Cyberonics Reports Strong Revenue Growth and Profitability in Fiscal 2009 First Quarter

            Company Achieves Revenue Growth of 16% over Q1 FY 08



    HOUSTON, Aug. 21 /EMWNews/ -- Cyberonics, Inc. (Nasdaq:

CYBX) today announced results for the quarter ended July 25, 2008.



    Key quarterly highlights



    Results for the first quarter of fiscal 2009 compared to the first

quarter of fiscal 2008 include:






    -- Net sales of $33.7 million, a 16% increase from $29.1 million.

    -- Gross profit margin increased to 86% from 81%.

    -- Net income of $2.1 million compared with a net loss of $8.2 million.

    -- Earnings per diluted share of $0.08 cents compared with a loss of $0.31

       cents per share.

    -- Unit sales attributable to the epilepsy indication increased in the

       U.S. market by 12%.

    Net sales



    Worldwide net sales for the first quarter of fiscal 2009 were $33.7

million compared to $29.1 million in the comparable period of fiscal 2008,

representing an increase of 16%. Net product sales in the quarter

attributable to the epilepsy indication were $32.6 million, an increase of

$5.8 million, or 22%, over the first quarter of fiscal 2008, while net

sales attributable to the depression indication declined to $0.7 million

from $2.2 million in the same period in the prior year.



    U.S. net product sales attributable to the epilepsy indication

increased to $25.8 million, compared with $20.9 million in the comparable

period of fiscal 2008, an increase of $4.9 million, or 23%.



    International net sales increased by 19% in the first quarter of fiscal

2009 to $7.1 million, up from $6.0 million reported in the first quarter of

the prior fiscal year, due primarily to pricing improvements, a higher

proportion of sales through direct channels and the impact of foreign

currency movements.



    Net sales for the quarter included $0.4 million related to the license

fee of $9.5 million received during the third quarter of fiscal 2008.



    Gross profit



    The gross profit for the first quarter of fiscal 2009 represented 86%

of net sales compared to 81% in the first quarter of fiscal 2008. This

increase is primarily a result of higher production volumes and improved

efficiencies.



    Operating expenses



    Operating expenses were reduced by $5.3 million to $26.1 million for

the first quarter of fiscal 2009 from the $31.4 million recorded in the

comparable period of fiscal 2008 and increased by $1.1 million from $25.0

million in the fourth quarter of the recently completed fiscal year.

Expenses for the quarter ended July 25, 2008 included $2.6 million for

stock-based compensation, a reduction of $0.7 million from the comparable

period of fiscal 2008.



    Operating income



    For the third consecutive quarter, the company reported operating

income. During the first quarter of fiscal 2009, the company's operating

income was $2.8 million compared with an operating loss of $7.9 million in

the comparable period of fiscal 2008.



    Net income



    The company reported net income of $2.1 million, or $0.08 per diluted

share, for the first quarter, compared with a net loss of $8.2 million, or

$0.31 cents per share, in the first quarter of fiscal 2008.



    Balance sheet and cash flow



    Cash increased by $10.1 million to $101.1 million in the recently

completed quarter. This increase reflects positive operating cash flow of

$6.6 million and an additional $4.1 million resulting from the exercise of

stock options.



    Depression indication update



    The company previously announced an effort to identify a partner to

assist in the execution of the clinical plan developed for the depression

indication. Discussions with potential investors remain ongoing. Our

objective is to finalize the course of action by the end of calendar 2008.



    Results and objectives



    "Fiscal 2009 has begun on a positive note," commented Dan Moore,

Cyberonics' President and Chief Executive Officer. "The company again

recorded operating income, positive cash flow from operations and net

income. Our core U.S. epilepsy business showed continued growth, and our

international operations posted another good result, with revenues again

exceeding $7 million. Overall, our strong operational performance in the

first quarter resulted in revenues increasing by 16% over the prior year,

as well as significantly higher cash balances.



    "We continue to believe that both the U.S. and worldwide epilepsy

markets represent significant opportunities for the company to realize

consistent growth in both sales and earnings in the coming years," Mr.

Moore continued. "Specifically, we believe that continued corporate focus

on epilepsy, improved pricing, geographic expansion and an evolving

replacement cycle can together enable us to increase revenues in the medium

term. For the longer term, the Cyberonics team is dedicated to development

efforts to improve the efficacy of VNS Therapy(TM) for epilepsy, with

particular attention to research efforts around seizure detection and

stimulation parameters.



    "Indicative of our worldwide focus, we recently received regulatory

approval in China and appointed a distributor for that market.



    "Our recent announcement that Jeffrey Schwarz would be stepping down

from our Board, and that Joe Laptewicz has accepted a nomination to join

the Board is further evidence of the continuing transition of the company,"

stated Mr. Moore. "We thank Jeffrey for his important contributions to the

company's turnaround and look forward to leveraging Joe's significant

medical device and neuromodulation expertise as we continue to grow our

business."



    Mr. Moore concluded, "We are maintaining our longer term goals for our

epilepsy business, which include consistent annual volume growth in the

range of 10% to 20% and the achievement of an operating margin of 25% by

fiscal 2011. Further, our improved balance sheet provides us with the

flexibility to achieve sustained increases in shareholder value. The

management and staff of Cyberonics remain focused on executing our

strategic plan around epilepsy."



    Fiscal 2009 guidance



    Cyberonics is reiterating its previously provided net sales guidance of

$134 million to $138 million. Also, as previously stated, while the company

anticipates positive earnings in fiscal 2009, no specific earnings guidance

is being provided at this time as the long-term status of the depression

indication remains undecided and could potentially have a material impact

on net income.



    Additional details will be provided during the upcoming conference call

and in the accompanying presentation slides, as described below.



    Fiscal Year 2009 First Quarter Results Conference Call Instructions



    A conference call to discuss fiscal year 2009 first quarter results

will be held at 9:00 AM EDT on Thursday, August 21, 2008. To listen to the

conference call live by telephone dial 877-313-8035 (if dialing from within

the U.S.) or 706-679-4838 (if dialing from outside the U.S.). The

conference ID is 58333036; the leader is Dan Moore. Presentation slides

will be available on-line at http://www.cyberonics.com by 8:00 AM EDT on

Thursday, August 21, 2008. A replay of the conference call will be

available approximately two hours after the completion of the live call by

dialing 800-642-1687 (if dialing from within the U.S.) or 706-645-9291 (if

dialing outside the U.S.). The replay conference ID access code is

58333036. The replay will be available for one week on the above number,

and subsequently on the Company's website for a period of six months.

    About VNS Therapy(TM) and Cyberonics



    Cyberonics, Inc. (NASDAQ: CYBX) is a medical technology company with

core expertise in neuromodulation. The company developed and markets the

Vagus Nerve Stimulation (VNS) Therapy(TM) System, which is FDA-approved for

the treatments of epilepsy and depression. The VNS Therapy System uses a

surgically implanted medical device that delivers electrical pulsed signals

to the vagus nerve. Cyberonics markets the VNS Therapy System in selected

markets worldwide.



    Additional information on Cyberonics, Inc. and VNS Therapy(TM) is

available at http://www.cyberonics.com and http://www.vnstherapy.com.



    Safe harbor statement



    This press release contains forward-looking statements within the

meaning of Section 27A of the Securities Act of 1933, as amended and

Section 21E of the Securities Exchange Act of 1934, as amended. These

statements can be identified by the use of forward-looking terminology,

including "may," "believe," "will," "expect," "anticipate," "estimate,"

"plan," "intend," "forecast," or other similar words. Statements contained

in this press release are based on information presently available to us

and assumptions that we believe to be reasonable. We are not assuming any

duty to update this information if those facts change or if we no longer

believe the assumptions to be reasonable. Investors are cautioned that all

such statements involve risks and uncertainties, including without

limitation, statements concerning progress in identifying a financial

partner for the depression indication, consistent growth in our net sales

and earnings in the coming years, increasing our revenue through continued

focus on our epilepsy indication, improved pricing, geographic expansion,

and an evolving replacement cycle, improving the efficacy of VNS

Therapy(TM) for epilepsy, initiating and participating in research efforts

around seizure detection and stimulation parameters, consistent sales

volume growth of 10% to 20%, achievement of an operating margin of 25% by

fiscal 2011, sustained increases in shareholder value, fiscal 2009 net

sales of $134 million to $138 million, and positive earnings in fiscal

2009. Our actual results may differ materially. Important factors that may

cause actual results to differ include, but are not limited to: continued

market acceptance of VNS Therapy(TM) and sales of our product; the

development and satisfactory completion of clinical trials and/or market

test and/or regulatory approval of VNS Therapy(TM) for the treatment of

other indications; satisfactory completion of post-market studies required

by the U.S. Food and Drug Administration as a condition of approval for the

treatment-resistant depression indication; adverse changes in coverage or

reimbursement amounts by third-parties; intellectual property protection

and potential infringement claims; maintaining compliance with government

regulations and obtaining necessary government approvals for new

indications; product liability claims and potential litigation; reliance on

single suppliers and manufacturers for certain components; the accuracy of

management's estimates of future expenses and sales; the results of the

previously disclosed governmental inquiries; the potential identification

of material weaknesses in our internal controls over financial reporting;

risks and costs associated with such governmental inquiries and any

litigation relating thereto or to our stock option grants, procedures, and

practices (including the previously disclosed private litigation);

uncertainties associated with stockholder litigation; and other risks

detailed from time to time in our filings with the Securities and Exchange

Commission (SEC). For a detailed discussion of these and other cautionary

statements, please refer to our most recent filings with the SEC, including

our Annual Report on Form 10-K for the fiscal year ended April 25, 2008.






     Contact information

     Greg Browne, CFO

     Cyberonics, Inc.

     100 Cyberonics Blvd.

     Houston, TX 77058

     Main:  (281) 228-7262

     Fax:  (281) 218-9332

     [email protected]







                       CYBERONICS, INC. AND SUBSIDIARY



                     CONDENSED CONSOLIDATED BALANCE SHEET



                                         July 25, 2008          April 25, 2008

                                          (Unaudited)

                ASSETS

    Current Assets:

      Cash and cash equivalents          $101,148,816             $91,058,692

      Restricted cash                       1,000,000               1,000,000

      Accounts receivable, net             18,183,080              20,039,832

      Inventories                          12,392,718              12,829,710

      Other current assets                  2,415,291               2,108,185

        Total Current Assets              135,139,905             127,036,419

      Property and equipment,

       net and Other assets                 8,591,711               9,194,668

        Total Assets                     $143,731,616            $136,231,087



        LIABILITIES AND STOCKHOLDERS' DEFICIT



    Current Liabilities                    16,569,487              17,287,952



    Long-Term Liabilities                 133,792,948             134,166,440



    Stockholders' Deficit                  (6,630,819)            (15,223,305)

        Total Liabilities and

         Stockholders' Deficit           $143,731,616            $136,231,087







                       CYBERONICS, INC. AND SUBSIDIARY



                    CONSOLIDATED STATEMENTS OF OPERATIONS

                                 (Unaudited)



                                             For the Thirteen Weeks Ended



                                         July 25, 2008           July 27, 2007



    Net sales                             $33,731,858             $29,075,469

    Cost of sales                           4,816,762               5,551,767

      Gross Profit                         28,915,096              23,523,702

    Operating Expenses:

      Selling, general and

       administrative                      21,524,767              25,125,093

      Research and development              4,608,175               6,307,723



      Total Operating Expenses             26,132,942              31,432,816

      Income (loss) from Operations         2,782,154              (7,909,114)



    Interest income                           508,287               1,117,231

    Interest expense                       (1,161,650)             (1,397,207)

    Other income (expense), net                17,234                  42,566

    Income (loss) before

     income taxes                           2,146,025              (8,146,524)

    Income tax expense                         93,224                  16,939

      Net income (loss)                    $2,052,801             $(8,163,463)



    Basic income (loss) per share               $0.08                  $(0.31)

    Diluted income (loss) per share             $0.08                  $(0.31)



    Shares used in computing basic

     income (loss)  per share              26,420,783              26,353,718

    Shares used in computing

     diluted income (loss)

     per share                             26,799,038              26,353,718