ZOLL Medical Corporation (ZOLL), has reported net sales of $89.4 million for the first quarter of fiscal 2009, down 4%, compared with the net sales of $93 million in the year-ago quarter. It has also reported net income of $2.8 million, or $0.14 per share, for the first quarter of fiscal 2009, compared with the net income of $3.1 million, or $0.15 per share, in the year-ago quarter.

Prior-year revenues included approximately $8 million related to a contract with the State of California which was not expected to reoccur. There was a negative foreign exchange impact on revenue of almost $3 million as compared to Q1 of 2008. Net income was $2,894,000 for the quarter, compared to $3,180,000 in the prior year. Diluted earnings per share were $0.14, compared to $0.15 in the prior year. Backlog at the end of the first quarter was approximately $8.3 million.

First quarter sales to the North American market were $65.7 million, a decrease of 7% compared to $70.9 million for the prior year period. Sales to the North American hospital market decreased 39% to $20.3 million, compared to $33.2 million for the same period last year. North American hospital revenues included US Military/Big Government sales of $5.6 million in Q1 of 2009 compared to $11 million (including the State of California) in Q1 of 2008. Sales to the North American pre-hospital market increased 20% to $39.1 million, compared to $32.5 million in the prior year. International sales increased 8% to $23.8 million, compared to $22.1 million last year. LifeVest® revenues increased 73% to $8.6 million. Total AutoPulse sales increased 68% to $4.5 million, compared to $2.7 million in the first quarter of last year.

Gross margin for Q1 was 52.4%, as compared to 48.5% in the prior year first quarter. As expected, the increase in gross margin was directly attributable to the absence of the low margin State of California revenue from the prior year.

Commenting on the first quarter, Richard A. Packer, chief executive officer of ZOLL, stated, “As anticipated, we needed to fight three major effects on this quarter’s business: the absence of any single transaction comparable in size to last year’s California contract; a strengthening of the US dollar; and an increasingly challenging capital equipment spending environment in North America. With these effects occurring in what has been traditionally ZOLL’s toughest quarter, we are pleased that our revenues held up well, and that our operating profit improved slightly.”

“As we had previously disclosed,” Packer continued, “we did not expect a deal comparable to last year’s big California shipment in the quarter. This cost us about 9% at the top line, but fortunately only a small amount at the bottom line due to that deal’s low gross margin. The negative impact of changes in foreign exchange rates was sizeable, particularly at the bottom line, but again in line with our previous discussions. Finally, we saw weakness related to spending constraints in a number of our markets, with the most acute effect showing this quarter in our North American hospital business. Toward the end of the quarter, hospitals seemed to curtail their capital spending as they paused to assess general economic conditions and plan for 2009. In addition, total AED sales grew only slightly, and were particularly slow in the NA market as commercial entities also tightened their spending. Offsetting some of this slowdown, international sales continued on track, additional Military business came through, and higher sales were achieved by both the AutoPulse and the LifeVest products.”

“With respect to those specific products,” Packer noted, “we are extremely pleased with the continued sales growth of the LifeVest product. Growth was slightly higher than projected and hopefully that trend will continue. We are focusing significant sales and marketing efforts to build this market. We added five additional salespeople during Q1 and will do likewise in Q2. As previously disclosed, the LifeVest is now covered by the three largest state Medicaid programs, California, New York and Texas, which combined represent a total of over 13 million covered lives. Looking forward, CMS, which reimburses a large portion of our LifeVest revenues, granted a 5% increase in Medicare payment rates for the LifeVest effective January 1st. The LifeVest is on track and performing well.”

Packer added, “AutoPulse sales were stronger than anticipated during Q1, with sales growth of 68%. Importantly, our progress here did not appear to be significantly affected by the tightening of capital spending, and was very strong in the NA EMS market. While we remain cautious on the outlook for spending in EMS, perhaps the uniqueness of the AutoPulse will dampen the effect of spending constraints.”

Packer concluded, “We continue to tighten discretionary spending throughout ZOLL, as we look to weather current economic conditions and the headwind from exchange rates. We remain confident we can accomplish this without compromising our investments in areas that will fuel our future growth. While we believe the current economic uncertainty will continue to have an impact on our business, our outlook for the year has not substantially changed. ”