Koninklijke Philips NV (PHG) 2005 Q4 法說會逐字稿

Good day everyone. Welcome to the Lifeline Systems fourth-quarter 2005 financial results conference call. Today's call is being recorded. With us is the President and Chief Executive Officer, Mr. Ronald Feinstein; and the Chief Financial Officer, Mr. Mark Beucler. There will be an opportunity for questions and comments after the prepared remarks. (OPERATOR INSTRUCTIONS) At this time I'd like to turn the call over to Mr. Mark Beucler. Please go ahead, sir.

Thank you everyone for joining us this morning. I will begin with a review of our financial results for the fourth-quarter and full-year 2005. Ron will then provide us a business update. After that we will be happy to take your questions.

In addition to discussing our financial results during this call we will be speaking briefly about the status of Lifeline's pending merger with Royal Philips Electronics. Please be aware that all of the matters we are discussing this morning include predictions, estimates, expectations and other forward-looking statements. These statements are subject to risks and uncertainties that could cause actual results to differ materially. You should refer to our recent SEC filings and public announcements for a detailed list of risk factors.

I'd like to remind everyone that the merger agreement has been filed with the SEC on Form 8-K and is assessable on the SEC website at www.SEC.gov. The news release announcing the merger was incorporated within the same filing. It is also available on Lifeline's website at www.LifelineSys.com. In addition, Lifeline has filed with the SEC and mailed to its shareholders a proxy statement dated February 22, 2006, in connection with the pending transaction. The proxy statement, which is accessible on the SEC website, contains detailed information about Lifeline, Philips, the transaction and related matters. Investors and security holders can also obtain free copies of the proxy statement from Lifeline by contacting investor relations Lifeline Systems 111 Lawrence Street, Framingham Massachusetts, 01702. The phone number is 508-988-1000. We urge all investors and security holders to read the proxy statement carefully.

I'd also like to remind you that as we announced on February 15, we plan to hold a special meeting of shareholders on Tuesday, March 21, for the purpose of approving the pending acquisition. The meeting is scheduled to be held at the offices of Wilmer Hale in Boston beginning at 11:00 a.m. Eastern time. Lifeline shareholders of record as of the close of business on February 17 will be eligible to vote. Given that detailed information is available on the proxy statement and merger agreement, we will provide only a brief update on the Philips transaction during this call.

On February 22, we announced that Lifeline had been served with a purported shareholder class-action lawsuit against the Company, its directors and DAP Merger Sub, Inc. The complaint was filed on February 17, 2006 in Massachusetts Superior Court, Middlesex County and challenges the price of and the process leading to the merger agreement with Koninklijke Philips Electronics MV and DAP Merger Sub. We believe the allegations are without merit and intend to vigorously defend against the lawsuit. We do not believe that this lawsuit will affect the close of the transactions.

Let's turn now to our financial results for the fourth-quarter and full-year 2005. As we reported in our press release this morning, Lifeline continued its record of double-digit increases in revenues and net income in Q4 of 2005 concluding the year with strong results. Total revenue for the quarter grew 16% to $40.6 million from $35 million in the fourth quarter of 2004. For the full year 2005, total revenue increased 16% to $151.2 million from $130.5 million in 2004.

Service revenue rose 17% in Q4 to $31.6 million from $27 million a year earlier. Service revenue for the full year of 2005 grew 16% to $119.6 million from $103.2 million last year. This increase was driven by organic subscriber growth and by an improved revenue profile for our new subscribers.

Our subscriber count increased 11% in 2005 to more than 469,000 from 423,000 at the end of 2004. Average revenue per subscriber in the fourth quarter grew 6.2% from a year ago to more than $22.50 a month. Product revenue for the fourth quarter of 2005 increased 15% to $9 million from $7.8 million a year earlier. This was primarily due to growth in our Senior Living business. Total product revenue for the full year increased 18% to $31.3 million from $26.5 million in 2004.

Lifeline's net income for the fourth quarter of 2005 increased 16% to $5.2 million or $0.35 per diluted share from $4.5 million or $0.31 per diluted share for the fourth quarter last year. Net income for the fourth quarter of 2004 included $700,000 of tax benefits. Excluding these tax benefits, net income for the fourth quarter of 2005 increased 37% from a year ago. Our net income for 2005 was $18.2 million or $1.24 per diluted share which included a total of $2.9 million or $0.20 per share in tax benefits. Excluding these tax items, net income for 2005 was $15.4 million or $1.05 per diluted share.

For 2004, net income included a total of $700,000 or $0.05 per share in tax benefits. Excluding these tax benefits, net income for 2004 was $11.8 million or $0.83 per share. Our normalized tax rate for 2005 was 38% compared with 41% for 2004.

Moving onto margins. Total gross margin improved 130 basis points from the fourth quarter last year to 56.9%. Prior gross margin was essentially flat from Q4 last year while service gross margin was up 180 basis points to 55.3%. This improvement reflects our continued progress in leveraging fixed costs and enhancing the productivity, utilization and scalability of our business processes and systems.

Lifeline continued to perform well from a cash-flow perspective in Q4 reflecting the ongoing success of our working capital initiatives. The quality of our revenues and accounts receivables continue to improve during the fourth quarter. Our healthcare programs are doing a good job in managing and growing their Lifeline businesses which improves their payment profiles for us. We're seeing solid growth in the proportion of customers who pay by credit card and billing improvements in our Medicaid division have also helped improve our DSO.

In addition, we're seeing increased cash flow from Lifeline Capital, our outsourced equipment leasing program. As a result of these initiatives, our DSOs fell to 30 days in Q4 from 33 days a year ago. We concluded 2005 with cash and investments of $[50] million compared with $47.4 million last year.

With that, I will turn the call over to Ron.

Thanks, Mark. Good morning everyone. Our pending merger with Philips Electronics makes this an exciting time for everyone associated with Lifeline. We're looking forward to the closing and a productive working relationship with Philips. At the same time we're continuing to execute on our long-term strategy working to increase our subscriber base and improve our profitability while reinvesting in the future growth of our business. The fourth quarter concluded another strong year for Lifeline and demonstrated the effectiveness of our strategy. We're enhancing the lifetime value of our subscribers both by extending their tenure with Lifeline and increasing their average monthly revenue yield. At the same time, our new investments in healthcare channel direct marketing are producing solid organic incremental growth.

Our integrated marketing strategies support all of our service offerings and all of our customer relationships. And we're continuing to see strong growth. We added nearly 47,000 net new subscribers in 2005, a 27% percent increase from the 37,000 we added in 2004. In addition, the Company's Senior Living business has been growing nicely. During the fourth quarter we acquire the assets of Care Technologies based in Roswell Georgia, a leader in wireless emergency call systems for Senior Living communities in the Southeast. In addition to providing high-quality products and services, Care Technologies has developed a strong customer oriented reputation and it represents a good strategic fit with Lifeline's Senior Living division.

As we move through the first quarter of 2006, we're truly looking forward to building our business momentum by combining Philips and Lifeline. Our goal is to continue to capitalize on opportunities in an underpenetrated market and we're looking forward to leveraging the potential synergies with Philips always providing high levels of caring and quality as we have in the past.

With that, Mark and I will take your questions. And again, if you are looking for information about the nature of the Philips transaction or the provisions of the merger agreement, the answers to these questions can most likely be obtained in the proxy or the 8-K that was filed with the SEC.

Operator, please go ahead with the Q&A session.

(OPERATOR INSTRUCTIONS) Randy Gwirtzman with Baron Capital.

Good morning, guys. Just a quick question I don't know to what extent you can talk about it. But the suit that was filed in Massachusetts Superior Court, what are they doing? They are seeking to enjoin the acquisition or they're seeking to get a higher price? What is laid out in the complaint?

That has been disclosed in our press release. And beyond that the Company obviously cannot comment on the status of any pending litigation.

Okay. Obviously you and Philips intend to move forward and continue to consummate the transaction?

We're tracking towards the March 21st closing.

Okay. And just the last question I had, guys, was what would the expiration of the Hart-Scott-Rodino period around -- what is the time that they decide not to continue the review?

I believe it has already happened. Mark, do want to comment on that?

Yes. Randy, that happened a few weeks ago. It went through the normal I think it's a five-day period. That is behind as. There were no issues.

That is great. Terrific performance in the quarter. I'm sorry I'm not going to be a shareholder anymore. But thank you very much.

Thanks for that comment.

Thank you.

(OPERATOR INSTRUCTIONS) Jim Bartlett with Bartlett Investors.

No questions. Just congratulations on a terrific job. I thank you, my wife thanks you, my kids thank you. So, thanks a lot.

Jim, we missed you on the last conference call.

Unfortunately I was skiing.

Thanks for your support.

Thank you, Ron. Bye-bye.

(OPERATOR INSTRUCTIONS) At this time, there are no further questions in the queue. I will now turn the conference back over to Mr. Ron Feinstein for any closing remarks or additional remarks.

Thank you for joining us today. I'd like to thank our loyal shareholders and our analysts who have followed our Company. We greatly appreciate your interest and support and this does conclude our call. Thank you very much.

That concludes today's Lifeline Systems conference call. Thank you for joining us today. You may now disconnect.