Surmodics Inc (SRDX) 2011 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the SurModics Fourth Quarter 2011 Earnings Conference Call. During today's presentation all parties will be in a listen-only mode. (Operator Instructions) This conference is being recorded today, November 3, 2011. I would now like to turn the conference over to Tim Arens, Vice President of Finance and Interim Chief Financial Officer. Please go ahead, sir.

Thank you, Doug. Good afternoon and welcome to SurModics' fiscal fourth quarter and full year 2011 conference call. Also with me on the call is Gary Maharaj, our Chief Executive Officer.

Our press release reporting quarterly and full year results was issued earlier this afternoon and is available on our website at www.Surmodics.com. Before we begin, it is my duty to inform you that this conference call is being webcast and is accessible through the Investor Relations section of the SurModics website where the audio recording of the webcast will also be archived for future reference. I will remind you that some of the statements made during this call may be considered forward-looking.

The 10K for fiscal year 2010 identifies certain factors that could cause the Company's actual results to differ materially from those projected in any forward-looking statements made during this call. The Company does not undertake any duty to update any forward-looking statement as a result of new information or future events or developments.

During the call, we may include reference to financial measures which are not calculated in accordance with Generally Accepted Accounting Principles or GAAP. These measures may be used by management to compare the operating performance of the Company over time but they should not be considered a substitute for GAAP measures. Each of these items is described in the footnotes to the supplemental non-GAAP information that accompanied our press release this afternoon.

On today's call I will highlight select financial results for the quarter and year as well as discuss our outlook for fiscal 2012. Gary will then discuss our key achievements for the year, our announcement regarding the sale of our SurModics Pharmaceuticals business to Evonik Industries, and our strategy and growth drivers moving forward. Following this discussion we will open the call to take your questions.

Let me begin with some financial highlights. We are pleased with our fiscal 2011 performance. Our efforts to strengthen our core businesses have already begun to yield positive results. As we achieved record revenue in fiscal 2011 for both our hydrophilic coatings offers as well as our in vitro diagnostics products. Revenues for the fourth quarter total $17.2 million, an increase of 10% over the $15.5 million reported in the fourth quarter of last year.

This represented our first quarterly year to year revenue growth performance since the fiscal 2010 third quarter. On a sequential basis, revenue was down 5% from the $18 million reported in our third quarter as weakness in pharmaceuticals more than offset gains in our medical device and in vitro diagnostics businesses. For the full fiscal year 2011, revenue was $67.8 million, down 3% from fiscal year 2010.

On a GAAP basis, our diluted loss per share was $0.74 for the fourth quarter. For the fiscal year our GAAP diluted loss per share was $0.73. During the fourth quarter, we recognized $18.9 million of special charges associated with the restructuring charge and certain asset impairment charges. In total, the net impact of these items reduced our fourth quarter GAAP EPS by $0.81.

Let me take a moment to briefly explain each item. First, we recorded a restructuring charge of $1 million or $0.04 per share related to our August strategic realignment. Also we recognized asset impairment charges totaling $17.9 million or $0.77 per share as we wrote down pharma related assets in Alabama to their fair value based on recent valuations associated with our strategic alternatives process.

Earnings per share on a non-GAAP basis were $0.06 for the fourth quarter of fiscal 2011, a decline from the adjusted earnings per share of $0.13 earned during the third quarter. For the full year 2011, adjusted earnings per share assuming a normalized effective tax rate of 38% was $0.32, a 16% decline compared with adjusted EPS of $0.38 for the full fiscal year 2010.

Per our press release on Tuesday, we announced that SurModics had signed a definitive agreement under which our pharmaceuticals business will be divested to Evonik Industries for $30 million in cash. The divestiture includes the entire portfolio of products and services of our pharmaceuticals business, including the cGMP facility in Birmingham, Alabama. In fiscal 2011 and 2010 Cypher-based royalty and product revenue associated with our polymer drug delivery coatings and our hydrophilic coatings totaled $6.7 million and $9.8 million respectively. Our following comments include the effects of Cypher unless otherwise noted.

I will now turn our discussion to the sales by business unit. For the fourth quarter, total medical device sales which included revenue from both our hydrophilic coatings and device drug delivery technologies were at $10.2 million, up 7% sequentially from the $9.6 million reported in Q3. We did achieve record hydrophilic coating revenue of $8.8 million during the quarter, representing 7% growth compared with the year ago period. Device drug delivery revenue of $1.4 million declined 4% compared with the year ago period.

Medical device revenue for the fiscal year 2011 was $39.6 million, representing an 8% decline from fiscal year 2010. Hydrophilic coating revenue of $33.6 million increased 8% from fiscal year 2010 whereas device drug delivery revenue of $6 million decline 48% compared with the prior year. Medical device generated $5 million of operating profit during the quarter and $19.8 million for the full fiscal year.

Moving on to in vitro diagnostics, we earned record in vitro diagnostic product sales of $3.6 million during the fourth quarter, representing 10% sequential growth compared with the $3.3 million reported in Q3. For the fiscal year 2011 IVD sales were $13.1 million, up 17% from fiscal year 2010. IVD generated $1 million of operating profit during the quarter and $4.3 million for the fiscal year, solid improvement compared with fiscal 2010 results.

Moving on to pharmaceuticals, pharmaceutical sales for the fourth quarter of fiscal year 2011 were $3.3 million, a 35% sequential decline from the $5 million reported in Q3 during which time we were experiencing increased R&D activity with several customers as we continue to make important progress on those programs. For the fiscal year 2011, pharma sales were $15.1 million, a decline of 3% from fiscal year 2010. Pharma generated a $20.4 million operating loss during the quarter or a $2.5 million operating loss if we exclude the asset impairment charge. For the year, pharma generated a $32.5 million operating loss. Excluding goodwill and asset impairment charges, pharma lost $9 million.

Now on to a revenue summary by category. Royalty and license fees were $7.8 million, up 4% from the $7.5 million reported in Q3. For fiscal year 2011, royalty and license fees were at $30.6 million, down $3.7 million or 11% from fiscal year 2010. Excluding the impact of Cypher, hydrophilic royalties grew 7% in fiscal 2011. Product sales of $6.5 million set a new record in Q4, representing a 12% increase from the previous product record of $5.8 million that was reported in the third quarter. Sequential product revenue growth was broad-based and seen across all business units. For the fiscal year 2011, product sales grew 14% from fiscal year 2010.

Lastly, R&D revenue in the fourth quarter was $2.8 million, a decline of 38% from the $4.6 million reported in the third quarter. The decline was a result of normal ebbs and flows and activity in our pharma customer development programs. For the fiscal year 2011 R&D revenue declined 8% from fiscal year 2010.

Moving on to a review of our product gross margins, we generated product gross margins of 62% in the fourth quarter compared with 71% in the third quarter. For fiscal year 2011, product gross margins were 64% compared with 53% last year.

Moving on to our operating costs, SG&A expenses in the fourth quarter of fiscal year 2011 were 32% of sales compared with 27% of sales in the third quarter. For the full year, SG&A expenses were 30% of sales compared with 26% of sales in fiscal year 2010. Higher variable compensation and expenses associated with our pharma strategic alternatives process increased the fiscal 2011 SG&A expense.

Other research and development expenses which exclude customer R&D were 19% of fourth quarter sales compared with 20% of sales in the third quarter. For the full year, other R&D expenses were 18% of sales compared with 26% of sales in fiscal year 2010. Key contributors in our year to year decline in other R&D expenses included a therapeutic tax credit benefit of $827,000, our efforts to refocus on our core businesses, and the October 2010 reduction in force. Moving on to the balance sheet, at the end of fiscal year 2011, we had cash and investments of $68.2 million and generated operating cash flow of $20 million during fiscal 2011.

Finally, I want to offer some comments regarding our revenue and earnings per share outlook for fiscal 2012. Our outlook from continuing operations on a GAAP basis excludes any revenue associated with Cypher and the pharmaceuticals business. As a reminder, we will report our fiscal 2012 pharmaceutical results as discontinued operations.

For the full year we expect GAAP revenue from continuing operations to be in the range of $47 million to $51 million and diluted GAAP EPS from continuing operations to be in the range of $0.45 to $0.53. Our GAAP outlook reflects our estimate regarding the results of the pharmaceuticals business through the end of November. As a result of the strength in momentum we are seeing in our core business, we feel that we have the right strategy in place to return SurModics to the path of sustainable profitable growth.

At this point I would like to turn the call over to our Chief Executive Officer, Gary Maharaj. Gary?

Thank you, Tim. My first goal as CEO last December, as you recall, was to develop a clear roadmap to return SurModics to consistent and profitable long-term growth. In previous earning call comments I highlight three areas of focus for 2011 that set the stage for us to achieve this long-term goal. First, achieve our fiscal 2011 financial plan. Second, complete the review of strategic alternatives for our pharma business and third, develop a strategic plan for the business.

I'm pleased to report that we have been successful in each area. First, we have delivered against our financial commitments for the year. As you've heard our full year revenue and non-GAAP earnings fell within the guidance we provided during our August earnings call. As a result of our renewed focus on the call, we delivered record quarterly and full year sales of both hydrophilic coatings and our in vitro diagnostics. During the year, our hydrophilic coatings revenues increased 8% and our diagnostic revenue increased 17%.

Our next priority was to conclude our review our strategic alternatives for the pharmaceuticals business by the end of the calendar year 2011. Recall that the Board determined in December of last year that seeking strategic alternatives for our pharma business was necessary to unlock greater value for SurModics. We have conducted a thorough process resulting in a decision to sell the pharma business which we believe is in the best interest of all stakeholders.

On Tuesday we announced the signing of a definitive asset purchase agreement to sell SurModics Pharmaceuticals to Evonik Industries AG for $30 million. In the agreement, Evonik agreed to purchase the SurModics Pharmaceuticals assets, including the cGMP development and manufacturing facility located in Birmingham, Alabama. The terms of the sale also granted Evonik ownership of SurModics' parental dosage form services and bioabsorbable lactide-glycolide polymers business.

To reiterate, the sale of the pharma business achieves three critical objectives for us. First, it advances our strategy to return SurModics to sustainable long-term profitability. Second, it allows us to focus our resources on the core higher margin medical device and in vitro diagnostics businesses. And third, this deal creates compelling value for all of our stakeholders, including the employees of our pharma business and the Birmingham community. The $30 million gross sale price coupled with the expected improved future profitability and cash flow for SurModics will significantly strengthen our financial profile. We are grateful for the hard work and accomplishment of our pharma employees and we wish them all the best at Evonik.

Finally, our third priority was the development of a strategic plan to guide the Company. Simply put, we will focus first on strengthening and growing our core businesses and second to explore new opportunities to expand our product offerings over the medium and long-term. This strategy, as you recall, is based on the principle that sustained and profitable growth requires a well-defined and strong core as a foundation for the business. In the second quarter we redefined our core medical business -- medical device business as hydrophilic coatings that improve the performance of minimally invasive medical devices. Taking the same approach in the third quarter, we find the core IVD businesses as amino assay regions that improve the performance of diagnostic tests.

To better focus our resources on these two core businesses, we announced a strategic realignment in August to align both our cost and operational structure to enable this new strategic plan while maintaining our commitment to R&D. As part of this strategic alignment, we announced a reduction in force of approximately 9% of our employees across the entire organization and a restructuring of executive responsibilities resulting in a smaller team. This realignment was a critical component to set the stage for our go-forward strategy and increased the agility of our business.

Delivering double digit organic sales and growth and profitable earnings growth on a sustainable business basis is a high priority for us. Let me now outline the key initiatives that are underway to increase our sales growth in fiscal year 2012 and beyond.

The first key initiative is complete. We have made the leadership and structural changes necessary to align our resources with our strategies. Second, as I've said before, R&D is the heart of value creation and organic growth for SurModics. We have both changed [architecture] for R&D portfolio and reset the priorities to ensure we optimize long-term returns with acceptable risk. We're being very careful to invest appropriate amount of diligence to technically and financially derisking our portfolio of R&D's ideas and experiments before committing complete funding to full-fledged projects. My initial impressions and findings suggest that there are significant growth opportunities in our R&D portfolio and our core businesses.

With respect to medical device, our core initiatives to expand our leadership in hydrophilic coatings are to capture the market for high growth potential segments such as (inaudible) [style] replacement, ischemic and hemorrhagic stroke, and personal vascular markets. We'll also increase our activities with emerging medical device companies working on innovative technologies as they require hydrophilic coatings as well. We'll also increase our partnership and activities in emerging markets.

Finally, we will drive the adoption of our next generation of hydrophilic coatings. As I have previously described, our next-generation hydrophilic coatings platform provides a compelling value proposition. While we're not yet complete, our data suggests that we have eliminated the tradeoff between lubricity�and durability and this new platform is expected to set the standard as best in class lubricity and durability performance for our customers.

We believe that this new platform will expand our market opportunity by enabling us to capture share from alternative coatings processes used by device manufacturers since it will provide improved performance. We anticipate introducing this new platform to customers in early calendar year 2012. As far as expanding within the core, we have several ongoing R&D experiments and we also have one key project underway that will expand our core offerings. This project, as you recall, is to develop a new drug delivery platform for drug-coated balloon products. All early results remain promising both to us and to our prospective customers.

Moving on to our in vitro diagnostics business, we are focused on several key initiatives designed to accelerate organic sales growth again within our core. First, we're developing and launching new IVD products. We've already launched two new core diagnostic products in 2011 fourth quarter and we expect to launch several more during fiscal 2012. We have reorganized our sales function to increase our focus on diagnostic kit manufacturers and we've increased our marketing activities to drive awareness and preference for our products including the launch of an updated website and ecommerce site before calendar year end. Finally, we are expanding our presence in emerging markets -- growth markets. During the past year, we have significantly grown our US diagnostic kit manufacturer customer base. In addition, these same customers continue to develop and launch new diagnostic kits using our products.

So, in summary, we are excited about the future by our opportunities going forward. This new structure and our strategic initiatives benefit our employees, our customers, and our shareholders alike. I believe that the renewed focus and corporate agility intrinsic to SurModics will over the long-term drive sustainable double digit sales growth and profitable earnings growth. Operator, that concludes our prepared remarks. We would like to turn the call over to questions at this point.

(Operator Instructions) Our first question comes from the line of Ross Taylor with CL King & Associates. Please, go ahead.

Hi, I'll start with a couple modeling questions. I don't know if you can be this specific or not, but can you give any sort of rough guideposts to help us estimate what G&A and R&D expense might be next year now that pharma is going to be gone?

So, Ross, this is Tim. The way that I would think about that is we'll be looking to reduce the SG&A expense on a normalized basis, meaning that if you look at the SG&A expense as a percentage of revenue, if you normalize by taking out the effects of Cypher from our 2011 results, I would be looking at SG&A declining as a percentage of sales in 2012 versus 2011.

As I think about R&D, as Gary's mentioned, it's a big focus for our Company and we will be looking to continue to invest appropriately in R&D and I would expect that R&D expense as a percentage of sales using the same approach will be somewhat similar to 2011 or maybe perhaps slightly higher. You must also remember that regarding R&D we also benefited from a therapeutic tax credit of $827,000 in 2011. We're not modeling that benefit which would have been a reduction in R&D going forward. So, that benefit won't be there for us in 2012 for our guidance.

That's helpful. And did I also catch in your prepared remarks that you would be reporting losses associated with the pharmaceutical business within your P&L through the end of November? Is that correct? That's not going to be classified as a discontinued operation?

No. That's incorrect. As you know, our fiscal year ends September so October and November results for pharma will be reported as discontinued operations.

My last question just has to do with some of your product development efforts. Things like the next-generation hydrophilic coating and some of your other initiatives. When would you expect that might be able to cause some improvement or acceleration in your royalty revenue line?

The next-generation technologies, since it's a completely new generation, we're dotting our Is twice on this one. We expect to have customers be doing feasibility results in early calendar 2012. Then it becomes the time constant or the rate of adoption and trialing going through the feasibility periods. I expect you'll see some impact in the 2012 time period from that. It's hard to predict the actual rate of adoption at this point. Needless to say we're excited.

On the things like the drug-coated balloons, those are actually longer-term projects. We have a lot of excitement from perspective customers of ours looking at our earl results on that but certainly that -- since royalties are really what would drive the majority of our cash flows given the regulatory timelines required, that would be a longer-term outlook on things like drug-coated balloons.

That's all very helpful. Thank you.

(Operator Instructions) Our next question comes from the line of Gregory Macosko with Lord Abbett. Please, go ahead.

Yes. Thank you. Just with regard to the last question regarding the new generation platform on the coated product -- coatings. Is that -- are you looking for totally new platforms and new products or will you talk with your existing customers about using the new product for an existing product?

Yes. This new platform is applicable to pretty much all our vascular delivery products and so on the other hand -- that certainly is ripe for change in that area. On the other hand, what we may see is adoption from customers who currently don't use our current generation of hydrophilic coatings and also what we refer to as in-house coatings. These are some of the larger companies that prefer to do the in-house coating themselves with their technologies. We believe our technology offers some compelling advantages to these customers that we don't currently have. So, it will both be a replacement platform for our current generation of customers but potentially growth for customers who see the benefit, who are not current customers but who see the benefits of using this on their devices.

In your release you mentioned five new licenses signed with customers. Were those existing customers? Or new customers? And are those in the coatings area?

Gregory, this is Tim. We don't provide specific detail or comments regarding the customers. Those do in fact all pertain to our hydrophilic coatings platform. So, those are customers who are looking to utilize our lubricious coating on a variety of different products.

The way to think about it -- one major customer will have several different devices. So, even if they sign a new license if could be for a totally different line of devices which is why we don't disclose that identity or mix.

I'm not asking identity. But have you got new customers? Or a new -- someone that isn't currently a customer?

That's great. We do add new customers. That is correct. Yes.

And the same question with regard to the product classes. Is that in IVD? The two new customers?

No. These -- as far as the new product classes, they again pertain to our medical device business.

I just want to be clear. You said something. Just to be clear from the nomenclature -- a new license could be with an existing customer. It's just covering a different product.

I understand that.

Good.

And then with regard to the R&D from your comment that it's -- was -- it sounds like most of the R&D will be spent in the med devices as opposed to the IVD. Or how do you expect that split? Is it relative to the rough sales?

Basically what we're providing as a percentage of sales pertains to the total R&D spend against total sales. Greg, what I will tell you is that the IVD R&D expense -- it probably is helpful to appreciate that it's a much faster process to bring a new IVD product to a commercialization state and therefore you can reasonably assume that the cost to get a R&D project through completion will be less for the diagnostics business. We do not however provide specific detail around the split of the R&D between the two business units.

I understand. Okay. And then with regard -- do you continue to focus on the R&D dollars? Obviously they're volatile there. But is that a key part of the hydrophilic wins?

Do you mean R&D revenues?

Yes. The R&D revenues. Yes. I'm sorry.

The best way to think about that is thinking about it from a business model perspective. What we do in terms of the activities that generate customer R&D revenue in our medical device business at least as it pertains to hydrophilic -- we do that work with really a singular goal of helping the customer get their products to market with our hydrophilic coatings so we can then in turn generate royalty revenue. That's what gets us excited. That's what the business model and all the supporting activities there are intended to do.

So, what we do, when we work with customers, we'll look at really what customer needs are and you'll find that with many customers they're going -- there might be several products that they've already launched using our technology. So, what we might be receiving in terms of customer R&D revenue might be different for that particular customer than for someone else who we're not accustomed or familiar with their products or their sub straights. So, I wouldn't look at that as an indicator or a leading indicator at this point.

Okay. And then with regard to the licenses and having arrangements with those customers, is it fair to say that those are customers that pretty much don't have internal capabilities or are you basically -- would you say that you're penetrating just as well customers that have internal capabilities of doing coatings?

Yes. it really works this way. We have a strong value proposition that really if a customer has a product where they don't need the value proposition that we offer, they may use their in-house coating. So, we do have customers who use in-house coatings but also use hermetic coatings on what we consider to be more high value applications where there's more tortuous anatomy -- it's a longer length to get to the anatomical location. That's where we really play. That's where we offer a tremendous amount of value versus other coatings.

Greg, were you -- we work with all types of customers. So, we can dial in the type of coating services, the type of feasibilities they need, depending not only on their internal capabilities but their speed to market requirements if they're at capacity internally.

Right. Okay. Perhaps you can see what I'm asking -- do you feel that your proposition relative to the customers you've worked with -- is that -- maybe they invest -- they have cost issues, maybe they're investing less in those internal capabilities and looking more to people like you to supply that coating technology. Do you feel that trend happening? Just like in the CRO business or anything else?

Certainly we capture our fair share of new coating requirements devices. And it really comes down to the in-house coatings where those have been continuously in-house for major customers. Those we don't necessarily have visibility on continuously. But the majority of our customers come to us because of our technical capability which supplements their own.

Another point I'll make too, Gregory, is just to kind of help you appreciate that we don't view our technology as a commodity and what you'll find oftentimes with the in-house coatings and what applications they're used in might be deemed to be more commodity-based applications. So, again, our value proposition really aligns well with high-value medical device applications.

Okay. And then finally with regard to the cash, it looks like you'll have between $5 and $6 a share of cash by the end of --

I'm sorry. (Operator Instructions) Our next question comes from the line of Beth Lilly with GAMCO Investors. Please, go ahead.

Good afternoon, Gary and Tim.

Hi, Beth. How are you?

Hi, Beth.

Just great. How are you doing?

Beth, I'm great. Beth, before your question, I just want to make sure that Douglas understands that for some reason Gregory was cut off of his question.

I do apologize for that. I'm sorry. There was a little bit of a computer glitch.

Beth, I apologize for that interruption. Please go forward with your question.

A couple of clarifications. So, the $30 million in cash that you're receiving to the sale of pharmaceutical -- which by the way, congratulations for completing it before the end of the year.

Thank you.

Is that after tax? There's no taxes paid on that? Is that correct?

That's a way to be thinking about that, Beth. It is an asset purchase agreement that we've signed and so there will be -- there's really no tax associated with it. In fact, we will receive a tax benefit associated with the asset impairment that we took here in the Q4 related to the write down of pharmaceutical assets.

That was my next question which is -- going forward then as we -- this is a modeling question. Will you have a reduced tax rate or is there an NOL? How do we treat your taxes going forward?

The way that we think about it here, Beth, is it's not going to change the tax rate but the taxes that we would have relative to our continuing operations, we would retain -- we would preserve our cash. We wouldn't be paying that.

For example --

We do have a deferred tax benefit off that. It's an asset.

For your estimate this year going forward, it's -- you're estimating earnings per share of 40 -- I don't have it in front of me. But let's pick the mid range. $0.48, $0.49. That's not a taxed number then?

No. That does reflect taxes, Beth. The tax -- what you're really asking about is our cash flow.

Yes.

We will have -- from an income statement perspective, it will look like there's tax, alright? The earnings per share will reflect the tax rate. However, in terms of the uses of cash, we won't be using cash to pay taxes.

Got it. Okay. So, if I take the $68 million on your balance sheet today and I add the $30 million from the sale of pharma, that gets you $98 million of cash and that's $5.60 a share. And in essence, that's half our stock price today. Can you talk about -- we've talked about this in the past but now that you've sold pharma, it's a more pressing issue. Can you talk about the priorities in that cash and where you -- what you think the highest and best uses are of it?

Certainly, Beth. We view our strong balance sheet, including the cash receipts from the sale of pharma, as a strategic asset in this macroeconomic condition. The Board is continuing to have discussion on the best uses of cash. What I can say is I want to make sure everybody's assured that any use of cash will both be disciplined, will focus on creating value for our shareholders, and will be done in a very disciplined manner. I want to be clear, I don't know how best to say this. It's not burning a hole in our pocket to just go deploy or buy something or use it in an undisciplined fashion. So, we are having that discussion at the Board level right now and stay tuned. It's something that is very important for us to deploy but it has to be in a disciplined manner. It has to be behind our strategic plan.

Yes. Is there a shareholder purchase program in place?

Yes. There is, Beth. It is in the 10K and the amount of authorization is $5.3 million.

$5.3 million?

That's correct. $5.3 million.

Alright. So, that's -- can I ask one more question?

Yes.

Gary, you say in the press release that your goal is to get the Company growing at a double digit organic growth rate. So, as you look at the base of the business today now that Cypher's not in there anymore and pharma is out, that $45 million to $51 million that you are estimating for 2012, is that -- do you believe that going forward off that base you're going to be able to grow double digit organically?

As you know I'm looking to provide too much long-term guidance of course here but delivering double digit earnings growth over the next several years is a high priority for us. Just to put a finer point on the near-term if you exclude Cypher, we're a different Company without Cypher. So, we do have an overhang right now because of the year over year comparison going forward. But if you exclude Cypher and looking at both these businesses, our fiscal 2012 EPS outlook provides [up to] 35% EPS growth.

In comparison, fiscal 2011, our core businesses again excluding Cypher delivered about 30% EPS growth. So, the first thing for me is we have to get out from the Cypher overhang and I'd like to say our Company is a different Company without Cypher. Not worse but different. And if you use that as a true base, I'm confident that we can deliver double digit growth rate.

Okay. So, I take Cypher out and I start with this $45 million to $51 million. And from that --

Without the overhang.

Yes. Without the overhang. And you believe you can grow that number double digits?

That's a high priority for us.

There's really two things here, Beth. One is revenue and the other is earnings per share and Gary did a nice job addressing the earnings per share. The guidance that we've provided from a revenue perspective for continuing operations also provides with that opportunity. Again, looking at excluding Cypher from the 2011 results and continuing operations in 2012, the upper end of that range gets us there.

The key word there is sustainable. Certainly hitting it in one accounting period is one thing but our intention is to really to build on that and hit that sustainable part.

That's great. Thank you very much.

Thanks, Beth.

Our next question is from the line of Dorsey Gardner with Kelso Management. Go ahead.

Thanks for taking my question. Those of us who have been in this stock for a long time would -- might really appreciate your consideration of Dutch auction to soak up some of that liquidity you have. The last thing we want obviously and you touched on it and I feel you're obviously aware of it is to have another acquisition which doesn't pay off or what have you.

But the other concern is that the Company might be a target for some other Company to buy them with your own cash. And the longer you have that cash, the more attractive you're going to be to somebody who might want to buy you and I've owned this stock for over 20 years and it looks like things could become interesting again. It had wonderful management back when Dale Olseth was there. And you got off track. But if things are turning up, why don't you make a major investment in the Company? It's what you know the best. And provide more upside for those of us who are long-term investors.

I certainly hear you, Dorsey. That is something that the Board is -- understands that position very well and certainly -- we understand the other points you made as well. That's exactly what we'll be doing over the next several months to make sure that, one, positions such as yours are well heard and well vetted and that when we do take some action it will be decisive but strategic as well. So, I completely hear you that way.

I'd like to say I think you're doing a wonderful job.

Thank you.

Thank you. Next question is a follow-up from Gregory Macosko with Lord Abbett. Please, go ahead.

Greg, we apologize. You seem to have gotten cut off last time.

Beth covered my question pretty well but I'll follow-up on it just a tiny bit because I was going to ask about the cash. I guess when -- I believe you have not been in the market to buy stock in a number of years. When is -- I assume you were out of the market because you were marketing the pharmaceutical division. When was the last time you were active?

Last time, Gregory, this is Tim, was 2010. I think it was $2 million that we used to repurchase our shares.

Okay. And just so I understand, there's nothing at this point other than desire that would restrict you from pursuing that buyback?

Gregory, if I understand your question correctly, we do have over $5 million of authorization remaining. This is nothing that would restrict us from utilizing that other than being in a blackout period.

Ladies and gentlemen, that is all the time that we have for questions at this time. I'd like to turn the call back over to management for closing remarks.

I want to thank, everyone, again today for participating in this call, this conference call. And we look forward to providing further updates on next quarter's call. Thank you, everybody.

Thank you, ladies and gentlemen, that does conclude our conference. We'd like to thank you for your participation and you may now disconnect.