賽默飛世爾科技 (TMO) 2004 Q4 法說會逐字稿

Welcome to the Q4 2004 BioSource International earnings conference call.

My name is Erica and I will be your coordinator for today.

At this time all participants are in a listen-only mode.

We will be conducting a question-and-answer session towards the end of this conference. (OPERATOR INSTRUCTIONS).

I would now like to turn the presentation over to your host for today's call, Mr. Terry Bieker, Chief Executive Officer.

Please proceed, sir.

Thank you, Erica.

Good morning and thank you all for joining us.

I'm Terry Bieker, President and CEO of BioSource.

I'm here today with Alan Edrick, our Chief Financial Officer.

This is the BioSource 2004 fourth-quarter and you're end conference call.

We'd like to extend a special welcome to anyone who is a first-time participant on our conference calls.

If you're on a computer you can visit our website at www.BioSource.com, click on company then investor relations then news releases to view a copy of the press release of our financial results that we issued this morning for the quarter and year ended December 31, 2004.

Please also note that this presentation is being webcast and will remain on our website for approximately two weeks.

Our Fourth-quarter was highlighted by really two noteworthy achievements.

First, our sales from continuing operations increased to 10.9 million representing the first time in three years that we experienced a sequential third- to fourth-quarter revenue increase.

Bolstered by a change in leadership with the addition of a new U.S.

Vice President of Sales, our sales force closed the year strong as our cellular pathway assay products increased 12%.

For the year 2004 we positively improved our ratio assay product sales to total sales from 40% to 42%.

Secondly, we successfully divested our Hopkinton, Massachusetts based custom peptide and antibody division for a management buyout by the former general manager.

This custom portion of our business, which generated losses for each of the past three years, was really non-strategic to our vision of focusing on cellular pathway assays and their related biologicals for the study of disease.

The 10.9 million of sales that I mentioned a moment ago does not include sales from this custom business we just sold as the net results of this business are reported as discontinued operations.

Alan is going to cover this a little bit more later in the financial section of this call here.

During 2004 we focused our sales and marketing strategies around cellular pathways, we aligned our R&D investment to focus on assays and their related biologicals, we significantly enhanced the leadership team and we controlled costs and devaluated the long-term value of our noncore operations culminating in the successful divestiture I just described.

We emphasized the higher volume, higher margin cellular pathway assays and their directly related products.

Our market is large, over 1.6 billion, and highly fragmented with over 50,000 scientists.

Consequently a key ingredient in the execution of our plan continues to involve successfully implementing new sales and marketing programs to allow us to increase our penetration in the cellular pathway market.

We've made some significant strides in this area, particularly in the United States, and we expect now in 2005 to begin to see that pay off.

I'll speak a little bit to that later in the call in terms of guidance for 2005.

We continue to believe that our stock price is undervalued, and therefore, as per our announced plan, we continued to repurchase shares during the fourth quarter.

Further details on this will also be provided by Alan later here in the call.

In fact, let me turn it over to Alan at this time and then I'll come back after he covers the financials and I'll update you a little further on strategies in the activities of the Company.

Alan.

Thank you, Terry.

Before I begin I'd like to read the following statement.

In connection with this conference call the Company wishes to take advantage of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995 with respect to statements that may be deemed to be forward-looking statements under the Act.

Such forward-looking statements could include general or specific comments made by Company officials about future Company performance as well as certain responses to questions posed to Company officials about future operating matters.

The Company wishes to caution participants on this call that numerous factors could cause actual results to differ materially from any forward-looking statements made by the Company.

These factors include the risk factors set forth in the Company's SEC filings.

Any forward-looking statements made in this call speak only as of the date of this call and the Company undertakes no obligation to revise or to update any forward-looking statements whether as a result of new information, future results or otherwise.

Having said that lets start off by briefly discussing the financial impact of the sale of our custom antibody and peptide business, we'll follow that with a review of our Q4 operating results, and finally conclude with a discussion of the key balance sheet components as of year end.

As Terry just mentioned, on the final day of 2004 we sold our Hopkinton, Massachusetts based custom antibody and peptide business.

In 2004 this business contributed approximately 2.7 million in revenues but generated approximately 300,000 in operating losses and its gross margin was 18%, which placed considerable pressure on our consolidated margins.

We accounted for the sale of this business as discontinued operations and, accordingly, we have reclassified the financial statements for all periods prior to the sale to reflect this custom business as discontinued operations.

As such the loss from discontinued operations, including the associated tax effect, in 2003 and 2004 was 0.3 million and 0.8 million respectively.

Net sales from continuing operations for our 2004 fourth quarter increased 9% from 10.0 million in 2003 to 10.9 million in 2004, which included a favorable impact of foreign currency translation of 400,000.

For the year net sales from continuing operations increased 8% from 2003.

We increased sales by 12%, as Terry mentioned, in our core area of focus -- cellular pathway assay products.

In addition, we reduced our operating loss from continuing operations in the fourth quarter from 2.2 million in the prior year to 0.8 million in 2004.

Net loss from continuing operations was 900,000 or $0.10 per share compared with a net loss of 1.3 million or $0.14 per share for the comparable quarter of the prior year.

Our gross margin from continuing operations was approximately 49% in our fourth quarter this year compared to 40% in the comparable quarter of the prior year primarily due to higher inventory reserves recorded in the fourth quarter of '03 associated with the Company's realignment of its business focus.

Our gross margin for the year was 54%, which was consistent with that of 2003.

Looking for we expect our margin to continue to vary from quarter to quarter as a result of the impact of further changes in our product mix, seasonality and the volume of sales.

Research and development expenses for the fourth quarter of '04 were 1.5 million, which was relatively consistent with that of the prior year.

For the year research and development expenses decreased 1.2 million or 4% of sales.

This decrease in our total R&D spending is consistent with our increased focus on our core strength of assay development.

Sales, marketing, general and administrative expenses as a percentage of sales decreased 1.7% for the fourth quarter and approximately 1% for the year when compared to the comparable periods in 2003.

Our fourth-quarter and year-end income tax revision reflects an adjustment for estimated tax credits and deferred cast tax assets.

Moving to our balance sheet, our balance sheet remains very strong.

As Terry mentioned, we were active in our stock buyback program and repurchased approximately 244,000 shares at a cost of 1.6 million in the fourth quarter.

For the year we repurchased approximately $4 million or nearly 7% of our common stock.

Even with this investment we ended the year with approximately 4.2 million in cash as we generated very positive free cash flow.

We remain debt free.

Our net trade accounts receivable at the end of the quarter and the year was 7.1 million representing a DSO of 55 days which continues the improvement we have experienced in this area as last year this balance -- as last year the DSO was 58 days.

We've also continued to make strides in reducing our inventory balance, and realized a reduction of approximately 10% from the prior quarter, marking the third consecutive quarter of such achievement.

For the year our net inventories were down 17% over the prior year.

Stockholders equity at 12/31/04 totaled 36.2 million.

Currently we have 9.1 million shares outstanding.

All other balance sheet accounts are in line with our expectations.

In the fourth quarter our capital expenditures were 0.3 million and depreciation and amortization was approximately 700,000.

Now I'll turn it back over to Terry.

Thank you, Alan.

As I've mentioned in each conference call since I joined the Company just a little over a year ago, our goal is to increase our market share and to be a global leader in the cellular pathway markets through increased market penetration in the cytokine and single transduction assays and their related biological products.

This approach centers all of our planning and our operational implementation on our core strengths and on our higher margin products.

We've made much progress in this strategic shift in this past year and I'm really looking forward to reaping the rewards in 2005 from the changes that we implemented in 2004.

Our plan also incorporates an emphasis on providing uncompromising customer support; this is an integral part of our strategy to differentiate ourselves a leader in our industry.

Throughout 2004 we developed and held training activities and seminars that provided very positive results and service to our customers, it's quite satisfying to me to see now that over 90% of our customer calls to our technical assistance department are requests for knowledge about a specific scientific discipline.

We are really truly becoming a trusted reference point for the scientists we serve.

We continue to leverage our capabilities and strengths in developing, manufacturing and distributing our traditional Cytokine ELISAs and increasing our market leadership in our single transduction phosphoELISA product line and leverage that into developing new Multiplex assays, that is assays that detect more than one biomarker at a time.

In 2004 our Multiplex assays grew over 70% and we introduced in the fourth quarter the market's first single transduction slide based MicroArray assay.

Products directly related to these assays, including analog antibodies, proteins and serum and media, continue to be important as complementary growth drivers for our Company as we go forward.

Our goal is to be a global leader in the cellular pathway assay market for the research of disease.

We intend to differentiate and to build value by leading certain high-volume test markets and creating superior customer support.

With this plan we intend to achieve consistent improvement in annual revenue and earnings over the years to come.

Our 2005 financial guidance is as follows -- first, we're estimating that net sales from continuing operations will be $49 to $51 million representing a significant uptick of about 10% to 15% year-over-year growth.

You will recall that our growth in 2004 was 8%.

We also, number two, expect to leverage this topline growth into significant growth in operating income from continuing operations as we're estimating such growth to be 175% to over 300% over 2004 or between $2 and $3 million.

Building long-term shareholder value through increased financial performance is the highest priority of this Company; we're quite enthusiastic about our prospects for 2005 and look forward to reporting our results in the coming months.

Thank you for listening in on this conference call.

And Erica, if you're there let's turn it open to questions.

(OPERATOR INSTRUCTIONS) John Porter, Arabella Securities.

Good morning, Terry; good morning, Alan.

A couple bookkeeping questions and then kind of a products based question.

You mentioned you purchased about $4 million worth of shares in '04.

About how many shares was that?

It was roughly about 645,000 shares.

And how many shares do you guys have in treasury now?

645,000 shares.

So it's all from this year?

It's all from this year.

Previously when we had a stock buyback program we retired those shares upon repurchase.

Okay, great.

And then Terry, a question for you.

You talk a lot about market share and there's obviously been a lot of changes in this space over the past couple years with Sero (ph) buying upstate and BD kind of just being there.

Between the top three guys like Techne, BD and Sero, I estimate that they probably have about 50% of just the protein reagent market in general.

Do you guys have any comments on where you guys sit in that pool?

And who else is a player outside of the three big guys?

John, you mentioned the protein reagents market.

When you look at the total market it includes the stand-alone biologicals, the three companies that you mentioned are strong players.

We, of course, are also a strong player in that arena.

But our focus is on the assay portion of that business.

And we have the larger market share in the market in the single transduction assay portion and we're a number two player in the cytokine assay market.

We play number two to Techne in the cytokine assay and we are number one, as I say, in the single transduction.

And to dig down a little deeper around that, you mentioned that Multiplex assays were up 70% and you'd had some good growth in them.

Do you guys have kind of a breakdown -- other than just your basic segment breakdown, how do Multiplex assays do compared to your ELISA assays?

Is there any kind of breakdown just within BioSource that you guys give out?

Of course, on an internal basis there is, John, as you'd imagine.

But we don't speak publicly of that breakout.

I think in general we're very clear that our focus is on assays.

It is clear that the market is desirous of multiplexing type assays because they can get more results off of a single sample size.

And we are moving more and more in that arena.

We continue -- I'm very happy to say that we continue to grow very strongly in our single test, the ELISA type assays, but our growth in the multiplexing is very, very strong, as I reported, over 70%.

Would you consider the Multiplex assays to be a significant piece of the revenue overall compared to the ELISA and singleplex.

It's certainly material and it will be more material in the future.

And then just bookkeeping questions, SG&A and R&D going forward, Alan, do you guys have any color on where you see those falling out?

We haven't provided detailed guidance by P&L line item, John.

But what we could tell you is that we do expect the SG&A as a percentage of sales to remain flat to slightly down and G&A pretty flat as a percentage of sales as well.

Okay.

And R&D should trend about where it's been in the past, you don't see any major changes there?

No major changes.

Great.

That's it, I'll hop back in queue.

Thank you.

Paul Knight, Thomas Weisel.

It's Peter Lucent (ph) in for Paul Knight.

Could you give a breakout of the revenue for assays and biologicals and custom products?

Sure.

That breakout for the quarter -- assays represented about 4.8 million, biologics represented about 2.8 million and our other product lines represented about 3.4 million, in total about 10.9.

For the year assays represented about 19.7 million, biologics about 11.1 million and our other product lines about 13.5, totaling 44.4.

Okay.

And are there going to be any further costs from selling the custom business going forward?

No, we do not believe there will be any future cost.

That was all taken care of concurrent with the transaction.

Okay.

And your tax rate for next year, where do you see that?

We estimate it will be approximately 35%.

And then just big picture, what other major hurdles do you see for the Company in 2005?

We think we've gotten quite well positioned in 2004.

And for our Company the hurdle will continue to be market penetration and growth of the cellular pathway assay lines.

That's what we're focusing on and that's the big hurdle.

As we accomplish that we will continue to drop increased earnings performance to the bottom.

And what major initiatives do you see in 2005?

From a marketing standpoint you're referring to?

Yes.

We do try to be a little quiet on some of our major marketing thrusts because we know that a lot of our competition likes to know what we're doing, too.

I think I would just say that we're going to continue to focus on the cellular pathway assay arena and that we're going to focus on our continually developing Multiplex line and are continually developing and focused on corporate accounts.

That's the large pharma and biotech corporate accounts.

How did sales break down in relation to academia and Parma and biotech?

They break about the way the market does.

We track a little higher on pharma than we do on academia.

But it tracks pretty well to the marketplace.

If I can go back, Pete, to the previous in terms of the major focus; we have a very robust new product line offering that we're looking forward to introducing in 2005 too which we think will -- you saw in the guidance that we're talking about significantly increased revenue and we see a lot of that coming from new products.

Thank you so much.

I'll pop back in to the queue.

(OPERATOR INSTRUCTIONS) Brad Miller, Peppertree Partners.

Yes, with the repurchase of shares over the year, what has done to the ownership of GenStar?

Well, clearly it increases GenStar's ownership position on -- if you look at it on a percentage basis.

I don't have that calculation handy.

Thanks.

Sir, you have no more questions in the queue.

Okay, then, we would like to, again, thank all of you for your support and for participation in this call and we look forward to further calls as we report our progress throughout 2005.

Thank you very much.

Ladies and gentlemen, thank you for your participation in today's conference.

This concludes your presentation.

Have a good day.