美國雅培 (ABT) 2003 Q1 法說會逐字稿

Good day, everyone, and welcome to TheraSense 's First Quarter 2003 Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. At that time, if you have a question, you will need to press "*" "1" on your touchtone telephone. Any reproduction of this call in whole or in part is not permitted without prior written authorization from TheraSense. As a reminder, this call is being recorded today, Wednesday, April 23rd 2003. I will now turn this conference call over to Mr. Mark Lortz, Chairman and CEO of TheraSense. Please go ahead, Mr. Lortz.

Thank you all for joining us. I'm joined today by Charlie Liamos, our Chief Operating Officer and Chief Financial Officer; and Mark Tatro, our Vice President of Finance. We're pleased to have the opportunity to review the advancing results for the first quarter of 2003. Prior to discussing our results, I need to advice you that during the course of this call, we may make certain forward-looking statements regarding future events or future financial performance of TheraSense. We caution you not to place undue reliance on such forward-looking statements. They're not guarantees of future performance and involve known and unknown risks and uncertainties, which may cause the actual results and performance to materially different from that expressed or implied by those forward-looking statements. A description of these risks can be found in our Form 10-K for the year ended December 31st 2002 and additional reports to be filed with the SEC. Information in this presentation concerning TheraSense's forecast or future periods represents this outlook only as of today's date, and we undertake no obligation to update or revise any forward-looking statement. In today's call, we'll be reviewing the highlights and achievements in Q1 2003. Well, we'll be also reviewing where we stand in terms of our positions within the glucose monitoring industry and given our 2003 Q2 guidance. First, let me give you an overview of the first quarter of 2003. Our quarterly revenues -- for the first quarter of 2003, we achieved the target of $40.9 million compared to $33.3 million in Q102, which represents a 23% increase, which is historically an industry-wide slow growth quarter; and we're very pleased with these results and being on target. Quarterly growth as compared to the industry -- as of the end of the February 2003, our IMS dollar market share which represents the actual dollars share in the market, TheraSense has grown 99% year-over-year compared to 6% annual growth for the US market in this category. Our quarterly gross profit for Q1 2003 was 28.1 million compared to 14.9 million in Q102, a 47% increase year-over-year. From an inventory standpoint, as far as our inventories in the channel, we accomplished our mission to drive down inventory in the channel as planned. We carefully monitored this for appropriate inventory stocking level of both the warehouse and shelf levels of stores. We measure this by using our expanded retail sales team as well as at the national and district and local levels. We also use a national retail services [indiscernible] for auditing these individual stores and monitoring our stocking and the shelf conditions at these poor levels. As we also mentioned, we are expanding our retail and specialized managed care sales teams as discussed in the last call, we've made great progress today. In our retail team, we have 80% of the new positions filled and we expect all those positions to be filled by the middle of May. On our managed care team, that is now fully staffed; and we're pleased with the high quality that we've been able to recruit to these positions. Our national TV advertising continues to be helping to introduce reach out to a new and broader audience of people with diabetes. International continues to grow as anticipated. At the end of March 2003, TheraSense was shipping to 37 countries outside the United States. Disetronic Injections Systems transition is progressing as per plan at this time. And we've made great strides in the Southeast Asia and Africa, but there are some other areas where we're seeing some softness such as the Middle East. We continue to work hard on the international front expanding further the boundaries we've reached out. We also continue to make progress with our pivotal trials for our Continuous Glucose Monitoring System. We'll be talking more about that in a moment or two. A new building expansion was completed, and we're very pleased we now have fully into our new building as of March. And this expansion includes a substantial additional amount for our manufacturing space for FreeStyle as well as for the scale-up of our Continuous Glucose Monitor; and we're very pleased again with the progress, and we would be talking about it more in a moment. To talk more specifically now, about out competitive market shares, as per recent quarters, we have several different parameters to evaluate and look at share growth. First of all, we'll discuss our national prescription audit data, which is the outbound to customer date who are on the prescription side or 90-day period ended March 31st. That data shows that TheraSense has had 8.5% leader market share, a 3.6% increase over Q103 -- excuse me -- for Q103 compared to Q102, a 74% increase year-over-year. More importantly, on the script side, the script share for that 90-day period is 5.9%, which is a 2.3% increase compared to Q1 2002 and 61% share increase year-over-year. [indiscernible] data that deals with the over-the-counter side of the market, the data from those page - four major drug changes representing 50% of the over-the-counter market. It shows again strong growth -- 7.2% total dollar category share and plus 2.8 points for Q103 compared to Q1 2002, a 62% increase year-over-year on over-the-counter side. And last but not least, the IMS retail provider perspective which shows the market share inbound interchannel for the 90-day rolling ended February 2003 shows FreeStyle to be the number four brand leader on the market based upon kit unit sales at 8.1%. That is plus 2.9 points versus a year ago, a 59 - 56% increase year-over-year and again makes us the number four brand leader in dollar sales. On the script side, we have a number five script share based upon units at 5%. That is 2.4% share increase and 87% increase in share year-over-year. This puts FreeStyle as a number one dollar share growth on the leader side for any SMDG company as of February 2003 at 9.5%. That's up 3.2 points and a 52% increase year-over-year. On the script side, we have number one dollar share growth on any SMDG product for our company as of February 2003 at 5.3%, again a 2.5-point increase versus a year ago and 92% increase on share growth year-over-year. From the sales and marketing end, managed care continues to be a top priority for us. We have improved penetration, and we're making good progress largely due to very strong product popularity with our patients, their demand and strong [indiscernible] their healthcare plans. We've seen our increase in market share give a strong appeal to these managed care organizations coupled with our cost of goods improvements allows us to be far more competitive in our pricing. We also now have a targeted sales team that is effective and on board, and we're also using co-pilot or web-based data management softwares to really help deal with population management on the web for these key accounts. And we're already seeing some very encouraging regional successes with managed care accounts, and we expect this momentum to continue with our managed care sales team now fully staffed. National TV advertising shows ongoing positive results. We're pleased with the successful sales impact at our TV end. We're also satisfied that compared to the cost in span of other media choices, this is the cost effective means for us to reach new FreeStyle customers. As always, we're most focused on winning and retaining our new customers. Some interesting diabetic statistics have also emerged since our last call. Several new studies have been published that underscored the growth and the threat of diabetes. In the March 2003, Diabetes Care magazine, a highly regarded periodical and medical review - preview journal wrote that in the United States diabetes is now the fifth leading cause of death. It is in total number of people diagnosed with diabetes is also now increased to 12.1 million, 1 million new cases of diabetes are diagnosed each year compared to 800,000 cases which were diagnosed back in 2000. Another alarming statistic is that the direct cost of treating diabetes and its complication in 2002 were estimated at $91.8 billion. Diabetes therefore, represents an enormous and evergoing portion of our total health care dollar spent. 18.5% of total medical expenses in United States in 2002 were incurred by patients of diabetes. The clinical focus on the benefit of better diabetes control through glucose monitoring continues as well. At an up coming periodic academic societies annual meeting in Seattle in May, a group of commission [ph] from the university of Florida will discussed predictors of metabolic control. A poster presentation, it's abstract relates that the frequency of blood glucose monitoring may be the key predictor of outcomes. This is a powerful study that shows that the frequency of blood glucose monitoring is a better predictor of diabetes control, an insulin type, insulin administration and other clinical treatment practices. And we focus now for a few moments on the international business development in the first quarter. Our international business continues to on track. As previously discussed, our partner Disetronic is selling their insulin pump business to Roche. Disetronic management will continue to operate in injection systems businesses, which include insulin pens, insulin needles, as well as, the FreeStyle distribution in 11-key European markets. Disetronic is committed to expand their sales force covering FreeStyle by about 50% and they are already in the process of higher additional sales force to meet this commitment. We believe that the sales mix of insulin pens, insulin needles, and FreeStyles supported by this expand in sales force effort is the good basis for continued market expansion in Europe. In Japan, the promotion result of our partner Nipro continued to be excellent. FreeStyle tested market share is about 5% in the Japanese market. This is a very strong result at approximately one-year of sales in that market and reflects the strong efforts of Nipro and the marketing partner Tesey [ph]. International results elsewhere are also good above that have been some slowing sales in some of the area, such as the Middle East for obvious reasons. And we are able to balance this, we sales from other markets, although, some of these markets came at slightly lower gross margins. In research and development, we have some important updates on our continuous monitor in response to increase however, from a number of new investors we'd like to take just a moment to use this opportunity to note the distinction between a Class II PMA submission what we are planning on here and a traditional 510K submission. In particular, a Class II PMA requires comprehensive proof of safety and efficacy, not the traditional substantial equivalence as were of 510K. There are no precedence for the Class II PMA submission for continuous glucose monitors that replace traditional in vitro testing as yet. We need to make a clear case to the FDA and an FDA appointed outside panel, we have strong, sufficient, compelling clinical trial data for replacement of traditional blood glucose monitoring with our continues in vitro sensor. As to our status, we have completed the rolling subjects. We are pleased to announce that all the subjects have been enrolled in our pivotal trial and data from the final participants will be available in the second quarter. We are currently compiling data from the pivotal trial and the million to data points, which must be fully analyzed for the PMA submission. We're continuing to target the second half of 2003 for the submission of the PMA for our continuous glucose monitoring system to the FDA. We should continue to work diligently and confidently towards that submission. The FDA with recommendations from outside panel of experts will be the final authority in the US market and the as such we want to relate [ph] speculating on any aspects of the FDA approval for our continuous monitoring system at this time. It is worth noting however, that recently the FDA has published data indicating that PMA approval timelines have extended somewhat due to the workload at FDA and somewhat reduced staff. That said, we do plan to publish some preliminary results of our study prior to our PMA submission. Specifically, we plan to have updates at the ADA Scientific Session in Verlance [ph] in June by a two-post recessions. The first will focus on the relationship between venous and subcutenous glucose concentrations, while the second will show preliminary clinical results in the continuous monitoring system study. Additionally in R&D, we have a number of new products that were -- are developing. We are continuing to enhance our FreeStyle in vitro product line, utilizing the FreeStyle coulometry based technology platform to provide more testing options to meet the needs of people with Diabetes. Some of these will expect a preview this summer at Diabetes professional meetings by the ADA scientific sessions and the AADE in August. A study showed best performance in the market under the broadest set of real life circumstances. We emphasize that our technology enables not only successful pain free testing under the broadest set of environment such as interfering substances, and the most test slides [ph] than any system offered. With our superior technology, patients get highly accurate data. An example of this three star technology is exhibited in a recently completed clinical study performed by long known diabetes clinic and many lots of test strips and many patients. This data has some 400 patients randomly selected and tested on a walk in basis over a period of twenty months with twenty different lots of test strips. When compared to a laboratory instrument unit's blood on the free style a CV of 2.8% with the coalition coefficient are of 0.992. This indicates that 3 star is an extremely accurate, a product and its accurate most laboratory instruments when testing with the same blood samples. Right now I'll handover the call over to Charlie for a review of our financial performance during the first quarter and our Q2 guidance.

Thanks Mark. I like to start with our income statements results for the first quarter, and compare that to the first quarter of 2002. As Mark stated total revenues increased year-over-year to $40.9 million. Our Q1 revenue level is down from the fourth quarter 2002 but in line with our expectations. About 25% of our revenues came from international markets. Cost of revenues increased only 4% year-over-year to 19.1 million, this demonstrates the significant leverage of our business model and our ability to reduce costs. Gross profit increased 47% year-over-year to 21.8 million. The resulting gross margin was 53% compared to our gross margin of 45% for the first quarter of 2002. This was driven by a more favorable product mix and cost reductions. Gross margins for the quarter were relatively flat with the proceeding quarter and slightly below our expectations because kit costs were higher than we'd anticipated in the quarter as we work through remaining inventories of higher cost components that are contract manufactured and the margin from Inert National sales was less than anticipated because of softer sales and expected by from our subsidiaries in the resulting cost of entering new markets. Turning to our operating expenses, research and development expenses increase 16% year-over-year to 5.2 million. This increase reflects the expenses associated with our pivotal clinical trial that Mark discussed earlier. Data from those final participates in the trial will be available in a second quarter but we will continue to conduct trial on an ongoing basis of the continued system. Looking at SG&A primarily due to our sales force expansion and the increase in advertising relating expenditures, selling general administrative expenses increased 15% year-over-year to 25.3 million. This represents a slight decrease from the fourth quarter. We had anticipated an increase driven by sales cost hires in the first quarter. These hires have taken slightly longer than we originally anticipated, as Mark mentioned that earlier were 80% complete our hiring for retail team and all over manage care positions are filled. We also saw the favorable reduction and cost by the determination of our contract sales, contracted in January. This all resulted in a net Loss for the quarter of 8.5 million or 21 cents per share compared to a net loss of 11 million or 28 cents a share for the first quarter of 2002. Now, I would like turn to our balance sheet at quarter end. We exited the quarter with cash and investments of 78.9 million. This balance was favorably impacted by the receipt of $15 million during the quarter pursuant to an amendment of Disetronic's distribution agreement. Accounts receivable were 40.2 million, day's sale of outstanding on an un-weighted basis increased to 88 days versus 71 days at end of the fourth quarter. Days sale outstanding on a weighted basis were slightly higher than 60 days. The un-weighted days sale outstanding increase is due to the order occurring later in the quarter. This was because the channel inventory levels held by wholesalers and retailer at the beginning of the quarter had marked it stepped earlier, were higher and we have made progress in reduce in those levels. Looking at TheraSense on hand inventories went down by 8% when compared to inventories at the end of the fourth quarter. We did not reduced out subsequent inventories, as must we have planned, so inventories did not come down as a rate that we originally anticipated. Deferred revenues for the quarter increased, as result of the $15 million payments from Disetronic. That payment is reflected in deferred revenues both the long and current year portion and that will - we'll be recognizing that payment over the remaining life of the contract on a quarterly basis. Now, I would like to turn to our performance guidance for 2003. We believe that revenues for 2003 will in the range of $210 million to $220 million. We believe that revenues for the second quarter of 2003 will be in the range of $47 million to $50 million. We expect to be profitable on a quarterly basis in the third quarter of this year. We have sufficient cash to fund our business from cash flow breakeven, which we anticipated, will occur in the fourth of this year. Now, that completes my financial review. Now, I would like to turn the call back over Mark.

Thank you very much Charlie. And I want to open this discussion now to take questions. But first again, let me thank you for all you support since our inception through our IPO and during the last year. We view ourselves as steward to your capital, and we very much appreciate your support and faith in us. With that, operator, I'd like to open up the questions.

Thank you. Ladies and gentlemen, at this time, if you have a question you will need to press "*" "1" on your touchtone phone. If your question has already been answered, you may remove yourself from the queue by pressing the "#" key. Also if you are using a speakerphone then please pick your handset before pressing the buttons. One movement, please, for the first question. Our first question comes from Scott Wilkin of SG Cowen.

Good evening. Thank you. Just had a question Mark, on the inventory levels as you currently seeing coming out of Q1 versus kind of -- what you typically see should -- you are back loading the guidance a little bit it sounds like at least from where our model is for Q2. Is that related to the - a new product coming out at ATA what sort of volumes we look for other than wholesalers is in Q2 if inventory levels were worked down significantly in Q1?

Well Scott, I think I've to say some input out analysis with that we've done we've made a very nice step forward in the first quarter and getting inventory levels at down to what we feel is more appropriate causing these wholesales, retails to do multiple buys throughout the quarter and then putting us a little bit at a less acceptable the kind -- of end of the quarter buying which is makes it hard for us to manage in -- also makes the industry a bit more prone to you are making that we'll prefer not to get involved in any kind of things. But, I would say we probably still have bit inventory levels in overall than our competitors low. We don't have specific data on that in the channel but, again we have such a high growth projectory that I'd expect that would be appropriate given that the free style volume continues to increase with pretty dramatic way and most of the inventory systems are backward looking. We are seeing as we've seen the last couple of months the MPA [ph] data particularly continued to increase at a very nice rate that continues to demand out of the stores in the sense and into customer hands and outputs lot of them, pull pressure on that channel and that what you saw we think is appropriately pulling the channel inventory levels down and again more focused on keeping the stock house minimalized and keeping inventory available at the store level. At this point it is not an anticipation of any particular product launch or anything this is just a -- normal inventory management in growth for this product in the US distribution channel.

Okay. So really just being little more cautious than on the inventory buying or as you will find that you're seen Q2 then what you are previously?

That's correct, I mean, we're continuing to try to manage the inventory such as again these major retailer and also our customers are buying adequately but and at multiple intervals throughout the quarter. And that kind of spreads up the demand a bit more evenly and makes our abilities to manage the inventories and manage production a lot easier for us to model them everything being kind of back loaded at the end of the quarter

Okay. And then perhaps that you're - since you're keeping the numbers for the year what drives the uptake in the second hand?

We continue to see increased demand for FreeStyle as reflected by the MPA data and OTC data as well. So, we -- we think that's continuing to move and as we mentioned we're seeing some early progress here in managed care accounts. We expect that to continue to grow. We really believe form all the data that we've seen that world, and only bring new people into the plans. We removed that co-pay difference. We also keep some of the turn down, if you will. People who have bought the product previously but couldn't afford to stay with it, perhaps, because of our higher differences in co-pay. So if we can even that thinks, we will, somewhat like giving on more of these formularies at a price asperity and it's on a cooperate basis then our customer intention to stay at a higher level and that also will continue to drive up our sales in US market.

Okay. So it's not driven by new product launched in any at more, just execution?

Mark Lortz. That's correct at this point of time. We do have at least one product. We expect to show at the summer shows as we mentioned. But at this point we are not expecting to that to be big revenue drivers for the year.

Okay. That's great. Thank you.

Once again if you would like to ask a question press the "*" key followed by the "1" key on your touchtone telephone. You may withdraw yourself from the queue by pressing the "#" key. Once again if ask a question press the "*" key followed by the "1" key on your touchtone telephone. Please standby for your next question. Our next question comes from John Deps [ph] of Budgetary Capital Management.

Thank you. A couple of questions following up on the first one. If you had said 49 million revenues in the second quarter adjusted to 90 for the first half and then the gap to the low end of your guidance. I guess, with the 120 an average of 60 million so say, you go, 55 or 65 or however you want to suggest it. Just seems like a pretty dramatic increase there with basing on new product revenue. So if you have any more thoughts on giving us some color on how you're going to achieve that. I would appreciate it, in different subject on the continues monitor, I think you lot of conferences this last quarter that you were enrolling, I guess was either 40 or 80 patients and it only was a 21-day process and lot of data to process. But, then you thought you would be filing in the third quarter. Is that still your intent or you changed that window to the second half of the year? Thank you.

Thanks for your question, John. First of all in the sales ramp, your mathematical modeling is obviously pretty correct and therefore there is going out to be a significant step as the guidance that Charlie gave reflected for Q2. Again, the big drivers for that are again as we have lowered we think significantly some of the inventory in that channel in the first half. Now, they are doing that to continue to order at a much higher and sustained rate in the second quarter and beyond, which we think is appropriate and that coupled with again the ever increasing demand for the product and continued penetration of managed care, which would get us on to a new level of our new customers, as well as, helps us sustain the older customers that are, maybe, paying a higher co-pay to use the product now. All those things, in together, continue to build that demand. We do think there is a possibility and again these products are not yet approved by FBA, that there may be some new product contribution before the year is out. But, again we are not counting on that as part of our numbers, we do expect that with the current velocity of FreeStyle's sales growth and the appropriate management of channel inventories and managed care that those three things are going to be able to achieve the numbers that we gave for the year and consistent at least in the ballpark range with the numbers you broke down by the quarter.

Can I just ask you there, do you have nay sense what the -- roughly 41 million revenues you've reported for this last quarter? What advantage if you are reporting on the basis of, actually, sales through at the retail level?

Now, precisely, I mean, again the reports that we gave are not comprehensive. There are many people who, like Wal-Mart for example, and many detrimental medical equipment suppliers who did not report that sell though data . So, would be a pretty significant estimation job to put that all together. We'll be happy to try to do that calculation, take it offline if you want to talk about that later. But, there is a couple of major pieces there that do not report through these third party services. On your second question, relative to continuous monitor you correction is correct. We've the 80 plus patients that are enrolled. We expect that to be complete here now as they are in their 21 day home-use trial and expect to have that wrapped up here basically by the end of next month if all goes as planned and we do expect that we will be able to submit that data late this summer and reason that we're giving ourselves a little latitude frankly on the precise submission date on that is that as we're looking at this city is the amount of data is in excess of 3 million date points. When you look at all the number of data points per day generated the number of patients times number the number of days and has a lot analysis has to be done and formatted on that information before we submit it and you know, we're now getting our hands round all of that and the time is going to take to put all that together in and submit in an appropriate form with the appropriate analysis and recommendations to the FDA [ph] and the important thing to get the product approved is ultimately is to make sure that we do a high quality job in the submission of that data and not just rush to get it in but - maybe you know, loose time in the long run because its not as clear and then it completely analysis as it should be. So, we're just trying to give ourselves the appropriate run on that job and or to do a high quality job of the submission process looking at this amount of data.

Okay. One another question now I guess change in the conference call. Comment on how light scan revenues head slowed down in the first quarter and I saw and now I know you talked about the market growing 15% annually roughly is there any possibility that the overall market where growth is going down.

For the first quarter it has historically been a little bit slower quarter in US market March, because many of their major retailers close their inventories and maximum the fiscal years and manage inventories accordingly. The US market I think is probably from best we can tell growing in some where in that 9 to 11% range and internationally expand somewhere in the 17-18% range which gives the overall market still pretty close to a 15% growth rate, but the US market is probably you know closer to the in the 10% level and international higher than 15, and giving us that aggregate. I don't see any particular indicators that that growth in US market is slowing down to say it's been at those levels for last few years as far as we can think.

Thank you,

Our next question comes from Kim Weeks [ph] of Thomas Weisel Partners.

Hi guys. I just have a couple of questions on the gross margin line. I think that you mentioned that the lower, you know, the margin seems - I guess a little bit lower than we had expected in our model and the reasons for that were mostly lower margins from some of your distributors and sales in various markets overseas. And I'm just wondering related to meter coupon program did, you know, with the redemption levels that you saw in the first quarter pretty consistent with for fourth quarter of '02.

Yes.

They are very pretty consistent. So, that's kind of - that's kind of - that's kind is going to work all this down.

The big two things Kim were as we transitioned to China we've also iterated our design of our system to reduce the component cost. And we had inventories of higher cost versions that we work through in the quarter that drove our cost per kit it up, slightly as well.

Okay. And are you - do you guys want to offer any guidance on the second quarter, what you expect, you know do you expect the same kinds of pressures on the margins in the second quarter or we may see little bit of sequential uptick as some of this work, you know, as you work through some of that inventory?

We should see a sequential uptick in the second quarter.

Okay. Great, Thanks.

Next we have a follow-up from Scott Wilkin of SG Cowen.

I think you hit just on the SG&A side could you update us on where you're in terms of number of reps, you said you're 80% on the retail side and fully staffed on the managed care side, I think you had 185, you said, last quarter, just give us the numbers?

Yes, we're about 200, Scott.

Okay. So the difference really you know the sequential down tick and [indiscernible]

And we have about - 4 or 5 more positions to go away with. We're pretty close, we're just trying to make sure we get the right quality of people. So, we're about 4,5 short from fully staffed.

So, the reason that with that add that you saw in the quarter, the reason that it came down little bit with the contract force?

Well, the contract force Scott that we terminated at the end of January.

Okay.

And we had actually anticipated that we'd bring everybody on early in the quarter and the timing of just getting on board, we were more aggressive than our -- what we anticipated we were higher in math than we actually have. They strong out throughout the quarter, so we got benefit of them are being here for the full 13 weeks from an expense perspective.

So, what should we think about your SG&A in the second quarter and as it goes through the year?

Sure, Mark Tatro. What we - the guidance we gave back last quarter was with the step up in Q1 and that would hold really constant on a go forward basis. We think that the Q2 numbers will be where we hold you that the at last quarter. It's just the timing issue and as the people are on board at the end of the first quarter and their cost structure will be built into the second quarter numbers and we still think that SG&A cost will be where, you know, we kind of had set at the year end call.

So what you have basically in your mouth [ph] from Q2 out we think is pretty appropriate. They get, in that sense, you know that we just didn't quite get it all ramped up but certainly it's with all we would in Q1.

That's correct.

Okay. And if I could just push a little more on the gross margin, you tried to talk about breakeven in Q3, what kind of gross margin is that assuming and this is the third quarter and well we didn't expect a 53 - help us picture what really drives the margin here?

Sure, the breakeven in Q3, the margin levels I talked about is getting to 60% gross margin so that's kind of the kind of a number that would get us to the breakeven in Q3.

Right. And what sort of improvements are you guys going to need to see, on the course to get their, also internationally you talked about some of these markets having a lot of margin, is that some of what we're going to see every quarter now that you're going to have to deal with?

It's not, I think so. I mean, let me come back to the first one on the cost issue. As Tatro mentioned, our crystal ball is in perfect on this, we have made a number of which are now in place and the lower cost components, and lower cost products in China. However rather take an obsolescence charge, we work through some of the higher cost ones that was still there in inventory and so that is now in place and so we know that's going to confirm here and be in the numbers that are going forward. Secondly, as you look at some of these international mix issues again as we initialize new countries. Many times again when we populate those new countries with lot of meters versus it stripes is the negative impact on the margins. But most of the major countries now with the additional ones we have added in this year, and continue to scale up some of the entries from the tail end of last year, that of course, I think is predominantly behind us. There are no extremely large markets that we anticipate entering into in a short term. Therefore, that mix effect, as we go into those should be minimized, going forward and should give us more stability and predictability.

Could you perhaps, may be just push a little bit more here, perhaps could you give us a margin that you exceeded the quarter at or that you're at as of the first part of April here so that we can get more comfortable in the uptick in the second quarter?

[indiscernible].

Sure. Where we're exiting in, at the end of the last month of the quarter again our exit rate was at little over 55% gross margins.

Okay.

So [indiscernible].

So it would be reasonable to assume that that's what it would be at given you booked through this inventory -- this lower cost inventory. Is that a reasonable rate you would expect for the second quarter?

Yes. And another thing I would say is that [indiscernible] impact for this contribution from the different channel for the business. Retail -- domestic retail business was down in the first quarter. And that's one of our higher margins channel. It was at -- goes back to a higher contribution percentage that are also favorably affected on our margin.

Okay. I didn't catch from you guys what the international breakdown was in total. I think you've said is around 24 to 25 years?

25%.

It was what, I'm sorry?

25% Scott.

Okay. Got it. Thank you. And that's it. I might get back in the queue here.

Thank you.

Since there are no further questions, Mr. Lortz, please continue with any closing remarks.

I would like to thank you all for joining us today and again we continue to appreciate your support. Looking forward to talking to you at the end of the second quarter. Thank you all very much.

We would like to thank you for joining our call today. We look forward to speaking with you on our next quarterly call.

End