Inotiv Inc (NOTV) 2012 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the quarter-three 2012 Bioanalytical Systems Inc. earnings conference call. My name is Sharon and I will be your operator for today. At this time, all participants are in listen-only mode. We will conduct a question-and-answer session towards the end of this conference. (Operator Instructions). As reminder, this call is being recorded.

I would now like to turn the call over to Jacqueline Lemke, Interim President, CEO and CFO of BSI. Please proceed, ma'am.

Thank you, Sharon. Thank you all for joining me for BSI's 2012 third-quarter and first nine months financial result conference call and webcast. Please note that various remarks I may make on this conference call about future expectations, plans and prospects for the Company constitute forward-looking statements for the purposes of Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. Actual results may vary materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in the Company's filings with the Securities and Exchange Commission.

The statements made on this call are made only as of the date of this call, and the Company assures no obligation to update these statements.

Now, while we still have a long way to go, we're pleased by our third-quarter performance. As we anticipated, revenues decreased compared to last quarter's (sic) third quarter, but we delivered the modest sequential increase in revenue versus the second quarter we predicted on our last conference call. What's more, the Company delivered positive EBITDAR of $717,000 for the quarter. This compares to a negative EBITDAR of $1.021 million for this year's second-quarter, and a negative EBITDAR of $704,000 for the first quarter.

When you consider that we began our restructuring program only a few months ago, it's clear that we have accomplished (technical difficulty) deal in a very short period of time. This performance was a team effort, and represents the hard work of a lot of people in our organization who are fully committed to BASi's success. Yes, we're pleased with the results, but we're not satisfied. We believe the Company can and will perform much better.

Our efforts to grow revenue and improve profitability will continue. We completed our United States downsizing at the end of July, including all planned headcount reductions and the consolidation of our Oregon lab into our West Lafayette facility. We are now in the process of closing our UK lab. This closure will be substantially complete by the end of this month. We're on track to deliver at least $4.5 million of annual operating cost reductions, once our restructuring is fully implemented. This streamlining has permanently reduced our costs and improved capacity utilization, while allowing us to continue providing the high-quality services and instruments our clients expect from BASi.

I want to stress that we continue to have capacity, both in our CRO business and our instruments business, to deliver on our growth objectives without adding appreciably to our costs. Our core team of scientists and our instrumentation group stand ready to meet our clients' needs. We slimmed down and refocused our business development staff, which now reports directly to our operations leaders, to better align their efforts.

I expect to have more to say about our business development program and our growth plans our next conference call.

Turning to the numbers, revenue for this year's third quarter decreased to $7.187 million compared to $8.478 million for the third quarter of fiscal 2011; but increased sequentially compared to $6.966 million for the second quarter of the current fiscal year. The decrease in this year's third-quarter revenue compared to the third quarter of fiscal 2011 was primarily due to lower toxicology services revenue, as well as the runoff of bioanalytical projects in the UK that were not replaced, due to the closure of this facility.

Pharmacological discovery and instruments sales for this year's third-quarter returned to the more rapid pace we reported in the first quarter, which is an encouraging sign for the future.

Gross margin for this year's third quarter was 28.7% compared to 32.4% for the third quarter of fiscal 2011; but increased sequentially compared to the gross margin of 16.4% for the second quarter of fiscal 2012. Operating expenses decreased to $1.995 million for the third quarter of fiscal 2012 compared to $2.264 million for the third quarter of last year; and to $2.784 million for the second quarter of 2012. This is a direct result of our efforts to reduce fixed costs and to limit discretionary spend. We expect operating expenses to decrease again in the fourth quarter as we see the results of our restructuring efforts.

EBITDAR for this year's third quarter was positive $717,000. This compared to the EBITDAR for last year's third quarter of positive $1.062 million; and to a negative EBITDAR for the second quarter of the current fiscal year of $1.021 million. The Company recorded restructuring charges for the three months ended June 30, 2012, of $623,000; and for the nine months ended March 31, 2012, of $64,000.

The net loss for this year's third quarter was $0.10 per share, which included the restructuring costs mentioned above. You may recall that accounting for the value of warrants and preferred stock issued in our public offering, in May 2011, resulted in a deemed dividend to preferred stockholders, which was deducted from net earnings to compute GAAP earnings per share. The result was a GAAP loss per share of $0.65 for last year's third quarter. For this year's second quarter, the net loss was $0.27 per share. All of these numbers included restructuring charges.

For the nine months ended June 30, 2012, revenue decreased to $21.668 million from $24.991 million for the first nine months of fiscal 2011. EBITDAR for the first nine months of fiscal 2012 was a negative $1.9 million. This compares to EBITDAR for the first nine months of fiscal 2011 of a positive $3.381 million.

The Company recorded restructuring charges for the nine months ended June 30, 2012, of $687,000. The GAAP net loss per share for the nine months ended June 30, 2012, was $0.58 per share. After accounting for the preferred dividend, the net loss for the last year's first nine months was also $0.58 per share.

On the balance sheet at June 30, 2012, BASi reported cash and cash equivalents of $409,000; total long-term obligations of $1.062 million; and shareholders' equity of $11.752 million, or $1.66 per outstanding share. Current liabilities at June 3, 2012, included mortgage debt of $6.7 million that matures in November.

At September 30, 2011, cash and cash equivalents was $2.963 million. Total long-term obligations were $6.913 million. And shareholders' equity was $15.586 million, or $2.26 per outstanding share.

The decrease in our cash balance underscores the reality that in the short term, the strategic reductions we have implemented are costly. However, we are managing our cash in order to continue to meet our everyday liabilities while financing the restructuring. We intend to refinance the mortgage debt in lieu of making balloon payments for the remaining principal balance. We currently are evaluating several alternative ways of doing this, including a possible sale and leaseback of the building.

Looking forward, we expect fourth-quarter revenue to be about the same as this year's third quarter, primarily reflecting the absence of revenue from the UK facility going forward. At the same time, we expect operating income, before restructuring charges, to increase sequentially in the fourth quarter versus the third, as the full impact of our restructuring efforts to decrease costs are reflected in the financial results. Keep in mind that there will be another restructuring charge in our fiscal fourth quarter, related to severance and lease costs for our UK facility. In any event, this should be the final charge associated with our restructuring.

BASi has provided drug development and discovery services to the pharmaceutical industry for more than 25 years -- 35, I'm sorry. We have a superb and dedicated technical staff; world-class laboratories facilities; and we enjoy an outstanding reputation for the quality of our services and proprietary test instruments. We are in the midst of a fundamental restructuring that has reduced our cost structure, instilled fiscal discipline, and aligned our business development efforts with our operating goals. With these critical building blocks in place, I believe we can steadily improve the Company's operating performance and restore revenue growth. And I and my team (technical difficulty) to making this happen.

Operator, we're ready for the first question.

Thank you. (Operator Instructions). Jeffrey Cohen, Ladenburg Thalmann.

Hi, Jackie. Thanks for taking my questions. I just wondered if you could comment on the sale of the building in West Lafayette? Anything beyond what you made in your prepared remarks?

Well, what we've done is we've listed the property for sale. And we intend to lease back approximately 80% of the building. And, also, we're trying to lease the other 20% in the meantime. So either we will have it fully leased for a buyer to come in and buy, or we will have it on the market to be leased; and we will be willing to lease back 80% of it.

Got it. On your subsequent comments for Q4, you said that you expect the financial metrics to be overall the same as Q3 with regards to revenue, as well as the composition of revenue between service and products.

No, I think what I said was, the revenue may be slightly less because we are losing the service side from the UK. But we think we're going to be able to cover that ground, because the tox is starting to come back a bit in this quarter. So we're saying it's going to be flat to slightly less, but it could be even higher. We know we're going to have less, just because we are losing the UK revenue, which was part of the restructuring.

Got it. Okay, that does it for me. Thanks a lot.

Tom Harenburg, Carl M. Hennig.

Yes, good morning, Jackie. It certainly looks like you've made a good deal of progress in the short time you've been with the Company. Going back to the building and the previous question, have you had anybody express any interest in it at this point?

Yes, we have, actually. We have someone from the research park here who may be relocating. We had somebody in West Lafayette who's looking to buy a building. So, we've had several inquiries. I don't have all the details yet, and I'm going to make sure we follow up on all of them.

Excellent. Well, that sounds encouraging. As far as the restructuring charges from the UK, you've got about another 16 days, 17 days in the month. Can you give us an idea -- a broad-based idea, as to what those restructuring costs might be?

I thought of putting that in there, but I could be off. Because what we're trying to figure out right now is the disposal of the equipment, and what type of gain or loss that would be. So I really would rather not give you a range just yet.

Okay. Would any of that be coming back to the US? Or are you going to dispose of it all over -- for use within the Company? Or will that be all disposed of over there?

The bigger equipment, we are going to sell in-country, rather than move. We have plenty of instrumentation capacity here in the US. And then some of the smaller things, we will ship back with the client records.

Okay. And how about the lease on that building? Seems to me that there might be about six years to go on that yet -- on your facility over in the UK.

Yes, yes, no, I think there is longer than that. But we have a potential of being able to get out of the lease, break the lease, in about three or four years; an escape clause. But what we're looking to do is sublet it in the meantime.

Okay, okay, good. Well, again, I think you're making great progress.

Thanks, Tom.

Thank you.

Lenny Dunn.

Good morning, Jackie. I join Tom in saying that you've done a heck of a job in a very short period of time; and looks like everything is on the right track. I had a couple of questions. Now, with the Culex 2 -- or whatever you want to call it -- it was supposed to come out sometime towards the end of the year. Is that still on track for that timeframe?

Yes. Yes, and we are thinking the end of the year, which -- at the end of the calendar year -- which would be the end of our first quarter or late in the second quarter.

And has the rollout of that at all been affected by the layoffs that you had -- or, no, I shouldn't say layoffs. The firings that you had to put in. Is there enough of a base of people to keep that on target, timeframe-wise?

Yes. Yes. We'll be able to keep that on target.

Okay, good. Because that's such a high-margin business. And it's such a real opportunity, particularly during the first year it's out there, to resell it to all the current customers. I think I mentioned on the previous call, Pfizer has 50 of these things, and a rounding error in their checkbook to buy 50 new ones if they like it.

Well, it's going to have a lot of enhanced features. And we will be able to enhance what people have out there in addition to that. I don't predict that people will just be letting go of what they have and buy new ones, if they are still usable.

I understand with smaller companies, but larger companies --

Yes. We're hoping that the features that we incorporate in the enhanced Culex will catch on quickly.

Okay. I noticed that product revenue had increased in the current -- in the quarter you just reported. Is that still just as strong in the current quarter, at least to date?

Yes.

Because product sales, as you well know, are extremely profitable compared to our other businesses.

Right. Right. No, we're keeping a good eye on that.

Okay. And the beta testing on the Culex 2 is going on at a client site still?

I don't know about that, I'm sorry. I don't have an answer on that one.

Okay, I'm not trying to put you on the spot. What about the sales force? That would be my final question. Because, obviously, we have to keep beating the bushes to get business in the door.

Right, right.

Have you been able to turn them over enough to get some progress?

Yes. What we've done is, we've realigned -- we did have to make some reductions. But with the sales team, we realigned them to be reporting into the business, so that there was a close connection between the science and what we do for the clients, and what leads they're going out, and who they're pursuing. And we're working closely on that to come up with our forecast, our budget, our strategy.

Okay, well, everything looks very good going forward. I don't have any complaints at all. And you certainly answered my questions, and -- oh, just one last one. Do you feel that you now have the staff rightsized, so that we can probably retain the remaining employees?

Yes. Yes, I do. I think we are rightsized. I think if we have any issues with turnover we are replacing, because we think we're right at the right point.

Okay. Well, thank you, and thank you for the hard and dedicated work.

Oh, one thing, Lenny. I don't know if you saw it on our press release, but the Board is going to buy shares. I think it's tomorrow. So I want you to know, the skin is in the game.

No, no, I understand that. That's why I didn't push that issue. Because I saw it in the release. They're going to buy 100,000 shares. They're going to buy at the closing price on the 16th, according to the release.

Yes. Right, right.

So they would actually buy as of the end of the day, the 16th. And that is very good to see; to have them all have skin in the game. I'd like to have their money aligned with ours.

That's right, that's right.

We've been continuing buyers and we have a very outsized position. But we may continue to buy because it's certainly cheap at the current price.

Right. Good deal. Thank you.

Robert Blameuser, Blameuser Asset Management.

Good morning. Thanks for taking my call. Just two quick questions. Jackie, when you received your promotion to CEO, they were -- for the press release, I think, was describing you as the interim CEO. And I'm just wondering, is that still how you and the Board are thinking of your position there?

Yes. We are working right now; coming up with goals for this position. And then they're going to reevaluate in about six months.

Okay. And then my last question was, in the 10-Q for the March quarter, there was an indication regarding the covenants with regions Bank and the line of credit. And they had granted a waiver of those covenants. And that waiver expired in June, according to the 10-Q. I'm just wondering if that's been extended or changed, or what that looks like?

Yes, we did get another waiver this quarter. We actually met our metrics this quarter, with the turnaround in our results. But the metrics, they want them computed on a year-to-date basis. So we did not make the one metric on a year-to-date basis, and they have given us a waiver for that. That will be in today's 10-Q that goes out.

Okay. Great. I just asked because I hadn't seen it yet.

Right, right.

That was it. Okay, thanks.

[George Gaspar], private investor.

Yes, good morning. Jackie, got a question for you on the carrying value of property, equipment. It's showing as $20 million as of June. You may have commented on this. If you did, sorry; I'd like to hear the answer. Out of that $20 million [carry], what is the property valuation within that $20 million? That is the facility, basically, that you have up for sale. Or is there other assets in there, on property basis, yet; such as the UK. Would that still be in the mix there, or not?

You are looking at total plant, property and equipment?

Yes, I'm looking at the $20 million.

Okay. Yes, there is value for the capitalized lease, the UK lease. And there is the land here, which we have -- and the building and all the labs, which we have for sale and leaseback at a value of $12.5 million, is our mark market value. That's not our cost. And then, also, we have in there other property and equipment. We also own the Evansville facility, our toxicology facility.

So the carrying value -- or the for sale value -- of what you've got up for sale is $12.5 million?

Right. And that excludes the actual instrumentation and all the improvements. It's for this facility in West Lafayette. We also own our Evansville facility. We have a capitalized lease from the UK. And then all of our property -- I'm sorry, you know, fixed assets that are depreciable.

Based on $12.5 million, assuming that you could get that much out, would there be a gain on the sale?

That's another way to of getting to what the cost is, isn't it? Yes, I believe there would.

Okay, all right. And then, on -- in terms of the sale of the UK operation, you had mentioned that -- and I know you've, sort of, I believe, been questioned on that already -- the loss structure or the elimination of the loss structure. What would be the improvement on a quarterly basis without that UK operation in the fold? What do you see the savings being? I know what you're talking about $4-plus million of overall savings, but what does the UK mean to the operating cost line, when eliminated?

Yes, I don't think we ever disclosed that separately. But the in excess of $4.5 million, not just for the UK, but for the West Coast labs that we closed, and the reductions that we made in Evansville and West Lafayette (technical difficulty) more than commit to that $4.5 million.

I see, okay. And also, in terms of how you view things in the time that you've been there at this point, do you envision anything, an area of activity that you would like to see the Company launch into that you are not associated with at this time?

No. I haven't gotten that far in our strategy. I do know that we have quite a bit of opportunity in our products business that I don't think we've tapped yet. And so we're working on our strategies there. And we have been growing little by little, replacing customers in our tox business as we lose it; and working in the bio and the pharm area. So I think we have plenty of potential in what we are already in. So I haven't really gone down the path of, what are we not in yet?

Okay. And then, could you clarify you again the transaction that's expected, based on the close here? Was it the 16th, in terms of insider purchases, based on a closing price? How much is involved in that, please?

100,000 shares, approximately 100,000. I don't have the final count. But each of the Board members and myself are going to buy shares directly from the Company that we will be (technical difficulty), and that will be on the market price at the 16th.

I see. Okay. All right, thank you kindly.

Tom Harenburg, Carl M. Hennig.

Yes, Jackie, just a couple questions here. One, I assume that there will be an SEC filing, as to who bought what, on the 16th or shortly thereafter?

Yes. Yes, I think it will be -- it has to be within two days. And I think we're buying them effective the 17th. So right around there.

Okay, okay. And, secondly, employee morale -- with the changes, a vacant place; and I know there's been some morale issues in there. How are the employees, in general, viewing you and what's going on with the progress that's being made with the Company here?

I think I've imposed a lot of change on people in a short period of time; so change is hard to take. I think I have a lot of good employees here that are just trying to react to it. The morale is up and down. Some people are not seeing the light at the end of the tunnel. But most people are seeing why we're doing what we're doing, and they see that we can pull out of it.

So I'm spending a lot of time -- tomorrow I have an all-hands meeting, to go over with them exactly where we are at and why we're taking certain steps, and what that means. And I think the fact that we're not going to do this anymore, and we don't have to do an arbitrary restructuring again, in terms of just the headcounts; I think that's encouraging. And I think people are starting to feel a little more comfortable.

Okay. And also, hopefully, as the upcoming quarters show improvement, they'll feel a little bit more comfortable.

Yes. This quarter was phenomenal. And I can only say that was everybody doing their part. That just wasn't me walking in and saying all of a sudden, let's turn it around. It really was a phenomenal turnaround in this third quarter. And that's from the team that we have here.

I, as an investor, would certainly agree. Well, I wish you luck going forward, and look forward to the next conference call.

Thank you.

Thanks, Jackie.

Lenny Dunn.

More a comment than question -- it's clear that sometimes you have to cut off an arm to save the body. And I think that's what you did. And I think that the employees -- and these are all intelligent, highly educated people -- should be able to see that as time passes, once the initial shock of what happened; that everybody now has a job and a bright future, as opposed to some sort of socialist concept of keeping everybody and watching the ship go down.

You've really done the right things here, and I applaud you for them. And I know they're tough, because everybody's a human being and they have families, but it has to be done. I was glad to hear that you feel that it's rightsized. And just a little comment, too, on the 100,000 shares which, believe me, I think is a very strong step in the right direction. That's exclusive of the put options that were granted to a couple of people about a month ago, right?

Right. Those are options. And they are not vested in them yet. These are actual share purchases.

Right. So they were the options. Well, it wouldn't hurt to see those exercised, too.

I don't think they can yet. I think they have a time limit on them.

Okay, all right. But, anyhow, the 100,000 is a big step in the right direction, and will certainly help the cash flow for the Company, too.

Right, right.

Okay, well, thank you again. And thank you for all your hard work.

Thank you. As there are no further questions, I'd like to turn the call over to Jacqueline for closing remarks.

Okay. Thank you, everybody, for joining us. We look forward to speaking with you again on fourth-quarter conference call results. And you can call me directly, at any time, if you have some questions. Thank you for your time.

Thank you for your participation in today's conference. This concludes the presentation, and you may now disconnect. Good day.