ThermoGenesis Corp. (NASDAQ:KOOL)
F2Q 2013 Earnings Call
February 12, 2013 05:00 PM ET
Matthew Plavan - CEO and CFO
Paul Nouri - Noble Equity Fund
Good afternoon. This is the chorus call operator. Welcome to the ThermoGenesis fiscal year 2013 second quarter results conference call and webcast.
Before we begin the call, we remind you that the statements made during this conference call that are not historical facts and are forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in these statements including but not limited to certain delays beyond the company’s control with respect to market acceptance of new technologies and products, delays in testing and evaluation of products, initiating and successful completion of clinical evaluations and trials for new claims on existing products, regulatory approvals where required, capital resources required to fully execute business plans and other risks detailed from time-to-time in the company’s filings with the SEC.
As a reminder, all participants will be in listen-only mode. There will be an opportunity for you to ask questions at the end of today’s presentation. (Operator Instructions) For your information, this call is being recorded. A replay of this call will be available for seven days by dialing 1877-344-7529 within the US or 1412-317-0088 outside of the US and entering conference I'd, 385-107#.
I would now like to turn the call over to Mr. Matthew Plavan, Chief Executive Officer. Please proceed Mr. Plavan.
Thank you, operator. Good afternoon everyone and thank you for joining me today. It has been a year now since we began in earnest our restructuring streamline and refocusing as a company on our cord products. With this quarter's report, I believe it is increasingly impairment that we have succeeded in much of what we set out to accomplish in 2012. More specifically, we are now a more focused and deliberately directed company with a clear vision for growth and regenerative medicine. We are better sized to our current revenues, poised to leverage our cost structure as new revenues emerge, we have opened critical new global cord blood markets enabling us to demonstrate market share growth despite the flat to down performance in the US and Europe markets. And lastly, our strategies for growth better leverage our cord capabilities targeting markets where we believe there are substantial opportunities for significant value creation. Much of this progress is evidenced in the second quarter. We experienced solid improvement in our financial performance both against the prior year and the prior quarter. Revenues increased nearly 700,000 versus last quarter and due to improved gross margins and reduced operating expenses, we improved our bottom line results by more than 50% versus the same quarter a year ago. In addition, during the quarter, we essentially completed our divestiture efforts to focus on our cord generative medicine business with the sale of the Thermaline product lines which generated 500,000 in cash for which a gain of approximately 200,000 will be recorded in the third fiscal quarter.
The divestiture of our non (inaudible) lines to CryoSeal and the Thermaline has generated a total of 3.5 million in cash with 2.5 million of that received in the last six months. Furthermore, our combined restructuring and streamlining initiatives have reduced our operating and overall overhead expenses by more than 2 million annually serving our goal to create a stronger and more focused organization.
During the balance of today's call, I'd like to update you on three fundamental objectives of our growth strategy. Those include first, capitalizing on the revived global sales organization to build our presence in the cord blood market, second, optimizing our human and financial resources to drive greater sustainability, and third, developing technologies and future cord blood and regenerative medicine market opportunities. Driving this strategy is our vision of ThermoGenesis as a leading provider of cell processing storage and soon to be clinical solutions which we strongly believe is the pathway for maximizing the value of a company to patients and clinicians, our customers and our shareholders. We are advancing this strategy in alignment with the macro factors driving continued positive momentum in regenerative medicine.
The volume of cell therapy clinical trials continues to expand as there are now nearly 500 stem cell trials underway at either academic institutions or in the private sector. Even more encouraging is that industry sponsored trials have increased from 1% of the total in 2007 to 20% of the total currently. Furthermore results from these studies demonstrate encouraging outcomes particularly in areas such as tissue repair, cardiovascular applications and spinal treatment all areas that we are targeting and interested in. in fact, I'll update you on one of our key clinical evaluations shortly.
In terms of the first of the three strategic pillars that I mentioned a moment ago, we had a couple of positive developments during the second quarter beginning with BioArchive device sales. We sold two more devices in the quarter versus the same quarter a year ago and three more versus the first quarter of 2013. Particularly exciting for us is that two of the BioArchives sold this quarter which is the Canadian blood services for use in Canada's first national public cord blood bank program. You may recall we announced a year ago of BioArchive sale in connection with the opening of their bank in Idaho. It's encouraging to see them executing on their rollout plan by establishing a second facility in Edmonton which will come online later in 2013.
In addition, we believe we are in the final evaluation stage with a prospective BioArchive and AXP customer, a cord blood bank in Europe and that we are in a lead position with a couple of other new prospects in the region that we hope to finalize over the next month or two. While the economic pressures that we have discussed with you in the past are still weighing on the capital environment and capital equipment environment, in collection activity by our customers, we believe the new integrated distribution programs we've put in place during the profitable quarters are serving our primary objectives of creating a stronger presence for us in key international markets and providing us a more customer centric organization with respect to marketing, customer service and technical support. In the meantime we are encouraged by market receptivity to our offerings from customers that currently either using manual solutions that are not ours, or from those that are using our competitors and we believe that we are well positioned to gain market share as this macro environment improved.
Additionally, we continue to be very pleased with our new AXP product and purchase distribution agreement with Golden Meditech. It covers a number of key geographies in Asia, including the People's Republic of China and that excludes Hong Kong and Taiwan. While we had high hopes of receiving registration approval for the AXP by China's safe food and drug administration by now, we continue to believe that it is imminent. In the meantime, we have shipped an initial AXP golden that are orders of Golden Meditech and they are in the process of converting their own banks to automation in order to obtain ABB approval and maximize the value of having the showcase facilities in their marketing and distribution efforts. They are also actively developing target customer relationships in their territory including those outside of the People's Republic of China. The Golden Meditech agreement calls for annual minimum AXP bags of purchases beginning with 60,000 bags and we believe this relationship could generate up to 30 million in revenues over the initial five year period assuming the Golden Meditech achieves its sales objective and gets a regulatory approval on a highly basis in all those geographies that they are serving.
We continue to advance our regulatory filings for the rescue, TRP and BMC with our partner Arthrex. We received a series of questions from the FDA regarding both submissions for which we have provided responses. We are hopeful that we will receive approval for the PRP product in our April to June quarter and then we hope to see the BMC approval follow shortly thereafter.
I had mentioned at the outset that we had some encouraging developments with our clinical evaluation program during the quarter. The data from our studies are important as we pursue our market development initiatives. During the quarter, data from our critical Limb Ischemia or CLI trial involving MXP enables were published. This is a phase one trial study that uses the MXP platform to produce a cell concentrate to demonstrate safety and confirm the longer term beneficial effects of bone marrow, cell transplantation in peripheral artery disease patients with CLI. 13 patients were enrolled and these were patients who were either not candidates for revascularization surgery or had experienced prior failed attempts at revascularization. Surgical revascularization is a very invasive procedure, typically a last resort for seriously ill patients where by blood vessels are surgically grafted into a limb, where the blood flow is insufficient due to clogged arteritis or included arteritis.
12 months following the administration of cells from the MXP, 10 of the 13 showed improved blood flow and as a whole, the cohort blood flow doubled. These results are highly encouraging to us and we are in the processing of planning and evaluating additional CLI studies using the MXP.
Before turning to the financial results, I wanted to mention that we have no updates on the complaint filed by harvest related to the rescue system, that we mentioned in our last call. Additionally, I do want to emphasize that our ability to grow our share in the PRP and bone marrow processing market extends to expanding the application base of both the MXP and AXP product platforms as well as new product innovations currently under evaluation. So to fully exploit this market, our strategy has always been and continues to be to leverage multiple platforms.
Our financial results for the quarter reflect a positive impact of our initiatives to better manage the financial resources of the company and optimize the value of ThermoGenesis for both the near term and the long term. With respect to our financial results for the quarter, revenues were 4.8 million compared to revenues in the second quarter a year ago which was consistent with the revenues in second quarter a year ago with nearly $700,000 increase versus revenues of 4.1 million in the prior quarter. We experienced nice growth in the sales of the AXP disposables due primarily to our initial order of approximately 500,000 from Golden Meditech. These gains were offset by declines of approximately 200,000 in the manual and by archive disposable sales reflecting the continued softness in customer collection activity in the US and Europe.
We also experienced a negative impact of about 100,000 versus a second quarter a year ago due to the divestiture of the CryoSeal product line in the first quarter of fiscal 2013. However, we saw a nice uptick in the gross margins to 41% versus 36% a year ago and 39% in the prior quarter. Gross margins benefited from decreased overhead and lower service cost as we implemented an AXP remote diagnostic program as part of our enhanced technical support initiative. Our operating expenses were 2.5 million in the quarter, a roughly $500,000 decline from the second quarter a year ago and comparable to the prior quarter after excluding the gain on sale from the CryoSeal transaction. The majority of the decline year over year are approximately 300,000 with an R&D expenses related to the restructuring program we initiated in January 2012 and lower clinical evaluation cost. Despite this reduction in R&D spending, because of our focus on the core business and our core products, we're achieving a better return on our investment in these areas and this area in particular, which is representative of our second pillar of growth which is to optimize the company's resources. With respect to the SG&A expenses, the decline of 170,000 year-over-year, was due to lower personnel costs and stock compensation expenses.
As a result of our improvement in gross margin and operating expense being more aggressively managed, we reduced our net loss in the quarter by 56% versus the same period a year ago. Our net loss was $563,000 or $0.03 per share versus 1.3 million or $0.08 per share in the second quarter of last year. This compares with net income of $995,000 or $0.06 per diluted share in the prior quarter. Although excluding the aforementioned gain on sale, we reduced our net loss by roughly half versus the prior quarter.
Now turning to our balance sheet. We ended the quarter with 7.5 million in cash versus 8.8 million in the prior quarter and 7.9 at the end of fiscal 2012. The cash balance for the second quarter of 2013 includes the $500,000 prepayment for the Thermaline transaction. Use of cash for operations in the second quarter of 2013 was approximately 1.7 million which reflects a $1.8 million increase in accounts receivable which is due primarily to the timing of AXP bags of shipments to GE Healthcare as their order occurred very close to the end of the quarter.
On a more normalized basis, our cash balance would have been in excess of 8 million. Our backlog at the end of the quarter was approximately 714,000. I am pleased with our ability to achieve improved operating efficiencies and enhance sustainability for the company to date. And we are guardedly optimistic about opportunities for growth in the core of our business as we go through calendar 2013. We don’t expect the market to escalate quickly, but there are some encouraging signs on this horizon including continued expansion of clinical activity involving stem cells from cord blood as I referenced today. We believe we are in a strong competitive position with our leading technology and enhance sales and distribution capabilities. We believe that ultimately we could add between 5 and 7 million in new revenues per year for the current cord blood prospects which we are beginning to see flowing in from Asia. We are also exploring how extensions of our current technology can serve new areas of the cord blood market. We also remain optimistic about opportunities available to us with our bone marrow and PRP technologies. We are pursuing new product distribution agreements, new products, new clinical indications including evaluating osteoarthritis, pursuing further opportunities in critical Limb Ischemia and similar vascular indications for bone marrow.
In closing, we continue to believe we are well on our way to lowering our quarterly revenue breakeven level to between 5 and 6 million. That’s a level significantly below that in our recent history and one that dovetails with our near term revenue projection growth from our core businesses. Depending on the timing of our launch with Arthrex and the continued projected growth of our core blood business, we would expect our quarterly revenues to be consistent with or better than this quarter for the balance of this fiscal year.
At the same time we will continue to pursue improved product quality in customer relationships as we develop technologies that enhance clinical outcomes and have the potential to facilitate the delivery of new and potentially efficacious future regenerative medicine stem cell therapies. We hope you share our optimism about the road we are travelling to create greater value for our business partners and shareholders. Thank you again for joining me today and I'll open up the call up now for questions.
(Operator Instructions). And our first question comes from Paul Nouri from Noble Equity Fund. Please go ahead with your question.
Paul Nouri - Noble Equity Fund
I was wondering, with all the cash from the divestitures included on the balance sheet for December or is some of it is going to show up next quarter?
It's all in the balance sheet as of December.
Paul Nouri - Noble Equity Fund
Okay, and right now as you are stabilizing your profitability, you have some cash on the balance sheet. Is this a time when you're going out and looking for acquisitions? Are you going to hold off on until that moment when you do reach profitability?
We’re pretty active in evaluating strategic opportunities and we have been in the last year. So, we want to make sure we didn’t do anything in advance of turning the corners of putting cash in the bank that would jeopardize any working capital we might need to grow. But I would say it's safe to say that we are actively evaluating opportunities to grow strategically in addition to organically.
(Operator Instructions). And at this time, I am showing no additional questions. I'd like to turn the conference call back over to Mr. Plavan for any closing remarks.
Thank you everyone for joining us. I really look forward to updating you on our progress in future calls. Have a great day.
And ladies and gentlemen, the conference has now concluded. We thank you for attending today's presentation. You may now disconnect your telephone lines.
Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.
THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.
If you have any additional questions about our online transcripts, please contact us at: email@example.com. Thank you!