Inotiv Inc (NOTV) 2011 Q4 法說會逐字稿

Welcome to the Bioanalytical Systems fourth-quarter results conference call. At this time all participants are in a listen only mode. Later we will conduct a question-and-answer session. (Operator Instructions). As a reminder, this conference is being recorded today, Tuesday, December 20, 2011.

Please note that except for historical statements, statements in this release may constitute forward-looking statements within the meaning of Section 21-E of the Securities Exchange Act of 1934. When used the words anticipate, believe, expects, intends, future, and other similar expressions identify forward-looking statements.

These forward-looking statements reflect management's current reviews with respect to future events and financial performances and are subject to risks and uncertainties, and actual results may differ materially from those outcomes contained in any forward-looking statements.

Factors that cause these forward-looking statements to differ from actual results, including delay in developments, marketing or sales of new products, and other risks and uncertainties discussed in the Company's periodic reports on Form 10-K and 10-Q and other filings with the Securities and Exchange Commission. Bioanalytical Systems undertakes no obligation to update or revise any forward-looking statements.

I would now like to turn the conference over to Mr. Anthony Chilton, Chief Executive Officer of Bioanalytical Systems. Please go ahead.

Thank you, good morning everyone and thank you for joining us today for the fourth-quarter earnings call for Bioanalytical Systems, Inc. -- Incorporated. I am Tony Chilton, the President and CEO, and I'm joined today by Michael Cox, our Chief Financial Officer.

Earlier today we released our earnings for the fourth fiscal quarter ended September 30, 2011. I would like to ask Mike now to review that information for you that in our release this morning. Mike.

Thank you, Tony. Good morning, and thank you for joining us come again. We are pleased to report a profit for the current year of $543,000 on revenues of $33.1 million compared to a loss of $2.7 million on revenues of $28.8 million last year. This equates to a non-GAAP earnings per share of 9% for the current year compared to a loss of $0.55 last year. For the non-GAAP earnings per share we remove the effect of the one-time dividends and deemed dividends on the preferred stock which we sold in May.

For the quarter our revenues were 10% over last year's, totaling $8.2 million compared to $7.4 million last year. However, we experienced a net loss of $668,000 or $0.10 per share compared to a loss of $279,000 or $0.06 per share last year.

In the fourth quarter we continued to invest in our sales and marketing effort, which we believe will help us address our future revenues. We spent on product development for new product releases we were planning in the second fiscal quarter of the current year, and we had higher G&A expenses primarily due to higher outside services and employee benefits.

As a result of the unit offering in May, in accordance with the accounting procedures we computed the fair value of the components of the offering, which required us to recognize a one-time non-cash dividend and deemed dividend on the preferred stock of $4.3 million in computing the earnings per loss per common share in accordance with GAAP.

As a result, we had a GAAP loss per share for the year of $0.66. Our cash flow for the year was good. We generated $1.1 million in cash from operations in the current year. Coupled with the unit offering closed in May, our balance sheet, working capital and debt-to-equity measures have all improved dramatically in the current year.

We have also acquired nearly $2 million's worth of state-of-the-art new laboratory equipment across all our lab sites. And we completed a building renovation at our toxicology facility which increases our flexibility and capacity.

We expect the first fiscal quarter of 2012 to continue to be impacted by our continuing investment in new sales and marketing efforts. Looking beyond the first quarter we expect revenue growth for the coming year to be in the high-single-digit range, and we expect overall improvement in our profitability for the year.

These details will be more fully discussed in our annual report on Form 10-K, which will be filed later this month.

Great. Thank you, Mike. We will now open up for any questions.

(Operator Instructions). Jay Kumar.

A quick question about yield. You guys were going to make about $1.4 million to $1.5 million in net for the year in your last conference call. But you guys made the revenue, but what happened to the bottom line?

The revenue, we were expecting actually a little better the revenue. We had a mix that didn't come in as strong as we had expected, giving us the gross margin improvement we wanted, and we did have higher than anticipated expenses in the fourth quarter.

Okay, but on the revenue side you are pretty much ballpark; on the net income side you're way off by $1 million.

Yes, that is how it worked out.

Is there -- something went wrong in terms of margins or -- I am trying to understand where did the things go wrong?

We did anticipate higher margins than we had in the current period, and we expected to have lower cost than what we had. We had some outside services and some employee benefits that went up that we had not anticipated, so that impacted our bottom line.

In terms of looking forward for 2012, what is your horizon? How does it look like?

Well, as I said, we expect that we will be able to grow our topline for the year in the high-single-digit range. And we expect to be able to improve our profitability above what we had for the current year.

I think that given the nature of the market out there now it is a bit tough out there. That accurately trying to project it, which we had trouble with the last quarter, we would like to stay in ranges and work with percentages on that.

What part of your businesses come from Europe?

It is a relatively small percentage. I think around 15% of our revenues in total. And that -- the European market has not responded as well as the US; the recovery is much slower there.

Okay, okay. Is there a way you guys are looking at buying back stock or improving the liquidity of stock? I know you guys -- we participated in the raise, but is there a way you can look at the liquidity of the stock, because it just trades 2,000 shares a day, you know?

We have been -- we instituted in May -- we instituted a new Investor Relations program and have been working to get our message out. It is still has not had the result of increasing our volume, but we will continue to work on that. We are presenting at conferences and trying to get the awareness of the Company to be better.

Do you guys foresee raising any more money going forward or you are pretty self-sufficient on the working capital?

Right now we don't. Our working capital is fine. It always depends on what we do in the future in terms of transactions as to whether we would need additional capital.

All right, thank you very much.

Jeffrey Cohen, Ladenburg Thalmann.

The timing of the quarter to be filed, do you have an idea on day?

The 29th it looks like.

Can you provide any commentary -- [Mike Bertoni], on the 8-K filed for Mike's status as far as CFO position end of this year or Q1?

I can't comment any more than, obviously, that was announced in the 8-K. It is my expectation that Michael -- Mike's agreement will be extended until the end of March at this point. So that is all I can comment on other than the -- what is out there in the 8-K.

Okay, and so for 2011 no specific guidance, but your estimation of high-single-digit growth.

Yes, that's right.

So that is on topline on an annual basis measured quarter-over-quarter or just annually?

We have -- the quarter-to-quarter there are so many things at our size that impact us that we know that the saw-tooth line that we have on a quarter-to-quarter basis one materially delayed contract with us can severely impact it. So we're very comfortable with projecting that on an annual basis. Quarter-to-quarter there may be some blips here and there.

Okay, so high-single-digits of the [$33.2 million] number?

Yes.

Yes.

Got it. Can you talk about any new product developments, any new product initiatives that are being worked on or anything that is new on the equipment side that we should expect to be seeing?

Yes, I can comment on that. On the instrument side we have developed a new electrochemistry instrument, which will replace our existing epsilon equipment. That is going to be released fairly soon. And we are currently working on a development of our Culex system to enhance some of the capabilities based on some customer feedback that we've had. So we're updating that and making it easier to work with with mice with that instrument.

And in the general comments as far as what you are seeing regarding some of the service work, backlog, demand, competition, pricing, just general macro statements?

While we are still -- it is a pretty competitive world is still out there. We have seen continued steady improvement in the market overall beginning in January of 2010. That continues, but it is not robust. So there is still a lot of competition on pricing. And there are a lot of bidders on just about all the work we see.

We were happy this year that we were able to add 25 new clients in this environment, which -- in addition to maintaining our existing clients. So we feel good about the business that is going to come from those new additions, but it is still quite a competitive world.

Okay, and so in the past quarter or two quarters generally speaking better, worse, same?

It -- in the last quarter it has probably been a little bit slower in terms of new bidding opportunities, but we are beginning to see those things turn around. There is some seasonality in our business, and certainly this particular time of year as our customers spend up their budgets and as they get their reauthorizations, we usually see a lot of new things flowing in at the first of the calendar year.

Just one more. Do you expect to have -- in the 8-K will there be any 10% plus customers that were defined during fiscal 2011?

I think we will have one. It is one we announced that we have a preferred provider agreement. That is Pharmasset, so that is already public. They will be a 10% customer.

Okay, perfect. Thanks very much.

[Doug Sculver], [Kingsbrook].

So on the Pharmasset pending acquisition of Gilead, is there anything there that could change? And then I had a follow-up on that on the work that you did, did it tease out any of the liver tox that they saw on the 938 compound?

And then I want to follow up on the 20 new clients and kind of look at what area of work are they going to be more focused on, and is it going to be utilizing your equipment that you just recently purchased? Thanks.

I don't think at this point with the conversations that we have had with our Pharmasset or ex-Pharmasset contacts that it is going to impact our existing arrangement with Gilead. In fact, we are hoping that it will be a positive move for us, because we do have pretty good relations with key folks in Gilead as well.

There has been a recent change in staffing in Gilead, so we are expecting that with the positive Pharmasset results that we've got, it should be a positive thing for us rather than a negative thing. But only time will tell. The dust is still settling where, I think. But we are keeping in close contact with the direct -- with the folks there.

I can't comment on what our information has held that has contributed to the Pharmasset program, I'm not in a position to explain that. I'm sorry, what was the third question?

So on the new -- so on the new CapEx on equipment will the new clients be utilizing those equipment? And what particular work are they interested in, in particular? And how do you see the new equipment that you have purchased driving growth?

Okay, thank you. The mass spectrometers that we invested in this year, the so-called 5500 series from SCIEX, that has proved to be a really good boost for us. In fact, we installed two in the UK, two QTRAP versions in the UK. And we have been able to attract some interesting inquiries as a result of that, which manifest themselves in the near future.

Interestingly enough we were approached -- the UK facility was approached through our website as being one of the few companies that had this particular instrument up to GLP standards, as a consequence that helped the customer decide to place the work there.

Typically what we are finding is that we are -- customers are coming to us now recognizing that we have this greater sensitivity. And it opens up opportunities for us in, for example, the inhaled compounds that are typically at very low circulating concentrations, and then we need the 5500 sensitivity for that. We have actually developed a couple of methods around that now, which are starting to get some interest from customers that we didn't have before.

Thanks. Just -- I'm to follow off-line later. Thank you.

Lenny Dunn, Freedom Investors Corporation.

I'm going to assume that the shortfall in earnings is due to the startup cost with new salespeople and getting them to get this pipeline filled the way it needs to be. Is that accurate?

Yes, yes, that is quite right. We made a decision to invest in the sales team in the US -- reconfigure the US team and add people to the instrument sales team in the US primarily. But our biggest investment on sales has been in the UK and Europe, where we were short of European business development activity through maternity leave and so on and so forth. So we now have three [BED] staff out there in Europe, plus one, which is dedicated to our Culex sales in Europe, which of late has not -- although we have had sales in Europe, I don't think we have really penetrated the market adequately, and I think there is a lot of opportunity there. So the individual there to focus on the European sales of the Culex I'm expecting to be successful next year.

When you say next year, you're referring to the quarter that (multiple speakers) January. Are you seeing some -- because we are well into -- the current quarter is almost completed, are you seeing some sales results that are going to show in the current quarter or the January quarter is when you would start seeing some of that?

In the January quarter.

Okay.

Thank you for clarifying that, Lenny.

I think that this is all going to work out well and we are comfortable with our investment, but obviously salespeople are what is needed here to develop business, and it does look like you're going in that direction. Now is the US sales team that you currently have in place satisfactory?

Yes, I am happy with the sales team. I think we have got a fairly mature group of people now who have got a lot of experience in the industry, has that a lot of contacts. And I am very comfortable with the group that we have.

We have also, actually as part of that investment, taken on a director for the marketing group as well. And our marketing approach now has really been a lot more aggressive and a lot more appropriate, I believe, to how BASi should be presenting itself to our customers.

You need to realize that there is a lifetime for anything for about three months when a new business development person starts, give them an opportunity to translate -- first of all to get familiar with the Company and to really start translating their ex-customers to BASi customers. So typically we don't expect them to be hitting their targets or starting to cruise, as it were, until two to three months in. So that is why I'm thinking around January time we should start to see improvements on the sales figures.

I know that in your history you developed from scratch and built a pretty decent sized CRO business in a previous job, so you do have the experience. But was that done with hiring new salespeople or maybe you could elaborate a little on that?

Well, it is -- in a startup situation like that you really have got to make sure that you have your processes and things in place within the organization, and there is a significant investment here in terms of a GLP overhead and quality assurance and so on.

But you have to continue to make investment in sales -- in sales and marketing; that is critical. If you're not getting your name out there and you're not in front of your customers, somebody else is going to be.

I agree completely. And this is a company that has a 35-year history at BASi of good science, but only mediocre sales. So I'm hoping that the sales end now can sell the good science that you do have.

Yes, yes. The trend has changed as well. At one time a while ago scientists could go and sell to another scientist in a customer company. That is changing a little bit. And where we do engage operational scientists to work with the business development people, it is very much now a business development person to a procurement -- selling to a procurement or a different kind of person, sometimes a nonscientist. So we have to make sure we are changing and adjusting to meet the needs of the customer here.

Okay, and then my last question would just be do you feel now that you have made an adequate investment in the sales end of the business so that we won't have the high SG&A going forward?

I think that G&A should stable -- this was an unusual quarter for us. We came in right about at our plan for the G&A for the year. And we will see a little increase in the coming year, but we have not budgeted dramatically.

Okay, good. Well, thank you very much. I will let somebody else ask questions.

(Operator Instructions). [Robert Bloumeiser], [Bloumeiser Asset Management].

This is Bob Bloumeiser. Just a few quick questions here. One is about the warrants that were issued as a result of the underwriting earlier in the year. I know some of those are due to expire, I think, in March. If they are not exercised does the Board have the option of extending those or do you intend to let them expire, or what is up?

The expiry on those is in May, which --.

May, okay.

Yes, the anniversary. At this point we have not considered extending those. That is a question that we can raise to the Board and perhaps talk with some of our advisors, but currently they are scheduled to expire.

Okay, then I have two more quick questions. One, is you mentioned higher than anticipated employee benefit expenses harming the earnings a little bit in the fourth quarter here. Is that something that was the result of an ongoing increase in expenses or something that was a one-off event, or how should we think about that?

We had two specific instances that drove our cost higher. We are self-insured in our health plans, and we have had very successful efforts in controlling those costs. We have actually reduced them over the past three years.

But we had a bad experience in the tail end of this year, so we had claims that were within our retained amount of insurance coverage that were higher than they had been in the prior three quarters. So that was one of the items contributing to it.

The other was in our compensated absences, our vacation accruals, I think probably because of the economic times our people didn't take as many vacations as normally, and we had some senior people in our Company that have been for a while so they get longer terms, so we had to beef up our accrual for those compensated absences of probably about $150,000 in the quarter. Those tend not to have to be paid very much, people will take them eventually but they didn't take them on a routine basis in the past year.

Okay. And my last question was just pertaining to this wellness clinic that you just recently opened. I guess part of what I was going to ask you just to address with the self-insurance aspect, but do you expect that to help shareholder value by keeping your costs down, was that the idea there?

There is a double pronged idea there. A., we expect to get a very nice return on our investment for that, because it will help us control costs. The two things where you really save on having your own clinic that are hard dollar costs is A., in the diagnostic procedures the clinic will control those, and so they can be -- some can be done in-house by the people manning the clinic, but then the outsourcing of diagnostic procedures typically drops way down. And also in the use of generic drugs the clinical will have its own pharmacy and there is quite a sizable savings from that.

The other things that we saw in it is that it should cut down on employee time away from work. We are not convenient to any health care clinics here, and so that to the extent that our employees can visit a clinic and get back to work that is helpful. It also is helpful that they don't put off visits that would impact their wellness.

We think that overall this stuff what we have heard thus far and the feedback we're getting is the employees view this as a valuable benefit. So it is a situation where we think we can provide employee value and also provide shareholder value.

We are also looking at -- there are other companies in the area here in the research -- in the Purdue Research Park that have expressed an interest. So to the extent that they join in this, that would help offset some of our costs on it and could be a bigger savings.

Great, thanks. That was it for me.

Tom Harenburg, M. Hennig.

Going back to this wellness center, first off, do you expect that will be a profit center for this current fiscal year?

We expect that for the current fiscal year it will be not too much a profit center, but a cost reduction center. That it will -- we were projecting to reduce our health care cost in the current year from that.

By how much?

I can't recall off the top of my head. The first year we had some costs that are going into construction. I think that it was going to reduce our cost, in single-digit numbers in year one. And then after the year one startup cost on it it was a more significant savings.

Let's go back to the sales team. The key here is you guys got to get revenue up to $40 million. And in doing it in single-digit growth is not -- it is going to take a month of Sundays to get us there. Tony, the salespeople that you hired, you hired a new sales -- a head of sales, approximately a year ago, if memory serves me correctly. Is that right?

That is right, yes.

Then you gone on -- and he brought on three additional salespeople that all were on board certainly in the first calendar quarter. So that means they had three quarters of hitting the road, beating the bushes in this past fiscal year, and yet our revenues were up rather miniscuely. Are these people on salary or are these people on commission?

It is a combination of both, and the commissions are orientated to generate, I think, 80% of their particular sales target. And that sales target [in totem] is obviously higher than the revenue target. So they are quite well-incentivized to not only just bring the revenue target, but also there has been -- within that plan there was a scheme to attract more new customers, because we felt that we needed to start to diversify our customer base a little more and expand it.

And that proved to be successful. As Mike mentioned earlier in the call, we were able to attract 25 new customers. Now bear in mind that as new customers they are not necessarily big dollar items. One or two of these customers were -- did some very early discovery work for us, which was down at Evansville, which were relatively small dollar amounts.

The object here is that those programs from discovery will move into the toxicology program, so we'll be able to generate revenue at a later date from that particular customer.

But I think those -- the three or four that Albert recruited were somewhat replacements. We substituted people out. And they are still working hard and being very -- pretty productive. I think it is the newer ones where we are seeing the little shortfall certainly for this last quarter.

So those are the new hirees in Europe?

Yes, yes and we have one more in the US for instrument sales.

Now I think the one bright spot in this bleak picture is the addition of the 25 new clients. But that tells me that your business with your existing clients had to deteriorate. Are you seeing that from big pharma or can you explain that a little bit?

We have seen a change in the large pharma work that we do. We do primarily bioanalytical work for large pharma companies. And we are finding that that particular market is -- although we've got good relationships with them, that market is becoming more challenging for us, the size we are.

The larger companies are tending to go to the larger CROs where both the clinical and the bioanalytical can be facilitated. So as pure bioanalytical sales it is challenging to try and maintain our levels there. That said, on the visits that we have done to the large pharma companies, the relationships are still strong.

And we tend to engage with these -- with particular programs, with particular molecules that move through. So as those molecules move through to the next stage or to commercialization, the work that we do tends to stop and then we go back and start on a new molecule and work through with them.

So that is typically how it works with the pharma -- the big pharmas. And of course, like I said, they are starting to look more closely at alliances with larger CROs, which has forced us to take a look at where our growth is -- or higher growth is going to be. And we anticipating that in the small, medium-sized company where there is not -- they're more comfortable working with CROs about our size.

The other key thing that is happening is that large pharma are looking to small, medium-sized companies for their R&D pipelines. And they're also being pretty cost effective in the way they're investing internally as well.

So we saw this as an opportunity to diverse our opportunity here and address the discovery programs with the smaller companies, helping them to generate a portfolio of information for their compounds that would be attractive to the large pharma for them to either be purchased or to end-license their compounds to keep their pipelines going.

The UK, is that -- are you projecting that is going to be breakeven in fiscal 2012?

We are projecting that it will be at a breakeven run rate by the end of the year, but not breakeven for the year.

How -- that has been a drag on this Company for some time. How significant is that? Are we better off to just try and somehow weasel out of that whole situation over there?

I don't think so. It has been a financial drain, but I believe that there is an opportunity for us in Europe. We have already -- we are starting to see -- one of the issues that we had certainly realized a couple of years ago is we weren't getting the business development exposure in Europe for one reason or another. And that is probably why we started to invest in some marketing activity there and also some -- increase our sales.

It is a relatively small group out there, about 20 odd people, so we have a reasonable capacity to do work, but like I said there wasn't the sales and marketing exposure to our European customers. And I think that the team so far out there have done a pretty good job in increasing that (technical difficulty) and we are anticipating a fairly steady flow of work coming in from January onwards. Which the investment in the equipment has also helped a lot and raised the profile and the potential capability from the customer's point of view.

I think the final thing I would like to address here is the total lack of shareholder ownership, not only by you and by Mike, but also by the Board. And I will just put you on notice that these directors that don't have a position as far as I'm concerned, they will not get my vote. You have got the Chairman of the Board, who has been on there for three years and doesn't own one stinking share of stock. That is pathetic. Hello?

Yes, I'm here.

I mean does that stun you? You guys -- this whole management team doesn't have to give a rat's ass about this Company's stock because they get paid whether the stock is up or down. There is just total no ownership here. It is unbelievable.

Well, you're right. Obviously, a good factual point there. I don't know what to say. I can't comment. It is what it is at the moment and we are aware of it, but it is --.

Well, you have got a lot of new shareholders that came on board with the offering, and I would hope that when they choose to vote their shares they take a look at this, because it is a total -- I mean, I had been in the securities business 47 years and I don't know that I ever saw a company that is more under-held by a management team and by a Board than this Company, quite frankly. And I think that my advice to them is either get some skin in the game or get off the pot and go to your academic, whatever they're going to do. That is all I have to say. Thanks.

You have no further questions at the moment.

Okay, thank you.

Okay, thanks very much for joining us this morning.

Thank you.

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

Thank you.