Moog Inc (MOG.B) 2004 Q1 法說會逐字稿

please stand by for Zevex conference call. Good day ladies and gentlemen and welcome to the first quarter 2004 Zevex earnings conference call. My name is Mike and I will be your conference coordinator today. At this time all participants are in a listen-only mode and we will be facilitate ago question and answer session towards the ends of this conference.At any time during call if you require assist tance please press star followed by zero and coordinator will be happy to assist you. I would like to turn the presentation over to your host of today's call, Genevieve Sanchez, Investor Relations Coordinator.Please proceed.

Thank you, Mike, good morning and thank you for participating in today's conference call. Joining me today are Chairman and Chief Executive Officer, Dave McNally, and Chief Financial Officer, Phil McStotts, to discuss our 2004 1st quarter financial results. Early this morning Zevex released financial results for the first quarter 2004. If you have not received the news release or if you'd like to be added to the company's fax and e-mail list please contact me at (801)264-1001, extension 203. Our recent news releases can be accessed via the Investor Relations section of our Web site, www.zevex.com. Also this conference call is available for replay.

The telephone number for the replay is (888)286-8010, the passcode number is 67418745. This information also appears in our conference call press release. Before we proceed it is my duty to inform that you comments made by management during this conference call will contain forward-looking statements that involve risks and uncertainties regarding the future results of Zevex International. Please prefer to the company's filings with the Securities and Exchange Commission including the company's Form 10(K) for the year ended December 31, 2003, and Form 10(Q) for the first quarter of 2004.

These filings identify specific risk factors that may cause actual results to differ materially from those described in forward-looking statements. Now I'd like to turn the call over to David McNally, our CEO. Dave.

Thank you, Genevieve.Good morning listeners and welcome to our first quarter 2004 conference call. I'm please to report that the results of last year's restructuring are already evident in our first quarter performance. Our net income of over $200,000 and six cents per fully diluted share represents our most profitable quarter in over two years. During the first quarter 2004 we have demonstrated that our applied technology and therapeutics division can operate profitably.

For those of you who may be new to the conference call, the two business that we have commit to do are the therapeutics division and the applied technology division. Our therapeutics division market's award winning clinical nutrition delivery devices, including intral feeding pumps, disposable sets and accessories. We are focused globally on the home healthcaremarket which due to the aging population and pressure on controlling healthcare costs, is the fastest growing market segment for clinical nutrition delivery provides. Our applied technology division develops and manufacturers medical device components and systems under private label for many of the world leading equipment manufacturers. Our core competencies include opto electronics, ultrasound and fluid delivery systems. We make surgical tools components and systems that improve the safety and effectiveness of cataract surgery, open heart surgery, colon resection, organ transplantation, dialysis, blood component harvesting and infusion therapies.

Overall, sales in our two business divisions grew by 5% during the first quarter over sales of these two divisions in the first quarter of 2003. Before I provide more insight into our sales performance and prospects, I'd like to turn the call over to Chief Financial Officer Phil McStotts who will provide detail on our financial results. Phil?

Thanks, David. Revenue for the first quarter 2004, is 6.2 million, compared to 5.9 million for the first quarter of 2003, a 5% increase. The comparison does not include revenue from the Physical Evaluation division which was sold on December 31, 2003. Revenue in first quarter of 2003 for the Physical Evaluation division was approximately $760,000. The increase in revenue over last year's first quarter when excluding the Physical Evaluation business, is largely due a 28% increase in our applied technology division revenue. Specifically surgical hand pieces and sensor revenue increased 29% and our medical systems revenue increased by approximately 900,000 for the quarter. These increases more than offset lower engineering revenue as certain programs have now moved from engineering to manufacturing.

Approximately 255,000 of applied technology system revenue growth was generated by the sale of products manufactured with the JTech Medical Industries, Physical Evaluation that was sold at year end under a stock purchase agreement. Within the therapeutics division IntraLite feeding pumps and disposable set revenue increased 7%. This growth only partially offset a 12% decrease in stationery disposable set revenue and 48% decrease in international intral pump revenue. Overall sales for the therapeutic division declined approximately 11% during the first quarter 2004; compared with the first quarter of 2003. For the the first qart -- for the first quarter 2004, the company had a net income of 208,781 compared with net income of 177,436 in the first quarter of 2003. Fully diluted earnings per share for the first quarter 2004 were six cents, compared to earnings per share of 5 cents for the first quarter of 2003. For the quarter, our applied technology products accounted for 52% of total revenue.

Therapeutics products accounted for approximately 48% of total revenue. Our gross profit as a percentage of revenue was approximately 37% for the first quarter 2004, compared to 42% for the first quarter of 2003. We attribute the decrease in gross profit percentage from the first quarter of 2004 to two primary factors: first, required deliveries under the stock purchase agreement from the sale of the JTech that included delivery of approximately $255,000 of product at little or no margin and second, tooling costs for a customer that were passed through at cost.

The 37% gross margin for the first quarter was 5% greater than that achieved for the year of 2003, when gross margin was 32%. We believe that this is an indication of the progress that we are making in margin expansion. As previously projected during the last quarter's conference call, we expect that gross profit will increased to 38 to 40% of gross revenue in 2004 and taking into consideration our anticipated product revenue mix, continued implementation of lean manufacturing processes and the reduction in depreciation expense from the stationery intral feeding pumps. Selling, general and administrative expenses decreased in the first quarter 2004 to 1,688,147, that's compared to 2,067,120 for the first quarter of 2003.

The decrease is primarily related to the reduction in sales and marketing salaries and expenses associated with the sale of the Physical Evaluation business. During the first quarter net income increased to 18% to 208,781, 3% of revenue for the first first quarter of 2004 compared to net income of 177,436, 3% of revenue in the first quarter to have thousand dollars three. Increase in net income during the first quarter of 2004 due to a decrease of approximately 44,000 in interest expense, from the company, that the company has reduced it's debt during the past year and the reversal of a deferred tax asset evaluation allowance. We have income tax expense of 3,615 in first quarter 2004, compared with an income tax expense of 81,921 in the first quarter of 2003. The decrease in tax expense in 2004 is due to the reversal as part of our deferred tax asset evaluation allowances in the first quarter.

We expect that we will be able to realize a portion of the deferred tax evaluation allowance related to net operating loss carriy forwards in 2004 there by resulting in a partial reversal of the related evaluation allowance. Working capital at March 31, 2004, was 6.2 million compared to 5.9 million at December 31, 2003, and 6.4 million at March 31, 2003. Since December 31, 2003, we've paid off approximately two million in debt. The outstanding balance of our funded debt at March 31, 2004, was 2,338,000, compared to 5,024,000 at March 31, 2003; a reduction of over 2.7 million, the ratio of current assets to current liabilities increased 4.02% at March 31, 2004, from 2.18 at March 31, 2003. Total stockholders equity was 13.1 million at March 31, 2004, compared to 2.9 million at December 31, 2003. Now I would like to turn the call back over to Dave.

Thank you, Phil. Our applied technology division produced its strongest sales quarter in over a year. Our ultrasonic components business includes surgical hands pieces for cataract surgery and numerous sensors to detect liquid levels and air bubbles in critical medical application. Our opto-electronic products include components used for blood oxygen sensing, blood collection and cell saving and chemistry analysis. This quarter, sales isn't these products areas grew 29% over the first quarter of 2003. Systems which we manufacture under private label include the Life Port Kidney Transport of Organ Recovery System, the SurgAssist computer mediated surgical system for power medical inventions and new system for one of the world's leading medical device companies.

Sales in this product area grew by $900,000 in the first quarter. Engineering sales declined by more than $700,000 as last year's first quarter sales included some extraordinary contract engineering service revenue associated with the development of the Life Port Kidney Transport. That production is now in production and continuing to enjoy acceptance in the transplantation community. The outlook for applied technology division is bright in each of our three major areas of focus: ultrasonics, opto-electronics and systems. This is based on the strength of our existing customers, some of which have been with us for sixteen years, combined with new products that our engineers have been developing for existing and new customers. Now I'd like to turn our attention to our therapeutics division. Once again our IntraLite product line grew during the first quarter of 2004. Sales increased in the U.S. by 7%.

We expect this business to remain strong this year, as we believe that the InteraLite remains a standard for accuracy and portability in intral nutrition delivery. Our stationery intral pump feeding pump and disposable set business declined by 12% compared to the first quarter of 2003. This business has been a challenge for to us compete in as the sales forces of our competitors significantly outnumber ours, and some of those competitors bundle pumps and disposable sets with foods.

Our strategy for turning this business around is to leverage our patented Lifeguard anti free flow technology and work with our distribution partners to reach the vast number of customer prospects. This quarter is the first indication that we are seeing some success in turning the business around as sales grew nearly 3% over those of the fourth quarter of 2003. Internationally intral feeding pump sales decreased by 48% during the first quarter of 2004 compared to a very strong first quarter of 2003. However sales actually increased by 47% over those of the fourth quarter of 2003. So we're starting to see an upturn in the international sales area.

We expect our international therapeutic sales to grow through the second half of the year. During this first quarter of 2004, we have demonstrating that our restructured company can operate profitably. We believe that our sales, general and administrative expenses are under control. Our objectives for the rest of this year are to expand margins and to grow sales in each of our business divisions. Now, operator, we'd like to open up the call to questions.

Thank you, sir. Ladies and gentlemen [Caller Instructions]. The first question comes from Don Littlewood with Littlewood Burke. Please go ahead.

Good morning, Dave.

Good morning, Don.

Good quarter. You look like you got the thing turned around.

Thank you. It's -- we still believe we can do better but it's a, it's a good positive direction for us.

A couple questions in the applied technology area. On the Life Port systems, Organ Recovery says it expects to sell 130 of the kidney transporter this year with revenues of about 2,300,000 to them. Is that in line with what you expect to be doing, that number of units?

Yes. That is consistent with what we are seeing on the order side.

Are the orders coming in at a higher rate than you expected or about where you anticipated?

They are actually ahead of forecast. We had actually forecasted a little more conservatively but they're seeing greater success and acceleration of adoption in the field.

Excellent. How about sales of disposable for that product? You -- you make a disposable [inaudible]?

Yes, we supply the disposals as well and, of course, with each systems that's placed, each time there is a transplantation that occurs a disposable set is used, so we would see that accelerating also.

Okay. What kind of progress is being made on developments of the next transporter? Are you working on the next one yet or?

And that's something I have to be careful with. We are in discussions with our friends at Organ Recovery Systems and have been doing some preliminary development work. They do have plans to move forward with pancrease, heart and liver transporters and we have been meeting with them very recently, as a matter of fact, to discuss those projects.

Very good. The blue chip company whose name you can't disclose, I think I understood to you say that $900,000 in sales on that product?

No, that was combined Don. That included that product but also included organ recovery systems and power medical interventions.

Okay.

Big pieces of that system business.

How is that product launch going, for the blue chip company?

It has been launched and the adoption in the medical community is positive. As soon as they allow to us we will put our a release. From their perspective they want to make sure they are fully up and running but it was indeed launched in the first quarter. Good, thank you, things look good. Thank you, Don, thank you for your support.

There are no other questions in cue at this time

I will be happy to wrap it up. From the results of this first quarter 2004 we've begun to demonstrate benefits of our focus on our applied technology and therapeutics division. From R&D to manufacturing our operation are focused on continuous quality and margin improvement and the evolution of our technology. Our newly expanded direct sales forces are capable and motivated to grow sales. In closing I'd like to stay that we are well-positioned for a much better year than 2003. We look forward to continuing these conference calls and keeping you apprised of our progress. Each of you that have not received them yet, you should be receiving our 2003 annual report and proxy within the coming week. Phil and I welcome you to join us in Salt Lake City for our annual meeting on the morning of the 24th. Thank you all for joining us this morning.

Ladies and gentlemen thank you for your participation on today's conference call. You may now disconnect.