Bio Rad Laboratories Inc (BIO) 2011 Q3 法說會逐字稿

Good day, ladies and gentlemen. Welcome to Q3 2011 Bio-Rad Laboratory's conference call. My name is Maurice, l will be the coordinator for today. At this time, of all the participants are in a listen-only mode. We will be facilitating a question and answer session towards the end of today's conference call. (Operator Instructions).

I will now turn the presentation over to your host for today's conference, Mr. Ron Hutton, Treasurer, please go ahead.

Thank you. Before we begin the call, I would 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 any forward-looking statements made during the call today.

With that, I would like to turn the call over to Christine Tsingos, Vice President and Chief Financial Officer.

Thanks Ron. Good afternoons everyone, and thank you for joining us. Today we are pleased to report quarterly net sales of $516.5 million, an increase of 9.5% versus the same period last year sales of $471.5 million. On a currency neutral basis sales increased just over 1% compared to last year. During the quarter we experienced strength in our quality controls and BioPlex 2200 product lines, as well as many of our life science product lines, most notably electrophoresis and imaging. This overall growth was tempered by continued weakness in Europe and certain emerging markets, especially for the diagnostics segment.

The gross margin for the quarter was higher than expected at 57.3%, compared to 56.2% last quarter, and 56.5% in the year ago period. And primarily the result of favorable product mix and selling margins, as well as good capacity utilization. The noncash purchase accounting expense recorded in cost of goods sold, related to the Biotest and DiaMed acquisitions was $4.1 million for the quarter.

SG&A expenses for the third quarter were $176.9 million, or 34.2% of sales, compared to $148.7 million, and 31.5% of sales last year. The current quarter SG&A spend includes approximately $12 million of additional expense due to currency translations, plus incremental costs associated with our ERP projects. Also recorded in SG&A is $3.3 million for amortization of intangibles related to the DiaMed and Biotest transactions.

Research & Development expense in Q3 was 8.8% of sales, or $45.4 million compared to $42.9 million last year. This increase is primarily related to our investment in new technology and platforms for the diagnostics market, including diabetes monitoring and blood typing. Going forward, we expect R&D expense to be in the 9% to 10% of sales range.

During the quarter, interest and other income was a net expense of $18.1 million. This compares to $16.9 million of net expense in the year ago period, and $10.4 million in the second quarter. The sizable increase versus last quarter is partially the result of higher currency losses, and hedging costs incurred during this particularly volatile period.

The tax rate used for the third quarter was better than expected at 18%, which compares to 22% last year. The lower than expected tax rate is primarily related to discrete benefits during the quarter, including the release of reserves for the closing of certain statute of limitations, lower tax rates related to royalty income and R&D credits in France, and US federal tax return true-ups. Excluding any future discrete items, we anticipate a tax rate in the range of 27% to 29%, for the fourth quarter.

Net income for the third quarter was $45.9 million, an increase of approximately 2% versus last year. Diluted earnings per share were $1.61. And looking at our segment, life science reported sales for the quarter increased nearly 12% compared to last year, to $171.5 million. On a currency neutral basis sales rose 5.1%. This growth was led by new electrophoresis and imaging products, as well as continued strength in our amplification and multiplexing consumables.

Geographically, the life science market continues to be somewhat challenging in the US and Europe, offset by solid growth in the emerging markets and Asia Pacific regions. Overall life science segment profit increased 10% to $12.5 million, primarily the result of improved gross margin. Our clinical diagnostic group posted sales of $341.3 million, a growth of 8.4% compared to last year. However on a currency neutral basis, diagnostic sales declined about 1%.

Sales during the quarter were tempered somewhat by a challenging economic environment in Europe, as well as the tough comparison to last year, when the third quarter included sales from tenders in emerging market countries that were either smaller this year, or did not repeat. Despite the decline in sales, clinical diagnostics segment profit for the quarter was flat with last year at $49.5 million.

Now for a quick review of the balance sheet. As of September 30th, total cash and short term investments were $910 million. We anticipate this balance to be lower in the fourth quarter, reflecting our recent acquisition of QuantaLife. Cash from operations during the quarter was $51.2 million, down both sequentially and versus last year, principally the result of higher taxes paid and slower collections. EBITDA remained strong at $98.5 million for the quarter, and more than $291 million year-to-date. Net capital expenditures for the quarter were $24.6 million. Our full year expectation for CapEx continues to be in the $100 million range, as we ramp up our global ERP project. Depreciation & Amortization for the quarter was relatively unchanged at $30.4 million.

And looking to the remainder of the year, we are pleased to report another solid quarter of operating results despite a challenging macro environment. At the beginning of the year, we guided currency neutral revenue growth of 5%. Given our year-to-date currency neutral growth of about 3.5%, and combined with the current economic challenges, especially in the European region, we now believe that the full year organic sales growth for 2011 will likely be in the 3.5%to 4% range.

As is typical with our historical pattern, the fourth quarter often reflects a sequentially lower gross margin, as the product mix shifts toward as higher percentage of instrument sales, as well as a lower operating margin reflecting higher SG&A expenses, which are typical of our year end. Even with that in mind, we continue to believe that our operating results will be within our original guidance given at the beginning of the year. And that is for full year gross margins to be in the 56% to 56.5% range, and operating margins to be between 13% and 13.5%. As has been our practice in prior years, we will share our thinking and outlook for 2012 in February during the fourth quarter earnings call.

And now we are happy to take your questions.

(Operator Instructions) The first question is from Jon Wood from Jefferies. Please go ahead.

Hey, thanks a lot. Can you hear me?

Yes, hi, Jon.

Hey. So for John Goetz if he is there, just can you try to give us some color into the tender-related impact in the diagnostic business? So if you were to kind of exclude more of the lumpy tender-related business, how did the diagnostic business do on an underlying basis?

Hi, Jon. This is John Goetz. Yes, that contributed to approximately 2 to 2.5 percentage points of growth that came off the table for the quarter.

So you pointed out BioPlex is solid, the control business is solid, so what came in below kind of trend line, to kind of contribute that lower single-digit revenue growth trajectory?

That was launched across our European region. But also into our emerging markets in the area of diabetes,as well as blood virus testing.

Okay, great. And then follow-up question for I guess it is probably Norman or Brad, anything you are willing to offer on QuantaLife next year? Obviously it is an emerging asset, with little to no revenue at this point, but any clarity you are willing to go into for 2012, in terms of revenue, or kind of operating impact? Operating loss impact would be great?If not I guess we will wait until next quarter, but anything, any preliminary view would be great.

John, this is Brad. We are just in the process of rolling this product out to the US, and sort of greater release at the end of the year for the rest of the world. Right now, we are just trying to make that assessment. So I really couldn't give you anything specific, but needless to say, we are working really hard to maximize this technology.

So Jon, certainly in our expectation for the full year, we have included the impact of QuantaLife, and as you rightfully point out, it is an operating drag as well as once we layer on top amortization of intangibles, it will be a bigger negative impact. But we with are only just now starting the valuation, and when we get to our next earnings call, we will have a greater detailed understanding of what that impact will be.

Okay. Very good, thank you.

Next question is from Paul Knight from CLSA. Go ahead.

Hi Christine, could you give geographical breakouts in terms of the growth? Can you quantify on the Asian side? The Emerging market side?

We typically do not give out our growth rates by region. Especially not to that level of detail on a quarterly basis. But as you can imagine, they continue to be higher than Company averages in terms of growth.

And your life science growth, can you talk specifically to the new electrophoresis products?

This is Brad. I will take that. Yes, we have launched a number of new products in our electrophoresis and imaging, including blotting product lines, that have been really well received in the marketplace. We have had a strong position, but over the last couple of years, we really refreshed those product lines, and again, we have been very happy with how the customer has been received them.

Are you seeing any impact from the sequencing activity that has been going on in the market? Is it that, or do you think it is just your products?

Well, I think in general, I think you are correct, that the sequencing has moved a lot in the area of protein expression analysis. People are starting to validate gene expression data, so certainly these new product lines and new work flows we have, that shrink the amount of time it takes and improve the information that we give our customers, has put us in a really good position on both fronts.

Was the tone pretty consistent through the quarter on the academic side?

On the academic side, certainly if you take Europe and North America, things are tight. I mean we certainly weren't susceptible to some of the big ticket aspects from the increases in funding that occurred last year and early this year. But in general, the business has been fairly stable for us. But that being said, it is still relatively low single-digit growth rates.

Yes. Okay. Thank you.

Next question is from Dan Leonard from Leerink Swann.

Hi, this is actually Julian in for Dan today. I wonder if you could comment further on your comments with regard to economic pressures specifically related to the diagnostics business? And also I guess it seems like the life science business was relatively strong for the second quarter in a row, so what I am wondering is, why would the life science business be shielded from some of the economic troubles? Is it due to your market positioning, or product mix, or something else? If you can just comment on that?

Yes, this is Norman. I think that the success in life science does seem to be more around the products, and kind of the direction that life science has taken with their products. Generally if you think about the economic situation around the world, well first of all, on the life science side, as Brad said, we didn't have as much of upside from stimulus, so I don't think we have quite as much of a tough compare. So between that and the new products, I think we have done pretty well in life science. But having said that, the economic situation in Europe continues, you have got southern Europe which has some financial problems, and I think we suffer a little bit from that. And so it kind of people being careful all around the world.

Okay. Okay. And then just another question with regard to QuantaLife. I know you said you aren't really ready to comment on sort of the operating impact, but could you provide at all your belief on the potential size of the market opportunity? Or is it too early for that as well?

I mean obviously if you look at the research amplification market today, it is, I don't know, probably $1 billion, a little over $1 billion, and you can imagine that, you can think of this being potentially a several hundred million dollars market.

Okay.

If there are no further questions at the moment. (Operator Instructions). There are no questions, I hand the conference back to you sir.

Okay.

Okay. Thank you everyone for your time today and joining us, and we look forward to seeing you soon. Bye.

Thank you. Ladies and gentlemen, this concludes your conference call for today, you may now disconnect. Thank you for joining us, have a very good day.