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Analogic Corp. (NASDAQ:ALOG)

F2Q09 Earnings Call

March 5, 2009 11:00 am ET

Executives

James Green – President and Chief Executive Officer

John Millerick – Senior Vice President and Chief Financial Officer

John Fry – Vice President, General Counsel and Corporate Secretary

Analysts

Larry Solow – CJS Securities

Dalton Chandler – Needham & Company

Bill Nasgovitz – Heartland Funds

Doug Fisher – Kennedy Capital

Edwin Fowler – The Small Cap Report

Michael Martin – The Small Cap Report

Operator

Welcome to Analogic Corporation’s second quarter investor conference call. The following corporate officers are present, Mr. Jim Green President and CEO, Mr. John Millerick Senior Vice President, CFO and Treasurer, and Mr. John Fry Vice President, General Counsel and Corporation Secretary.

I’d like to remind everyone that a supplementary financial presentation will be used during today’s call. If you have not already downloaded that presentation, you can do so at any time at www.analogic.com. That presentation will remain available until April 3, 2009. Mr. Green will open the call. Mr. Green.

James Green

Welcome and thank you for taking the time to participate in our second quarter conference today. We’ll begin by asking our Vice President and General Counsel, John Fry, to read the Safe Harbor statement. I’ll then review the second quarter ended January 31, 2009 using the supplementary financial presentation available on our website, following which we will take your questions.

John Fry

Today’s call may include forward-looking stalemates, such as comments about or plans, expectations and projections. For more information on risks and other factors that could cause our actual results to differ significantly from our forward-looking statements, please refer to our most recent Form 10-K and 10-Q reports on file with the SEC.

James Green

We’ll now review the second quarter and recent events. Let’s go ahead and start on page four of the presentation. Let me start by saying that our priority is continued focus on profitability and positive cash flows. At $103 million, our quarterly revenues stabilized up slightly from last quarter versus prior year were up 3%, though this year includes $15.9 million from our Copley acquisition so adjusted for Copley were down 13% from last year.

Including a $0.19 restructuring charge, GAAP earnings per share came in at $0.11 down $0.43 from last year, however, we were up $0.09 from last quarter. On a non-GAAP basis, EPS came in at $0.40 down $0.19 from last year, however, up $0.21 from last quarter. Non-GAAP income from operations came in at $3.8 million down $5.5 million from last year, though versus last quarter were up $2.1 million.

We downsized the organization by 9% saving approximately $9.8 million annually. Excluding our stock buyback, cash and investments increased by $7.9 million. Our medical technology revenue grew driven by our Copley acquisition and our security technology business remained profitable.

Let’s move on to slide five. Looking at revenue and non-GAAP earnings per share, revenues stabilized slightly up from last quarter versus last quarter non-GAAP earnings per share improved, due to a combination of improved gross margins, operating cost controls and the benefit from a tax refund.

Let’s go on to slide six. Starting with medical technology, medical imaging product revenues of $61.8 million were up $2.5 million or 4.3% from last quarter and up $8.2 million from last year. However, excluding Copley, medical imaging revenues declined $7.7 million or 12% versus prior year.

At this point, the decrease from last year’s run rate is largely due to the global financial situations affect on large capital equipment purchases significantly affecting our computed tomography and motion control revenues. Overall, medical imaging had a pre-tax loss of $1.2 million down $6.8 million from last year, though it’s a $200,000 improvement from last quarter. This pre-tax loss includes a restructuring charge of $2.3 million.

As for highlights, the Copley integration is on plan and this month has transitioned to Analogic’s ERP system. We began shipping our new generation of 1.5T and 3T Copley gradient amplifiers and we delivered the first engineering prototype 64-slice DMS to a major OEM.

On slide seven moving to digital radiography and mammography, sales of selenium-based direct digital plates came in at $6.8 million down $700,000 from last quarter, however, up $1 million from last year. Pre-tax profit was a breakeven, an improvement of $2.3 million from last year driven by better margins, lower engineering expense and a currency pickup of $400,000. As for highlights, we continue to improve our manufacturing yields on our tomosynthesis ready mammography detectors.

Let’s go on to slide eight and moving to our end customer BK ultrasound business, revenues were $20.8 million down $3.9 million from last year, though up $2 million or 10% from Q1 of this year. The year-over-year decline is primarily due to currency exchange.

Including a restructuring charge of $800,000, we recorded pre-tax profit of $800,000, which is an improvement of $2.9 million from last quarter versus prior year pre-tax profit was down $2.2 million impacted by currency exchange, and added R&D expense and product launch expenses for the new product platforms.

Looking to highlights, our first HistoScan unit sold in Europe. This application is designed to differentiate normal from cancerous tissue in the prostate in order to improve biopsies. We began shipping single-use sterile biopsy guides for our main transducers, thereby adding a consumable to our business.

We began shipping the first production high performance UltraView scanners. And finally, this month we launched our innovative new portable Flex Focus family of scanners, which will enable growth in adjacent markets.

Moving to slide nine and security, revenues were $11.2 million down $1.6 million from both last quarter and last year impacted by lower sales of spares and services. Including a $400,000 restructuring charge, pre-tax profit was $400,000, which is down $1.2 million from last quarter and $1 million from last year.

As for highlights, the eXaminer SX received its TSA certification, which lets us sell in the U.S. and opens the door to international sales. Our new eXaminer XLB system, designed for large high demand airports, is in final certification testing at the TSA and we plan for production units to begin shipping this fall.

Let’s go on to slide ten. We’ve already discussed a number of the key financial metrics so I’m not going to go into detail here, but here you’ll see a tabular view in a sequential view versus last quarter, along with a year-over-year comparison. The metrics that jump out on this slide are gross margin improvement of 5% from last quarter, and operating expense improvements after you adjust for the $3.5 million restructuring charge.

On slide 11, again, not going into a lot of detail, this gives you key non-GAAP financial metrics also on a comparative basis. I would just highlight the sequential improvement from last quarter in non-GAAP income from operations.

Move to slide 12 taking a look at our balance sheet, our cash balance is $147.8 million. During the quarter, we repurchased $21.5 million of stock and had a positive cash flow of $1.3 million from operations and a $6.5 million tax refund. As you can see, we maintained a very solid balance sheet.

Moving on to slide 13 and looking at challenges in ’09. Starting with our OEM business, the financial crisis has significantly impacted hospital capital equipment budgets, which we believe will continue to impact CT scanner purchases.

We expect modest improvement in shipments of our CT guidance subsystems to a radiation treatment customer. Our MRI related business is holding steady so we’re very sensitive to the continued market pressure. We expect our motion control business to stay slow until the economy recovers.

On our in-customer BK business, business remains table and poised to grow with the introduction of our new generation of ultrasound products. And for security, the introduction of the eXaminer SX and the eXaminer XLB should drive growth later this summer as we start our new fiscal 2010.

Moving on to slide 14 and the summary, we’re operating the business as though Q1 reset the revenue run rate. We’re managing the business to maintain profitability and positive cash flows in this challenging environment, while at the same time we’re carefully investing to position for profitable growth as the economy recovers.

And now we’ll open up the line for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from Larry Solow - CJS Securities

Larry Solow - CJS Securities

Jim, could you maybe give just a little more color? I know in your challenges slide that you discussed further erosion CT. Would that be net-net, I know you set Q1 as kind of a base. Do you expect potentially that number to go below your base?

James Green

On the medical CT side, there is a lot of pressure in the U.S., specifically in CT imaging. Until we really start to see new orders generated by customers in the calendar year, it’s an area that we’re just very sensitive to. So when we look at budgets in the U.S. with hospitals, we would expect that there could be further erosion in the CT side for CT imaging, specifically for hospitals. So it’s an area that we’re just watching very closely.

Larry Solow - CJS Securities

And then you talked about maybe some improvement in the guidance subsystem side, and I guess MRI is still under a little pressure, so overall you think that medical could actually fall below your Q1 number?

James Green

You know at this point, it’s very difficult to say, but just overall we would expect to see some downward pressure on the CT side, which we also expect to see some offsets on the guidance side for CT, for the radiation treatment, plus also some upsides on the specialized ultrasound side. So net-net, I wouldn’t really say that there’s a big drive one way or the other, that we would expect some downside in one area with some upside on the other. We would expect to see much of that cancel.

Larry Solow - CJS Securities

And then on the securities side, could you maybe just give a little more color on this $344 million number you had out in your press release for L-3 and is that procurement over a certain period of time and what percentage of that revenue roughly would you stand to get?

James Green

Well when we looked at that, and of course we were incredibly excited, not just because we saw the nice large number, but it was really a validation that TSA plans to purchase both of our two new products, the XLB and the KING COBRA or eXaminer SX version. So that’s what really got us excited. When we look at the detail, much of what they disclosed is associated with the current 6,000 base systems, and that’s spread out, according to that initial release, over five years.

The other two components they specifically mentioned were the eXaminer XLB and the eXaminer SX. And those they listed in smaller numbers, but you would expect that because they listed it as you would expect as initial production launch or initial rate production.

We expect those numbers to then grow as further demand develops and under new budgets. So the main thing on that first release, and again that was prior to the Obama activities that are being discussed, but it really basically validated those businesses and it really starts it all off for us.

Larry Solow - CJS Securities

Turning to the Obama and the stimulus package, I guess you do assume you’d be a beneficiary of that? Could you maybe give a little more color on that?

James Green

We expect to benefit from that. When we read what’s been written there, we would expect though that a lot of those dollars will go into the initial work at the airports to put the brick and mortar down and put the baggage handling systems in place and then that becomes the driver for our piece of the equation.

So a lot of that number that we’ve seen will go toward the basics. And then the follow-on comes as they need the products, our type of systems that go in and provide the automatic scanning. So to answer, yes, we certainly see that as some additional upside for our business.

Larry Solow - CJS Securities

And then just to qualify, in the slide you mentioned that you expect sales to increase in the fall. Would that be for the SX eXaminer for your new product as well? You don’t really expect much commercial sales until the fall?

James Green

As we look at it, given the time that it takes for the airports to get through their process and place the orders, for the orders to get covered and into us, the amount of time it takes on that, it takes a few months typically. So with us now really selling those products, we might see some initial shipments in the fourth quarter of this year, but if we do, we would expect it to be a small number.

We expect the real growth to start coming as we get into the summertime. If you look at what’s been written with the TSA and such, there we expect orders to start showing up in the May, I think June timeframe. So those also would be ready for shipment as we get into the first quarter of our fiscal year.

Same thing goes with XLB. Now there we have also some demand that we know it’s there. The first airport’s getting ready for it, and there we’ve always been on target for those initial units to start shipping in the fall timeframe. So that’s really when it all starts coming together.

Operator

Next question comes from Dalton Chandler - Needham & Company.

Dalton Chandler - Needham & Company

I’m sorry I got to the slides late and maybe this is in there, but did you break out the Copley revenue for the quarter?

James Green

We did. John, do you want to comment on that?

John Millerick

The Copley revenue for the quarter was just about $16 million, Dalton.

Dalton Chandler - Needham & Company

And did you give a number of EXACTs that you shipped in the quarter?

John Millerick

No. We didn’t give the number but we’re looking it up here, 15 units shipped.

Dalton Chandler - Needham & Company

Did I understand correctly that, you just said the timing on that $344 million TSA order, that’s to be spread over five years?

James Green

If you look at that order, the majority of it is targeted to the EXACT systems over five years. That’s the first order that came out that first was disclosed a few months ago, most of it’s with the EXACT systems.

And then there’s two other components of it that are a smaller number that’s associated with the initial production launch of the SX systems and the XLB. Those are going to have follow-on orders to cover those. This was just for the initial rate production.

Dalton Chandler - Needham & Company

So when would you expect to ship the first XLBs to the TSA?

James Green

The first ones are scheduled for the August/September timeframe.

Operator

Our next question comes from Bill Nasgovitz – Heartland Funds.

Bill Nasgovitz – Heartland Funds

You said you repurchased, was it $21 million worth of stock?

John Millerick

Twenty-one point five million.

Bill Nasgovitz – Heartland Funds

So your average price was roughly into the 30s, over $30 a share.

John Millerick

In total we purchased $25 million, $3.5 in the previous quarter $21.5 in this quarter, about 737,000 shares roughly at $34 a share.

Bill Nasgovitz – Heartland Funds

So, the way I look at this today, the enterprise value is roughly $210, $220 million and your R&D is running at the rate of almost $12 million a quarter. You expect that to continue?

James Green

Our R&D is based on the demand of the products that we’re developing that we expect to be shipping over the next one, two and three years, so I don’t see a substantial change in that number. As we get more efficient, we would expect to be spending less at some level, but overall a number like that is fairly reasonable for our kind of business.

Bill Nasgovitz – Heartland Funds

Well I’m not arguing the number. So roughly $45, $48 million a year in R&D, so the stock market today on an enterprise value is valuing the company at just over four times R&D. Remarkable, isn’t it?

James Green

Yes. It’s interesting, I’ll tell you that.

Bill Nasgovitz – Heartland Funds

Interesting it’s unbelievable. Do you have any plans, other than buying stock? How much is left on your buy back?

James Green

Well, the buy back is completed. What we clearly have been identifying is looking at opportunities to, with a number of business being under a lot of pressure these days, part of what we are looking at is there an opportunity for us to acquire something that is going to accelerate our business as the economy starts to come out of this.

We have always felt that we were missing a couple of technologies and that we were missing access to in terms of sales and marketing into some new channels that would be adjacent, yet close to what we are currently doing, but these very good opportunities for the kind of products that we design and develop.

Bill Nasgovitz – Heartland Funds

Okay, I am sorry. I am a bit of a novice. I heard about, in Tucson, for example, at the airport, their TSA is testing this full body scanner. Are you participating in that product at all?

James Green

No. We are not. With our technology being computer tomography and for being able to look inside of things without opening them up, our products primarily target the check baggage side. We do very well on check baggage around the world, and we are also looking to apply that same technology to the checkpoint, starting with a dual-use configuration that could go into very small airports.

That is the area that the TSA is very interested in now in applying what we did with COBRA and our KING COBRA and putting that into something that could do those smaller airports where you could share the checkpoint and the check line with the same piece of equipment.

Bill Nasgovitz – Heartland Funds

So you do not view that full body scan competition as a big threat to Analogic?

James Green

No, because what is used to scan the body is separate, they separate what the person is carrying from themselves their briefcase and so on, so we look at their carryon baggage. We look at the carryon bags, we look at their checked bags, and we do not currently look at the individuals themselves.

Operator

Our next question comes from Doug Fisher - Kennedy Capital.

Doug Fisher – Kennedy Capital

I apologize. I joined the call late so I am not sure if you covered this. but, did I understand from what I did hear that you thought kind of that you would have puts and takes on the medical side of the business that would net out to a run rate of around this quarter, what we saw in this quarter?

James Green

I think that’s a fair statement. Again, we’re early in the calendar year. Certainly, we’d like to see more at the end user level what’s happening in the orders in terms of these various markets. It’s probably going to take us a couple of quarters to really see if there’s going to be any further impact with hospitals and such. But at this point, like you say, we are expecting puts and takes on across our businesses. Some being affected, some having upside as these new products released.

Doug Fisher – Kennedy Capital

Have you been able to get any more clarity on kind of your customer inventories and what that might mean for outlook over the next, say, two or three quarters?

James Green

Well, we see it and we have talked with, at least, our big customers. Some of our customers are very open and some are less open. But that’s something that we have learned over the years that we have to pay a lot more attention to their inventories. If we start to see their inventories build, then we know at some point there is going to be some adjustments.

But at this point, all of our big customers understand that they’ve got to manage the inventories tightly and keep them running at a level that’s consistent with their average demand. So at this point, we’re not aware of anything significantly changing there. But, again, everybody in the hospital equipment business is watching closely the order intake rates coming from the hospitals in the first two calendar quarters here of the year.

Doug Bishop – Kennedy Capital

Okay. And BK had a good quarter. I had thought, perhaps, the sales would be soft this quarter just in anticipation of the new products shipping. Can you talk to that a little bit?

James Green

Sure, it actually is true that we did see that in a couple of segments, namely with the distributor groups, that there was some delay in taking on the existing products because they were waiting on the new ones. We saw a little of that last quarter. We saw a little of it this quarter because introduced two new families of products there, but that seems to be moving along nicely.

We expect it’s, not only going to grow share and business in the specialized segments that we are in today in surgery and neurology, but also it’s going to let us now extend to some adjacencies in the hospital there.

So, the specialized ultrasound market in products like ours that are really needed for every procedure seem to be holding up fairly well versus, if somebody were looking at the general ultrasound market, there seems to be a little more pressure there than on the very specific proceduralized type products that we do.

Doug Bishop – Kennedy Capital

When you are talking about the hope that the medical business could remain relatively consistent. In your slides you talk about the fact that your MRI business is holding up, but that area in general is under some pressure. So, your expectation for that over the next two or three quarters would be what?

James Green

Well, the thing with MRI, when you look at what’s happened with capital equipment budgets in a hospital, CFO’s and heads of the hospital they are, as you would expect, looking for things that they can defer a purchase of. CT machines are very efficient and when you’re in that business you know that you can efficiently add a lot more procedures to an existing system.

So if you’re going to delay something, I think, that we would say that that is probably why the market’s seen more delays on the CT side than on MR and some of the other areas. When it comes to MR machines, they are much more, I want to say less efficient in terms of how many patients you can put through the amount of time it takes.

So, if your procedure growth, if you’re seeing more patients and your average growth rate is going up by maybe another 20 patients a day, by the end of the year you need another MR machine so that you can handle the procedure load.

So, that’s why we believe that MR is being impacted less than CT, but that does not mean that they are not under pressure. So, again, we are looking at how that business is holding up. There could be further pressures in the U.S. is where the pressure has been outside the U.S., there are areas where things are still growing. So that is why we’re a little more concerned on the CT side, yet really closely watching the MR side.

Doug Bishop – Kennedy Capital

Can we just touch on digital radiography for a moment and is that a business we ought to think that that remains kind of at the current levels, more or less, unless or until Siemens were to get an approval?

James Green

That’s true. We are seeing and expect further modest growth as Phillips and Toshiba start to introduce their versions of these products outside the U.S. But the big growth happens as all of them start to get their U.S. approvals.

In the U.S., we know that and have heard that digital radiography has had some pressure. For us it’s not an issue because we’re not selling it yet in the U.S. But, again, we’re assuming that by the time Siemens and the others get their approvals in the U.S. that we’ll be coming out of this because we see long-term growth opportunity in digital mammography.

Doug Bishop – Kennedy Capital

Okay. Lastly on the security business was a little bit softer than I had expected. I thought that from prior calls we had some COBRA shipments in the backlog that I thought would have gone this quarter and I thought maybe an incremental order from L-3. So can you just help me understand what the base run rate for that business should be and then we can make assumptions about what the new TSA order might add to that?

James Green

The base run rate’s been pretty steady with 6,000 base systems, along with spare parts and services that we do on the repairs. Now, this last quarter, we saw a drop on the spares and the services side. That’s kind of a one-time in nature, we believe, where everybody’s taking a hard look at what can they defer right now.

But, based on the number of units in the field that determines the average demand and the average consumption rate of spares and how often something needs to be repaired. So, we see that as kind of a one quarter nuance. But, as far as real sustained growth in that market, that’s where that comes in with the introduction of the new products that we see starting to ship here as we get into the summer. So, I hope that’s going to give you some flavor with it.

Doug Bishop – Kennedy Capital

That does. Did you say how much of the order is designated for the new systems?

James Green

Well right now, the vast majority of the order that was published is for the existing systems that basically maintains the standard run rate and the demand of the existing systems. The order also though includes the initial production launch demand for the other two systems, our SX and our XLB.

So we would not have expected a long-term contract for those at this point. At this point, we got what we expected, which would be enough to get it started, get the initial production launched, to get a X number of units into the field and then we’ll see the follow-on as that demand develops.

Doug Fisher - Kennedy Capital

Okay. So that order from TSA then I shouldn’t think that there would be any incremental impacts from that, that that’s more just enables you to sustain the current rate?

James Green

Well, most of it sustains the current rate. What you should expect is that the other pieces of that that are associated with SX and XLB, now that would be incremental, but that again is also only the United States. So completely independent of that, we are now starting to sell around the world with this same full family of products.

But it always starts with having to have your ability to sell in the U.S. That kicks off and opens the door for everything outside the U.S.

Doug Fisher - Kennedy Capital

I’m sorry, I don’t mean to be into a lot of detail, but just trying to get a feel of the new products. Is that 20 or 30 million of the order or can you size that for us?

James Green

I don’t have it handy. It was on the TSA’s biz website. I think a total of 344 was the total number. It would be somewhere, don’t quote me on it, but it would be somewhere in that region of maybe 20 million each on the other two, something like that, just to get the start going. But again, I can’t tell you the exact number, I don’t have it sitting in front of me.

Operator

Our next question comes from Ed Fowler - Small Cap Report.

Edwin Fowler – The Small Cap Report

Could you tell us the revenues of your MR business?

James Green

We don’t specifically break it out but I’ll just give you a gut feel that MR related business is now probably at the same level if not a little higher than CT levels.

Edwin Fowler – The Small Cap Report

How close are you to signing a DR agreement with Phillips and Toshiba?

James Green

We have a DR agreement with Phillips and Toshiba. Both those companies are in the process now of integrating and testing the system and getting ready for their launches. They’ll be launching outside the U.S. first and then at the same time, they’ll be working with the FDA to get their U.S. clearances.

Edwin Fowler – The Small Cap Report

Jim, the Anrad plates you see this market doubling in the next few years?

James Green

If you just look at what the market’s been doing over the last probably eight years, the market’s been growing for digital radiography at somewhere close to 20% annually. It’s been growing dramatically and that’s just based on the underlying demand of digital mammography.

So we expect to see certainly staying on a large growth profile in that business. And then for us, in particular, once our customers get U.S. clearances, typically you expect the U.S. to be about half of the total world market, so we expect a dramatic growth driver as that starts to occur.

Edwin Fowler – The Small Cap Report

So what this plate does now, it’s a direct picture, it’s a unique product that nobody else has, is that what you’re saying? There’s one in Germany, right?

James Green

There’s one other company that has a similar, that has the same kind of technology using the same types of materials but there’s only a couple that we know of that, including ourselves, that has the ability to take photons and use a particular material to turn that directly into an electronic signal.

Historically, companies have used the technology where you use a stimulator that turns the photon to light and then use a photo detector that reads the light and then that generates electricity that you can measure electric signals.

So, it is unique, it’s very fast, it’s designed to be able to support some of the new breakthrough technologies, one of which that’s getting a lot of interest is moving to tomosynthesis. And if you Google that, you’ll see that that’s the kind of thing that allows you to get a high resolution three dimensional image from a two dimensional plate. So it’s a great position to be in.

Edwin Fowler – The Small Cap Report

And it’s a lot clearer too, right?

James Green

Absolutely.

Edwin Fowler – The Small Cap Report

With regard to the first eight XLBs are going to go into Portland, Oregon, is that correct?

James Green

Yes.

Edwin Fowler – The Small Cap Report

So you would expect to ship some of those in September maybe?

James Green

We would expect to start the shipments in the August/September timeframe.

Edwin Fowler – The Small Cap Report

Okay. What kind of interest are you getting from L-3 with the SX? You announced that on the 26th of January.

James Green

Well we went out with them and worked to train their sales force. They’re very excited. It’s fits the niche in the market where you have airports that do not have an automatic baggage handling system, where you have airports where they don’t have the room for one and they maybe need to put a unit in the lobby and airports where there’s just not a whole lot of flights coming in to the U.S. or within the U.S. So it fits a great spot and there’s a lot of excitement about this product.

Operator

The next question comes from Michael Martin - The Small Cap Report.

Michael Martin - The Small Cap Report

Just one question. On the EXACT systems, the replacement cycle, I believe you shipped over 400 units in fiscal ‘03 that seem to be getting near need to be replaced. Can you tell me what is likely to happen there?

James Green

We would expect, just from experience in computer tomography type of systems that typically the bearings for systems like this and the overall system starts to degrade as you get about seven years into life. So between seven and 10 years, we would expect to start to see that replacement market to start to kick in.

Now some of those units being replaced, we would expect to need a like-for-like unit, form fit function and just replace it. And some might also then upgrade to a newer unit like maybe an XLB but either way, those units we expect in time have to be going through a replacement cycle.

Michael Martin - The Small Cap Report

Were those units included in the number that the TSA put out a little while ago?

James Green

At this point probably not. They would be looking at their demand for new units. At this point, most of what we’re selling are going into new applications or new sites, so most of it is not yet going into any replacement cycle.

Michael Martin - The Small Cap Report

Is the TSA actively looking into plans for the replacement cycle, do you know?

James Green

Well they know its coming. They know they’re going to have to deal with either replacing or upgrading. Like any entity, they would like to see if there’s a way to not have to replace, but this is technology that’s well known. We’ve been building CTs for hospitals for years and years and years and there’s only so much you can do as far as field upgrade, so this is the kind of thing you really do just have to plan for how you’re going to replace and upgrade these systems.

Operator

Our next question comes from Ed Fowler - The Small Cap Report.

Edwin Fowler - The Small Cap Report

Just one quick question for John Millerick there. I know you’re there, John. The hotel, what were the revenues in the quarter and the net?

John Millerick

Give me a minute and I’ll take a look at it. I can give you the revenues, Ed. In terms of net we don’t usually break that out. The revenues were 2 million, 2.1.

Edwin Fowler - The Small Cap Report

Do you have any plans for the hotel?

John Millerick

I mean we are looking at really all our assets in terms of what to do with them and the hotel is one of those assets that we’re taking a close look at.

Operator

Our next question comes from Larry Solow - CJS Securities.

Larry Solow - CJS Securities

Just to follow up on your expense reductions and the restructuring, you said you’re saving nearly $10 million a year, were any of those cost savings achieved during the quarter or was it pretty much done at the end of the quarter, right?

John Millerick

The restructuring was really taken through the end of the quarter, so any savings would be subsequent to that.

Larry Solow - CJS Securities

So you would expect looking at that basically 2 to 2.1 million reduction sequentially quarter-to-quarter just looking at that by itself is that effective?

John Millerick

Yes. Because it was primarily with headcount which your assumptions are right you would expect it to flow 25% a quarter.

Larry Solow - CJS Securities

Because if I look at the numbers, it looks like you actually had some cost reductions already but I guess that was not related to the actual restructuring.

John Millerick

Not to that restructuring, no.

Larry Solow - CJS Securities

And do you see, maybe a better question for Jim, have you gotten rid of and have you cut kind of most of the low-hanging fruit? I know you hired Jim Ryan I know he’s on board now and maybe you can comment on further potential reductions and maybe what you see in the future?

James Green

Well, the reason for bringing in somebody like Jim Ryan is to be able to take an overall look at our global footprint and make sure we optimize our total investment to run this business. So I think as far as further reductions, at this point it would be very difficult to say. But I can tell you that we’re looking very hard at how to organize everything in a way to really maximize our situation, minimize the cost side and make sure that we have the flexibility going forward.

Larry Solow - CJS Securities

I think in your prepared remarks you said I think a little over $2 million of the restructuring was in medical. Does that imply that the other million was part of security?

John Millerick

[Inaudible] BK.

Larry Solow - CJS Securities

Then in terms of BK, the revenue number actually was pretty decent I thought considering the currency headwinds that you have. Does that include the new products launch some sales for that and was there maybe kind of a bolus of upfront sales as some customers were waiting for that new product to come on board?

James Green

Well, with the first product that we launched, the UltraView, in most cases that was kind of a replacement unit for the existing system that’s out there. There were some units that sold in the quarter but not very much. It was a fairly small amount I would say.

Larry Solow - CJS Securities

Okay. So you would expect that BK medical your expectations I would assume are from growth from this number going forward? Is that a fair assessment?

James Green

I think that’s a fair assessment. That’s certainly our job is to grow it from there. We’ve got the new products and we expect that to be the driver is the new products.

Larry Solow - CJS Securities

Back to that security number and that 344 over five years, obviously that number is going to L-3, any way you can kind of give me a rough gauge of percentage that you get from that number. I know the main gut to the system you’re providing, so of that number would a third to a half.

James Green

Typically, our content is about half of the end user value that’s end user pricing.

Larry Solow - CJS Securities

Okay. And is that 344 a end user value number?

James Green

I believe so.

Operator

There are no further questions at this time. I would now like to turn the call back to Mr. Green for closing comments.

James Green

Well, thank you for your interest in Analogic. We invite you to call in again in June when the company will announce its third quarter fiscal 2009 results. Thank you very much.

Operator

For listeners who may have come in late, this call has been recorded. You can access the telephone replay by dialing 1-877-919-4059 or for international caller’s 1-334-323-7226 and entering conferee I.D. 39793080. The telephone replay will be available at that number beginning two hours from now and running through midnight eastern time Friday, April 3, 2009.

The webcast replay will be available on the investor relations page of our website at www.analogic.com beginning about three hours from now and will be available through Friday, April 3, 2009. Thank you for joining Analogic Corporation’s second quarter investor conference call. You may now disconnect.

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Source: Analogic Corp. F2Q09 (Qtr End 1/31/09) Earnings Call Transcript
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