Trinity Biotech PLC (TRIB) 2010 Q1 法說會逐字稿

Good morning and welcome to the Trinity Biotech first-quarter 2010 financial results conference call.

All participants will be in a listen-only mode. (Operator Instructions) After today's presentation there will be an opportunity to ask questions. Please note this event is being recorded.

I would now like to turn the conference over to Joe Diaz. Please go ahead, sir.

Thank you, operator, and thank all of you for joining us today to review the financial results for the first quarter for Trinity Biotech.

With us today from the Company are Mr. Mr. Ronan O'Caoimh, Chief Executive Officer; Mr. Kevin Tansley, CFO; and Mr. Rory Nealon, Chief Operating Officer. At the conclusion of today's prepared remarks we will conduct a question-and-answer session.

With that let me go ahead and turn the call over to Kevin Tansley, Chief Financial Officer, for the reading of the safe harbor and beginning of the call. Kevin?

Thanks, Joe. Before I take you through the financials I am obliged to point out the provisions of the Safe Harbor code. Specifically this presentation contains certain forward-looking statements including statements concerning plans and objectives of management's expectations about future financial performance and strengths, economic and market conditions, and market positioning and opportunity.

These statements are neither promises nor guarantees but are subject to risks and uncertainties that could cause actual results to differ materially from those anticipated, including those identified in our most recent report on SEC Form 20-F and other periodic reports and registration statements filed with the SEC.

You should not place undue reliance on any such forward-looking statements which are current only as of today. You should not expect that these forward-looking statements will be updated or supplemented as a result of change in currency or otherwise. Trinity Biotech disclaims any obligation to do so.

Today I will take you through the results for quarter one including a review of the income statement and the key balance sheet and cash flow movements for the quarter. I will also discuss some of the impacts of the Coagulation divestiture on our future financial statements starting with (technical difficulty) performance.

You will see in the press release that we have changed our normal analysis of revenues. This has been done to reflect the Coagulation divestiture. Whilst the impact of the transaction will not take effect until mid-quarter two we wanted to give an indication of how the remaining parts of the business has performed as this is of more relevance going forward.

In this context you will note that this quarter's revenues are $29 million and this compares to $31.1 million for the same period last year. Hence the decrease of 6.7%. However, as can be seen, the principal contributing factor has been a 10.3% fall in Coagulation revenues.

In the same period revenues from our remaining operations have fallen by 4.3% and within this point-of-care revenues have fallen by 6.6%. This is largely attributable to the credit-related issues that we have been experiencing relating to one key customer where we have decided to hold back shipments. This is a feature of point-of-care sales in the second half of 2009. However, during quarter one there has been some improvement in this situation which has allowed some shipments to be made.

Our ongoing clinical laboratory revenues show a slight reduction of 3.5% and this is primarily attributable to fluctuations in the line sales which are very seasonal in nature. I won't deal any further with revenues as Ronan will pick this up in more detail later on in the call, but I will point out that when considering our future revenues it should be remembered that quarter one is traditionally our weakest quarter due to seasonal factors.

Moving on to gross margin. You will see from the income statement that our gross margin for this quarter is close to 47% which is almost 1% higher than the equivalent period last year. This continues the upward trend in gross margins and the improvement is due to cost savings implemented during 2009 in addition to a slightly different product mix.

Going forward we can expect the gross margin to improve as Coagulation has the lowest gross margin amongst our product lines. From quarter three onwards you can expect gross margins to exceed 50%.

Moving on to our indirect expenses. Our R&D expenses this quarter have remained flat quarter on quarter at just under $1.8 million. From a selling, general, and administrative expenses point of view we have continued our trend of reducing these costs. At $7.9 million this represents a quarter-on-quarter reduction of 17% and even compared to quarter four 2009 a reduction of 3%.

The main reason for this decrease has been the major focus that we have placed on cost control over the last two years. As well as achieving a broad range of savings across a wide number of categories, we have also yielded significant savings from the rationalization of our French sales and US finance functions during 2009. Post Coagulation we will be seeing the total annual savings of over $31 million of which over half relate to indirect costs and with the remainder being above the line.

Moving on to our net financing costs. These have also continued to reduce. The charge in quarter one was $231,000 which compares to $288,000 for the same period last year, a reduction of 20%. As in previous quarters this is due to a combination of lower debt levels and lower interest rates.

Going forward we will see this caption changing from being a net expense to being a net income as we have now paid down all of our bank debt and we will earn interest on our cash reserves in the future.

Moving on to the tax charge. This quarter's tax charge was $288,000 which represents an effective tax rate of 8.4%. This compares favorably to an effective rate of over 9% in the comparative quarter and this improvement arose due to the impact of tax credits earned on R&D activities in our Irish operations.

Our operating profit for the quarter amounts to over $3.6 million which represents an increase of 21% over the comparable period in 2009 when we reported $3 million. This gives an operating margin of 12.7% which compares very favorably to 9.8% one year ago.

In terms of profit after tax we have seen an increase from $2.5 million to $3.2 million over the same period which is an increase of 26%. Meanwhile EPS for the quarter is 25% higher at $0.15 per ADR. We are obviously very pleased to have delivered such strong profit growth this quarter and we are continuing the trend seen in 2009 when we achieved such a major increase in earnings.

In terms of future profitability post the Coagulation divestiture you will see from our press release that we have revised our expected earnings upwards. Initially we had estimated that earnings will be 90% to 100% of pre-divestiture levels. We now believe that earnings will be in the 100% to 110% range, which is obviously very positive.

Ronan will address this point further later on in the call.

Now let's talk about our balance sheet. Firstly, I will explain the significant movement since the end of December 2009 and then I will go on to explain the impact of the Coagulation divestiture on the balance sheet going forward. Property, plant, and equipment remained stable during this quarter due to the additions of $700,000 being more or less offset by a similar depreciation charge for the quarter.

During the same period our intangible assets have increased by almost $1.4 million. This is mainly attributable to additions of $1.9 million on development projects and this has been partially offset by amortization charges of approximately $0.5 million.

Moving on to inventory, you will see that inventory has increased by approximately $800,000 in the quarter and this was mainly just due to timing issues relating to both purchasing and production.

Trade and other receivables have fallen by almost $2.5 million in the last three months. Whilst this has been partly driven by lower revenues, we have seen a significant improvement in debtor days from 57 days at the end of December to 52 days at the end of March. On our previous call I had said that 57 days represented close to the lowest level that we had seen and now we are seeing a further significant fall.

Will caution that given we are now at such low levels, we may see this figure rise in future quarters.

Finally, in relation to working capital our trade and other payables have decreased -- both have increased this quarter, in this case by $1.1 million. The level of payables can be expected to fluctuate significantly quarter on quarter depending on the timing of payments but also it tends to be linked with movements in our receivables.

Finally, in relation to the balance sheet at the end of March I would like to mention our bank debt. At the year-end it stood at $29.5 million and since then we have made a further loan repayment of $2.4 million in January 2010 which has brought the level of bank debt down to $27.1 million at the end of March. Now since that date we have used some of the proceeds from the sale of Coagulation to repay this and I am pleased to be telling you today that Trinity is now essentially debt free.

That brings me on to the impact of the Stago deal on our balance sheet. In addition to the repayment of our bank debt you can expect the following changes; an improvement in our cash position. Taking into account the cash received to date and the release of a further $4 million of working capital in the coming months our cash figure will rise to approximately $49 million.

In addition to this, we will be showing deferred consideration of $22.5 million and I will stress that the payment to Trinity of these funds is both unconditional and bank guaranteed. This means that Trinity will move from a net debt position of $21 million at the end of March to having net cash of over $71 million if you include deferred consideration.

Our fixed asset base will reduce property, plant, and equipment falling by approximately $6.7 million and goodwill and intangibles by $10.9 million.

On the working capital side the most significant movements will be in relation to inventories. Given the nature of Coag where a lot of inventory was tied up in instruments and related spare parts, we will see a reduction of $21 million. Meanwhile trade and other receivables and trade and other payables will fall by $9.9 million and $4.7 million, respectively.

In summary, the results will be a much stronger balance sheet for Trinity with no bank debt, significant cash reserves, and less money tied up in working capital.

I will now move on to discuss our cash flows for the quarter. Cash balance for the quarter increased from $6.1 million to $6.2 million. This can be explained by a number of factors. Firstly, we have seen a very strong increase in cash from operations up over 120% from the same period last year to $5.1 million. This reflects the strong increase in profitability and more favorable working capital movements.

This has been partly offset by capital expenditure of $2.3 million and net interest of $225,000. This gives free cash flow for the quarter of over $2.6 million which again compares very favorably to quarter one 2009 when there were actually free cash outflows of approximately $400,000.

The final factor to consider is the repayment of bank debt of over $2.4 million during the quarter. So, overall, it has been a very positive quarter from a cash perspective. I will now hand back to Ronan.

Thanks, Kevin. First, I would like to update you on the Stago deal and then cover our business performance for the quarter and provide some revenue guidance. And, finally, I would like to discuss our future research and development strategy.

Relating to the Stago deal, as you will have noted from our press release on the May 5 we recently closed the deal. Just to remind you that the deal involved a sale of our Coag business for a consideration of $90 million, $67.5 million of which has been received by Trinity in cash and the remainder will be paid to us in two equal tranches 12 months and 24 months from now. This deferred consideration of $22.5 million is bank guaranteed and unconditional as Kevin has said. In other words it's as good as cash.

Post this Stago deal we will have an equivalent of $3.39, $3.40 per share in cash if you include the deferred consideration of $22.5 million of cash equivalents. We will no longer be selling through a direct sales force in France and Germany. Rather, we will be using distributors which has the effect of reducing our top-line sales number, albeit without reducing our profit number. I will come back to that in a moment.

We will continue to sell direct in the United Kingdom and also in the US as was the case before the Stago deal. From an operations perspective we will no longer have our factory in Germany and we will have downsized our factory in Ireland with two of the three buildings in Ireland now being leased directly by Stago. We will, of course, continue to have our factories in New York, Kansas, and San Diego.

In conclusion, the Stago deal has now closed, the money is in the bank or bank guaranteed, and Trinity can now focus on developing its point of care portfolio of products as I outlined on our last conference call.

Let's go to move on now to the business performance for the quarter. Our point-of-care revenues for quarter one were $4.4 million as compared to $4.7 million for the corresponding quarter in 2009. Quarter one last year though was a particularly strong one given the unusually high levels of sales in Africa, which by their nature tend to oscillate quarter by quarter. Meanwhile our US sales have performed strongly and have increased 6% on the same period last year.

As compared to the most recent quarter four, our overall point of care sales have increased 21% which is a significant improvement and is in part due to the resolution of those credit issues which Kevin referred to earlier in Africa. Overall, the trajectory of our Africa and US businesses continues to be upward.

The balance of our business comprises infectious disease and diabetes and this business has reduced from revenues of $13.7 million in quarter one last year to $13.3 million in quarter one of this year. All segments within this business have performed well with the exception of the lyme and flu businesses.

Lyme sales were lower than normal for this time fear. Obviously we expect those to increase significantly as we now move into the lyme season in quarters two and three. Flu sales were also down in large part due to overstocking within the industry last year following the swine flu scare. This dip in flu sales is something which is affecting our competitors also.

I am just going to move on now to revenue guidance. I will just say that at this point I would like to provide some guidance for the new Trinity business without Coagulation for the next 12 months. In this context it might be useful to first discuss the prior-year comparatives.

In 2009 we sold approximately $78 million in our infectious disease, diabetes, and point-of-care product lines, i.e., our business without Coagulation last year was $78 million. This is not directly comparable to the current year for the following reasons.

Firstly, as noted before, we are no longer selling direct in France or Germany. As such we will have to give away a margin to a distributor, albeit this will be offset by not having to incur significant direct selling costs. From a profit perspective this would be neutral for Trinity. However, from a top-line revenue perspective this will mean a reduction in our revenues by approximately $2.5 million.

Secondly, due to a 9% swing in the currency rate with the recent strengthening of the US dollar against the euro the constant currency equivalent revenues last year will be lower assuming exchange rates stay where they are today. Based on the rates staying where they are today this will have an impact on our revenues of reducing them by approximately $2.5 million.

In total this leaves prior-year equivalent revenues of approximately $73 million being the prior-year revenue of $78 million. That is the $2.5 million lost in direct sales in France and Germany and $2.5 million based on the currency effect assuming currency stays where it is. It is this context that we should compare the performance for 2010.

In quarter one our infectious disease, clinical, chemistry, and point-of-care revenues were $17.6 million. Annualized this is approximately $71 million. If you go back and look at our historical revenues, you will note that quarter one tends to be our lowest quarter each year as Kevin has mentioned.

This is due principally to the seasonal nature of our products like lyme, Western blot which annually has $10.5 million and is a very big seller. Accordingly, our quarter one performance compares favorably to the prior-year equivalent of $73 million.

Our expectation for the next 12 months, that is quarter two this year till the end of quarter one next year, is to deliver low single-digit organic growth. Following a detailed review of the business post the Stago deal we are also comfortable to increase our earnings per share guidance. When we announced the Stago deal we provided guidance of 90% of 100% of the prior year, i.e., $0.57 earnings per share.

We are now comfortable that that guidance was conservative and we are confident that we will achieve earnings per share of between 100% and 110% of this 2009 number within the next 12 months. That is we will deliver EPS between $0.57 and $0.63 over the next 12 months.

Moving on to R&D. Our R&D plans are such a critical part of our future that we will go into them in detail. Our focus going forward will primarily be on further development of our point-of-care product lines, in particular the lateral flow arena. You will be aware that we very importantly hold licenses to the necessary Inverness patents which is needed to compete in this area. As such we are one of only a very small number of companies who have a license to this technology and are free to develop products in this area.

Our strategy in this area is to build a number of teams and developers who will work on approximately nine lateral flow tests with these teams being based in both Ireland and San Diego. Specifically, these teams are now focusing on the development of an HIV p24 antigen test which will enhance our current HIV antibody test offering primarily for the African market.

Secondly, a quantitative lateral flow D-dimer test. I will remind you that we are permitted under the terms of our deal with Stago to continue to compete in the point-of-care coagulation market which is a $300 million market growing at 11% annually.

Thirdly, we are developing three products in the infectious disease enterics area, namely giardia, clostridium difficile A and B, and cryptosporidium test. And, finally, in the infectious disease area a further four tests namely flu A-B, HSV, syphilis, and strep pneumoniae.

With the exception of the flu test all of the other tests sell in the hospital, laboratory, and sexually transmitted disease clinics where we have strong distribution with our existing sales and marketing team. Therefore we can comfortably market these products side-by-side with our existing infectious disease products.

Outside the lateral flow point-of-care area our other key area of focus will be in the diabetes or A1C testing area. Specifically, we will be focusing on the TRI-stat and PDX instrument. Hemoglobin A1C, as you are probably aware, is used to monitor the glucose control of diabetes over time. It is frequently used to help newly diagnosed diabetes determine -- diabetics determine how elevated their uncontrolled blood glucose levels have been and are typically ordered several times a year for each diabetic.

The first project we are focusing on in this area is the TRI-stat instrument. Very quickly just to update you on the CLIA waiver application we have heard nothing further from the FDA since our last conference call six weeks ago. We were asked a series of questions by the FDA which were all answered before Christmas and we are now patiently awaiting a response from the FDA.

The other instrument is the PDX instrument on which we have spent $4 million over the past two years. It's an instrument being developed by our team in Kansas City which will be primarily used in the hospital, laboratory, and diabetes clinic market. Combine with the TRI-stat product this will position us very strongly in this high-growth market.

Related to the PDX we expect to launch the instrument in the European market in quarter four of this year and will simultaneously submit an application to the FDA for 510(k) approval and to the Brazilian and the Chinese authorities.

The key attributes of the instruments include the use of interface-free Boronate Affinity technology and as such it represents a superior solution to much of the competition. Also the instrument is designed to provide significant faster testing than our competitors, approximately 30% faster. And, finally, the instrument is designed to be a plug-and-play [free of] maintenance and also to provide best-in-class software.

We are working very closely on this with a large European distributor and we are hoping to announce a distribution deal with this distributor in the next month. This will be a significant source of future growth for the Company and will likely provide an immediate revenue and earnings boost in quarter one of next year.

Thank you very much. If I could hand back now to the operator for a question-and-answer session.

(Operator Instructions) Matt Dolan, Roth Capital Partners.

Thanks for taking the questions. First one, on the divestiture can you talk about the -- any interruptions you might see to your integrated sales force? Are there certain customers that are centered maybe around coagulation or how does that play out as you kind of divide things up with Stago?

It's Rory here. As part of the transition between signing on March 10 and the closing at the end of April we will have approached all of those customers and in particular the distributors, the international distributors. Anybody who was considered a joint distributor in particular of any size would have been approached.

Basically, we split the contract with them. It was all very satisfactory, everybody was happy. We basically put two contracts in place, one for coag and one for non-coag and life continues on. So in relation to the distributors it was very smooth and there were no issues.

In relation to the end-users obviously it's less of an issue, and I haven't heard of any issues from any of the end-users, in the States in particular, so it has all gone very well.

So your direct sales force in the States remains as is?

Except for the coagulation specialists who would have gone to Stago the answer is yes to your question. So we have all the people who would have dealt with our infectious disease, point-of-care and diabetes business. They all remain with Trinity and they continue to deal with the customers directly.

So what is your sales force before and after, size?

Ronan here. We had 22 generalists before the deal and we still have 22 generalists. What we have lost are the eight specialist coag people. But there have been no loss of direct sales capability.

Okay, great. Kevin, can you give us a pro -- I think we got the pro forma gross margin. What is the pro forma operating expense level we should think about going forward, SG&A and R&D?

SG&A and R&D will be approximately $24 million, so that is just shy of $4 million in relation to R&D on a 12-month basis and about $21 million in SG&A with a further $1 million, say, $800,000 to $1 million in relation to shared option expense.

Okay. With this cash position, Ronan, can you talk about any uses of cash beyond the debt repayment? Will it sit on the balance sheet or what are the plans there for that capital?

I suppose following the receipt of the deferred payments we will have a cash balance of $72 million or $3.40 a share and that will increase by about $1 million a month or $0.05 a share. And our internal point-of-care R&D program can be financed without impacting on these cash flows.

I would make the point that we have no desire to make an acquisition and are in no way seeking one. However, the point-of-care business development plan across infectious disease, diabetes, and coagulation is an ambitious one and may require investment in the medium term in technologies and instrumentation and in working capital.

I suppose given the uncertain debt and equity markets that we are experiencing we are happy to be debt free at this time with strong cash balances and feel that this position -- to be in this position I think enables us to lever on the ambitious point-of-care development plan that we have.

Okay. And on the development program should we think about R&D investment ramping? And then secondly, you talked about PDX but when should we think some of these new products actually come and start generating revenue?

Well, the deal with PDX firstly, I mentioned that we spent $4 million at developing the PDX over the past number of years. That project will cease and complete hopefully September, possibly October and that will be the end of that R&D spend.

That would translate into revenues immediately in Europe as opposed to modest amount of revenues in quarter four, but we are hoping fairly significant revenues thereafter because as I indicated we are virtually on the point of signing with a very significant distributor in Europe. Beyond that then, of course, there will be a delay for revenue in the USA and in Brazil and China where registration takes time.

Remember in Europe regulation is -- it's a self-regulatory process. So we will get immediate revenues in Europe from the launch of the PDX. Beyond that, just to talk about -- we have ramped up significantly our R&D spend for the point-of-care effort but that will be absorbed within the P&L and within the -- will be absorbed within the earnings per share that we have indicated and [over the top line].

Okay. So you budgeted $4 million for R&D and that stands even with this program?

We have budgeted actually much more than that but, yes, the important point is we have very significantly ramped up our R&D spend. But that is included in the EPS guidance that we have given you.

Okay, thank you.

Neal Goldman, Goldman Capital Management.

Good morning, guys. First of all, great sale on the coag business and obviously the quarter. What is your -- getting back to Matt's question, what is going to be the ongoing R&D with the San Diego operation starting up in your mind on an annualized basis?

Initially we have put about 12 researchers in there. It's going to cost all-in probably $1.5 million to $2 million. The point I am making, Neal, is that that spent is included in the earnings per share projection that I have given you.

I understand that but you said if you take it with the R&D that has been running it's $4 million just tied to the point-of-care business. My question is what is the ramp up in terms -- is it $6 million now on an annualized basis once you fully staff San Diego?

Well, no, because our actual run rate for R&D is seven --

What did we have? We have about -- $8.1 million is what we did in capitalized R&D development costs in 2009. A large element of that would have related to coag so going forward I think the number will be on the capitalized side sort of $4 million to $5 million. So probably closer to the $5 million mark.

Okay. And what is your amortization now of that amount?

Amortization is currently -- well, going forward because we lose part of the amortization as we -- after the divestiture so it will probably be roughly about $800,000 per annum.

Okay. What is the amount on the balance sheet at this point after the sale of the coag business?

Neal, we didn't hear that.

What is the amount of the R&D that is on the balance sheet after the sale of the coag business? The total amount that you have deferred so far.

That would be included in our goodwill and intangibles which is included in the balance sheet and which is $46 million at the end of March which obviously comes down an awful lot then as part of the transaction. Comes down to about $35 million and a significant portion of that then would be still goodwill and license so about half of that will be development.

So about $17 million. What you are saying will increase by $4 million a year, round numbers, but against an amortization of $800,000?

Just to correct that, I am sorry I think we were talking over each other there. The amortization I am predicting for the next 12 months was $1.2 million, Neal. Sorry, beg your pardon.

It's $1.2 million, okay. What is your normalized tax rate going forward, Kevin?

Sorry, beg your pardon?

What is the normalized tax rate going forward?

We have been doing very well in the last few quarters; we are becoming the 8% and 9%. As a result of this transaction we are going to pay none or very little tax which means we are going to use up virtually all of our tax losses. So I will expect going forward we will see an increase in the effective tax rate. I am projecting sort of mid-teens.

Okay. That is also baked into your numbers, right?

Correct. But to clarify, even though there will be a tax charge at that level, the tax paid will be at a much lower level. Most of that would be -- a lot of that would be deferred tax.

Okay. With all the product development you are working on a year from now, two years from now what would you expect? You said this year below single-digit growth in point-of-care, but with various new products coming on what would be your goal for top line once you have some of these products in the -- finished and approved?

Neal, our goal is to certainly going into the double digits and strongly into that. I think the PDX -- the launch of the PDX instrument alone I think can get us close to that but we are allowing 18 months and more for the launch of the various infectious disease point-of-care products. Clearly, we can beat those levels then significantly at that point in time.

Okay, and that should result in significantly higher bottom-line growth, I assume, just given the leverage in the business?

Yes, I think to characterize the business at the moment what we have is we have a business at this moment in time as we sit here today that is doing very low single-digit growth. We think that the addition of the PDX instrument will move us towards 10% growth from quarter one onwards. Then obviously the launch of the various infectious disease and other point-of-care products can move us into a different level of growth entirely.

Remember that this is a very rarified space. Most companies can't compete in this sector because they don't have the requisite licenses and we are almost unique in that sense.

Well, you don't pay any royalties. Does anyone else who has a lateral flow license from Inverness pay royalties?

Well, yes, but, Neal, we do pay royalties.

Oh, you do? Okay.

We do, yes. The point is that many companies who might desire a license don't have one at all.

Okay. All right. Okay, great job. I will give you one use of cash I think you should rationally buy back at least 10% of your shares outstanding. It would be very accretive to earnings at this point and since you are not planning on making any meaningful acquisitions I think that is a great use of cash to start.

Well, Neal, we will seriously look at that. We are conscious of the fact that at a price of $5.50, which I think we are at right now, that if you exclude our cash of $3.39 that were added and if you take into account that we are indicating that we do between $0.565 and $0.63 that we are trading at a PE of 3.5 if you exclude our cash. And this clearly is a major concern.

We are working hard to bring on board new investors. As an example, I am doing two roadshow presentations in the next three weeks in the States and Rory is doing a roadshow in two weeks time and another round of meetings. So we are doing what we can to strengthen the share price and to tell the story but we will clearly have a look at that.

Okay. Thank you very much. Great job. Thank you.

(Operator Instructions) Ian Hunter, Goodbody Stockbrokers.

Good afternoon, gentlemen. I think most of my questions have actually been asked by the two previous gentlemen. I will go back to one though before though. Again you are highlighting the credit-related issues with one of your key customers on the HIV side of things. Is this something that is going to be resolved in the medium to long term or is it something we can expect will give you some kind of lumpiness going forward from now on?

I think, Ian, there is always going to be a certain degree of lumpiness in our HIV space anyway regardless of this particular issue. Now this issue does cause a different kind of lumpiness, particularly affected the page two of 2009. We have seen some improvements now back in quarter one of 2010 and we are hoping to get further improvement going ahead.

It's difficult to say exactly when it will resolve itself fully but we are definitely seeing improvement on it. But as I say, lumpiness will always be a factor in relation to this particular revenue line.

My second question was going to be on acquisitions and your preference, etc., but I think, Ronan, you made it quite clear you are not really looking for that at all. Am I thinking correctly, apart from the suggestion of a share buyback, although with the number of shares you have it maybe -- it's making it even less liquid if you do a buyback -- but apart from that really there isn't much else you are thinking of doing with the cash other than just having it there ready for organic development?

That is correct.

Yes, yes, Okay, cheerio. Thanks.

(Operator Instructions) Brian Marckx, Zacks Investment Research.

If I could just follow up on the HIV customer with credit concerns, since Trinity has reduced sales to this customer do you know if they have been sourcing product elsewhere or is this something where they are just going with reduced product?

They are not sourcing product elsewhere so probably indirectly as a consequence of what is happening competitors are probably benefiting.

Is there a concern that sales to this customer may be permanently reduced or that you could eventually lose the customer all together?

In fact we are working with this customer to try and resolve things. We have started shipping on a modest level but you can probably imagine on a prepaid basis only, and we are working through things with them. I suppose we are looking at creative alternatives to ensure that we maintain our market share so there would be some element of bypassing the distributor, that kind of thing. But we are working -- we believe that we will cover our market share in this particular market and we are working constructively with our distributor to achieve that.

Would you characterize the sales that have not been made relative to the credit concerns as lost sales or kind of deferred sales? Will you make up those sales in the coming quarters do you think?

No, we won't. We were running with this particular customer at the rate of $3 million a year and we sold nothing in quarter three and four and virtually nothing in quarter one. And we will sell very, very little in quarter two. So that business just will have gone in effect.

There could be some element of restocking them if we resolve things perfectly well but you know it would be modest. There is a significant amount of permanently lost business there.

Okay, okay. And just quickly on the revised EPS guidance post-coag, could you give us a little bit more color on the impetus for increasing the guidance?

I suppose just -- we announced the initial estimate it was very soon after the transaction had been announced in the last number of days. And we have -- just since that we have taken time just to examine further what our projections are going forward so we are more confident that we can achieve the numbers that we are now saying today.

I suppose our initial estimate would have been slightly more conservative although we have hardened up in relation to our numbers and we have taken the last few days to make sure that we are confident in that regard.

And the difference is mostly coming out of expenses?

It would be, yes. We have seen further reductions in our indirect costs and also we are just more satisfied in relation to our gross margin as well, which as I say will be in excess of 50% going forward from quarter three onward.

Okay, thank you.

Matt Dolan, Roth Capital Partners.

Just a quick follow-up. Kevin, can you give us what your CapEx will now be pre- and post-divestiture?

Post-divestiture, as I say, the development costs will be somewhere between $4 million and $5 million, probably closer to $5 million. PPE approximately $600,000 so it will go a bit lower than at present. So giving a 12-month run rate of about $5.5 million and you will see obviously the pre -- if you take quarter one of 2010 in cash then we did about $2.3 million, so it would have been about $9.2 million if you annualized that.

Great, thank you.

(Operator Instructions)

Operator, this is Ronan here. I don't see any questions, more questions on the board. Am I right?

I am not showing any questions right now, sir.

All right. Well, in that case then we will maybe close the conference call. If I could just take this opportunity to thank everybody for their attention and support and talk to you next quarter. Good afternoon.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.