Inotiv Inc (NOTV) 2014 Q1 法說會逐字稿

Good day, ladies and gentlemen and welcome to the Q1 2014 Bioanalytical Systems, Inc. earnings conference call. My name is Breanna and I will be your operator for today. (Operator Instructions). As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Ms. Jacqueline Lemke, President, CEO and CFO. Please proceed.

Thank you, operator and thank you all for joining us for BASi's fiscal 2014 first-quarter financial results conference call and webcast. Please note that various remarks we may make on this conference call about future expectations, plans and prospects for the Company constitute forward-looking statements for the purposes of the Safe Harbor provision 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.

We are very pleased with the first-quarter results we reported this morning. Focusing on the highlights, revenue increased 7.2%, gross margin increased 15.6%, operating income increased 53% and net income, excluding the impact of the change in warrant liability, increased 115% compared to the first quarter of fiscal 2013.

In addition, BASi generated $1.036 million in cash from operations during the quarter and we paid down $1.2 million on our line of credit while meeting all of our other obligations. In January, we also paid off the remaining balance on our line of credit.

For the three months ended December 31, 2013, revenue increased 7.2% to $6.220 million compared to $5.803 million for the first quarter of fiscal 2013. Revenue also increased on a sequential basis rising 12.9% compared to $5.508 million for the fourth quarter of fiscal 2013.

Service revenue for the first quarter of fiscal 2014 increased 5.3% to $4.916 million from $4.670 million for the first quarter of fiscal 2013, reflecting the increase in new order bookings I mentioned on our last conference call. Product revenue increased 15.1% to $1.304 million versus $1.133 million for the prior year's first quarter primarily due to higher sales of Culex automated sampling systems.

Gross profit was $2.145 million, or 34.5% of revenue. This compares to gross profit of $1.855 million, or 32% of revenue for last year's first quarter. Operating expenses for the first quarter of fiscal 2014 increased to $1.683 million compared to $1.553 million a year earlier. This increase was primarily due to planned increases in selling and R&D expenses.

Operating income for the first quarter of fiscal 2014 increased 53% to $462,000 compared to $302,000 last year. The net loss for the first quarter of fiscal 2014 was $662,000, or $0.09 per basic share and diluted share, which included a noncash increase in the fair value of the warrant liability of $961,000. Excluding this charge, non-GAAP net income for the first quarter of fiscal 2014 was $299,000, or $0.04 per basic and diluted share.

For the first quarter of fiscal 2013, net income was $256,000, or $0.03 per basic and diluted share, which included a noncash decrease in the fair value of warrant liability of $117,000. Excluding this benefit, non-GAAP net income for the first quarter of fiscal 2013 was $139,000, or $0.02 per basic and diluted share. EBITDA for the first quarter of fiscal 2014 was $912,000 compared to EBITDA of $851,000 for the first quarter of fiscal 2013.

At December 31, 2013, cash and cash equivalents was $841,000. As we previously reported, we had extended maturity of the mortgage on our building to October 2014. As a result, this debt was classified as current on the December balance sheet. Total long-term obligations, primarily leases, were $401,000. Shareholders' equity was $8.840 million. In comparison, 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 was $5.112 million and shareholders' equity was $9.459 million.

I already mentioned that we have fully paid down our $3 million line of credit. We continued to pursue several alternatives, including a sale-leaseback of the West Lafayette building or refinance of the mortgage debt. I am optimistic that we will have good news on this front very soon.

We are pleased by these results, but not satisfied. We believe we can do better. As I have explained on prior conference calls, we have built a sustainable business model that is both profitable and now beginning to grow. We remain focused on growing revenue even as we push ahead with our initiatives to control costs and improve productivity.

To achieve these goals, what we plan to do in fiscal 2014 is leverage our business model. We will use our existing capacity and an incremental investment in people and skills to support the long-term growth we believe BASi is capable of delivering.

Our decision last year to concentrate our marketing programs on BASi's established strengths and specialty assay and drug discovery, regulatory excellence and our market-changing Culex NxT automated sampling system is paying dividends. With our expanded sales team gaining traction in the marketplace, we are optimistic that the increase in new order bookings we have enjoyed in recent months will continue.

BASi celebrates its 40th anniversary in 2014. This milestone is made all the more significant by the progress we have made these past couple of years in strengthening the Company for the future. We are confident that we are pursuing the right strategy to enhance operating performance and build value for our shareholders. Operator, we are ready for the first question.

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

Jackie, I have some questions here on these warrants. The reserve for those, was that based on a December 31 price?

Yes, the warrant evaluation is based on the number of warrants outstanding, the remaining life of the warrant and then the stock price at quarter-end and the difference between the stock price and the strike price and at quarter-end, our stock price was $2.71, which was over the strike price, which made the value go up.

Correct. So we are going to see negatives on these again assuming the price of the stock is above $2.71 come March 31?

Yes, I think we should expect that. We also will get some movement based upon whatever warrants are exercised.

Okay. So how many warrants have been exercised so far?

Well, at the end of December 31, we had 1.1 million still outstanding.

Okay.

And so that is what we have available to exercise. We've had a few hundred thousand exercised since then.

Okay, okay. So with the exercise of those warrants, you are getting $2 a share off of that, but it is helping your balance sheet. Does that change your opinion at all as far as the sale-leaseback of the building?

Well, we will be getting the cash when we finish the post-effective amendment. So right now, the exercise of the warrants is done on a cashless basis, so they would get shares. But, at that point, which we hope is by the end of the month, yes, we will be getting some cash and that plus the availability of financing will all impact whether the sale and leaseback is the right business decision.

Okay, okay. But it just looks like -- I mean you are improving your balance sheet or you will be going forward and so actually the sale of the building probably becomes a little bit, what do I want to say, less needed.

Right, right.

Okay. And going forward, where do you see the bulk of the growth? Do you see that coming from the service side or do you see that coming from the product side?

Well, I think this fiscal year we are seeing an uptick in both service and product, but probably a little bit more in service. But if we are talking two to five years out, we are thinking product.

Okay, okay. And much of that would be with the new Culex system?

Right.

Okay. And how many Culex, of that new Culex system have you sold so far this year? Well, I guess it would have been in the first quarter? Were there any of those units in the first quarter?

Yes, yes, I was looking at that because I know people are interested and last quarter, last year first quarter, remember, we had just introduced it, so we really didn't have time for people to get it into their capital budgets and we hadn't sold any this time last year. This year, we've sold 14 (multiple speakers).

14 of them.

Yes.

Okay, okay. And can you give us an indication of how many you've sold so far this quarter?

I don't have that.

You don't have that.

But I would think we'll be at least where we are at in quarter one. We are looking to expand that substantially. We really need to get some market reach and brand awareness. That is what we are working on.

So your new salesforce, you have got two people new on the product side. They are starting to gain some momentum, are they?

Yes, yes. Really a function of getting out there and introduced because we have a great product. So we are also going to look to our distributor network and we have a commercial running now, which you can see on our website. We have been starting (multiple speakers).

Saw that. Very interesting. Also, I wasn't in attendance, but I saw your presentation at the Nolan Financial conference. Are you looking to get out there and make additional presentations at these conferences as they come up?

I probably will. There are a lot of them. I probably will selectively pick two or three in a year.

So you don't have any on the calendar yet?

Not yet, no.

Okay, okay. Okay, thanks, Jackie.

Thanks, Tom.

Seth Hamot, RRH.

Hi, guys. Hi, Jackie.

Hi, Seth.

So just first question, can you tell us our cash position today?

Yes. We are paid down on the line of credit and I don't know, we probably have $0.5 million in cash at any given time.

Okay, fine. So cash generation between the end of the year and now hasn't been too great yet.

Right, because we are still working on paying down our liabilities, but the success was getting out from under a very expensive line of credit that we've had for three years.

Oh, yes. Absolutely. What I am trying to actually do is back into how much of the cash generation is due to operations and how much is due to working capital changes.

Oh, okay.

So I don't have a Q yet. I don't have a Q, right?

It is up there. It is out. Yes.

Oh, is it? Okay, fine. So I haven't looked through that. That $1 million in cash generation, what is your feeling on your cash generation going forward for the next rest of this calendar year? If you can speak to that as well as the rest of the fiscal year?

Our cash flow from operations this quarter was what? $1.6 million, $1.7 million? I think it will be better than that each quarter. I can't tell you exactly what. I haven't worked that out, but our goal is as revenues go up to finish paying down the payables that we walked into, the past-due situations and to start to put some money aside for strategic options.

Okay, super. Could you tell me how you think strategically -- tell me about the market you think for Culex and how you are attacking it, without giving up anything proprietary, of course. So how big is that market, how do you think geographically it breaks up and are you focused on other geographies besides the North America? Give me like the 30-second elevator thing.

I think the market is about $20 billion. I think that the bulk of the market is in the US. I think that right now we are scattered in our focus. We sell Australia, Asia, we sell all over the place. I think really if we concentrate on the Boston area, the San Francisco area and some selective global areas, we can increase quite a bit. It is a question of how fast can we do it financially.

And so that's quota carrying salespeople? Just a question, right? Is that quota carrying salespeople in Boston and San Francisco?

Yes. We have the quota carrying salespeople, but two or four I don't think is enough. I think that we also have 21 distributors that are carrying our Culex. We need to push through them a little bit more.

Okay. And are you meeting resistance through them or they are just not (multiple speakers)?

No, no, I don't think we've paid enough attention to them; that is all. I think we have to give them an incentive and a reason and an understanding of how we sell. We are trying to switch a little bit of our sales from just selling on the technical end and scientific end and more on the practical. What kind of money are you going to save, why would you do this, what is the return on your investment?

You are putting together business cases, right?

Right, right.

Okay. And by the way, the ROI, there is an ROI calculation in that, right?

Yes.

Okay, fine. And that is compelling, right, I imagine?

Oh, yes. It's very good. Yes.

Okay, super. Thanks a lot for your time.

Sure, thanks, Seth.

(Operator Instructions). Lenny Dunn, Freedom Investors Corp.

Good morning, Jackie and another good quarter. On the Culex sales, is the fourth calendar quarter of the year normally just a little soft because not that many companies are buying because they are setting up their budgets for the following year?

Actually that quarter is usually our best quarter historically because they have their budgets and they want to spend it and it takes them all year. Like they set up the budget at the beginning of the year and it takes them six to nine months to get the compelling story on the case and then to sell it. So usually that is our best quarter.

Okay, okay. And obviously the Culex sales have better margins than the lab sales, but the lab sales can have larger dollars. So we want to see both sides of the equation moving forward.

Yes. Well, I think that you will find that if you look at the service gross profit margins, they are pretty healthy margins too. I mean they are, I don't remember exactly, but they are between 30%, 35% now that we have decreased our capacity. So the service side is pretty good.

Great. That's great. (inaudible) with cutting costs. And are you finding more -- I should say better reception now when your salespeople call because the Company is financially stable now and maybe you might have gotten a little bit of negative feedback because the Company didn't look as stable?

Yes, I think so. I think we missed -- when I first got here and we were changing so many things that that's scary for the customers because they need to deal with the clients, they need to be able to put a project with you for 18 months to two years. But I think now that they see we've been here 40 years, we are not going anywhere, we are in this to stay, we are committed to quality and regulatory excellence, they are starting to come back.

It does look like you have it turned around. Now we have quite a few warrants that we want to exercise, but not on a cashless basis. We want to pay the $2 and start the meter running for the long-term capital gain. So you said earlier in the call that you anticipate that somewhere around the calendar end of this month you'd be able to have this -- we could start doing that.

Right, right. We want to include the results that we just issued today in the post-effective amendment and then the SEC has a few weeks to respond. And then as soon as we get their response, we should be able to lift any restrictions.

Okay. And will you put a news release out on that at that point so that we can act?

Well, I will definitely put letters out to everybody and I know maybe letters might not be fast enough, but we will get some communication out to the warrant holders to make sure they are aware of it right away.

Okay, because actually this is helping our investors, but also helping the Company because you have the --

Right.

-- cash and you reduce the bookkeeping problem that you've been having all along with the warrants.

Right. No, definitely.

It's a win-win there.

Yes.

Okay, well, I appreciate the good quarter and look forward to the next one.

Thanks. Me too.

[George Jasper].

Yes, good morning, Jackie. A question on the real estate. The value, could you please repeat the value again of what the asset is worth on the balance sheet? And secondly, in terms of a possible sale-leaseback, are you utilizing the square footage entirely or is there a possibility that either for yourselves to do a farmout of some of the square footage or is that possible on a sale-leaseback, which you had acquired the rights for certain square footage or the whole thing? Would there be some potential square footage that would be offloaded to somebody else on a sale-leaseback?

Right. So right now, the appraised value is about 10. That is the asking price. I don't know the book value off the top of my head, but it is in the K. And the plan is we occupy between 75% and 80% of the building, so we would sell the building, probably lease back 100% and then sublease the other 20%. Ideally, if we could just leaseback the 80%, we could, but I don't think that is what an investor wants. And right now, we are working on some subleases. We should have one in hand by next week, so we understand that an investor would want to buy the whole building and we would lease back 100%. That is our plan.

Okay, thank you.

There are no further questions on the line.

Okay. Thank you, everybody, for joining us this morning. I look forward to speaking with you on our second-quarter fiscal 2014 conference call in about three months. Have a nice day.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation.