Candela Corp., F1Q09 (Qtr End 09/27/08) Earnings Call Transcript

Oct.23.08 | About: Candela Corp. (CLZR)

Candela Corp. (CLZR) F1Q09 (Qtr End 09/27/08) Earnings Call Transcript October 21, 2008 5:00 PM ET

Executives

Stacy Feit - Financial Relations Board

Gerard Puorro - President, CEO

Robert Quinn - VP Finance and Treasurer

Analysts

Chris Karavolas - Romeo & Juliet

Operator

Good day, ladies and gentlemen, and welcome to the Candela Corporation first quarter financial results conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. (Operator Instructions) As a reminder, this program is being recorded. I would now like to introduce your host for today's program, Ms. Stacy Feit with the Financial Relations Board.

Stacy Feit

Thanks, Jonathan. Hello, everyone. I would like to thank you for dialing into the call today, and introduce Gerry Puorro, President and CEO of Candela.

Gerry Puorro

Thank you, Stacy. Good afternoon. As always, thank you for calling into our quarterly call. Here with me this afternoon is Bob Quinn, Vice President of Finance and Treasurer. He needs to review the requisite Safe Harbor statement, go over the financials for the quarter. I'm going to make some brief comments, following which we will both be happy to take some questions. Bob?

Bob Quinn

Good afternoon. In addition to historical information contained in this call, we will discuss forward-looking statements within the meanings of the Private Securities Litigation Reform Act of 1995, including but not limited to statements relating to the future success of the business, marketing and technology strategies, future market opportunities and the future market acceptance of and demand for the Company's products.

The Company's future actual results could differ materially from the forward-looking statements discussed or implied because of risks or uncertainties, including but not limited to those risks identified in the press release issued earlier today and those other factors discussed from time-to-time in the Company's periodic reports filed with the Securities and Exchange Commission.

Results for the quarter were as follows, revenue for the quarter was $26.9 million versus $35.5 million for the same quarter last year. This resulted in a net loss of approximately $4 million or $0.18 per share compared to net income of $187,000 or $0.01 per share for the same quarter last year.

The current economic conditions and credit fears have negatively impacted domestic and international sales this quarter. The revenue split this quarter geographically was 33% U.S. and 67% international, compared to 47% U.S. and 53% international last year.

The customer mix this quarter was 55% core and 45% non-core. The product line split this quarter was 36% service and 64% laser related, compared to 25% service and 75% laser related for the same quarter last year.

The lower sales volume in regional and product line mix have continued to lower our gross margin to approximately 39% this quarter, compared to approximately 48% a year earlier.

The other factor bringing our margins lower has been our product reliability that we have mentioned in prior quarters. The reliability issues have had an impact on both our service margins and our product margins due to the need to increase warranty costs.

Legal expenses remain high this quarter as we incurred approximately $3.2 million compared to $2.5 million last year.

Key factors related to our balance sheet. We maintain a strong cash position with approximately $30 million in cash. Our lower than planned Q1 revenue resulted in higher than desired inventory levels, and as far as our accounts receivable go, our DSO this quarter is 105 days, a large percentage of international sales, which typically have longer payment terms in the U.S. is contributing to our high DSO.

Gerry Puorro

Thank you, Bob. When we spoke last quarter, we said we expected slowness in sales and that this would be a loss quarter. As the quarter closed, we saw increasing delay in purchase decisions as well as outright cancellation of orders. While most physicians can get credit, there is a fear perceived or otherwise, that their patient volumes will drop off.

In our judgment, these economic challenges will remain with us for the foreseeable future. As such, we don't see a return to profitability before mid calendar 2009. Based on current forecasts, we have sufficient cash and liquidity during this time frame.

Turning to our outstanding litigation. With respect to Palomar, as we reported recently, we lost the trial in Texas. The Boston case is in expert discovery and has no trial date set. There is nothing material to report in either the securities class action filed by Western Pennsylvania electrical employee pension fund or the derivative suit brought by a Mr. Florenzo.

With respect to the cardio focus matter, the court has agreed to state a case pending patent and trademark offices re-examination of the cardio focus patents. The stay is for one year from October 14, 2008, or until the PTO decides to re-examine. The court further ruled that it will entertain extending that for two years or an additional year beyond October 14th, 2009. We will have no further comment on any of these legal or litigation matters.

As for our body shaping cellulite product, we have said the product would launch in the latter part of calendar 2009, and we believe that is still achievable. As for home based products initiatives, as we said last quarter, we're nearing completion of the proof of concept phase for two specific applications.

Based on the final outcome of these two proof of concept applications, we will be deciding next steps. There still remains likely to be within late December time frame, which in turn meets our consistent goal to look to launch the product some time in calendar 2009.

Lastly, as noted in the press release we have been working with Houlihan Lokey, our financial advisor. Over the past few months, we have received unsolicited increase from a number of parties concerning industry consolidation. As such, we have directed Houlihan Lokey to explore the full range and strategic alternatives aimed as maximizing shareholder value.

And with that operator, we'll take questions.

Question-and-Answer Session

Operator

(Operator Instructions) And our first question comes from Chris Karavolas from Romeo & Juliet.

Chris Karavolas - Romeo & Juliet

Yes, hello, I'd like to ask about the laser reliability issues. Which lasers do you have the issues with and what is your approach to dealing with those issues?

Gerry Puorro

Well, let me first say without talking about the specific devices, our approach has remained constant for many years. And that is we stand behind our customer, stand behind the warranty we've given him and try to provide service to keep him up and running to treat his consumer patients.

Chris Karavolas - Romeo & Juliet

Yes, I am a customer as well as an investor, and I do own [G-maxes] as well as GentleLASE's and I would like to report that in my opinion at least, I see an end to the issues with the G-max because I think that these issues seem to be addressed well and from my point of view at least, I do see that the G-max issues are about to be resolved. So, I wanted to just mention that.

I also wanted to mention a couple of things. I read your press release and you are saying, at least correct me if I am wrong, you are saying that you might have some issues going it by yourself and you may perhaps need a partner. I know you have addressed this, but what do you attribute this to in general? Just market conditions? Anything else? Could you make a comment about that?

Gerry Puorro

First, let me thank you for calling in as a customer and letting the investment people on this call hearing from a customer who has had a reliability problem and has found that we stood behind you and that you are as confident as we are that those problems are rapidly going away. As it relates to why we have suggested that we want our financial advisors to look at a variety of alternatives, certainly the market has slowed down for everybody and us as well. Let's be honest. These results this quarter are quite poor.

We look out to the future. We feel, we believe continued pressure on sales. We do not see a lot of pressure yet on ASPs but in North America, I mean in the last two weeks of the quarter, so, we had a number of customers who not only delayed the purchase decision because of economic conditions but actually cancelled orders that we had literally on the dock.

So, as we have spent a lot of time since the quarter ended polling all of our sales people worldwide. Down to the salesman level, not just the Managers and the VP's. And we think for the foreseeable future that we are going to continue to see these issues. That equates to us that it may be difficult for us to return to profitability before the mid portion of -- as I said 2009. And that tells us that the share price may continue to be depressed.

So that said, pursuing the fiduciary responsibility at the Board of Director level and Management's desire, we stepped back and said we have to look at all alternatives as it relates to our responsibility to our shareholders as well as great customers like you. We want to be certain that we continue to be there for all of our customers. So, we are looking at all alternatives and we believe that any business would do the same thing.

Chris Karavolas - Romeo & Juliet

Yes, well, thank you very much again. I think these issues are being addressed and I am looking forward to them being resolved. I'm sure they will be. One final question if I may, and I don't know if you can comment on this. You have said that you have been approached by a few people. Could some laser companies in your area be some of these candidates who may have approached you?

Gerry Puorro

As you could well imagine, anyone that I was speaking with would be under a confidentiality agreement, so I really cannot respond.

Chris Karavolas - Romeo & Juliet

Very good, thank you very much.

Gerry Puorro

Thank you.

Operator

Thank you. (Operator Instructions) There are no further questions in the queue at this time. I'd like to turn the program back to you.

Gerry Puorro

Thank you, operator. As I understand, 52 people on the call and one of you had a question. It was great. For the first time in all of the years I've been doing this, to actually have a customer come up and begin to tell the rest of you how the problems of reliability and the like are behind us. That individual indicated to you how we have supported our customers for years and we continue to do so.

We do believe that those problems are rapidly going behind us. And we think we will see a real difference from that prospectively. Thank you all for calling in. We appreciate your support. Thank you, Operator.

Operator

Thank you. And thank you, ladies and gentlemen for your participation in today's conference. That does conclude the program. You may now disconnect. Good day.

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