Home Diagnostics Reports Fourth Quarter and Full Year 2008 Financial Results

Business Wire, March 03, 2009

FORT LAUDERDALE, Fla. -- Fourth Quarter and Recent Highlights

• Board appointed Joseph H. Capper President and CEO on February 23, 2009
• Total revenue of $29.5 million, an increase of 6.4% over prior year
• Net income of $1.7 million, or $0.09 per diluted share
• Expanded TRUEtrack distribution into all 3,600 Walmart pharmacies
• Launched private-label no-code meter with Liberty Medical
• Announced additional $5 million share repurchase program

Home Diagnostics, Inc. (Nasdaq: HDIX), a leading manufacturer and marketer of diabetes testing supplies, today announced financial results for the fourth quarter and full year ended December 31, 2008.

Total revenue for the fourth quarter was $29.5 million, an increase of 6.4% from $27.8 million in the fourth quarter of 2007. Retail channel sales were up 14.6%, driven by the continued nationwide launch of the new TRUEresult and TRUE2go blood glucose monitoring systems with Walgreens and Rite Aid. Retail channel results also benefitted from the nationwide roll out of TRUEtrack into all Walmart pharmacy stores. Mail service channel sales increased 5.6%, including the initial launch of the private label, no-coding blood glucose monitoring system with Liberty Medical. This was offset by lower sales to a customer due to an inventory build in the third quarter. Distribution channel sales increased 2.7% as a result of higher volume from certain national wholesale distribution customers. International sales increased 3.1% driven by continued success in Latin America and Australia, offset by lower sales in Germany. International sales faced a difficult comparison to the fourth quarter of 2007, which included strong sales in Germany from a distributor that increased purchases to meet their minimum volume commitment.

Gross profit for the fourth quarter of 2008 was $15.1 million, compared to $16.4 million in the fourth quarter of 2007. As a percentage of sales, gross margin decreased to 51.2% compared to 59.0% in the prior year period. The decreased gross profit margin was attributable primarily to the launch of the Company’s new TRUE2go and TRUEresult systems, which lowered the fourth quarter gross margin by 640 basis points. Other contributing factors were lower pricing primarily in the mail service channel and with certain durable medical equipment distribution customers driven by achievement of volume based pricing tiers.

Selling, general and administrative expenses were $12.5 million for the fourth quarter of 2008, compared with $11.7 million in the fourth quarter of 2007. The majority of the increase was due to higher sales and marketing expenses, including approximately $1.2 million of costs associated with the continued launch of the new products during the quarter.

Research and development expenses were $1.8 million for the fourth quarter of 2008, compared with $2.4 million in the fourth quarter of 2007. The decrease in research and development is primarily due to lower new product development costs following the launch of the TRUE2go and TRUEresult systems.

Operating income for the fourth quarter of 2008 was $0.8 million, compared to an operating loss of $1.2 million for the fourth quarter of 2007. The operating loss for the fourth quarter of 2007 included a litigation settlement expense of $3.5 million related to a patent infringement suit with Roche. Operating margin for the fourth quarter of 2008 was 2.8%, compared to a negative (4.4%) in the fourth quarter of 2007.

For the three-month period ended December 31, 2008, the Company reported net income of $1.7 million and diluted earnings per share of $0.09 based on weighted average shares outstanding of 18.3 million. Fourth quarter 2008 net income benefitted from a $0.6 million, or $0.03 per share, reduction in the Company’s tax provision reflecting reduced tax reserves following the expiration of tax statutes of limitation. Net income for the three-month period ended December 31, 2007 was $0.1 million or $0.01 per diluted share based on 19.6 million weighted average shares outstanding. Net income for the fourth quarter 2007 included a $3.5 million patent litigation settlement charge, or approximately $0.10 per share after income taxes.

Total revenue for the full year ended December 31, 2008 was $123.6 million, an increase of 6.9% from $115.6 million in the same period of 2007. Operating income for the full year 2008 and 2007 was $11.2 million. Net income for the year 2008 was $9.6 million, or $0.51 per diluted share, based on 18.8 million weighted average shares outstanding. Full year 2008 net income benefitted from a $1.5 million, or $0.08 per share, reduction in the Company’s tax provision related primarily to the resolution of IRS audits. Net income for the year ended December 31, 2007, was $9.6 million or $0.49 per diluted share based on 19.6 million weighted average shares outstanding. Net income for 2007 included a $3.1 million litigation settlement charge, net of recoveries, or approximately $0.09 per share after income taxes.