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Rochester Medical Corp. (NASDAQ:ROCM)

F1Q 2013 Earnings Call

January 29, 2013 04:30 pm ET

Executives

Jim Conway – President & Chief Executive Officer

David Jonas – Chief Financial Officer

Analysts

Matt White – [Thaldel]

Bruce Jackson – Northland Securities

Tyson Bauer – Kansas City Capital

Beth Lilly – Gabelli Asset Management

Ross Taylor – Somerset Capital

[Dennis van Deldefen] – [Brasas Research]

Operator

Good day, ladies and gentlemen, and welcome to the F1Q 2013 Rochester Medical Corporation Earnings Conference Call. My name is Keith and I’ll be your operator for today. (Operator instructions.) As a reminder, today’s conference is being recorded for replay purposes. And with that I would now like to turn the conference over to your host for today, Mr. Jim Conway, President and CEO. Please go ahead, sir.

Jim Conway

Good afternoon. Thank you for joining Rochester Medical’s F1Q conference call. I’m Jim Conway, the company’s President and CEO, and with me is David Jonas, Rochester Medical’s Chief Financial Officer.

Before starting let me remind you that we will be making some forward-looking statements today and I would refer you to the Safe Harbor Statement found in today’s press release and also to the “Risk Factors” section in the company’s Annual Report found on Form 10(k) for the year ended September 30, 2012. These statements further clarify the risks and uncertainties that are associated with the forward-looking statements.

I’ll provide a brief review of our F1Q performance and Dave will then provide you with more details on our financial results and our outlook for F2013. And then I’ll give a quick update on a few items before opening up the call for your questions.

I’m pleased to report that our fiscal year is off to a good start with total revenues in F1Q up 23.5% on a reported basis and up 23% excluding Foley catheter sales in both years. You’ll recall that we announced last quarter that we were exiting the Foley catheter market. Our global direct sales business grew 24.2% due to a robust 41.3% growth in our US direct sales business and a solid 23.7% growth in our UK direct business.

Overall, our international direct sales increased 18.6% paced by the strong growth in the UK and aided by moderate growth in the Netherlands. Specifically, our business in the Netherlands posted another quarter of improving results, growing both sequentially and year-over-year. This performance is consistent with our expectations of a gradual rebound in this region.

Our total international business continues to generate acceptable growth which we expect to continue even as the European economy remains a challenging environment. Global private label grew 18.8% in F1Q and while this growth is admittedly on an easier comparison to last year, the underlying two-year growth trend in private label is right in line with our expectations for steady, moderate growth.

We reported F1Q GAAP earnings of approximately $1 million or $0.08 per share, and on a non-GAAP basis excluding certain non-cash expenses and nonrecurring expenses related to our exiting the Foley market we posted net income of $1.4 million or $0.11 per share, up dramatically compared to $285,000 in the prior year.

Let me highlight these results. First, our intermittent catheter line continues to be the main engine of growth, increasing 51%. Thus we continue to expand our share in this $800 million global market. Second, the US home care business remains strong, also growing 51% in F1Q as demand for our intermittent and male externals increases. And third, the UK business remains a solid contributor to results, and the Netherlands posted a second consecutive quarter and year-over-year growth. Fourth, we are pleased with our private label business which is performing nicely to our expectations.

Finally, this F1Q performance demonstrates that we are growing where we expected to grow and that the Rochester Medical growth story is solidly on track with our expectations. Further, these results set us up to be well on track to achieving our F2013 objectives. Let me now turn the call over to Dave who will give you further details on the quarter, reaffirm our F2013 outlook and clarify for you what we expect to see as Foley catheter sales wind down this year.

David Jonas

Thanks, Jim. I’m going to review the results contained in our F1Q 2013 earnings release issued after the market closed today. I will provide some clarity around the treatment of our decision to exit the Foley market and our F2013 results, and reaffirm our expectations for F2013. As always, all sales information will be discussed in constant currency. Note, however, that the total impact of foreign currency was immaterial to F1Q results representing less than 20 basis points to total sales growth in the period.

Total F1Q sales increased 23.3% to $17.3 million from $14 million last year including Foley sales. Excluding Foley sales in both periods, F1Q adjusted sales of $16.0 million improved 23% over $13.1 million last year. Direct sales were once again the main growth engine in the quarter rising 24.2% to $14.3 million from $11.5 million last year. Private label sales grew 18.8% to $3.0 million from $2.5 million last year, chiefly driven by strong domestic demand.

As Jim mentioned, the two-year growth trend for private label continues to reflect our expectations for ongoing growth rates in this business. The above average growth rate this quarter was largely a function of an easier comp due to some order timing differences in last year’s F1Q. Because we derive over 80% of total revenues from direct sales I will focus the revenue discussion on the drivers of the strong direct sales performance.

Global direct sales posted strong performance again this quarter with robust growth in the US and UK of 41.3% and 23.7% respectively. As Jim noted, we also saw our business in the Netherlands where our Laprolan business operates improve for a second quarter in a row with sales up 6.4% year-over-year after underperforming our expectations in the earlier part of F2012.

As a reminder, while we do business is more than 75 countries around the world, almost 90% of our total global direct business comes from three regions – the US, the UK, and the Netherlands. The positive direct sales performance was a function of strong growth across all three product lines – our intermittent catheters, our male external catheters, and to a lesser extent our FemSoft catheters.

Turning now to direct sales in terms of the channels served, home care and acute care, it should be noted that with the decision to exit the Foley market home care now accounts for over 95% of direct sales so my comments will be focused on home care performance. In F1Q, home care sales improved 25.6% to $12.7 million from $10.1 million last year, driven primarily by strong growth in intermittent catheters and to a lesser extent solid growth in male external catheters. We are encouraged by the growth of our intermittent and male external catheter lines and our home care sales force continues to gain share. FemSoft, which remains a minor product line, grew sequentially in both the US and the UK and grew 66% this quarter versus last year’s F1Q.

Now let me review the rest of the income statement. F1Q gross margin was 49.1% versus 50.9% last year. The decline is chiefly due to product mix. Overall though, we expect gross margins to trend toward the low 50% range particularly as the lower margin Foley sales are wound down.

Total operating expenses of $7.1 million were flat with the prior year and are up sequentially due in part to approximately $150,000 in nonrecurring severance costs related to exiting the Foley market. We also had higher legal, audit, and financial printing costs associated with the year-end activities this quarter which is historically our highest expense quarter of the fiscal year. Importantly we remain comfortable with quarterly operating expenses returning to a $6.0 million to $6.5 million per quarter run rate for the balance of the year.

On a margin basis, F1Q selling and marketing, R&D, and G&A expenses together represented approximately 41.1% of reported sales this year compared to 51.0% of reported sales last year. F1Q operating income totaled $1.4 million, up sharply compared to an operating loss of $20,700 last year. On a GAAP basis, reported F1Q net income of $1 million compared to a GAAP net loss of $75,000 in F1Q 2012.

On a non-GAAP basis, reported F1Q non-GAAP net income of $1.4 million or $0.11 per diluted share compared to a non-GAAP net income of $285,000 or $0.02 per diluted share last year. Non-GAAP net income excludes all non-cash and nonrecurring or unusual expenses, specifically intangible amortization and stock compensation expenses on the non-cash side, and severance costs associated with exiting the Foley market on the nonrecurring side. The non-GAAP adjustments are detailed in the reconciliation section of our press release and show the underlying operating results of our business.

Concerning our balance sheet, F1Q concluded with cash and equivalents of $23.1 million, up $2.3 million from the end of F2012. Working capital efficiencies, particularly with respect to improving receivable turns combined with a sharp improvement in net income this year drove cash flow from operations in the quarter of more than $3 million. We remain debt free.

To give you some color on our P&L performance excluding Foley sales, as we noted previously adjusted sales were $16 million versus $13 million, a gain of 23%. In addition, gross margins excluding Foleys were approximately 52.2% versus 53.3% last year. The decline in this metric in the quarter is largely a function of the product mix shift mentioned previously. We expect a gross margin benefit related to our exit from the Foley market.

Regarding our exit of the Foley market, as I mentioned earlier our reported sales figure will reflect some residual sales of the product until we’ve fulfilled the final orders. We expect these sales to wind down over the balance of this fiscal year. We will thus provide you with a reported and an adjusted quarterly sales figure, the latter of which will exclude Foley sales in the current year and prior year period to help you build models that show apples-to-apples comparability on a go forward basis.

For added color, we will not be categorizing the exit of the Foley market as discontinuing operations per se due to the fact and the clear accounting convention that the Foley line is a product line and not a distinct operating segment. In other words, this product line was not a distinct business for us and therefore it does not become a discontinuing operation. As I mentioned earlier we expect Foley sales to decline in F2Q and F3Q and wind to zero in F4Q with total F2013 Foley sales to approximate $1.5 million to $2.0 million versus $4.0 million last year.

Turning to guidance for F2013, I would like to reaffirm our guidance provided on last quarter’s call for F2013 sales of approximately $67 million, up about 17% from F2012, also excluding all Foley sales. Please note that this guidance did at the time and does still exclude any Foley catheter sales we now expect to achieve, namely the $1.5 million to $2.0 million in residual sales I just mentioned. We also reaffirm our after-tax profit guidance of approximately $7 million which also when given was meant to exclude the cost of being in the Foley business.

With that I’ll turn the call back to Jim.

Jim Conway

Thank you, Dave. Let me spend just a few minutes updating you on three items: our recent trip to visit our European operations; our recently launched new product, Spirit; and third, a review of Rochester Medical’s growth strategy.

To begin, in December we had the opportunity to spend a week in Europe visiting our operations in the UK and the Netherlands. We spent considerable time with the managers reviewing their plans for the upcoming year and we are encouraged by the strategies they laid out, and confident that both regions will deliver soundly on their objectives. We also took the opportunity to give management a clearer picture of new products in the pipeline.

Regarding the new Spirit catheter, as I noted on last quarter’s call we launched a new, next generation male external catheter, the Spirit Hydrocolloid Adhesive Sheath – that was in early October. With one quarter under our belts, although it’s still early in the product’s introduction I’m pleased to say that the initial response is favorable and based on this initial positive interest we feel confident that Spirit will support the growth we expect to generate in our MEC business in the coming year and beyond.

Finally, I’d like to take a moment to remind you of our growth strategy, particularly in light of our announcement to exit the Foley market. We intend to one, deliver mid-teens top line growth. This is on an apples-to-apples basis excluding Foley sales in the current year and the base year. We will do this through robust US and UK direct sales growth and modest growth in our other international direct sales markets and moderate private label sales growth. And two, our plan is to improve profitability. This will result from a combination of fixed cost leverage, reduced operating expenses, and the Foley decision; and also a mix shift to direct sales. Thirdly, we plan to generate increased cash flow which will enable us to internally fund our projected growth and expand our manufacturing capacity.

In closing, given the strong F1Q performance in our direct sales business we remain as optimistic as ever in the growth prospects for our global Rochester-branded direct sales, and the private label business also remains a reliable, stable grower for us. We are encouraged by the solid start to the new fiscal year and are confident that we are well positioned to achieve the strong growth targets that we have laid out. And with that we’ll be happy to take your questions.

Question-and-Answer Session

Operator

(Operator instructions.) And your first question is from the line of Matt White with [Thaldle]. Please go ahead.

Matt White – [Thaldel]

Good afternoon. The strength that you saw in intermittent catheters’ accelerated growth here this quarter, is there anything new that’s resonating with clinicians that you can point to that’s driving the share gains you’re experiencing? What do you point to this strength that you are reporting here?

Jim Conway

Well over time both the company and our products become better known. We certainly have a strong ground sales effort underway and it’s been underway now for 18 months, about two years, and so as time goes by more and more clinicians become familiar with the advantages that we offer over the competition and they become more and more familiar with the company. So we expect continued good growth and we’ll be introducing even more technology later on.

Matt White – [Thaldel]

In line with that are you still on target to launch a new intermittent catheter toward the end of this calendar year?

Jim Conway

Yeah, at about calendar year end. We’re enjoying watching steel go up across the street in our new production facility so we’ve got a lot happening there, and we should be on target. As time goes by it might be a month one way or a month the other, it’s kind of early, but we’re still saying the end of this year.

Matt White – [Thaldel]

Any additional color on what that product may feature, how it’s differentiated?

Jim Conway

We really don’t want to say much about it but it’s interesting you should ask for color, because our internal code name happens to be a color.

Matt White – [Thaldel]

Alright. And then any update in reference of the new production line you’re looking to have come on? Is that still on schedule? And in regards to that, I think we talked about when it’s at capacity getting around $25 million in annualized sales. How long would it take to get that line at full capacity?

Jim Conway

Well, when we’re ready to go with it at the end of the year we could almost fire it up at full capacity immediately from a production standpoint, but obviously will have to build the sales to get those extra 20 million units which is about $25 million in sales. But that’s going to be pretty much ready to go.

Matt White – [Thaldel]

Excellent. And then just a clarification on the Foley sales, it sounds like your expectation for the full year was $1.5 million to $2.0 million so it looks like that would imply maybe $200,000 to $400,000 over the next couple quarters – is that correct?

David Jonas

Yeah, somewhere between $200,000 and $700,000 the next couple quarters as we wind our inventory down and fulfill all the orders.

Matt White – [Thaldel]

Alright. Last question here and I’ll jump off: just looking at reaffirming your guidance and looking at some ops, it looks like that was implied operating margins for the year of around a 15.5% to 16.0% range. If you’re able to hit that target it seems highly realistic and reasonable that the following year, and I know you’re not going to give guidance but 17% is not out of the question. Am I on target with that kind of thinking?

David Jonas

It’s certainly not unreasonable. I mean you’re right – we’re not going to give guidance for next year but that’s certainly not unreasonable.

Matt White – [Thaldel]

Thanks.

Operator

Your next question is from the line of Bruce Jackson with Northland Securities.

Bruce Jackson – Northland Securities

Hi, thank you for taking my question. With regard to the new plant, is the plan still to spend about $12 million on the CAPEX for the year?

Jim Conway

Yep, it’s going to be about $12 million. That includes the building and the production equipment and the automation, all that good stuff.

Bruce Jackson – Northland Securities

And then do you have any other like maintenance CAPEX on top of that?

David Jonas

Yeah, the last two years we’ve averaged about $1 million a year in maintenance CAPEX so I suspect that would be the same this year.

Bruce Jackson – Northland Securities

Okay, so the total CAPEX ought to be around $13 million or so.

David Jonas

Yep.

Bruce Jackson – Northland Securities

Okay. And then moving over to the intermittent catheters, were there any changes in the new prescription trends or share?

Jim Conway

Not really. We’ve not redone that analysis, actually – we don’t do it on a quarter-by-quarter basis. The last time we examined it we felt we were getting about 1 in 4 in the United States of new prescriptions and that was our best estimate. It’s not like there’s real solid data out there.

Bruce Jackson – Northland Securities

Okay, and then were there any changes to the sales force?

Jim Conway

We added three people to the sales force but that was in the beginning of the quarter to the domestic sales force.

Bruce Jackson – Northland Securities

Okay, any price increases?

Jim Conway

No.

Bruce Jackson – Northland Securities

Okay. And then with the Foley business I know you’re still planning to exit it but has there been any renewed interest in buying the assets?

Jim Conway

Not really; we don’t expect it. There’s still some vague interest in the technology but if I had to guess today nothing is going to come of any of it.

Bruce Jackson – Northland Securities

Okay, thank you very much.

Jim Conway

Thank you, Bruce.

Operator

Your next question is from the line of Tyson Bauer with KC Capital. Please go ahead.

Tyson Bauer – Kansas City Capital

Good afternoon, gentlemen, and hopefully it’s not too icy.

Jim Conway

It’s been icier than hell! [laughing]

Tyson Bauer – Kansas City Capital

You talked about Laprolan – it’s growing now two consecutive quarters here. Do you have a target pace or a target level that we should be tracking to see that you’re hitting your benchmarks for this year?

Jim Conway

No, not one that I want to actually publicize. I would just say that it’s very modest for the next few quarters.

Tyson Bauer – Kansas City Capital

Is that due more to the market in general over there as opposed to your management changes and different processing? Or are we still in a feeling out phase here?

Jim Conway

No, we’re not in a feeling out phase with management. They’ve got very, very solid plans in place. You recall that at the beginning of the year we ran into some reimbursement issues that have not gone away, and they’re not going away so they slowed everything down. We ran into parallel importing issues on MECs which has not gone away and they will gradually disappear as the sell Spirit instead of the other brand because they had their own national brand for Spirit – it’s called Aurora – so there can’t be any parallel importing. So as that grows, the parallel importing issue will disappear and then what should really give them a tailwind is when they introduce some of our new technology at the very end of this calendar year, the beginning of next year.

Tyson Bauer – Kansas City Capital

Okay, and this may be getting too convoluted on the Foley side – you gave us the revenue, we know the severance costs that we can take out modeling-wise. Are you prepared to offer any numbers in regards to other expenditures that won’t be going forward had the Foley not been in the business? Obviously that takes some allocation of corporate and some other expenses, but any best estimate there?

David Jonas

Well, it does really get complicated, Tyson. That business truly is intertwined with the rest of our businesses which is why we can’t discontinue it – it’s just a product line. But if you just backed out the margins we got on the Foley sales we had for the quarter, the severance pay and the sales and marketing costs that are the people we let go, after tax that’s about a $400,000 hit on this quarter – that’s the number. So $250,000 plus $150,000 in severance if that helps. It’s about $0.03 per share.

Tyson Bauer – Kansas City Capital

You heard me on my ten-key. [laughter] The win ratio is kind of a best guess, that 1 in 4. Are you willing to provide actual or do you know new home care accounts that you picked up during the quarter?

Jim Conway

Well, we wouldn’t provide the accounts. We really don’t pick up many new accounts; we already sell to most of the home care distributors. We actually pick up the patients and give the patients to our customers.

Tyson Bauer – Kansas City Capital

Do you have availability of that information so you can kind of guide where you stand and make your best estimate on this win ratio that you’re providing?

Jim Conway

I’m not sure I understand your question.

Tyson Bauer – Kansas City Capital

Basically how many patients are you picking up that are utilizing your product that were not at the beginning of the quarter?

Jim Conway

We have all that data. We track that data day-by-day. I’m not going to share it but we track it very, very closely.

Tyson Bauer – Kansas City Capital

Okay. And it would appear that given your overall guidance that we’re right on pace if not just slightly above pace after this F1Q?

Jim Conway

I would say we’re right on pace.

Tyson Bauer – Kansas City Capital

That sounds wonderful. Thanks a lot, gentlemen.

Jim Conway

Thank you.

Operator

Your next question is from the line of Beth Lilly with Gabelli. Please go ahead.

Beth Lilly – Gabelli Asset Management

Hi Jim and Dave. I wanted to ask a question in terms of, as I look at the operating model it seems to me… So you generated about 10% operating margins this quarter, correct?

David Jonas

Yeah.

Beth Lilly – Gabelli Asset Management

Okay. And yet if we take your guidance, the number is closer to 15%. So can you help me understand the reason? I mean the math works but I’m trying to understand why the accelerating profitability? Is it because the volumes are growing and so you’re absorbing excess capacity? What’s the reason?

David Jonas

I guess I don’t exactly understand how you asked the question.

Beth Lilly – Gabelli Asset Management

Well, so we generated 10% operating margins this F1Q. You’re going to end the year total at 15% if you take a $7 million net income, right?

David Jonas

Right.

Beth Lilly – Gabelli Asset Management

Okay, and if you do that on an operating basis it’s closer to 10% or something like that. So what I’m trying to understand is how do we get from 10% to 15% for the full year?

David Jonas

This quarter is a difficult one to look at and there’s a couple things going on. The first one is there are expenses in this F1Q that relate to the Foley market that we got out of, and we didn’t let go of our sales and marketing group until towards the middle of November.

Jim Conway

Halfway through the quarter.

David Jonas

Halfway through the quarter, so that’s the $400,000 that I alluded to with Tyson with the severance costs and the sales and marketing. This quarter also, historically always for us is the highest one when it comes to admin costs because it’s our year-end and we have auditors here, and we have a lot of tax work and we have to print up annual reports. So there’s expenses in this quarter that aren’t in the next three quarters ever, any of our years including this one. So that’s how we’re going to get higher operating margins the next few quarters – those two things alone along with increased sales and margin from our increased business.

Beth Lilly – Gabelli Asset Management

Okay, great. Okay, and I might have missed it – so in terms of the Foley has anybody come forward with any indications since you’ve expressed your intentions to shut down the Foley line, has anybody come forward wanting to buy the technology? I know you tried to sell it and the prices weren’t right but since you’ve made the announcement and since the second half of the study has come out have you had any more indications of interest?

Jim Conway

Yes, indications of interest; no to any expression of like “Let’s do a deal,” and no specific offers, just conversations of interest.

Beth Lilly – Gabelli Asset Management

Okay. But nothing to the point where you’re in any kind of negotiations.

Jim Conway

We are not in negotiations.

Beth Lilly – Gabelli Asset Management

Okay. And then my last question is did you buy back any stock in the quarter?

David Jonas

We did not. We were in the middle of the whole Foley decision and trying to sell it, so we really couldn’t buy back during that time. By the time we got done with that decision we were in blackout so we did not buy any in the last quarter.

Beth Lilly – Gabelli Asset Management

Okay, great. Okay, terrific, thanks so much.

Jim Conway

Thanks, Beth.

Operator

Your next question is from the line of Ross Taylor with Somerset Capital. Please go ahead.

Ross Taylor – Somerset Capital

Thank you, Jim, and good quarter. Quickly on free cash flow basis, what do you think you generate this year ex the new plant investment?

David Jonas

Basically that is going to offset all of our free cash flow.

Ross Taylor – Somerset Capital

Okay, but generally away from that you’re running right now at about $12 million, a $1 million a month free cash flow exing CAPEX, the extraordinary CAPEX.

David Jonas

That’s what we expect this year, yes.

Ross Taylor – Somerset Capital

Okay. You were asked earlier and you kind of gave an idea, you didn’t really give a timeframe but how long do you think it takes you to sell the manufacturing capacity of the new plant once the plant’s online?

David Jonas

Well giving that out would almost give guidance so it’s going to be a few years. It’s not going to be ten years, it’s going to be less than that but it’s going to be a few years.

Ross Taylor – Somerset Capital

A couple years, okay. And I take the answer to the earlier question on the buyback to indicate that you do anticipate being in the market to buy back stock, and that the only reason you were out is because you had certain legal constraints. Is that a correct assumption?

Jim Conway

I think so. It’s very likely that we’re going to be buying some back. I don’t want to give the impression that it’s going to be a lot of stock but we certainly want to offset any dilution from options or long-term incentives, and we’ll see. But there will be some buybacks.

Ross Taylor – Somerset Capital

When you get past this year and you have the new plant up and operating, and you are going to be sitting there with a substantial amount of cash, no debt – you and I have had this conversation about the idea of effectively taking what we’d call 1 multiple assets and -1 multiple assets and turning them into much higher multiple assets. Has the Board had conversations about making moves in that direction so that we can get more leverage to what seems to be the significant upside that you guys are putting in front of us?

Jim Conway

We certainly had Board conversations relating to how to put that money to work for us, and most of those conversations have been around acquisition frankly. And they continue to be, but certainly we are well aware that money right now just sitting in the bank really is not of much value.

Ross Taylor – Somerset Capital

If you were to look to do an acquisition what do you feel is an area that meets your need? When we look at you, your fairly narrow focus – I think a lot of investors actually like the idea that they know what they’re getting with you. So how do you diversify and not actually end up getting no benefit from a multiples standpoint on it?

Jim Conway

From our past experience we’ve had success in the United Kingdom, for example, via acquisition where we not only bought products, product lines but we bought the distribution, bought a prescription service as well. It’s been a great acquisition for us ever since 2006. We just recently did the same thing to get feet on the ground in the Netherlands. We bought a distributor that also had products, it was both.

We’ve said in the prior call that we’re really, really focusing on getting on the ground in Germany. We’ve got one person right there fulltime right now setting up if you will a business plan as to how to get into Germany, and one of the things that is a great interest there is to do the same thing in Germany to get immediate feet on the street where we do an acquisition of a company that’s already in the business that we’re in – selling intermittent and male external catheters. So it’s that type of thing.

Ross Taylor – Somerset Capital

Okay, and as you know we’re a big believer that a more aggressive buyback would be appreciated not only from the upside opportunity but quite honestly to help avoid the problems we saw at the end of last year when there was obviously a rather heavy-handed and somewhat sloppy seller in the marketplace which put pressure on the name without really the ability of the company to get in and offset that or take advantage of it.

Jim Conway

Well, we’re certainly not ruling out bigger buybacks.

Ross Taylor – Somerset Capital

[laughing] Okay, thank you very much. Once again great quarter and I look forward to next quarter.

Jim Conway

Thank you very much, Ross.

Operator

We have one more question here: it’s from the line of [Dennis van Deldefen with Brasas Research]. Please go ahead.

[Dennis van Deldefen] – [Brasas Research]

Good afternoon, gentlemen. I don’t know if you gave it earlier or not but what would be the net income impact on the $1.5 million to $2.0 million in Foley sales for the entire year?

David Jonas

What we said is we don’t really have that number. What I was telling Tyson before is that’s a really hard number to get to because the Foley business was tied into the rest of our business. There wasn’t just a distinct business that we had for the Foleys. What I estimated is for F1Q it was about a $400,000 impact to net income and that we would have been $400,000 higher after taxes if we would have never sold a Foley in this quarter. But we don’t have that for the full year.

[Dennis van Deldefen] – [Brasas Research]

Okay, so I guess the point is for people who look at your numbers, even if you make your guidance the reported number might be below that because of that particular loss, correct?

David Jonas

Correct. The guidance we gave, the $7 million number we gave was without that loss, that is correct.

[Dennis van Deldefen] – [Brasas Research]

Right, but when you report it I mean you might make your guidance, but when you put in Foley from a reported basis it might look like on the surface that you did make it, correct?

David Jonas

That is correct.

[Dennis van Deldefen] – [Brasas Research]

Okay. Are there any more charge-offs related to Foley coming?

David Jonas

No, none that we know of.

[Dennis van Deldefen] – [Brasas Research]

Okay. And lastly, how much of your cash is actually in the US roughly?

David Jonas

It’s 60%.

[Dennis van Deldefen] – [Brasas Research]

Okay. Thanks guys, that’s all I had.

David Jonas

Thank you, Dennis.

Operator

And ladies and gentlemen there are no other question at this time so I’ll turn the call back over to Mr. Conway to close out the call.

Jim Conway

Once again, thanks everybody for your interest. We appreciate it very much and we’ll be talking to you all soon. Have a good one.

Operator

Ladies and gentlemen, that will conclude today’s conference. Thank you very much for joining us. You may now disconnect and have a great day.

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