  17  22  30
 Interest expense  (574)  (668)  (1,716)  (2,014)
 Change in fair value and net loss on interest rate swap agreement  --  (5)  --  (81)
 Other income (expense) — net  13  (34)  (27)  (269)
 Total other expense — net  (554)  (690)  (1,721)  (2,334)
         
INCOME (LOSS) BEFORE INCOME TAXES  (59,189)  3,132  (55,084)  2,400
INCOME TAX EXPENSE (BENEFIT)  (7,248)  341  (6,614)  334
         
NET INCOME (LOSS) ATTRIBUTABLE TO THE CONTROLLING AND NON-CONTROLLING INTERESTS  $ (51,941)  $ 2,791  $ (48,470)  $ 2,066
         
Less: net (income) loss attributable to the non-controlling interests  37,821  (2,140)  35,129  (1,767)
         
NET INCOME (LOSS) ATTRIBUTABLE TO DYNAVOX INC.  $ (14,120)  $ 651  $ (13,341)  $ 299
         
Weighted-average shares of Class A common stock outstanding:        
 Basic  10,642,642  9,375,000  10,354,917  9,375,000
         
 Diluted  10,642,642  9,375,000  10,354,917  9,375,000
         
Net income (loss) available to Class A common stock per share:        
 Basic  $ (1.33)  $ 0.07  $ (1.29)  $ 0.03
         
 Diluted  $ (1.33)  $ 0.07  $ (1.29)  $ 0.03
 
DYNAVOX INC. AND SUBSIDIARIES
     
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands)
     
     
  March 30, July 1,
  2012 2011
ASSETS    
CURRENT ASSETS:    
Cash and cash equivalents  $ 22,159  $ 12,171
Trade receivables - net   14,926  18,676
Other receivables  363  318
Inventories - net  5,052  4,876
Prepaid expenses and other current assets  922  1,298
Deferred taxes  733  669
     
Total current assets  44,155  38,008
     
PROPERTY AND EQUIPMENT - Net  3,553  5,517
GOODWILL AND INTANGIBLES - Net  27,907  90,695
DEFERRED TAXES  51,511  40,677
OTHER ASSETS   1,669  2,253
     
TOTAL ASSETS  $ 128,795  $ 177,150
     
LIABILITIES AND STOCKHOLDERS' EQUITY  
     
CURRENT LIABILITIES:    
Current portion of long-term debt  $ 450  $ --
Trade accounts payable  4,856  6,680
Other liabilities  8,160  9,459
     
Total current liabilities  13,466  16,139
     
LONG-TERM DEBT  35,750  36,200
OTHER LONG-TERM LIABILITIES  46,323  42,262
     
Total liabilities  95,539  94,601
     
STOCKHOLDERS' EQUITY  33,256  82,549
     
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY  $ 128,795  $ 177,150
 
DYNAVOX INC. AND SUBSIDIARIES
         
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
         
         
  Thirteen Weeks Ended Thirty-Nine Weeks Ended
  March 30, April 1, March 30, April 1,
  2012 2011 2012 2011
         
CASH FLOWS FROM OPERATING ACTIVITIES:        
Net cash provided by operating activities  $ 3,332  $ 5,220  $ 12,801  $ 3,652
         
CASH FLOWS FROM INVESTING ACTIVITIES:        
Net cash used in investing activities  (88)  (503)  (372)  (2,828)
         
CASH FLOWS FROM FINANCING ACTIVITIES:        
Net cash used in financing activities  (1,149)  (5,092)  (2,383)  (9,440)
EFFECT OF CURRENCY EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS  44  45  (58)  85
         
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS  2,139  (330)  9,988  (8,531)
CASH AND CASH EQUIVALENTS:        
Beginning of period  20,020  12,576  12,171  20,777
End of period  $ 22,159  $ 12,246  $ 22,159  $ 12,246
 
DYNAVOX INC. AND SUBSIDIARIES
         
ADJUSTED EBITDA
(Unaudited)
(Dollars in thousands)
         
         
  Thirteen Weeks Ended Thirty-Nine Weeks Ended
  March 30, April 1, March 30, April 1,
  2012 2011 2012 2011
Other Financial Data        
         
Adjusted EBITDA (1)  $ 5,038  $ 6,522  $ 13,741  $ 11,215
         
(1) Adjusted EBITDA represents income before income taxes, interest income, interest expense, impairment loss, depreciation and amortization and the other adjustments noted in the table below.
         
  Adjusted EBITDA Reconciliation
         
  Thirteen Weeks Ended Thirty-Nine Weeks Ended
  March 30, April 1, March 30, April 1,
  2012 2011 2012 2011
         
Income (loss) before income taxes  $ (59,189)  $ 3,132  $ (55,084)  $ 2,400
Depreciation  733  880  2,325  2,543
Amortization of certain intangibles  228  231  681  694
Interest income  (7)  (17)  (22)  (30)
Interest expense  574  668  1,716  2,014
Change in fair value and net loss on interest rate swap agreements  --  5  --  81
Other (income) expense, net (a)  (29)  24  (35)  225
Equity-based compensation  543  525  1,672  1,584
Employee severance and other costs  3  64  151  308
Acquisition costs (b)  --  (80)  --  161
Impairment loss  62,107  1,018  62,107  1,018
Other adjustments (c)  75  72  230  217
Adjusted EBITDA  $ 5,038  $ 6,522  $ 13,741  $ 11,215
(a) Excludes realized foreign currency gains or losses.
(b) Legal, accounting and other external costs related to the purchase of certain assets and liabilities of Blink-Twice Inc. and the purchase of Eye Response Technologies, Inc. including certain post-closing expenses which may be reimbursed to the Company at a later date under the terms of the applicable agreements.
(c) Includes certain amounts related to other taxes.
 
DYNAVOX INC. AND SUBSIDIARIES
         
ADJUSTED PRO FORMA NET INCOME
(Unaudited)
(Dollars in thousands, except share and per share amounts)
         
         
  Thirteen Weeks Ended Thirty-Nine Weeks Ended
  March 30, April 1, March 30, April 1,
  2012 2011 2012 2011
         
Net income (loss) attributable to DynaVox Inc.  $ (14,120)  $ 651  $ (13,341)  $ 299
         
Adjustments:        
 Net income (loss) attributable to the non-controlling interest  (37,821)  2,140  (35,129)  1,767
 Income tax benefit  (8,357)  (1,236)  (9,283)  (965)
 Impairment loss  62,107  1,018  62,107  1,018
Total adjustments  15,929  1,922  17,695  1,820
         
Adjusted pro forma net income  $ 1,809  $ 2,573  $ 4,354  $ 2,119
         
Pro forma shares outstanding - diluted  29,804,179  29,820,699  29,804,252  29,830,222
         
Adjusted pro forma net income per share - diluted  $ 0.06  $ 0.09  $ 0.15  $ 0.07
         
Adjusted pro forma net income, as defined by DynaVox, represents net income before non-controlling interests and after pro forma corporate income tax expense benefit applied at an assumed 38.0% rate, which includes a provision for U.S. federal income taxes, assumes the highest statutory rates apportioned to each state, local and/or foreign jurisdiction and assumes the full exchange of Holdings Units into Class A Common Stock as described below. Adjusted pro forma net income per share consists of adjusted pro forma net income, divided by the aggregate number of the Company's Class A Common Stock outstanding, assuming full exchange of Holdings Units of DynaVox Holdings into Class A Common Stock of DynaVox Inc. and giving effect to the dilutive impact, if any, of stock options and restricted stock awards.
         
The table above provides a reconciliation of net income to adjusted pro forma net income and adjusted pro forma net income per share.
CONTACT: News Media Contact:
         DynaVox
         Joanne Kaufmann
         Communications Manager
         (412) 222-7837
         
         Investor Contact:
         ICR, LLC
         Sherry Bertner
         Managing Director
         (646) 277-1247