Candela Corporation F3Q09 (Qtr End 03/28/09) Earnings Call Transcript

Apr.22.09 | About: Candela Corp. (CLZR)

Candela Corporation (CLZR) F3Q09 Earnings Call April 22, 2009 5:00 PM ET

Executives

Gerard E. Puorro - President, Chief Executive Officer

Robert E. Quinn - Acting Chief Financial Officer, Vice President, Finance

Analysts

Mike Neery - Neery Asset Management

Madim Veer - Still Meadow Capital

Operator

Good day, ladies and gentlemen, and welcome to the Candela Corporation third quarter financial results conference call. (Operator Instructions)

I would now like to introduce your host for today’s program, Mr. Gerry Puorro, CEO.

Gerard E. Puorro

Thank you, Jonathan. Good afternoon, everyone. Thanks for calling in to our quarterly call.

Here with me this afternoon, evening, is Bob Quinn, our Vice President of Finance and Treasure. Bob has to do the Safe Harbor Statement and global financials. I have some comments and then we’re going to be delighted to take your questions. Bob?

Robert E. Quinn

Good afternoon.

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

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

The results for the quarter were as follows. Revenue for the quarter was $29.8 million versus $38.4 million for the same quarter last year. This resulted in a net loss of $465,000 dollars including discontinued operations or $0.02 per share compared to net loss of $2.1 million or $0.09 per share for the same quarter last year.

Revenue for the nine months ending March 28, 2009 was $85.2 million compared to $109.2 million for the comparable period last year. This resulted in a net loss of $29.4 million including discontinued operations or $1.29 per share compared to a net loss of $6.4 million or $0.28 per share last year.

Our results this quarter include a gain from discontinued operations, which relates to the closing of our Israeli operation and the related tax effects of the transaction.

The gain from discontinued operations this quarter was $430,000 or $0.02 per share and for the nine month period, the loss from discontinued operations was $18.5 million or $0.81 per share.

In addition to the charges related to discontinued operations we incurred approximately $3 million in charges relating to additional technology impairment, inventory and accounts receivable reserves.

The precarious economic environment and the uncertainty in the credit markets continue to have an impact on our global sales. The revenue split this quarter geographically is 33% and 67% international compared to 34% US and 66% international last year.

The customer mix this quarter was 65% core and 35% non-core. As far as the product line split this quarter was 38% service and 62% laser compared to 27% service and 73% laser related the same period last year.

This revenue mix resulted in an overall gross margin of approximately 40% this quarter compared to 44% a year earlier. This is broken down as product related margins of 48% and service margins of 27% compared to last year, product line margin of 54% and service margin 16%.

The service margin improvement this quarter is reflective of the success of the work performed to improve our product liability that has been hampering our results in the past quarters.

Legal expenses dropped significantly this quarter as we incurred approximately $300,000 compared to $3.9 million last year. Legal expenses for the nine month period this year were approximately $6.1 million compared to $10.1 million last year.

The key factors related to our balance sheet, we still maintain a strong cash position with approximately $26 million in cash. Our accounts receivable day sales outstanding is at 94 days and our focus on inventory control results in inventory levels dropping by approximately $2.7 million this quarter.

Gerard E. Puorro

Thank you, Bob. In this economic environment, we are pleased to have seen modest growth for two consecutive quarters. This growth is testament to our strong distribution channels in our product portfolio. We have, as Bob indicated, completed fixing product liability issues that have depressed our margins for several quarters. As such, we expect these margins to show improvement in the coming quarters.

Turning to our operating expenses, while the reduction from last quarter is approximately $6 million dollars of 30%, we continue to invest in robust R&D and sales and marketing programs.

Also, while we had a loss from continuing operations of approximately $900,000, that loss included non-cash charges of $1.8 million.

Earlier in the month, we attended the American Society for Lasers in Medicine and Surgery, also known as ASLMS. The show was in Maryland. At the show, we formally launched our fractional device, the QuadraLASE, and we introduced our customers to laser pump laser technology, or LPL. This is the first innovation in key switch technology in over 15 years. Our AlexTriVantage is the first LPL product to bring to market.

Going forward, LPL technology will be the basis for a true ways of platform with best of breed applications.

Lastly, we received a letter recently from Palamar asking if we would like the license. Our QuadraLASE, we asked them why they think QuadraLASE needs a license and we’re awaiting their response.

With that, Jonathan, we’ll take questions.

Question-And-Answer Session

Operator

(Operator Instructions) Our first question comes from Mike Neery from Neery Asset Management.

Mike Neery - Neery Asset Management

I have a couple questions. In terms of tax benefits, when should we expect a cash refund and in what type of dollar amounts are we talking about?

Gerard E. Puorro

That’s tax refund. This past quarter, we’ve actually received a tax refund from the losses that we’ve actually had. So we’ve actually received some cash this past quarter.

Mike Neery - Neery Asset Management

The remaining deferred balance is $6 million on our long-term assets?

Gerard E. Puorro

Right. Well that we’ll get into the point of when we’re turning profitability. As we’ve stated before. Our profitability, we’re looking at into the next couple of quarters. So over that period of time, then the deferred tax asset would come back.

Mike Neery - Neery Asset Management

So we can’t carry those losses back to previous year’s gains?

Gerard E. Puorro

No we’ve already done some of that.

Mike Neery - Neery Asset Management

And inventory now, what is the ideal inventory level for us today given our current level of revenues and can we get there?

Gerard E. Puorro

Ideally we’d like to be around the $25 million dollar number. So we’re still shooting to get another couple million dollars out of that situation. That would be ideal for us.

Mike Neery - Neery Asset Management

On the cost side, is there anything unusual on the cost side this quarter that either lowered cost below what they’re going to be going forward or raised them. Is this is a good run rate for cost given our current revenue rate?

Gerard E. Puorro

Do you mean Op expenses?

Mike Neery - Neery Asset Management

Yes I do.

Gerard E. Puorro

It was $13 plus million down from $19, a little bit of tweaking as revenues go up. Hopefully revenues will continue to grow, but we want to stay in the $13-$14 range going forward. That’s where we need to be if the revenues are going to be in the $30 plus million range so we can return to profitability and as you recall from the last call and the call before that, it’s our goal. I have stated by mid-calendar 2009, which means June 30. So that’s our goal.

Mike Neery - Neery Asset Management

So to get back on the revenue side then, you would expect revenues to continue to increase. Can you talk a little bit about what’s been happening so far and why we’ve done a little better there than some of our competitors and just kind of what your outlook is on revenue.

Gerard E. Puorro

We have, like we’ve spoken in the past, very powerful distribution channels. Our international presence is number one in virtually all of the significant geographic theaters. We’re not number one in the United States, but we’re seeing that begin to swing entering the QuadraLASE and the re-launching and the Alex Laser and a number of other marketing initiatives that we’re taking, we’re feeling very positive about.

Again, we did have two consecutive quarters of growth, but I want to underline it was modest growth. Certainly hovering around $30 million puts us way the heck ahead of any of the competition in the most recent quarter and none of us can predict the economic situation. We think that we might see another check in this quarter and with the new product introductions and our distribution channels.

We’re pounding away at it. We’ve had good success in the last couple of quarters and we’re going to continue to do that.

Mike Neery - Neery Asset Management

So in inventory in the channel, can you talk about that a little bit? Do you provide that data?

Gerard E. Puorro

No, we don’t provide that information and we don’t, you know, our subsidiaries have inventory that they sell, but if you are a distributor you buy it from us. We don’t stuff any channels.

Mike Neery - Neery Asset Management

The Israeli operation, is there any prospect that we’ll get anything back from that? What’s kind of the status of that currently?

Gerard E. Puorro

Well, we totally shut it down. We wrote it off. We moved so many assets back here. We’re going to support the customers that have those units and we have inventory from that, written off inventory to do that, but we don’t plan to sell it and there’s no plan now to reinvigorate the technology. It just didn’t catch on at that time, for whatever reason.

Mike Neery - Neery Asset Management

Okay, but the plan is just to keep the technology and then see how things go later on?

Gerard E. Puorro

I think that’s fair, yes.

Mike Neery - Neery Asset Management

Thank you.

Gerard E. Puorro

Good to talk to you.

Operator

Our next question comes from Madim Veer from Still Meadow Capital.

Madim Veer - Still Meadow Capital

Thank you for taking my call. I’ve got two questions. Are you planning to have a split in case the price doesn’t improve?

Gerard E. Puorro

We haven’t come down on what to do with that. In the past, people have done splits for different reasons. Among the reasons were listing requirements on the various exchanges like NASDAQ and so on. Those rules have been relaxed for the foreseeable future. Other reasons of course have to do with price levels that people can invest in and liquidity and so.

So we’re going to watch the stock and look at that as we go forward, but we haven’t come down on any specific decision.

Madim Veer - Still Meadow Capital

Is the share buyback program, will that be acted upon?

Gerard E. Puorro

It will no. We discussed this last quarter. Individually, a large number, myself included, of the senior management team during the quarter bought shares, but the company wants to retain its cash. We’re pretty diverse. We have operations all over the world that require cash and we’re also investing in new product introductions, launches, marketing and sales.

So frankly, we need our cash and the individual managers recognize the value and have personally invested in the last 90 days, but the company needs that cash.

Madim Veer - Still Meadow Capital

Okay, thank you.

Gerard E. Puorro

You’re welcome.

Operator

I’m not showing any further questions in the queue at this time.

Gerard E. Puorro

Alright, Jonathan, that’s fine. Ladies and gentlemen, thank you for calling in. We’ll keep you updated on our progress and we look forward to chatting with you during this quarter. Thank you.

Operator

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

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