Inotiv Inc (NOTV) 2013 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the third quarter 2013 Bioanalytical Systems, Inc. conference call. My name is Dave. I'll 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 the conference. (Operator Instructions). As a reminder, the call is being recorded for replay purposes.

I'd now like to turn the call over to Ms. Jacqueline Lemke, President and CEO. Please proceed ma'am.

Thank you, operator. And thank you all for joining us for the BASi fiscal 2013 third quarter financial results conference call and webcast.

Please note that various remarks we 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 assumes no obligation to update these statements.

Let me begin by saying that we're sorry for the delay in releasing our third-quarter results. When we recognized that the Company had erroneously booked the value of the warrants as equity rather than as a liability, we moved as quickly as possible to restate the previously filed financial statements for the periods impacted, beginning with the quarter ending June 30, 2011 and through the quarter ended March 31, 2013.

All of the restated results are now publicly available. It's important to note that while the restatement affected shareholders equity and liability, there was no impact on revenue or cash.

For the third quarter, I'm happy to report that BASi returned to profitability as sequential revenues and gross margins increased, generating an increase in operating income to $438,000 compared to an operating loss of $9000 in quarter two of fiscal year 2013 and an operating loss of $540,000 for the same quarter in the prior fiscal year.

For the three months ended June 30, 2013, revenue increased sequentially compared to $5,156,000 for the second quarter of fiscal 2013 but decreased to $5,600,000 compared to $7,186,000 for the third quarter fiscal of 2012.

Gross profit was $2,032,000 or 36.3% of revenue compared to $1,258,000 or 24.4% for quarter two and $2,059,000 or 28.7% of revenue a year earlier. This increase in gross margin, as well as a 19.3% reduction year on year in operating expenses, has created the $978,000 increase in Q3 operating income this quarter as compared to the same quarter in the prior year.

With regard to revenue mix, service revenue for the third quarter of 2013 was $4,156,000 which is a sequential increase compared to $3,667,000 for the second quarter of fiscal 2013, but a decrease versus $5,200,000 of service revenues for the same quarter of the prior year. The year-over-year service revenue comparison was affected by the consolidation of BASi's Oregon laboratory into our West Lafayette facility in the second half of fiscal 2012.

Product revenue for the third quarter of 2013 was $1,444,000 which is a 3% sequential decrease compared to $1,489,000 for the second quarter of fiscal 2013 and a decrease compared to the $1,986,000 product revenues for quarter three of fiscal year 2012, primarily due to Culex NxT shipment device into quarter four of fiscal year 2013 and volume loss due to delay in the launch of Culex NxT.

Net income for the third quarter of fiscal 2013 is $576,000 or $0.08 per basic and $0.07 per diluted share, which included income due to a pretax decrease in the fair value of the warrant liability of $318,000. This compared to a net loss for the third quarter of fiscal 2012 of $246,000 or $0.03 per basic and diluted share, which included income due to a pretax decrease in fair value of the warrant liability of $458,000.

EBITDAR, which excludes restructuring expenses and warrant revaluations, for the third quarter fiscal 2013 was $896,000, an improvement of $406,000 compared to quarter two EBITDAR of $490,000 and an improvement of $180,000 compared to EBITDAR of $716,000 for the third quarter of fiscal 2012.

For the nine months ended June 30, 2013 as compared to the first nine months of the prior year, gross margins increased and operating expenses decreased, generating an increase in operating income of $4,279,000 despite a decrease in revenues year on year.

For the nine months ended June 30, 2013, revenues decreased 23.6% to $16,560,000 compared to $21,668,000 for the first nine months of fiscal 2012. Again, this is -- a substantial portion of this decrease was an anticipated consequence of the consolidation of BASi's Oregon laboratory into our West Lafayette facility.

Gross profit increase to $5,146,000 or 31.1% of revenue compared to $4,684,000 or 21.6% of revenue for last year's first nine months. Operating income for the first nine months of fiscal 2013 increased to $732,000 compared to an operating loss for the first nine months of fiscal 2012 of $3,547,000.

With regard to revenue mix, service revenue for the first nine months of fiscal 2013 was $12,493,000 which is a 22.4% decrease as compared to $16,090,000 for the first nine months of fiscal 2013. The year-over-year service revenue comparison was affected by the consolidation of BASi's Oregon laboratory into our West Lafayette facility in the second half of fiscal 2012.

Product revenue for the first nine months of fiscal 2013 was $4,067,000 which is a 27.1% decrease compared to $5,578,000 for the first nine months of fiscal 2012. The delayed launch of the Culex NxT as well as the mix of upgrades in fiscal year 2013 versus full-year units in fiscal year 2012 represents the majority of the decrease year-over-year.

Net income for this year's first nine months is $521,000 or $0.07 per basic and $0.06 per diluted share, which included income due to a pretax decrease in the fair value of the warrant liability of $293,000. This compared to a net loss for the first nine months of fiscal 2012 of $3,621,000 or a loss of $0.51 per basic and diluted share, which included income due to a pretax decrease in the fair value of the warrant liability of $458,000.

EBITDAR, which excludes restructuring expenses and warrant revaluation, in the first nine months of fiscal 2013 increased to $2,238,000 compared to an EBITDAR loss of $1,009,000 for the first nine months of fiscal 2012.

Cash provided by operations for this year's first nine months was $1,343,000 versus cash used in operations of $437,000 last year. This represents a $1,780,000 improvement same period year-over-year.

On the balance sheet at June 30, 2013, BASi reported cash and cash equivalents of $313,000. The current portion of long-term debt of $5,403,000 which represents the mortgage debt that matures on October 31, 2013, total long-term obligations of $540,000 and shareholders' equity of $9,211,000.

The Company continues to pursue several options to deal with this debt including a sale-leaseback transaction on our building in West Lafayette, a mortgage extension or a loan replacement. At September 30, 2012 cash and cash equivalents were $721,000. The current portion of long-term debt of $583,000 representing mortgage debt due in the next fiscal year, total long-term obligations were $5,998,000, which included mortgage debt with maturity of greater than one year and shareholders' equity of $8,377,000.

Each of our critical operating metrics including revenue, gross margin, operating income and cash flow improved sequentially in the third quarter compared to this year's second quarter. Cash increased and debt decreased during the third quarter compared to the second, and cash provided by operations for the third quarter was $855,000.

We believe the progress we're making is sustainable. We believe we can effectively leverage our model with our existing capacity and an incremental revenue-generating investment in people and skills. Our marketing initiatives focused on our established strength in specialty assay and drug discovery, regulatory excellence in our market-changing Culex NxT automated sampling system are gaining traction among current and new customers.

On the product side, as previously announced we've collaborated with Data Sciences International to add value to our Culex system with telemetry capability for more efficient and less costly data collection, and with Pinnacle Technology to create a better way to monitor blood glucose levels.

We are currently presenting results of those studies at various conferences to showcase our ability to meet our customers' needs for accurate, cost-effective data collection and analysis to enable key drug discovery decisions.

On the services side, we continue to provide IND-enabling safety and toxicology studies for NanoViricides Inc. as part of the preferred provider agreement provider agreement which they have signed with BASi earlier in the year.

And just the other day we announced that we have entered into a preferred provider agreement with G1 Therapeutics under which BASi will provide preclinical services including toxicology, bioanalytical and analytical testing to support G1's drug development programs. These wins show that BASi has built a reputation for delivering the quality and timely data that are a critical part of the drug development process. This is a solid foundation for generating the long-term growth and profitability we are striving for.

To sum up, the quality of our revenues have increased significantly as evidenced by $5.2 million of gross profit on $16.6 million of revenue, as compared to $4.7 million of gross profit dollars on $21.7 million of revenue in the prior year.

Operating income is $4.2 million better than the first nine months than the first nine months of last year and cash flow from operations is $1.8 million better. SG&A is right-sized, business development is picking up. We are profitable with positive cash flow from operations at relatively low volumes and are committed to growing revenues profitably.

Operator, we're ready for the first question.

(Operator Instructions) Tom Harenburg, Carl M. Hennig.

Congratulations on the continued progress you're making. I'm very pleased with the way things are headed.

Let me ask you, I've got a number of questions. The first one revolves around some trading activity in your stock, probably about two months ago. And I don't know if you were aware, you probably were, but the stock had a substantial spike and about the last half hour of trading were over 100,000 shares traded, followed by about 10 minutes later a rather sharp decline in the price of the stock with not quite 100,000 shares traded but substantial volume.

Can you shed any light on what went on there? It's sort of looked to me like maybe somebody bought -- had an order for 100,000 shares, bought the wrong stock and then once they realized it, turned around and sold it.

Yes, that's what we think happened. We think somebody put in an order to buy Company stock that was very close to ours and they bought a big -- 100,000 shares of it, realized it was wrong and traded it.

Okay, okay, that was kind of my assumption. Okay, going back with this restatement dilemma, is there any chance you can go after Mike Cox and retrieve your expenses on this? You know my feelings from the day one he was hired, and he walks away with $165,000 severance package and this was clearly under his regime.

If he were working for the Company today, he'd be fired for cause. What's the possibilities of going after him?

Well, I don't know that's a possibility. The audit committee has asked for a legal investigation. I can't talk to what they're going to find either way.

I think by law, I don't think we could go after him for expenses. But if there were any issues, we could go after him for any bonuses paid in relation to the stock offering. But I don't know if it will come to that or not. It's really up to the attorneys' investigation.

Okay, and you'll keep us posted as to how that's going?

Yes, sure.

Okay, here we are 18 days into the first quarter of next year. I know you don't give guidance. But can you let us know was the fourth quarter, which ended September, was that profitable?

Well, I'm not allowed to talk about that, because it's not audited yet. But it's at least as good as the third quarter, I think. I don't have the actual numbers bottom line, but we're still doing well.

Boy, that would be great because you've got -- I mean you've got four new hires on the sales side that started about 1 July, and you've got expenses with them. So I mean if you can do anywhere near what you did in the third quarter, that I think would be outstanding.

Can you give us a little bit of a resume on these four people that have been hired? And are they all still with you?

Yes, they're with me. They're with us. We actually hired five people. Three are on the services side; two are on the product side.

And so we have a PhD in chemistry who is in charge of our electrochemical product development. We have a bachelor's degree in biological sciences, who's going to start to do some BD work for us on the product side.

And on the services side we have people with experience in sales, some with some background in the pharma industry, most recently Thermo Fisher, Novartis, Covance. And so we have someone on the West Coast, someone in California; someone in Boston who's considered our East Coast person; and then someone in the Central US, Indiana.

So they just started. I think on the product side they might've started late May. But the other one started in June. And they're already getting a lot of traction.

They're sending a lot of work our way, talking to the scientists, making sure that we have a good team that's talking to potentially new clients and even stretching the work we already have with existing clients.

Okay, were any of these instrumental in securing the recent announcements of orders that you had?

The G1 and the NanoViricides?

Right, right.

No, that was already in place.

It was, okay.

Yes, that was in place (technical difficulty).

And can you give us a little bit of an idea as to how they're being compensated? Is there -- I mean there's probably salary plus commission. Are they heavily incentivized to perform?

Yes, they are. The sky is the limit, I think -- well, I don't say that way. They have a decent base because they have a lot of experience, but they also could change what they make substantially if they can bring sales in the door, a commission.

Excellent. Very good; well again, congratulations. I think you're doing a great job. Keep up the good work.

Thank you. Thanks, Tom.

Lenny Dunn, Freedom Investors Corporation.

First, I have to compliment you because this is a terrific quarter and you have turned this Company around to the point where, even on a small base of sales, we can be profitable and clearly topline. Am I guessing wrong that each million-dollar incremental in sales is probably $350,000 or more in profits? Is that a reasonable figure?

Well, we're still working through that model, because you know we are heavily people-based. And we are working on how can we increase our capacity without increasing our costs too much. I can't tell you the drop-through at this point. But it's a substantial drop-through.

Because, well, we used to -- I say used to, it wasn't that long ago, have substantially more sales. So it would seem to me (multiple speakers).

Right, right (multiple speakers). Yes, so we should have leverage at this point. We should be able to leverage the topline and drop through quite a bit to the bottom line. I just can't tell you, though, that it's $350,000 for a million. That's what I'm still working through. And it depends on the mix, too.

Well, of course, I'm not out of the ballpark here. Okay. Do you plan to announce substantial contracts as you did with the Data Sciences? I know you missed the NanoViricides. But at that point you were overwhelmed with doing the back work to get us caught up on our filings. Do you plan to announce those sorts of contracts going forward as they come in?

If the client agrees. The NanoViricides one I think we announced probably about six months ago, the Preferred Provider Agreement. Yes, so (multiple speakers)--

They made the announcement on October 8 and they mentioned you, and that's the way I found out about it, not through BASi. So NanoViricides actually announced October 8.

Right, they've announced their breakthroughs. But I think we announced our Preferred Provider Agreement with them -- I'll look it up -- six, nine months ago. We wanted to, and I don't know if they (inaudible) or not. But yes, if we get Preferred Provider Agreements, if the client agrees we would like to announce them.

Well, that all helps because we're fairly obscure.

Right.

The occasional announcement, as long as it's not puffery, reminds people that we are in business. But okay.

As far as the building itself, in previous conversations with you I've told you that it wasn't is comfortable with you doing the sale-leaseback until you showed some profitability because I thought you'd get a much better price for the building once that occurred. And clearly, you're starting to show some real profitability, so I no longer have the trepidation I had. But are you getting serious inquiries yet?

Yes, we are. We had an all-cash offer that fell through. So we're definitely getting serious inquiries.

And I do agree with you. As our financials show more solid cash flow and profitability that will get better in terms of the interested parties. (multiple speakers)

You know, as far as nothing -- so we don't to a fire sale here, the fact that you're paying close to $1 million a year on the principal of the mortgage would certainly keep the bank happy, I would guess.

Yes.

I would assume you'll have no trouble in October. But in theory, you'd have it paid off in five years, which is not that far away.

Yes.

Thank you again for the terrific job you're doing, because you have really turned this Company around.

Thanks, Lenny.

George Gaspar, a private investor.

Jackie, just a couple of questions here on the outlook for you going forward sector to sector. How do you see -- what kind of objective can you put together on an annual basis from your base revenue stream of the last quarter, looking forward on an annualized basis?

And then secondly, what it's going to take -- where are you in terms of capacity utilization? And what do you see yourselves having to do in terms of expansion?

Okay (technical difficulty) I hesitate -- (technical difficulty) -- I'm hearing myself (technical difficulty) -- for revenue forecasts. But we do see some pickup (technical difficulty) in the pharma business, is all based upon our (technical difficulty) client.

And of course in the product side, we are now getting contraction with our sales. And with our electrochemical product manager, we think that's going to take off. So, on the revenue side, we are going to have a definite increase this year with a disappointment in the level that we came to.

But we are putting everything in place to get moving on that, and see recovery already on the in all areas of the business. So we're excited about that. I'm sorry, your other two questions --?

It was related to the capacity expansion requirement as you see things.

We won't be needing a capacity expansion probably until we get closer to [35] in revenue. We have quite a bit of capacity. We might need a little capacity expansion in the tox business, but nothing that would be considered substantial from a capital point of view.

We have quite a bit of laboratory capacity. Our issue is going to be when do we bring on more people versus overtime and shifts and other ways to handle capacity issues. So I don't see any large capital expenditures for capacity.

And do I calculate this right? You mentioned that your somewhat over $8 million on the book value -- or on the equity side, so your book value has got to be in the range of about $1.10. Is that correct?

Yes, I don't know. I'd have to look at the numbers. But you probably did calculate it right. You have our shares?

Your count at [7 million 9] or whatever?

Yes.

And you mentioned that that equity number was $8.2 million or $8.3 million or?

I think it was $8.3 million right? That's after all the adjustments for -- no, our equity right now is $9.2 million.

$9.2 million?

Yes, the $8.3 million was the prior year.

Okay, $9.2 million, okay wow. Then you've got -- okay, so you are up there at pretty close or above $1.10 or so. Yes.

And what is your first objective here in terms of development -- product development going forward from where you are now as you're looking into this new year?

(multiple speakers)

Is there something special that you're going to try to concentrate on in new product development from what you have in the mill currently?

There is -- I don't know if my product guys would be happy with me if I tell you. There's nothing that we've announced yet.

We are working on -- you know, our two biggest product lines are the in vivo products, which are the Culex and the consumables, and then the electrochemical products. And we think that we can enhance electrochemical business lines. We are working on the plan to figure out how that will be.

Okay, could you just explain a little bit, Jackie, the electrochemical product, what's the application there? Can you explain that please?

No, I'm not very good at it (laughter). It's basically using an analysis of the metals in the testing for the drugs. I can't tell you the details, but I could have my electrochemical specialist talk to you.

But it's related to the analysis of the material composition of the -- material going into the drugs?

Right, exactly.

Got you. And that is -- do you perceive this as being an area that is requiring or offers opportunity and is requiring some upgrading from an industry point of view?

That's what we're trying to find out right now. We're talking to -- we have a loyal base of customers who basically pick up the phone and order from us. We haven't done a lot of outreach in that product line for a while, so we're trying to find out what are they looking for that they might be going to the competition for, how can we upgrade what we offer them.

Okay, all right. Well -- and as Tom indicated to you, congratulations on your performance here. This is quite a turnaround. You have got tremendous -- your margins look wonderful, if you can stay anywhere near that and start to push this revenue toward the $30 million range, you should be able to deliver some pretty good results.

All right, thank you.

Thank you. Ma'am, you have no further questions at this time. (Operator Instructions) There are no further questions coming through. So I'd now like to turn the call back over to Ms. Jacqueline Lemke for closing remarks.

Okay, I just want to thank everybody for joining us this afternoon, and I look forward to speaking with you on our fiscal 2013 annual results conference call later this year. Thank you very much.

Thank you very much for your participation in today's conference. This concludes the presentation, so you may now disconnect. Good day and have a great weekend.