ICU Medical Inc (ICUI) 2009 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the ICU Medical, Inc. first quarter 2009 earnings conference call. At this time all participants are in listen-only mode. We will be facilitating a question-and-answer session towards the end of today's conference. (Operator instructions). As a reminder, this call is being recorded for replay purposes. I would now like to turn the presentation over to your host for today's call, Mr. John Mills with ICR.

Good afternoon, everyone. Thank you for joining us today to review ICU Medical's financial results for the first quarter, ended March 31, 2009. On the call today representing ICU Medical is Dr. Lopez, Chairman and President; and Scott Lamb, Chief Financial Officer. We will start the call by reviewing key operating and financial achievements for the quarter, then Scott will discuss financial results. Dr. Lopez will wrap up the call with an update on the Company's revenue and earnings targets for fiscal 2009 and a discussion of current business trends. Then the Company will open the call for your questions.

Before we start, I want to touch upon any forward-looking statements made during the call. Please be aware they are based on the best available information to management and assumptions that management believe are reasonable. Such statements are not intended to be a representation of future results and are subject to risk and uncertainties. Future results may differ materially from management's current expectations. We refer all of you to the Company's SEC filings for more detailed information on the risks and uncertainties that have a direct bearing on operating results and performance and financial conditions.

With that said, I'll now turn the call to Dr. Lopez. Go ahead, Doc.

We are very pleased with the overall results for the first quarter. Our sales increased 22% to $54.3 million and net income increased 145% to $7.1 million or $0.47 per diluted share year-over-year. Gross margin improved 9 percentage points due to favorable product mix, absorption rates and favorable foreign exchange rates related to our factory in Mexico. Operating margins increased to 19.7% compared to 5.9% a year ago.

Our two core product lines, CLAVE and custom sets, increased 16% and 27%, respectively. Critical care also posted double-digit year growth of 21%. Our new products continued to rapidly gain market share around the world and grew almost 200% year-over-year and 6% on a sequential basis, contributing 9% to our top line during the quarter.

International sales were up 65% and were driven by continued success of our CLAVEs and Custom sets in Europe, Pacific Rim and Latin America. Our domestic distributor and drug sales increased 7% year-over-year. During the quarter we used our strong cash flow to invest in two major strategic initiatives, salesforce expansion and an improvement of manufacturing processes. To capitalize on our agreement with Premier and the expansion of our oncology product line, we added 19 professionals to our direct sales team in the first quarter.

Additionally, we continued to make investments in our production processes with the ultimate goal of further enhancing our product quality and cost structure. We began a significant initiative in this direction in our Mexico facility in '07 and our Salt Lake City facility in '08. This ongoing program is designed to increase our systems capabilities, improve manufacturing efficiency, reduce labor cost and time needed to produce an order and minimize investment in inventory. These include the use of automated assembly equipment for new and existing products and use of larger molds and molding machines.

We ended the first quarter with $142 million in cash, no debt and $19.8 million of cash flow from operating activities. Before I get into more details about our outlook for the remainder of the year, I will turn the call over to our CFO, Scott Lamb, to discuss the first-quarter results. Scott?

Thank you, Doc. Before I begin, let me remind all of you that the sales numbers we are covering as well as our financial statements are available on the investor portion of our website as well.

As Doc mentioned, our revenue for the first quarter of 2009 increased approximately 22% to $54.3 million compared to revenue of $44.7 million for the first quarter a year ago. Net income for the first quarter of 2009 increased 145% and totaled $7.1 million or $0.47 per diluted share compared to net income of $2.9 million or $0.20 per diluted share for the first quarter of 2008.

Now let me discuss our sales by product category. Sales from CLAVE represented 39% of our first-quarter total revenue and grew 16% from $18.3 million to $21.2 million year-over-year. As we have mentioned on our previous calls, we tend to have uneven quarters, and the best way to look at our Company is on an annual basis. We also do expect the recession will force some of our customers to better manage their inventory. Therefore, we do expect to see sales from CLAVE flatten out over the next few quarters but eventually benefit from our agreement with Premier towards the end of 2009.

We do continue to believe that this product line is well positioned to deliver mid to upper single-digit growth in the foreseeable future, however, with some choppiness over the next few quarters.

Excluding custom critical care, sales from critical care products grew 29% to $9.6 million compared to $7.4 million a year ago, marking the third consecutive quarter of improvement. As a percentage of total sales, non-custom critical care products contributed 18% to our total top line.

Even though we are pleased with recent results from our critical care products, we do expect a decrease in sales and volume for the foreseeable future, due to the implementation of Hospira's Project Fuel. Regarding Project Fuel, we don't expect this project to have the same significant effect on our other product sales to Hospira.

Custom sets, which include custom oncology, custom infusion and custom critical care, comprised of 35% of our total first-quarter revenue. Total sales from custom sets increased 27% to $19 million compared to $14.9 million for the same quarter a year ago. This robust growth was driven by custom oncology and custom infusion sets, which, when combined, increased 33%. Custom critical care posted a 1% year-over-year increase during the quarter.

Sales from new products, which include TEGO, Orbit and all oncology products, increased almost three times sales reported for the first quarter last year. New products including custom oncology represented about 9% of our total sales for the first quarter of 2009.

Our first-quarter sales by distribution channel were as follows. Sales to Hospira were up 21% to $34.8 million, primarily due to strong contributions from CLAVE, critical care and custom sets. However, as I already mentioned, CLAVE sales to Hospira should flatten out during the next few quarters, and critical care sales are expected to be lower. Sales by domestic distributors and our direct sales force grew 7% to $8.3 million year-over-year and were driven by custom sets and CLAVE.

International revenues increased 65% to $10.2 million as CLAVE and custom sets continued to gain momentum in Europe, the Pacific Rim and Latin America. First quarter 2009 international sales represented 19% of total sales compared to 14% in the same quarter a year ago.

Now let me review our key operating metrics. In the first quarter of 2009 our gross margins were 49% compared to 40% a year ago. The margin increase is primarily attributable to a favorable product mix, greater absorption of fixed manufacturing costs and favorable exchange rates associated with our factory in Mexico.

SG&A expenses totaled $15.1 million as compared with $13.1 million for the same quarter last year. This planned increase in SG&A was primarily attributable to our continuous investments in sales and marketing initiatives, higher compensation and benefit costs and higher legal patent costs. To capitalize on our contract with Premier and our new product opportunities, we added 19 new salespeople during the first quarter and plan on adding a few more during the current quarter.

Research and development expenses were $700,000 for the first quarter of 2009 compared to $2 million a year ago. The decrease was primarily attributable to our focus on core projects during the quarter and the elimination of development work on a device for detecting coronary artery disease. As product innovation remains one of our strategic goals, we will be increasing our investments in research and development initiatives in the second half of this year. We expect our R&D expense to be approximately 1% to 2% of total revenue for the full year.

Our operating income for the first quarter totaled $10.7 million compared to $2.6 million for the same quarter a year ago, primarily due to stronger sales and improved gross margins. Operating margins were 19.7% compared to 5.9% a year ago.

Now moving to our balance sheet and cash flow, as of March 31, 2009, our balance sheet remained very strong with approximately $142 million in cash, cash equivalents and investments securities. This equates to approximately $9.54 per share in cash and investments securities. We also have over $170 million in working capital.

Additionally, we generated $19.8 million in cash flow from operating activities. Our capital expenditures totaled $2.1 million during the first quarter.

Lastly, as of today we are down to only $7 million from $81 million in auction rate securities.

Now I would like to turn the call back over to Dr. Lopez.

As we discussed from the previous call and as evidenced by the first-quarter results, the current challenging economic environment has not had a meaningful impact on our business to date. However, through the end of the first quarter and for the first few weeks of the second quarter, a few of our customers have been taking a slightly more conservative stance on inventory levels and we are taking this into account with our 2009 guidance.

Based on the current demand for our products both domestically and internationally, we back our previously announced revenue targets for the full year 2009 to be in the range of $215 million to $225 million. We expect all but one of our product lines in 2009 to achieve growth over 2008.

On the operational front, we embarked upon two major initiatives which we believe will significantly strengthen our competitive advantages and enable us to increase value for our shareholders. Taking into account improved product mix and foreign exchange rates, we expect our gross margins to be in the range of 44% to 45% for the full year compared to the previously announced guidance of 43% to 44%.

An offset to this increase in gross margins is an increase in patent legal costs and a decrease in interest income due to lower interest rates. As a result, we are maintaining our diluted earnings per share guidance for the full fiscal year of 2009 of $1.58 to $1.70. For modeling purposes, we expect our full-year effective tax rate to be approximately 36%. We believe CapEx, including the additional investment in manufacturing, to be approximately $15 million in 2009. Our operating cash flow is expected to total approximately $35 million to $40 million this year.

In conclusion, I would like to say we are very pleased with our results and with our better-than-expected first-quarter results, and are optimistic about the remainder of the year. Now I would like to turn the meeting over to questions.

(Operator instructions) Mitra Ramgopal, Sidoti.

Again, that was just a tremendous gross margin number we saw there. I don't know if you can just help me a little in terms of understanding like how the different components might have helped, starting with, say, foreign exchange, for example.

Foreign exchange (inaudible). Foreign exchange added about $1.3 million to the bottom line. The majority of it was due to the increased sales and the effect on our margin.

The favorable product mix.

Moving over, 9% of our sales now are new products, and the new products are better-margin products. That shifted the equation over and that's -- how much did that add to the -- ?

Favorable product mix was about $2.5 million, and --

Currency is $1.3 million.

Currency was about $1.3 million.

The rest of that was all just increased [new] -- in volume.

And again, it seems obviously you really didn't see any impact on the recession.

We really didn't see any impact on recession, but we got a couple tipoffs early that some of the hospitals and maybe -- bringing their inventory levels down and such. So we've built that into our guidance, and as we considered that, we looked exactly where we are at, where they are at, and we built it into our guidance appropriately.

And it certainly seems the critical care business continues to improve. Are you concerned that -- as Hospira evaluates its options that, down the road, this could be something they might choose to discontinue?

Well, Hospira has been very active over the last year or so in selling this product line. And so we are hopeful and confident that they will continue to work well out there in the market, and that's the best we can hope for. The rest you will have to ask Hospira. You'll have to ask Hospira what their intentions are.

If you can give us an update on the Premier agreement and how that is progressing now that you've started it?

It's going very well. We've got quite a few trials and what not taking place at the moment, and in the second half of this year, probably later towards the second half of this year, is when we really expect to see some benefit from all the activity that's taking place right now.

And again, you don't have anything from Premier really built into your guidance?

There is some later, much later in the year, but not a whole -- in the fourth quarter -- that amount yes.

Yes.

And, I know you said you had 19 salespeople. What's the size of the sales force right now, and how much more do you really think you need to add?

It's over 100 now, domestic.

The new people, Mitra, were added to focus on oncology, focus on oncology and mainly new products.

(Operator instructions) Stephen Simpson, Northland Securities.

I noticed in the cash flow statement there was an item there for some business acquisitions. So I was wondering if you could talk about that.

And, second, regarding your sales for this quarter, I know you guys are trying to broaden your distribution beyond Hospira. Was any significant part of the revenue growth this quarter due to stocking orders or initial orders from distributors?

The flat answer to that second question is no. The first question --

The first question -- that was a real small acquisition that we made over in Europe, and that was to broaden our direct distribution in Europe, which is a major strategic initiative of ours.

There are no further questions at this time.

Thank you all for joining us for our first quarter results, and we'll see you next quarter.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a great day.