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Young Innovations, Inc. (NASDAQ:YDNT)

Q3 2008 Earnings Call Transcript

October 23, 2008, 12:00 pm ET

Executives

Alfred Brennan – Chairman and CEO

Analysts

Rick Kempe [ph] – Robert W. Baird

Operator

Good morning and welcome to the third quarter earnings conference call. My name is Clara and I will be facilitating the audio portion of today’s interactive broadcast. (Operator instructions) At this time, I would like to turn the event over to Mr. Alfred Brennan, you may begin your call sir.

Alfred Brennan

Thank you Clara. Thank you very much for joining us this morning and good morning. For security laws’ purposes, certain information provided on this call may constitute forward-looking statements. Please refer to our most recent Annual Report on Form 10-K on an explanation of what constitutes a forward-looking statements and the related implications.

We appreciate you joining us this morning as we discuss the results of the company for the third quarter. It continued to be about execution and we began to see more effective focus in our selling and marketing area as we continued to strengthen on the organization we have built and the staff realignment emphasizing sales continued. We restructured our production planning process for our micro-applicators business. We brought the preventive product lines into focus with selective price increases during the quarter that we believe will help us be more effective throughout the rest of the year and into ’09 and our infection control product lines, we brought focus to our BIREX products with enhanced messaging and training of our staff as well as our channel. In the homecare area, we brought focus to our new products as we had completed a price increase last quarter as well as enhancing the number of new customers we acquired and a sales team in the homecare area met their goal in acquiring new customers during the third quarter enhancing results.

Our diagnostic product lines remain challenging, we continue to focus on sales effectiveness in a changing market. We continue to focus on converting our existing field population to digital sensors and we look forward to the introduction of an integrated digital product in the fourth and first quarter. We did see some slowdown in converting doctors at the end of the quarter similarly to what we saw after 09/11 as the economic uncertainty did provide some concern to a number of our impending customers. The overall benefits of consolidation were brought into focus during the quarter as we saw strengthening of performance by the staff additions. In the fourth quarter we plan to complete the final facility consolidation which will bring to seven in the last 17, 18 months that we have completed. We have a number of new product introductions planned in the fourth quarter and first quarter that we are excited about and appear on track and we enter this period of economic uncertainty more focused and overall stronger than we were two years ago.

As part of the vision for the company also at the end of the quarter George Richmond’s transition to Vice Chairman except recommending an age restriction for Chairman of Committees of 75 for our board, he continues to serve on our board and contribute in his desire (inaudible) he has formed looking forward to ever-increasing opportunities in healthcare. He built the solid foundation of innovation and integrity during his service and we are grateful for his steady hand and his experience and insight and commitment to oral healthcare as he continues to serve the company going forward.

At this point, I would be glad to entertain any questions about the quarter or opportunities we have in the future.

Question-and-Answer Session

Operator

(Operator instructions) Your next question comes from the line of Rick Kempe [ph] with Robert W. Baird, your line is open sir.

Rick Kempe – Robert W. Baird

Hi, good morning everyone.

Alfred Brennan

Good morning Rick.

Rick Kempe – Robert W. Baird

Hi just a couple of questions firstly on the equipment side, I was wondering if you could help out with what percent of the business that is, I think we used to think of it as trending in the 15% range but just as we look forward from here, whereabouts is it right now?

Alfred Brennan

It’s been in that range historically, that is not something that we have broken out but if you look at the historical numbers that is not inconsistent. Clearly in this quarter we are a little below trend line and most of the cost for us to drop out of our 4% to 6% historical internal growth rate which we have talked about consistently through the years is due to the panoramic performance.

Rick Kempe – Robert W. Baird

Then is your new system launches (inaudible) over the Q4 and Q1, when do you think we could start to see some benefit from that or do you think that this quarter’s shortfall was more because of the comp and because of the economy?

Alfred Brennan

I think it was three things really. One, it was continued struggles we have had internally with sales execution which I think we addressed during the month of September. We clearly saw some issues in July and August. Quite frankly people did not make their specific targets and we went in with different sales managers at the end of the quarter and we saw good results in September. We also saw and we had done a number of focus groups which Denis [ph] tends to manage their practices with cash while we had a number of properly qualified accounts with credit, we are either financing with cash or financing with credit. We did see significant increase in the delays, people requesting a delay as they waited out to see how things were going to go for the rest of the year. I think credit tightening did affect us to a degree. We did have a couple of comparable areas in some government sales and some international sales that have been there prior year, that were not there this year but overall it is a small business those things come and go and our focus right now is on selling effectiveness and really the launch of the new product which we think should affect our fourth quarter and first quarter results and appears to be in reasonably good shape. But to be clear and certain, the business is still in a condition that needs continued care and attention and focus and we don’t think we are totally out of the woods there yet.

Rick Kempe – Robert W. Baird

Okay, good. Then on the consumables, you mentioned typical company trends of 4% to 6%, would those have been in line with that this quarter?

Alfred Brennan

Yes.

Rick Kempe – Robert W. Baird

Okay, and on the tax line, it has continued to improve with regard to the year do you think going forward 37% is a more realistic number or a little bit closer to what we are seeing recently?

Alfred Brennan

Yes. Basically what we are dealing with there is the modification in the way we were dealing with accrued taxes and it is a new space for us. Our assumption used to be more conservative as we show taxes where they actually accrued in a given period, we are struggling with whether that number actually (inaudible)

Unidentified Company Speaker

There is still variability there Rick but something in the quarter to 36.5% for next year is probably closer.

Rick Kempe – Robert W. Baird

Okay, last question for me on the gross margin line, as we complete some of the facility consolidations in Q4, would you expect to see that start to pick up in 2009?

Alfred Brennan

Yes gross margin in our business the question is what is the spread we are looking at? Given the size of the business there is some variability from mix always but usually it is offset in those product areas by the comp on the SG&A line, so if we look at the operating income line, that is where we are focused on continued improvement, it is really contingent on heading the sales goals that we have and staying within our normal range to continue to see those operating margins go up. As we went through the quarter we were very pleased with the demand for our products and the support we had from not only our distribution partners at the execution we saw in our organization. I think we are going through this next couple of quarters economically. Our plan is to continue to execute aggressively, we see this as an opportunity to be competitive in gaining share. I don’t see a concern about pulling back but again that sales line is going to be what we need to show the improvement on the operating margin lines we need and the SG&A and the gross margin tend to force themselves out. So I know that is a roundabout way of answering your question but we aren’t able to really give you a tight range on the gross margin without looking at the way it trades and ultimately falls down the operating income line.

Rick Kempe – Robert W. Baird

Okay, fair enough. That’s all I have. Thanks for taking my questions.

Alfred Brennan

Rick, thank you very much.

Operator

(Operator instructions) We have no more questions in the audio queue.

Alfred Brennan

Great. Thank you very much for joining us this morning and we look forward to opportunity in the fourth quarter. Have a great day. Thank you Clara.

Operator

This concludes today’s conference call. You may now disconnect.

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