Inotiv Inc (NOTV) 2014 Q2 法說會逐字稿

Welcome, everyone, to the Bioanalytical Systems second-quarter results conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. At this time, if you have a question, (Operator Instructions). As a reminder, this conference is being recorded today, Thursday, May 15, 2014.

I would now like to turn the conference over to Ms. Jackie Lemke, President and Chief Executive Officer, and Chief Financial Officer of Bioanalytical Systems. Please go ahead, ma'am.

Thank you, operator. And thank you all for joining us for BASi's fiscal 2014 second-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 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.

The trends of steadily improving operating performance at BASi continued in the second quarter. Revenue increased 14.7%, gross profit was up 59.9%, gross margin improved by 9.6 percentage points. Operating income increased by $105,000 and EBITDA increased to $504,000 compared to $490,000 last year.

The improvement in our financial performance was instrumental in our establishing a new $7,500,000 credit facility earlier this month with the Huntington National Bank. The new facility consists of a $5,500,000 term loan at LIBOR plus 325 basis points and a $2 million revolving line of credit LIBOR plus 300 basis points. With substantially more favorable terms than the long-term debt and line of credit it replaces, our new credit facility lowers BASi's borrowing costs significantly, and enhances our ability to implement our growth plans. These tangible benefits obviously are important to us; but, in addition, I think our new credit facility is a strong vote of confidence in BASi's future, and we are pleased that the Huntington National Bank has recognized our progress.

For the three months ended March 31, 2014, revenue increased 14.7% to $5,912,000. This compares to revenue of $5,156,000 for the second quarter of fiscal 2013. Service revenue increased 23.4% to $4,526,000 to this year's second quarter compared to $3,667,000 for the prior-year. This increase primarily reflected higher toxicology and bioanalytical revenues, offset slightly by lower pharmaceutical analysis revenues.

Product revenue decreased 6.9% for the second quarter of fiscal 2014 to $1,386,000 compared to $1,489,000, primarily due to expected upgrades postponed to the third quarter. Gross profit increased 59.9% to $2,012,000 or 34% of revenue compared to $1,258,000 or 24.4% of revenue last year. Operating expenses for the second quarter increased to $1,907,000 versus $1,267,000 for the prior-year. This reflected increases in selling, G&A and R&D expenses, and is in line with our business plan.

As I have explained on prior calls, we are leveraging our existing laboratory capacity and an incremental investment in people and skills to drive growth. We took steps to upgrade BASi's executive leadership during the second quarter, as we continue to build a management team with adept experience and dedication, to take the Company to the next level.

Operating income for the second quarter of fiscal 2014 increased to $105,000 compared to an operating loss of $9000 last year. Net loss for the second quarter of fiscal 2014 was $219,000 or $0.03 per basic and diluted share. This compares to a net loss for the second quarter of fiscal 2013 of $311,000 or $0.04 per basic and diluted share. Net loss for both the current quarter and the same quarter prior-year included charges of $200,000 and $142,000, respectively, for non-cash increases in the fair value of the warrant liability, which was established in May 2011 at the time of the public offering. Excluding these charges, the non-GAAP net loss for the second quarter of fiscal 2014 was $19,000 versus a non-GAAP net loss for the second quarter of fiscal 2013 of $169,000 -- a $150,000 improvement.

The change in the fair value of the warrant liability is a function of the number of warrants outstanding at the end of each quarter, and an increase or decrease in the fair value of BASi's stock from one quarter to the next, as calculated using the Black Scholes formula. As the fair value of the stock increases and warrants remain unexercised, the charge to the income statement recorded increases. There's no cash impact nor EBITDA impact as a result of this fair value adjustment.

EBITDA for the second quarter of fiscal 2014 was $504,000 compared to EBITDA of $490,000 for the second quarter of fiscal 2013. For the six months ended March 31, 2014, revenue increased 10.7% to $12,132,000. This compares to revenue of $10,960,000 for the first six months of fiscal 2013. Gross margins for this year's first half increased 33.5% to $4,157,000 or 34.3% of revenue compared to $3,114,000 or 28.4% of revenue for last year's first half. Operating income increased 92.9% to $567,000 compared to $294,000 a year earlier.

Net loss for the first six months of fiscal 2014 was $881,000 or $0.11 per basic and diluted share. This compares to a net loss for the first six months of fiscal 2013 of [$55,000] or $0.01 per basic and diluted share. Net loss from both the first six months of fiscal year 2014 and the first six months of fiscal year 2013 included charges of $1,161,000 and $25,000, respectively, to non-cash increases in the fair value of the warrant liability, which was established in May of 2011 at the time of the public offering. Excluding these charges, the non-GAAP net income for the first half of fiscal 2014 was $280,000 versus the non-GAAP net loss in the first half of fiscal 2013 of $30,000 -- a $310,000 improvement.

As previously noted, the change in the fair value of the warrant liability is a function of the number of warrants outstanding at the end of each quarter, and an increase or decrease of the fair value of the BASi stock from one quarter to the next, as calculated using the Black Scholes formula. As the fair value of the stock increases and warrants remained unexercised, the charge to the income statement recorded increases. There is no cash impact nor EBITDA impact as a result of this fair value adjustment. EBITDA for the first six months of fiscal 2014 was $1,416,000 compared to EBITDA for the first six months of fiscal 2013 of $1,342,000.

Turning to the balance sheet, at March 31, 2014, cash and cash equivalents were $379,000, down from $1,304,000 at September 30, 2013. This is due primarily to the payoff and termination of our line of credit in quarter-one. As we previously reported, we had extended maturity and mortgage on our debt until October 2014. As a result, this debt amounting to [$4,953,000] was classified as current on the March balance sheet. We soon will use our new term loan facility to pay off this short-term debt. Total long-term obligations, primarily weighted, were $331,000 at March 31 versus $471,000 at September 30, 2013. Shareholders equity increased to $9,629,000 compared to $9,459,000 at the end of the last fiscal year.

What I said on our first-quarter conference call applies just as well to the second quarter. We are pleased by our second-quarter results but not satisfied. We believe we can and will do better. We have focused our marketing efforts on BASi's established strength in specialty assay and drug discovery, regulatory excellence, and our Culex automated sampling system. As evidenced by the 23.4% increase in service revenue for the second quarter, this is generating the uptick in orders in our traditional line of businesses that we had hoped for. Our efforts are also creating opportunities for us to win contracts in new areas such as discovery work on stem cell therapies and related preclinical work.

This expansion of our portfolio of services is especially important as we work to increase our book of business with the current generation of smaller specialty drug development organizations to complement our position among the large pharmaceutical companies we have served for years. The smaller firms generally do not have the extensive scientific and regulatory capabilities required to move a drug candidate through the arduous FDA approval process. We are seeking to develop a sustainable, competitive advantage while balancing the requirements of our large pharmaceutical company clients with a higher touch, full-service approach for smaller biotech accounts.

Our celebration of BASi's 40th anniversary-year continues. We are optimistic about the outlook for the year's second half, and we believe we also are on track to achieve our long-term goal for long-term growth and profitability.

Operator, we are ready for the first question.

(Operator Instructions) Lenny Dunn, Freedom Investors Corporation.

Good morning, Jackie. (multiple speakers) First comment, I'm very happy to see that we have finally straightened out our finances -- or I should say you have -- and that we no longer have this sort of Damocles coming up every September 30th -- and at reasonably favorable rates, which counts too. Now, what do you project the actual interest cost savings will be? Not on the line of credit so much, but on the fixed part.

Yes, if I look at fiscal year 2013, our interest expense was about $650,000. If I just take the next 12 months, I think our interest expense will be less than $300,000. So, the impact (multiple speakers) --

(multiple speakers) Impact [$350,000] then?

Yes.

That will effectively help the bottom line. Second, though we are increasing sales, we clearly aren't increasing at the rate that we'd like. Do you think that we'll start seeing better sales increases in the second half of the year?

Yes, I think so. We expect to increase sales in the second half of the year.

Okay. So, the new salespeople are starting to finally work out? I realize there's a long lead-time, but are you -- would you characterize the staff as currently assembled as the staff you want, then?

Yes. Yes, they are becoming effective in getting leads and getting into people who are interested, and just takes several months to develop the client's knowledge of what we can do for them. And that's what we're working on.

Okay. And have you made any progress on replacing the woman who ran the lab? Or that's still a work in progress?

No, we'll be announcing in the next few weeks someone to come in as our Vice President of Bioanalytical. He has accepted, and I just need to get some of the paperwork in order and we'll make an announcement.

Okay, great, because I know you're looking for somebody that would actually bring some business to the table.

Yes.

Yes. So that is very good news. And then my final question is about the warrants. I know we exercised some of our warrants in April, which wouldn't have shown up on the March 31st balance sheet. Were there other people in April that exercised? Or is it going to be fairly static other than what we exercised?

No, I don't think we saw many exercises in April, no. So right now, as of the end of March, we had about 60% of the warrants unexercised, still outstanding, about 810,000.

Okay, because that always makes the earnings announcement more confusing than it should be.

I know.

Lenny Dunn Therefore, the accounting is the way it is because it really has no effect on anything. But anyhow, the balance sheet looks good even though the cash has decreased, because you use the cash effectively. So, it looks like we are in very good shape going forward and we're ready to start leveraging it up.

Yes.

Okay, well, thank you very much.

Thanks, Lenny.

Ethan Star.

Good morning and congratulations on a nice quarter.

Thank you.

I'm just wondering -- the press release made mention of an upgrade of an executive leadership. Can you expand on that, please?

It made mention of -- yes, the executive -- yes. We did just hire a Senior Director for the Pharmaceutical Analysis business. He started in January; a PhD. Very effective already. He came to us from Covance. And as I just mentioned, we are hiring a Vice President for Bioanalytical. And those were two key leadership roles that we just wanted to give people who were more looking towards potential growth opportunities, bringing in some of their contracts, some of their relationships.

Okay, great. And how will the increase selling and R&D expenses pay off down the road? Do you see that -- and what's the lead-time? I know it's going to be a long time before you see results, but just curious to hear a little more about that?

Right, right. Well, I think we're already seeing some results on the business development side. And we are, from the selling -- the general side, we have more engineers currently in the Company, helping us to design next generations of our instruments. So, I think you're going to see a pay-off in the next 18 months to two years.

Okay. Sounds good. I look forward to future quarters.

Okay, thank you.

And there are no more questions in the queue at this time, ma'am.

Okay. Well, thank you, operator. And thank you, everybody, for joining and for speaking to me about the second-quarter conference call. We look forward to speaking with you on our fiscal 2014 third-quarter call in the next three months. Thank you very much.

Ladies and gentlemen, that concludes the presentation for today's conference. You may now all disconnect and have a wonderful day.