Inotiv Inc (NOTV) 2012 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the second-quarter fiscal year 2012 Bioanalytical Systems, Inc., earnings conference call. My name is Erica and I will be your coordinator for today. At this time all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of this conference. (Operator Instructions)

I would now like to turn the presentation over to your host for today's call, Mr. Tony Chilton, President and CEO. Please proceed.

Thank you. Thank you and good morning to everyone for joining us -- and thank you for joining us today as we discuss the BASi reported financial results for the second quarter and the first half of our fiscal year 2012.

With me today is our newly appointed Vice President and Chief Financial Officer, Jackie Lemke. Jackie joins our senior management team with over 20 years in financial leadership experience and has quickly and very effectively become a key contributor to the Company. Jackie will now present our financial results. Thank you, Jackie.

Thanks, Tony. Good morning, everyone and welcome. During the course of this discussion, we may make forward-looking statements or provide forward-looking information. All statements that address expectations or projections about the future are forward-looking statements. Some of these statements include words such as plans, expects, will, anticipates, believes, intends, and estimates. Although they reflect our current expectations, these statements are not guarantees of future performance but may be affected by risks and uncertainties, including those discussed in Item IA, Risk Factors, contained in our annual report on Form 10-K for the fiscal year ended September 30, 2011. The Company does not undertake to update any forward-looking statements as a result of future developments or new information.

Earlier today, BASi reported the fiscal 2012 second-quarter financial results. First, let's discuss the quarter.

Total revenue of $6,966,000 for quarter-two 2012 was 17.3% lower than quarter-one 2012 total revenue of $8,423,000. This represents an 18.1% drop in the services revenues due to decreases in both bioanalytical and toxicology services, partially offset by higher pharmaceutical analysis revenues.

Products revenues decreased 14.7%, due primarily to delayed installation of two Culex systems, resulting in revenue recognition in quarter three.

Operating losses for quarter-two 2012 were $1,884,000 or $0.27 per share, which included a pretax restructuring charge of $64,000, versus the same-quarter fiscal year 2011 operating income of $483,000 or $0.10 per share. The $64,000 restructuring charge represents charges incurred due to the consolidation of our laboratory in McMinnville, Oregon, into our headquarters facility in West Lafayette, Indiana, as previously announced last month.

This plan is being implemented to dramatically reduce operating costs in the bioanalytical business while continuing to strengthen our ability to meet clients' needs by improving laboratory utilization. The majority of the costs related to this restructuring will be recorded in the third fiscal quarter ending June 30, 2012. We continue to expect this laboratory restructuring program to reduce operating costs by $2 million annually.

Now let's move on to discuss the first-half financial performance. Total revenue of $14,482,000 for the six months ended March 31, 2012, was 12.3% lower than the total revenues of $16,513,000 reported for the first six months of fiscal-year 2011. This represents a 13.5% drop in the services revenue due to decreases in both bioanalytical and toxicology services, offset by a 78% increase in pharmaceutical analysis revenues. Products revenues declined 8.5%.

Net losses for the six months ended March 31, 2012, were $3,375,000 or $0.48 per share, which included a pretax restructuring charge of $64,000, as compared to net income of $793,000 for the six months of fiscal year 2011.

Net cash used by operating activities was $361,000 for the six months ended March 31, 2012, compared to cash provided by operating activities of $1,781,000 for the six months ended March 31, 2011. This decrease in net cash is primarily due to current operating losses as well as a net decrease in accounts receivable.

We do not believe that the above-mentioned financial results are indicative of the financial performance we expect from the Company. We continue to cultivate new clients within the CRO services and monitoring instruments businesses, and although experiencing a decline in demand for our services and products compared to the first six months of fiscal 2011, we believe in the fundamentals of the market and its rebound in future periods. That said, we are quickly improving our operational efficiencies and effectiveness through a reduced cost due to the exit of the Oregon lab and are planning to take a variety of steps to immediately reduce operating costs at both our West Lafayette and Evansville facilities.

We are estimated to reduce costs by $2 million annually due to the Oregon lab consolidation as well as an additional $2.5 million annually for the efforts in West Lafayette and Evansville. We have realigned leadership to prioritize both market-facing responsibilities and internal cost responsibilities.

We believe that BASi is well positioned with its customers for growth as market demand picks up for CRO services and monitoring instruments, and will right-size its cost structure to allow for profitability even at low points of the revenue cycle.

Thank you for your attention. We will now open up the phone lines for questions.

(Operator Instructions) Jeffrey Cohen, Ladenburg Thalmann.

Hi, thanks for taking my questions. I was wondering if you could discuss a little bit about some of the comments in the press release about the pharmacological service and instrument sales, up in April and May, as well as the appearance of the bottoming of the toxicology service side of the business.

Yes, thanks, Jeffrey. This is Tony Chilton. Yes, thank you for the question. We definitely have seen a flattening out of our toxicology sales, and this is consistent with what our competitors are also experiencing in this period.

I don't know whether you saw it; there has been a -- certainly Covance, who is one of our key competitors in this field, equally reported lower sales in January and February of the toxicology programs. They put a result if -- the consequences of that are being basically delayed signing of contracts.

This is just what we have been experiencing. Our quote activity, as it were, has been consistent or a little bit higher than we have enjoyed in previous years in the toxicology programs. As you know, seasonally we typically expect our tox work to be signed off and usually coming in, in the second quarter.

We have had a higher than usual quotation rate but a much, much slower acceptance rate. There are a number of reasons that have been discussed, as I am sure you are aware, Jeffrey, of what may have been contributing to this. But nevertheless, this seems to be a business-wide phenomenon at the moment and not just anything specific to BASi.

On the pharmacological services and instrument sales, we saw those were up for April and early May so far. So we are starting to see an upturn in certainly the bioanalytical quote acceptance as well as our pharmaceutical analysis.

What is also interesting is that our Culex sales and our instrument sales have increased over the last -- over the equipment year -- over the equipment quarter from last year. This is -- these sales are typically -- run an annual cycle, so we are seeing increases there.

So I think what we're -- taking a step back, generally speaking we are seeing a high quote activity. We are starting to see acceptance coming back, acceptance of those quotes, the positive trend coming back for bioanalytical and pharmaceutical and instrument sales. But we are still subject to the market issues around the preclinical commitment at the moment.

Okay. In your comments, you expect to book a $450,000 charge associated with these actions in the current quarter. You mean in Q3?

Yes, that should have been clearer, it's in Q3.

Okay. Then on the cost saving side, so the total of the $4.5 million on an annual basis, is that right? That's going to come mainly out of the service side?

No, no. The $2 million is the service side, yes. It's the consolidation of the Oregon site. The other $2.5 million is more SG&A across-the-board, discretionary spend. It is across-the-board.

Okay. Could you run me through, what is the current employee count at the Company currently?

I believe it is 210.

Yes.

210? Okay, and one more question if I may. The delay with the delivery of the two Culex units from Q2 into Q3, presumably --

Yes.

Yes.

Represents about how much?

It will be revenue of about $200,000 plus.

Perfect. Thanks for taking my questions.

Jay Kumar, Midsouth.

Hey, guys. Question is your SG&A costs keep going up but your revenues keep going down. I just fail to understand why.

Well, in answering Jeff's question earlier, it was kind of indicative of what is happening on the revenue side of things in terms of our sales. Certainly towards the end of last year, we made some investment in our sales and marketing team as well as investing in some new skill sets that we needed within the sales -- within the services side of the Company, which would have been positioning ourselves for the new discovery activity that we are moving into.

There was some significant investment last year in our Evansville site in terms of the property there, and also in one of the buildings we did some renovations there. So, we felt that the investments at the time were consistent with our longer-term strategy. We really, as we have said before, really needed to try and bring this back to a level of support that we needed to be.

In particular, the instruments that we invested in, the mass spectrometer, we invested in those in the three bioanalytical sites which really brought up our situation to equipment to our customer base.

We also had some one-time costs in our numbers that will not recur. So we had the one-time costs like some severance, CFO severance, for example.

We had some increased medical claims that we are hoping to offset with the opening of the WeCare Center. And we have some increases which may not be one-time in terms of discretionary spend, but we will start to control, put more controls in place to make sure that we are not driving up spend unnecessarily.

Okay. So do you guys have any forecast or any internal plan of what sort of growth on top line is going to be going forward for the next half of the year?

What type of --? I'm sorry, I missed that; what type of growth?

Your top line from here going forward, how do you see your revenue growth compared to what you did last year in the same second half of the year?

No, I don't think so. I think we can reiterate that we think that tox is flat, not growing very much, based on the market and based on our experience. Pharma is, for us, doing well and ticking up. And bioanalytical sales we are working hard, and I think we have been able to keep the customers that we had an Oregon from the closure of the lab. So we will be improving our gross profit margin in terms of sales growth probably flat to slightly up.

In our products business, we do see that that will continue to grow.

So you think this year you're not going to be profitable, but (multiple speakers)

No, didn't say that. I can't tell you where my operating profits are going to be. I thought you asked about revenue.

So for operating profits, we can't commit to a bottom-line number at this point because we are still working through everything -- or I am. I have been here a week -- a month.

But we are going to turn it around. You're not going to see the six months that you just saw. You will not see them again.

Okay. Finally, last question, do you need to raise any money? Because I hear you are running low on cash. Are you guys looking to raise money, or are you just going to use a line of credit?

Right now our priority is the mortgage coming due in November. We have our line of credit. We have the mortgage coming due in November and we are working on our options for that.

Okay, because do you foresee yourself going out and raising any capital in the markets?

No.

Okay, all right. Thank you.

(Operator Instructions) Lenny Dunn, Freedom Investors Corp.

Good morning and, Jackie, wanted to welcome you on board and also wanted to tell you that we are very substantial shareholders. We haven't spoken before, but we would back you 100% with what you are doing.

And we are glad to see somebody aggressively attacking cost basis, because the costs have been out of line. It almost looked for a while like it was being run as a branch of Perdue as opposed to being a profit-making business.

We are very glad to see that, and this should have been done sooner. These automatic raises people have been getting, and people being paid to sit around in a room and show how bright they are as opposed to being productive, doesn't make sense to me, never has, and I am glad to see you are addressing these problems, because they need to be addressed. And we have a very substantial shareholding that will back you 100% on these things.

Thanks.

Thank you for your comments, Lenny.

I have a little further --

Sure.

Okay. I have some questions now. The salespeople that you have in place, it takes a long time to get the right people with the right fit. If somebody can't cut it, you just have to keep replacing them until you get the right profile in place.

Clearly I understand the marketplace and I understand the problems. Comparing us to Covance is a stretch because they are so large, and we can go after smaller things than they can.

We do have nice group of laboratory people, and it is my understanding that the person you brought in from Oregon is going to run this very efficiently going forward. So there is an opportunity out there, and we are not talking big numbers, but certainly there is another $3 million or $4 million worth of business that can be drummed up with the right sales force, beyond the run rate we are doing even in an adverse marketplace.

So, I guess, we just need to keep finding the right salespeople and eventually you will. The right fits are out there, we just -- a lot of times when somebody interviews for a job, they sound good and you don't really know until they have been out there for six months and if it is not working, they have to be replaced.

But we don't need that many salespeople. We just need the right ones.

I know. You're entirely right and it is a -- sales are important to a company like ours, for obvious reasons, and it is important to get the right people because a lot of the sales effort is around building relationships and longer-term relationships with customers. So it takes some particular skill set to understand what we do and how we sell them.

We are not just selling widgets here. We are selling a service and a relationship. And you're exactly right, Lenny; getting the right team together is critical.

I believe we have had one change in the past six months from a person who wasn't meeting their targets. And we have every confidence in Albert, our Sales and Marketing VP, that he is working hard to develop the right kind of program and the right kind of team to be able to sell the services that we do.

In an ever-changing marketplace, it is not just the operations that need to respond to technical needs; it is the salespeople that really also need to respond to the subtle changes in the way people want to sell their -- need to sell. So it is an ongoing process, and I appreciate your comments and appreciation of that.

Okay. There is more yet.

Okay. That's all right, Lenny.

Okay. With the Culex, I think for those who are not aware, the margins there are just phenomenal compared to the margins on your normal business. So a couple of Culex sales, $200,000, could translate into $100,000 on the bottom line, unless I'm mistaken. And that an emphasis on Culex sales in general is certainly in our best interest, and if we sell more of those an awful lot of money flows to the bottom line.

Right.

Right.

Exactly right. And what we have done there is really focus on our instrument -- our Culex sales. We now have two people in the US dedicated to promoting and selling the Culex system, both experienced users and both people then who can build that relationship and really have the right kind of sales approach to selling a fairly specialized instrument.

We also have a very strong person in Europe. You may recall maybe at the last one we felt that there is a lot of potential for us to sell, increase our sales in Culex in Europe, which is a relative -- was until recently a relatively untapped market for us.

We now have a very strong, experienced sales person by the name of Peter Dydula out there in Europe. Since Peter has been on board we have already seen significant traction, where we have got a lot more interest in Culex, potential Culex sales, from countries and establishments that we had never even heard of before. So Peter is making great strides into the European market for us.

Again, we are still subject to the same sales cycle. It is still a big instrument purchase, a CapEx purchase, so we still are subject to those cycles. But the encouraging thing is, we are getting a lot more interest from a broader customer base.

Okay. Then in the fall, are we still on target to bring the Culex 2 out, or whatever you are going to call it?

Yes, yes, the Culex 2 is still on target. It is actually in beta testing at the moment on -- internally as well as one of our customer sites.

That seems like a real opportunity because, as an example, you have 50 Culexes at Pfizer (multiple speakers) sold them. And a company like that could write a check which wouldn't affect them at all, but obviously would affect us, to get 50 Culex 2s.

Let's hope they see it that way. (multiple speakers) Yes, we are very optimistic about the Culex 2.

If offers some significant advantages for the user and for the animals over the previous model. So we are obviously not trying to promote that too much at the moment for obvious reasons (multiple speakers) continue our existing Culex sales and really wait for the big splash. So -- but I am excited for that to be released soon.

Yes, that would probably affect us to some extent starting in the fourth calendar quarter, which is our first fiscal quarter.

Yes.

Okay. Now, I would like to make comments which may not be well appreciated, but -- by your Directors. I spoke to Charlene Sullivan in December of last year and she agreed 100% with me. She said she teaches it in her business classes at school that the directors should have skin in the game, that the directors should own stock.

I have yet to see her buy a share. And I have also yet to see Landis buy a share, and he is Chairman of the Board.

I mean, it really shouldn't be that a public company doesn't have directors with skin in the game. It is wrong and it is -- certainly in the modern age I don't know of any other companies that I have invested in it don't have substantial holdings by directors, much less any. So I just went to remind Charlene that -- stand by your word.

Okay. Thank you. Thank you for that comment, Lenny.

Okay.

We have no further audio questions at this time.

No more?

No, we have no further audio questions.

Okay, super. All right, well thank you all very much for your attention and your questions. We wish you good day.

Thank you for your participation in today's conference. This concludes the presentation. Everyone may now disconnect and have a great day.