Vital Images Announces Second Quarter Results

Reports Cash and Investment Position of $141 Million, Positive Adjusted EBITDA and Certain Non-Cash Charges

• Press Release
• Source: Vital Images, Inc.
• On 6:00 pm EDT, Wednesday August 5, 2009

MINNEAPOLIS, Aug. 5, 2009 (GLOBE NEWSWIRE) -- Vital Images, Inc. (Nasdaq:VTAL - News), a leading provider of advanced visualization and analysis solutions, today reported financial results for the second quarter ended June 30, 2009. Second quarter revenue was $13.4 million, compared to $15.7 million for the second quarter of 2008. Second quarter net loss was $(19.6) million, or $(1.37) per diluted share, which included $18.1 million of non-cash charges representing $(1.27) per diluted share, compared to a net loss of $(1.6) million, or $(0.09) per diluted share, for the second quarter of 2008.

Related Quotes

Symbol	Price	Change
VTAL	12.31	-0.16

{"s" : "vtal","k" : "c10,l10,p20,t10","o" : "","j" : ""}

Second quarter adjusted EBITDA (a non-GAAP measure) was $520,000, compared to negative adjusted EBITDA of $(936,000) for the second quarter of 2008. Second quarter non-cash charges of $18.1 million consisted of a $15.0 million valuation allowance against the company's deferred tax assets and a $3.1 million write-off of capitalized costs relating to the unimplemented portion of the company's enterprise resource planning system due to continued cost-control efforts. The non-cash charges have no impact on Vital Images' cash flow or liquidity. The company generated $931,000 in cash flow from operations in the first six months of 2009.

Michael H. Carrel, Vital Images president and chief executive officer, said, "While the economic downturn continues to constrain hospital capital spending and, as a result, our revenue, we remain confident in our ability to remain cash flow positive and that our enterprise strategy of providing anywhere, anytime access to our industry-leading clinical software applications is the best way to serve patients, physicians and hospitals."

Carrel continued, "Given our resources, we are continuing to make strategic investments in research and development, services and improving market share while maintaining positive adjusted EBITDA in 2009. Once hospital spending rebounds, we will be in an excellent position to return to revenue and earnings growth."

 Financial Summary

                   For the Three Months Ended  For the Six Months Ended
                             June 30,                 June 30,
                   -------------------------- -------------------------
                       2009         2008         2009         2008
                    -----------  -----------  -----------  -----------
 Revenue:
  License fees      $ 4,565      $ 7,706      $10,559      $17,064
  Maintenance and
   services           8,371        7,811       16,932       15,345
  Hardware              439          190          672          615
                    -------      -------      -------      -------
   Total revenue    $13,375      $15,707      $28,163      $33,024
                    =======      =======      =======      =======

 Revenue by channel
  and as a percent
  of total revenue:
  Direct and other
   distributors     $ 5,826  44% $ 7,824  50% $12,381  44% $16,358  50%
  Toshiba             7,549  56    7,883  50   15,782  56   16,666  50
                    -----------  -----------  -----------  -----------
   Total revenue    $13,375 100% $15,707 100% $28,163 100% $33,024 100%
                    ===========  ===========  ===========  ===========

 Revenue by
  geography:
  United States     $ 8,995      $11,987      $18,679      $25,211
  Europe              2,352        1,921        5,015        3,960
  Asia and Pacific      795          924        2,143        1,949
  Other foreign       1,233          875        2,326        1,904
                    -------      -------      -------      -------
   Total revenue    $13,375      $15,707      $28,163      $33,024
                    =======      =======      =======      =======
 Export revenue as a
  percent of total
  revenue:               33%          24%          34%          24%

 * Cash and investments were $141.1 million as of June 30, 2009,
   compared to $144.9 million as of March 31, 2009. During the second
   quarter of 2009, the company repurchased 236,000 shares of its
   common stock for $2.5 million under its publicly announced share
   repurchase program. As of June 30, 2009, up to 618,000 shares
   remained to be purchased under the program.
 * As noted above, the company recorded $18.1 million of non-cash
   charges during the second quarter of 2009 which consisted of:
   -- A $15.0 million valuation allowance against the company's
      deferred tax assets. Accounting standards require, except in
      very limited circumstances, that a valuation allowance be
      established when there are cumulative losses in recent years.
      Therefore, the company established a valuation allowance
      against its deferred tax assets. The company may be able to
      utilize some if not all of the assets to reduce tax payments
      if pretax results improve in future periods.
   -- A $3.1 million write-off of capitalized costs relating to the
      unimplemented portion of the company's enterprise resource
      planning system due to continued cost-control efforts.
 * Operating Expenses Summary:
   -- Sales and marketing, research and development, and general and
      administrative expenses for the 2009 second quarter decreased 25
      percent to $11.9 million, compared to $15.8 million for the same
      period in 2008. The decrease was due primarily to the reduction
      in workforce in November 2008 and other cost-control measures.
   -- Sales and marketing expense was $6.0 million for the 2009 second
      quarter, compared to $8.1 million for the same period in 2008.
      The decrease was due primarily to lower compensation costs and
      reduced commission expense associated with a decrease in sales.
   -- Research and development expense was $3.2 million for the 2009
      second quarter, compared to $4.4 million for the same period in
      2008. Lower compensation costs and reduced utilization of
      consultants contributed to the expense decrease.
   -- General and administrative expense was $2.7 million for the
      second quarter of 2009, compared to $3.3 million for the same
      period in 2008, due primarily to lower compensation costs and
      other cost-control measures.

Non-GAAP Information

To supplement the company's condensed consolidated financial statements presented on a GAAP basis, Vital Images uses adjusted EBITDA (a non-GAAP measure), which is adjusted to exclude certain items to enhance the overall understanding of our past financial performance. These adjustments to GAAP results are made with the intent of providing both management and investors a more complete understanding of Vital Images' underlying operational results and trends and our marketplace performance. In addition, these non-GAAP results are among the information management uses to establish internal operating budgets, supplement the financial results and forecasts reported to the company's board of directors, determine a portion of bonus compensation for executive officers and certain other key employees, and evaluate short-term and long-term operating trends in the company's core operations. The presentation of this additional information is not meant to be considered in isolation or as a substitute for results prepared in accordance with GAAP and may not be computed the same as similarly titled measures used by other companies.

The following is a reconciliation from GAAP results to adjusted EBITDA:

                                   For the Three       For the Six
                                   Months Ended        Months Ended
                                     June 30,            June 30,
                                ------------------  ------------------
                                  2009      2008      2009      2008
                                --------  --------  --------  --------

 Adjusted EBITDA (in thousands):
  Operating loss                $ (4,959) $ (3,719) $ (5,912) $ (6,309)
  Equity-based compensation          982     1,310     1,974     2,542
  Depreciation and amortization
   of property and equipment       1,260     1,212     2,545     2,456
  Amortization of identified
   intangibles                        90       261       246       522
  Asset impairment                 3,147        --     3,147        --
                                --------  --------  --------  --------
 Adjusted EBITDA                $    520  $   (936) $  2,000  $   (789)
                                ========  ========  ========  ========

Conference Call and Webcast

Vital Images will host a live webcast of its second quarter earnings conference call, Thursday, August 6, 2009 at 10:30 a.m. CT. To access this webcast, go to the investors' portion of the company's Web site, www.vitalimages.com, and click on the webcast icon. If you wish to listen to an audio replay of the conference call, dial (888) 203-1112 and enter conference call ID #8443855. The audio replay will be available beginning at 2:00 p.m. CT on Thursday, August 6, 2009 through 5:00 p.m. CT on Thursday, August 20, 2009.

About Vital Images

Vital Images, Inc., headquartered in Minneapolis, is a leading provider of advanced visualization and analysis software solutions. The company's technology gives radiologists, cardiologists, oncologists and other medical specialists time-saving productivity and communications tools that can be accessed throughout the enterprise and via the Web for easy use in the day-to-day practice of medicine. For more information, visit www.vitalimages.com.

The Vital Images, Inc. logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=5843

Forward-Looking Statements

Except for the historical information contained herein, the matters discussed in this news release are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and are intended to enjoy the protection of the safe harbor for forward-looking statements provided by that Act. These statements involve risks and uncertainties which could cause results to differ materially from those projected, including but not limited to dependence on market growth, challenges associated with international expansion, the ability to predict product, customer and geographic sales mix, fluctuations in interest rates, regulatory approvals, the timely introduction, availability and acceptance of new products, the impact of competitive products and pricing, dependence on major customers, the ability to successfully manage operating costs, fluctuations in quarterly results, approval of products for reimbursement and the level of reimbursement, and other factors detailed from time to time in Vital Images' SEC reports, including its annual report on Form 10-K for the year ended December 31, 2008. Vital Images encourages you to consider all of these risks, uncertainties and other factors carefully in evaluating the forward-looking statements contained in this release. As a result of these matters, changes in facts, assumptions not being realized or other circumstances, the company's actual results may differ materially from the expected results discussed in the forward-looking statements contained in this release. The forward-looking statements made in this release are made only as of the date of this release, and, except as may be required by law, the company undertakes no obligation to update them to reflect subsequent events or circumstances.

Vital Images(r) and Vitrea(r) are registered trademarks of Vital Images, Inc. Vital Images disclaims any proprietary interest in the marks and names of others.

 Vital Images, Inc.
 Condensed Consolidated Statements of Operations
 (In thousands, except per share amounts)
 (Unaudited)

                                   For the Three        For the Six
                                   Months Ended         Months Ended
                                     June 30,             June 30,
                                ------------------  ------------------
                                  2009      2008      2009      2008
                                --------  --------  --------  --------

 Revenue:
  License fees                  $  4,565  $  7,706  $ 10,559  $ 17,064
  Maintenance and services         8,371     7,811    16,932    15,345
  Hardware                           439       190       672       615
                                --------  --------  --------  --------
   Total revenue                  13,375    15,707    28,163    33,024

 Cost of revenue:
  License fees                       558     1,011     1,528     2,164
  Maintenance and services         2,268     2,479     4,645     5,051
  Hardware                           424       111       633       306
                                --------  --------  --------  --------
   Total cost of revenue           3,250     3,601     6,806     7,521

   Gross profit                   10,125    12,106    21,357    25,503

 Operating expenses:
  Sales and marketing              6,040     8,117    11,995    16,168
  Research and development         3,184     4,378     6,445     8,663
  General and administrative       2,713     3,330     5,682     6,981
  Asset impairment                 3,147        --     3,147        --
                                --------  --------  --------  --------
   Total operating expenses       15,084    15,825    27,269    31,812

 Operating loss                   (4,959)   (3,719)   (5,912)   (6,309)

 Interest income                     330     1,159       760     2,844
                                --------  --------  --------  --------
 Loss before income taxes         (4,629)   (2,560)   (5,152)   (3,465)
 Provision (benefit) for income
  taxes                           14,992      (983)   14,720    (1,294)
                                --------  --------  --------  --------
 Net loss                       $(19,621) $ (1,577) $(19,872) $ (2,171)
                                ========  ========  ========  ========

 Net loss per share - basic and
  diluted                       $  (1.37) $  (0.09) $  (1.38) $  (0.13)
                                ========  ========  ========  ========

 Weighted average common shares
  outstanding - basic and
  diluted                         14,288    16,827    14,402    16,951
                                ========  ========  ========  ========


 Vital Images, Inc.
 Condensed Consolidated Balance Sheets
 (In thousands, except per share amounts)
 (Unaudited)

                                                    June 30,  Dec. 31,
                                                      2009      2008
                                                    --------  --------
 Assets
 Current assets:
  Cash and cash equivalents                         $110,106  $109,706
  Marketable securities                               14,117    37,287
  Accounts receivable, net                            11,369    13,047
  Deferred income taxes                                   --       654
  Prepaid expenses and other current assets            1,931     2,179
                                                    --------  --------
   Total current assets                              137,523   162,873
 Marketable securities                                16,879        --
 Property and equipment, net                           7,251    11,519
 Deferred income taxes                                    --    13,904
 Other intangible assets, net                            562       808
 Goodwill                                              9,089     9,089
                                                    --------  --------
   Total assets                                     $171,304  $198,193
                                                    ========  ========

 Liabilities and Stockholders' Equity
 Current liabilities:
  Accounts payable                                  $  2,364  $  3,792
  Accrued compensation                                 2,624     2,936
  Accrued royalties                                      419     1,057
  Other current liabilities                            2,405     1,947
  Deferred revenue                                    15,847    17,724
                                                    --------  --------
   Total current liabilities                          23,659    27,456
 Deferred revenue                                      1,131     1,164
 Deferred rent                                           676       882
                                                    --------  --------
   Total liabilities                                  25,466    29,502
                                                    --------  --------

 Stockholders' equity:
  Preferred stock: $0.01 par value; 5,000 shares
   authorized; none issued or outstanding                 --        --
  Common stock: $0.01 par value; 40,000 shares
   authorized; 14,259 issued and outstanding as of
   June 30, 2009; and 14,673 shares issued and
   outstanding as of December 31, 2008                   143       147
  Additional paid-in capital                         165,805   168,738
  Accumulated deficit                                (20,252)     (380)
  Accumulated other comprehensive income                 142       186
                                                    --------  --------
   Total stockholders' equity                        145,838   168,691
                                                    --------  --------
   Total liabilities and stockholders' equity       $171,304  $198,193
                                                    ========  ========


 Vital Images, Inc.
 Condensed Consolidated Statements of Cash Flows
 (In thousands)
 (Unaudited)

                                                    For the Six Months
                                                      Ended June 30,
                                                    ------------------
                                                      2009      2008
                                                    --------  --------
 Cash flows from operating activities:
  Net loss                                          $(19,872) $ (2,171)
  Adjustments to reconcile net loss to net cash
   provided by operating activities:
   Depreciation and amortization of property and
    equipment                                          2,545     2,456
   Amortization of identified intangibles                246       522
   Asset impairment                                    3,147        --
   Provision for doubtful accounts                        88       259
   Deferred income taxes                              14,664    (1,294)
   Excess tax benefit from stock transactions             --      (157)
   Amortization of discount and accretion of premium
    on marketable securities                             190      (428)
   Employee stock-based compensation                   1,974     2,542
   Amortization of deferred rent                        (196)     (186)
   Changes in operating assets and liabilities:
    Accounts receivable                                1,590     1,735
    Prepaid expenses and other assets                    248      (137)
    Accounts payable                                  (1,207)      111
    Accrued expenses and other liabilities              (576)      571
    Deferred revenue                                  (1,910)      801
                                                    --------  --------
     Net cash provided by operating activities           931     4,624
                                                    --------  --------

 Cash flows from investing activities:
  Purchases of property and equipment                 (1,645)   (2,792)
  Purchases of marketable securities                 (16,774)  (68,427)
  Proceeds from maturities of marketable securities   22,725    36,917
  Proceeds from sale of marketable securities             --     1,581
                                                    --------  --------
     Net cash provided by (used in) investing
      activities                                       4,306   (32,721)
                                                    --------  --------

 Cash flows from financing activities:
  Repurchases of common stock                         (5,757)  (13,309)
  Proceeds from sale of common stock under stock
   plans                                                 920       999
  Excess tax benefit from stock transactions              --       157
                                                    --------  --------
     Net cash used in financing activities            (4,837)  (12,153)
                                                    --------  --------

 Net increase (decrease) in cash and cash
  equivalents                                            400   (40,250)
 Cash and cash equivalents, beginning of period      109,706   146,685
                                                    --------  --------
 Cash and cash equivalents, end of period           $110,106  $106,435
                                                    ========  ========

Vital Images
Peter J. Goepfrich, Chief Financial Officer
(952) 487-9500
www.vitalimages.com

Padilla Speer Beardsley:
Nancy A. Johnson
(612) 455-1745
njohnson@psbpr.com
Marian Briggs
(612) 455-1742
mbriggs@psbpr.com