Inotiv Inc (NOTV) 2013 Q4 法說會逐字稿

Welcome to the Bioanalytical Systems' fourth-quarter and fiscal 2013 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 24, 2013.

Please note that except for the historical statements, statements in this release may constitute forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. When used, the words anticipates, believe, expects, intends, future, and other similar expressions, identify forward-looking statements. These forward-looking statements reflects management's current views with respect to future events and financial performance, and are subject to risks and uncertainties.

And actual results may differ materially from the outcomes contained in any forward-looking statements. Factors that could cause these forward-looking statements to differ from actual results include delays in development, 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 Ms. Jacque Lemke, President, Chief Executive Officer, and Chief Financial Officer of Bioanalytical Services. Please proceed, ma'am.

Thank you, operator, and thank you all for joining us for BSi's fourth-quarter and fiscal 2013 financial results conference call and webcast. The operator read the Safe Harbor statement, and I just wanted to add 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.

This morning, we reported net income for the fourth quarter of fiscal 2013 of $252,000 or $0.03 per diluted share. This compares to a net loss of $2.696 million or $0.36 per share for the fourth quarter of fiscal 2012. For the year, net income increased to $773,000 or $0.09 per diluted share. This compares to a net loss of $6.317 million or $0.88 per share for fiscal 2012. Also noteworthy is that BSi generated $1.519 million in cash from operations for fiscal 2013 versus cash used in operations of $200,000 for fiscal 2012.

This is solid progress. And while we still have plenty of work to do to achieve our goals for BSi's growth and profitability, we're pleased by what we already have accomplished in rationalizing our operations, and positioning the Company for the future.

For the three months ended September 30, 2013, revenue decreased to $5.508 million compared to $6.540 million for the fourth quarter of fiscal 2012. Gross profit was $1.909 million or 34.7% of revenue compared to $2.154 million or 32.9% of revenue a year earlier.

Operating expenses for the fourth quarter of fiscal 2013 increased to $1.811 million compared to $1.785 million a year earlier, primarily due to expenses associated with the restatement of financial results for certain prior periods, which we had reported on October 18, 2013. Operating income for the fourth quarter of fiscal 2013 was $98,000 compared to an operating loss of $2.139 million a year earlier, which included restructuring charges of $2.508 million.

With regard to revenue mix, service revenue for the fourth quarter of fiscal 2013 decreased 23.8% to $3.980 million from $5.222 million for the fourth quarter of fiscal 2012. Fiscal 2013 service revenue was negatively affected by the consolidation of BSi's Oregon laboratory into its West Lafayette facility, and by the closure of the laboratory in the UK in the second half of fiscal 2012. Product revenue increased 15.9% to $1.528 million versus $1.318 million for the fourth quarter of fiscal 2013, and increased sequentially compared to $1.444 million for the third quarter of fiscal 2013, primarily due to higher sales of Culex NxT automated sampling systems.

Net income for the fourth quarter of fiscal 2013 was $252,000 or $0.03 per basic share and diluted share, included a pretax decrease in the fair value of the warrant liability of $308,000. This compares to a net loss for the fourth quarter of fiscal 2012 of $2.696 million or $0.36 per basic and diluted share, which included a pretax increase in the fair value of warrant liability of $243,000. Net income for the fourth quarter of fiscal 2013 was $252,000. EBITDAR for the fourth quarter of fiscal 2013 was $547,000, compared to the EBITDAR of $891,000 for the fourth quarter of fiscal 2012.

For the 12 months ended September 30, 2013, revenue decreased 21.8% to $22.068 million compared to $28.208 million for fiscal 2012. Service revenue decreased to $16.473 million compared to $21.312 million for fiscal 2013. A substantial portion of this decrease reflected the consolidation of our Oregon laboratory into our West Lafayette facility and the closure of our UK lab in the second half of fiscal 2012. Product revenue decreased to $5.595 million compared to $6.896 million for fiscal 2012, due in part to the late launch of Culex NxT in January of 2013.

Gross profit dollars increased 3.2% to $7.055 million or 32% of revenue compared to $6.838 million or 24.2% of revenue for fiscal 2012. Operating income for fiscal 2013 increased to $830,000 compared to an operating loss for fiscal 2012 of $5.686 million, which included restructuring charges of $3.195 million.

Net income for fiscal 2013 of $773,000 or $0.10 per basic and $0.09 per diluted share included a pretax decrease in the fair value of the warrant liability of $601,000. This compares to a net loss for fiscal 2012 of $6.317 million or $0.88 per basic and diluted share, which included a pretax decrease in the fair value of warrant liability of $73,000. EBITDAR for fiscal 2013 increased to $2.785 million compared to an EBITDAR loss of $118,000 for fiscal 2012.

With regard to balance sheet highlights, at September 30, 2013, cash and cash equivalents were $1.304 million. The current portion of long-term debt was $613,000. Total long-term obligations were $5.112 million and shareholders equity was $9.459 million. In comparison, at September 30, 2012, cash and cash equivalents were $721,000; the current portion of long-term debt was $583,000; total long-term obligations were $5.998 million; and shareholders equity was $8.377 million.

As previously announced, we recently renegotiated an extension of the maturity on our building in West Lafayette to 2000 -- of the mortgage on our building in West Lafayette to October 2014. This gives us the flexibility to explore a sale and lease-back or other transaction to deal with this debt.

I think the essence of what we have accomplished over the past year and a half or so is that we have built a sustainable business model that can support profitable growth. How do we do it? In fiscal 2012, we consolidated our laboratories into our headquarters in West Lafayette, closing facilities in Oregon and the UK to reduce operating costs and strengthen our ability to meet clients' needs by improving laboratory utilization.

We also implemented personnel reductions and other cost-cutting measures in selling and general and administrative functions. As result, while revenues for fiscal 2013 decreased compared to fiscal 2012, primarily due to the restructuring, gross margin increased by one-third from 24% to 32%. Operating expenses declined by one-third, and operating income increased by $3.321 million to an operating income of $830,000 for fiscal 2013 compared to an operating loss of $2.491 million before restructuring charges for fiscal 2012.

But you don't grow a company by cost-cutting alone; so just as important, we are creating fresh opportunities for growth. We have established collaborative research programs to validate new applications for our market-changing Culex NxT automated sampling system. We have negotiated preferred provider agreements and other agreements in our laboratory services businesses that build on BSi's reputation for delivering the quality and timely data that is critical to the drug development process.

These initiatives have contributed to the increase in new order bookings we have enjoyed in recent months. The increase in bookings also reflects our refocused and expanded marketing initiatives based on BSi's established strengths and specialty assay and drug discovery, regulatory excellence and innovation, such as our Culex NxT automated sampling system.

I believe we are just beginning to see the benefits of all these efforts. These encouraging developments position BSi for higher revenue in fiscal 2014, even as we continue to improve productivity and maintain controls over cost. We are confident that we are pursuing the right strategy to deliver improved operating performance and to build value for our shareholders.

Operator, we are ready for the first question.

(Operator Instructions). Seth Hamot, RRH.

I'm just -- I've got a few questions here. The first, margins in the service side of the business, are they -- are you as good as you're going to get out of those in gross margins? Or do think there's more to be done there?

I think there's more that will come out as revenue increases.

All right, so are we at a leverage point, a natural leverage point? Or this is just good management finding other efficiencies? When I say leverage point, I mean does the business have operating leverage going forward?

Yes. It's -- the costs are where they're going to be at this point. And as the revenue increases, our margins will increase -- if that's your question.

Yes.

We're also going to, as we have a little more room, work with our mix, so that we're sure that we're working on the mix fit that makes the most sense for us as a Company.

And that's the mix of different projects being taken on?

Right, exactly.

Okay. So let's talk about the equipment side of it, the margins and equipment. How about that? Are there opportunities there? Or is that really just a scale, grow the business?

Yes, I think the margins in equipment are probably where they're going to be. They might be slightly lower in the future, because we're going to need to invest a little bit more. So they have low operating costs, and it's time to leverage the top line; but to do that, we might need to invest in more innovation.

Is that innovation a Culex innovation or the electro -- what (multiple speakers) --?

Yes, it's overall everything. I mean, we are going to try to make sure that we are issuing new updates to software periodically. And we're also going to -- from the gross margin point of view, it's the production floor, how are we going to lay that out to be able to take on more volume. So I think that's going to stabilize the gross profit margin, maybe decrease it a few percent. But it will still be pretty healthy.

Super. Thanks a lot for your time.

Sure.

Lenny Dunn, Freedom Investors Corp.

Good quarter, though, as expected. And getting back to Seth's question about the operating leverage, my read would be it would be very strong going forward, because your fixed costs are your fixed costs. So if we can, as an example, increase revenue by 50% in the lab work, off-lab, that should flow to the bottom line. I mean, am I misreading that?

No, it's just that there are variable costs that are directly related to increased revenues also. So the variable costs on the product side, of course, is the materials. The labor and overhead will stay the same to a certain level. And then as you increase revenue substantially, then your labor and overhead has to go up too. But it depends on your mix of variable to fixed costs.

Okay. Now, there was an article in Saturday's Wall Street Journal about Brammer Company's cost cuts could be tonic for Quintiles. Now, obviously, we're nowhere near the magnitude or the size of Quintiles, but the article was very favorable about the direction that pharma is taking. And for the smaller jobs, we should be in place for those. Are you seeing more interest in what we do?

Yes, I am. I think that with the restructuring -- I mean, this is a long-term industry; people are in it and they contract with you for the long-term over multiple years, so they want to see stability. And I think, as we restructured, that scared a few people. But I think they're all -- they're coming back; plus I think the industry is moving back to putting more molecules in the pipeline. So we're going to see lift from both of those.

Okay. And the last question has to not do with the Company itself, but we have quite a bit of warrants, and it's my understanding that to get the meter running on these things, we have to hold them a year and a day to be long-term. What process do we go through now if we want to start exercising our warrants?

Yes, I have to defer that one to my Finance Director, because she takes care of all the exercising. It has to do with our company that holds our stock and trades it. I think it's Ameritrade. So, she can take care of that. Just write me a note, and I will make sure (multiple speakers) --.

Okay. Because, obviously, the cash infusion actually helps the Company and would certainly benefit us too. So, okay, just, so I should call her tomorrow -- I don't mean tomorrow, but Thursday?

Yes, yes.

Okay. But at this moment, there's no process set up or --?

Oh, yes, there is a process; I'm just not in the middle of it. I'm sorry. So, it's basically you contact the -- I want to say it's Ameritrade, but it might be Compushare -- and they will take care of the transaction. But she does all that for me.

Okay, thank you very much.

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

Good to see that things are continuing to the plus side here. Following up on this warrant exercise, have any warrants been exercised, of the five-year warrant, been exercised just recently?

I really don't know, Tom. I haven't seen that activity. But right now, because the S-1 has to be reissued, there has to -- we have to put a statement on that, a post-effective amendment to note about the issue with the warrant accounting. People can exercise their warrants as cashless exercise. They can get the shares; they just can't sell the shares. So we're in that period where we can't do that. But that will be lifted as soon as we file -- after we file the 10-K, we're going to file the post-effective amendment to the S-1.

Okay. (multiple speakers)

It will be in the reconciliation.

Okay, okay. On the sale of the building, how are you coming on that?

Well, we're getting a lot of investor interest, and people are considering this investment versus the market. There's talk about interest rates moving a little bit. We -- I keep up with the realtor once a week and getting updates. I don't have anything more to say at this point that says I have a solid deal in-hand, but we're working on it.

Okay. Do you feel reasonably comfortable that, in fiscal 2014, you can consummate that sale?

Yes, we'll either consummate the sale or we will have refinancing.

Okay. Talking about refinancing, when you refinanced your loan for an additional year, was there any change in that interest rate?

No.

It wasn't, okay. Okay. It would seem to me that as your position improves here, that you may be able to jangle a little better interest rate there from them.

Yes -- no. (laughter)

Okay, okay.

They're just looking to get us to refinance.

Okay. On the Culex side, can you give us some guidance as to how many units were sold and delivered in the fourth quarter?

I don't have that data. I'm sorry.

Okay.

I usually have that with me. I just didn't get it this quarter.

Okay. As far as the new sales team, you'd added five new people back around June/July. Are those all still with you?

Yes.

And are you beginning to see some results of their efforts? Or is that still in the early stages?

We are. We're seeing a lot of potential. We're getting into a few areas that we haven't been in before, happily. We're happy to meet clients that we've never met. That's the benefit of having experienced salespeople, who know how to reach out. But we won't see actual signed orders probably for another three to six months. And we have a few signed orders, but not the volume that you want from people who have been in place for several years. But I think we'll see that in the next six months or so.

Okay. And, lastly here, with a week to go in the first quarter, and I know when I asked you this question last time, (multiple speakers) you were pretty invasive, but can you give us any guidance as how the quarter is set up?

You're going to ask me this every quarter, aren't you? (laughter) If I give you guidance and then it's wrong, you're not going to be happy. This quarter is good. It's looking good. It's better than last quarter, substantially better. And I think it's an indicator of how we'll do this year. I think (multiple speakers) --.

Excellent. Well, that sounds good. Very good. That takes care of my questions. Thanks, Jacque, and, again, good luck going forward.

Thanks, Tom.

At this time, there are no further audio questions.

Okay. Thank you, everybody, for joining us. And I look forward to speaking with you in fiscal 2014 on the first-quarter results conference call in about three months. Operator?

I'm sorry -- you do have follow-up question that just came in.

Okay.

You have a follow-up question from the line of Lenny Dunn. Please proceed.

Okay.

What you said to Tom was music to my ears, so we can look forward to an improved quarter in the current one, and some of the sales results probably aren't going to show up until the quarter that starts in January, unless I'm mistaken.

Well, improved quarter from a revenue point of view. I really haven't checked everything else. I'm just keeping an eye on that. And the quotes that will come in from the -- the volume of quotes coming in from the new BD people, I'm expecting that to pick up in the next six months. And then once the quotes come in, it takes several months to turn them around into revenue. So you're not going to see that hit directly in revenue. We're seeing some increase from quotes that were put in last year.

Okay. And then, also, you said something about cashless exercise, which is not our interest in doing that. We don't mind accumulating more shares at $2.

Right.

So (multiple speakers) --

Right. That can be done.

Okay.

Okay?

Okay, that's all I needed. Thank you very much.

Okay. Thanks.

There are no further audio questions.

Okay. Well, then this concludes our conference call for today. Thank you, everyone.

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