Bio Rad Laboratories Inc (BIO) 2011 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the first quarter 2011 Bio-Rad Laboratories, Inc. earnings conference call. My name is Alicia and I will be your operator for today. (Operator Instructions). I would now like to turn the conference over to your host today, Mr. Ron Hutton, the Treasurer. Please proceed.

Thank you Alicia. Before we begin the call I'd like to caution everyone that we will be making forward-looking statements about management's goals, plans and expectations. Because our actual results may differ materially from these plans and expectations, I encourage you to review our filings with the SEC where we discuss in detail the risk factors in our business. The Company does not intend to update forward-looking statements made during the call today. With that I'd like to turn the call over to Christine Tsingos, Vice President and Chief Financial Officer.

Thanks, Ron. Good afternoon, everyone, and thank you for joining us. Today we are pleased to report quarterly net sales of $485.1 million, an increase of 6.8% on a reported basis versus the same period last year sales of $454 million. On an organic basis, excluding the effects of currency, year-over-year sales growth was in line with our annual guidance of 5%. During the quarter we had good growth across many of our key markets and product areas.

The reported gross margin for the first quarter was ahead of expectations at 57.2% compared to 56.2% last quarter, and 56.6% in the year ago period. The strong margin reflects a favorable product mix and improved manufacturing efficiencies, as well as a decrease in purchase accounting for acquired inventory related to the Biotest acquisition.

The noncash amortization expense recorded in cost of goods sold related to Biotest was $225,000 which compares with $2.1 million in the first quarter of last year. Additionally, we continued to include approximately $3.4 million of noncash expense and cost of goods sold related to the DiaMed acquisition.

SG&A expenses for the first quarter were $167.8 million or 34.6% of sales compared to $153.6 million or 33.8% of sales last year, and down approximately $9 million from the fourth quarter. Absolute spending is up year-over-year, primarily related to increased personnel, facilities, and ERP expenses, as well as some impact from the weaker dollar. The current quarter SG&A expense includes $2.9 million for amortization of intangibles related to the Biotest and DiaMed acquisitions.

Research and development expense in Q1 was 8.8% of sales or $42.7 million compared to $40 million spent in the first quarter of last year. Our target for R&D spending remains in the 9% to 10% of sales range as we continue to invest in new products and technologies.

The operating margin for the first quarter was in line with expectations at 13.8%. During the quarter, interest in other income was a net expense of $18.9 million compared to $13.4 million of expense in Q1 of last year. The increase in expense versus last year is largely related to the retirement of debt following our December 2010 refinancing. As we anticipated on our last earnings call, the quarter contained approximately $4 million of one-time cost associated with the retirement of our 2013 subordinated notes. Also during the quarter we incurred foreign exchange losses of $3 million related to higher costs of hedging, as well as some timing of payments.

The effective tax rate used during the first quarter was also higher than expected at 32%, primarily due to changes in foreign tax credit. As we stated on our last call, excluding any discreet items that may occur during the year, we expect the full year of effective tax rate to be in the 27% to 29% range. Net income attributable to Bio-Rad for the first quarter was $33 million, slightly lower than last year's $34.9 million, and primarily due to the higher tax rate and one-time bond retirement cost.

Diluted earnings per share for the quarter were $1.16. We estimate that the one-time bond retirement cost, coupled with the higher than usual effective tax rate negatively impacted earnings per share by approximately $0.17 cents. And of course, the higher than typical foreign exchange loss also negatively impacted earnings per share by several more cents.

Life Science reported sales increased 2% to $154.5 million. On a currency neutral basis, sales were essentially flat with last year. US sales of Life Science products during the quarter were strong compared to prior periods while sales outside the US, especially in Europe and Japan, were down versus the year ago period. We continue to have good year-over-year growth in our multiplexing and imaging product lines, as well as continued demand for our recently introduced automated cell counter, the TC10, and our new Precast Gel products. Overall segment profit for Life Science after the allocation of management and interest expense, decreased versus last year, a direct result of the slower than expected sales and corresponding pressure on margins.

Our Clinical Diagnostic segment posted another strong quarter with sales of $327.2 million, an increase of 9% on a reported basis when compared to last year. On a currency neutral basis, year-over-year sales grew 7.3% for the Diagnostics group. During the quarter, we experienced strong performance in our microbiology, quality control and blood typing product divisions. Sales of Biotest products also grew nicely compared to last year.

As has been our practice in the past, now that we have passed the one-year anniversary of our Biotest acquisition, we have integrated this business and will no longer break out those sales. On a geographic basis, Diagnostic sales in Asia-Pacific and Japan were especially strong in Q1, partially reflecting a sizable sale of our new IH 1,000 automated blood typing instrument to the Japanese Red Cross who will standardize on Bio-Rad blood typing products throughout their network. In addition, we continue to have solid sales growth and new instrument placement for our BioPlex 2200 system. Finally, Clinical Diagnostic segment profit remained strong at $48 million, an increase of more than 25%.

Moving to the balance sheet, as of March 31, total cash and short-term investments were $791 million. The decrease in cash balances versus the year-end reflects cash used to retire our 2013 bonds as well as payments typically associated with our first quarter. Despite this spending net cash generated from operations during the quarter was $19.8 million compared to $22.3 million in the year ago period and primarily reflective of an increase in taxes paid.

Net capital expenditures for the quarter were somewhat lower than expected at $17.8 million. Our full year expectation for CapEx remains in the $100 million to $110 million range as we continue to invest in ERP, e-commerce and facilities. And finally, depreciation and amortization for the quarter was $28.1 million.

Our outlook for 2011 remains relatively unchanged from the guidance we provided in February. That is for top line currency neutral organic growth, to be in the 5% range. While we are pleased with the strong performance of our Diagnostics group during the first quarter, some of this growth can be attributed to our Japanese Red Cross order, and thus we continue to expect full-year growth rates for Diagnostics to be in the mid single digits. At the same time the Life Science pipeline looks strong, and we believe sales growth should improve as we move through the year.

Also unchanged from our prior guidance, we continue to anticipate full year gross margins to be in the 56% to 56.5% range, and operating margins to be around 13% or 13.5% for the full year, including the impact of our ERP project. And now we are happy to take your questions. Alicia?

(Operator Instructions). Your first question comes from the line of Jon Wood from Jefferies. Please proceed.

Thanks. This Brandon Couillard, actually, in for Jon tonight. Christine, was there an incremental headwind from the Japan dislocation in the quarter in the Life Science business?

It's hard to really quantify that, but I imagine there's some in that.

Okay. Christine, was there any inventory step-up included in the cogs line this quarter?

No.

No inventory step-up, okay. Can you quantify the BioPlex placements in the period? I don't think I caught that.

We actually didn't put out a specific number, Brandon. You remember that we've talked about 5 to 10 placements a quarter being our goal, and Q1 was certainly within that outlook.

Now that we've established a good base for BioPlex, I don't think we're going to give specific instruments every quarter now for competitive reasons. We generally don't for any of our products, as you know. We chose to early on with BioPlex because it was a brand new technology, and we wanted you to be able to track our progress in establishing this new technology in labs around the world, but I think going forward for competitive reasons we probably won't disclose the exact units each quarter.

Okay. I'm not sure if John's there or not, but could you discuss the menu expansion plans for the BioPlex for this year and where we are in terms of number of tests or analytes on the system now?

Yes. This is John Goetz. We have one panel coming out this quarter, and I think we have another one for later in the year. I don't have the details in front of me of exactly how many analytes we have on the system, but to say -- let's see. Yes, okay. So, year-to-date we have 37 total assays on the system. And like I said, we have a couple more panels coming out later this year.

Thanks. And then lastly, on the Japan order, should we expect any incremental revenue contributions say in the second quarter from that order? And was that a competitive displacement?

Yes. The answer to that is, yes, to both of those questions. We should see an uptick on the reagent side of that business, and it was a displacement of a competitor, so it was all new business for us.

Great. Thank you.

Thanks.

Your next question comes from the line of Jeff Matthews from Ram Partners. Please proceed.

Hi. Thanks very much. Hello?

Hi, Jeff.

Hi. I promise I won't hang up this time. I may have gotten this wrong, but it sounds like Europe was a little softer than maybe the last time we talked about it last quarter. Is that true or not,and is it a regional issue?

Well, it's not certainly any better than what we've been seeing.

Norm, do you have any color?

Just Europe continues to be a tough market for us. I think on the Life Science side, it was actually down year-over-year, and certainly that business felt the impact of that. On the Diagnostics side while we still continue to grow, as many of these customers are long-term customers, the business is clearly feeling the impact of what's going on over there economically.

And I think last quarter you talked about the US feeling a little better. Do you still see that in play?

Yes, Yes. We had a good quarter on the Life Science side in the US. Brad can probably talk about it some more, but we're seeing some pretty good demand for our new product lineup,and same on the Diagnostics side.

Okay. And then in terms of the balance sheet, inventories were up year-over-year and quarter to quarter. Anything new and different there? Has there been any impact, or are you at all implementing the ERP, or when does that start?

Okay, so two separate questions. Yes, inventories are up a little bit year-over-year. Some of that is currency as we remeasure them. Some of it, frankly, is building inventory for demand that we have. As you know, in parts of our business, like quality controls, it's a fairly long lead time, and we've seen some pretty good orders coming our way in that business that we need to get ready for. I don't think we're concerned about the inventory levels in terms of our ability to manage it through the pipeline, through the year.

Okay.

And what was your second question?

The ERP. When does that process begin?

Oh, the ERP. The project continues to ramp up. There was obviously some spending in the quarter on the expense side, primarily as we build the team internally. We have not formally started the design phase. We're finalizing the contract with the vendor, etc, and that should really start to ramp up in the second quarter. That will be more capital spending, but we'll start to work on a global basis moving forward more rapidly with the project.

Okay, great. Thank you.

(Operator Instructions). Your next question is a follow-up question from the line of Jon Wood from Jefferies. Please proceed.

Thanks. Norm, would you care to comment on ;your sense of the M&A environment. How should we think about your capital deployment priorities for the year, and how would you characterize the current deal pipeline?

Well, the market continues to be pretty buoyant. I mean, obviously you've seen the kind of deals that have happened in the last six months. Some interesting pricing around some of those. We've got several things in the pipeline. As usual, you can never predict whether they are going to come to pass or not.

It seems like a relatively okay pipeline of things. It's not overwhelming, but it's not dry either. It's somewhere in between there.

Thanks. Maybe this one is better for John. Any chance you could quantify the number of instruments related to the Japan Red Cross order or the revenue contribution in the period? And then secondly, how would you characterize the general competitive environment in blood typing in the US? Are you still seeing good traction with Biotest in the US market?

Sure. So, Brandon, I don't think we're going to quantify the Red Cross sales specifically, except to say it was several million dollars, and they in fact bought IH 1000 instruments rather than reagent rented them. But I'll let John address the continued growth in that business.

Yes. On the US side of the business, we're continuing to have very good success placing platforms as a part of that Biotest acquisition there. I would just say that's a really nice buoyant part of our business.

Great. Thank you.

At this time you have no further questions.

Okay. Well, thank you, everyone, for joining us today. Good-bye.

Ladies and gentlemen, that concludes today conference. Thank you for your participation. You may now disconnect. Have a great day.