Rochester Medical Corporation F2Q09 (Qtr End 03/31/09) Earnings Call Transcript

Rochester Medical Corporation (ROCM)

F2Q09 Earnings Call

April 30, 2009 5:00 pm ET

Executives

Anthony J. Conway – President and Chief Executive Officer

David Jonas – Chief Financial Officer

Analysts

Tyson Bauer – Wealth Monitors

Ernest Andberg – Feltl & Company

David Butterworth – Townsend Group

Presentation

Operator

Welcome to the Rochester Medical Corporation second quarter 2009 earnings conference call. (Operator Instructions) I would now like to turn the presentation over to your host for today’s call, Mr. Anthony Conway, CEO.

Anthony J. Conway

Thank you for joining Rochester Medical’s second quarter conference call. I am Anthony Conway, the company’s President and CEO, and with me is David Jonas, Rochester Medical’s Chief Financial Officer. To start, I will go through some of the highlights for the quarter, and then David will present detailed information on the financials and what they signify, and after that we will be happy to take your questions.

As always, 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 on Form 10-K for the year ended September 30, 2008. These statements further clarify the risks and uncertainties that are associated with the forward-looking statements.

First let me review the results as reported in the press release, and then I will try to give you more background and insight into the quarter’s activities and what we might expect going forward. As stated in the press release, we reported sales of $8,445,000 for the current quarter, compared to $9,215,000 for the second quarter of last year. We reported a net income of $361,000 or $0.03 per diluted share for the current quarter compared to a net loss of $0.01 per diluted share for the second quarter of last year.

On a constant currency basis, we had a good 13.4% growth rate in our branded sales, offset by a 16% drop in private label sales. As most of you know, order timing causes private label sales to fluctuate from quarter to quarter. We fully expect Q3 private label sales to jump back up to normal. These quarterly numbers are much better understood when we also look at parameters and activities behind the numbers. As most of you know, strategically our company is strongly focused on increasing sales of our Rochester Medical branded products.

Currently, our branded products make up approximately two-thirds of our sales volume, while private label sales make up the other one-third. While our focus is clearly on the branded sales, the private label sales are good business for the company, and we are proud of the fact that other major medical device companies are selling our products throughout the world under their own brands.

In assessing our recent progress, clearly it’s most important to evaluate how we’re doing in the strategic area of branded sales, and to that end, I will give you some insight in our ongoing progress and efforts. First briefly an observation on my part. Throughout the year, we get lots of questions about the company from shareholders and investors, and I’m often struck by the fact that most shareholders seem to be focused only on our US business. Furthermore, they are often focused on only one product line—sometimes just the Foleys, sometimes the intermittents, and recently sometimes the FemSoft insert. Clearly, we see each one of these as a major opportunity in the US, and I will discuss in more detail.

Before that though, I want to give you a global perspective on our branded sales and our marketing activities. I think it is key that in order to fully understand our vision and our future, it must be viewed in a global context. I said a few moments ago that Rochester Medical branded sales make up two-thirds of our total sales volume. What is not as well understood is that international sales make up approximately 70% of our branded sales. Rochester Medical truly is an international company.

Our overseas sales team is approximately twice as large as our US salesforce. As I will discuss, to truly understand our branded strategy and opportunities, we believe that it is imperative that our global activities and initiatives be as fully understood as those in the US. I would point to our corporate mission statement which has not wavered since our inception. It says our corporate mission is to become the leading developer and worldwide marketer of innovative continence care products. With that in mind, I will discuss our overall branded sales progress and activities, first internationally and then give you detailed analysis on activity in the US.

On a constant currency basis, international branded sales were up a solid 17.4%. More encouraging, intermittent catheter sales were up a very strong 384%, due to an excellent reception to our recently introduced new Magic III technology. On this subject, Europe is now initiating regulatory action against the use of certain plasticizers in medical devices. That action should further enhance the reception to our technology which contains no plasticizers.

Most competitive intermittent catheters are PVC and currently contain plasticizers which were recently pronounced as dangerous substances by the French Healthcare Product Safety Agency. Also in the international marketplace, we saw a very strong 55% increase in Foley catheter sales, largely due we believe to our increased sales activities. It’s also important to note that the UK’s National Health Service is considering Rochester Medical’s request for FemSoft reimbursement in the UK. Given that reimbursement, we are strongly positioned with our sales and marketing strength in community medicine to introduce the FemSoft insert throughout Britain.

We’ve also recently partnered with a major medical device company to sell the Rochester Medical brand of male external catheters throughout Europe. We believe this particular company’s sales activities will complement our own efforts. I’m also really pleased to announce that in two weeks a European director of sales will be joining Rochester Medical. This individual is very experienced and knowledgeable of the European catheter marketplace and is a great addition to our international team. Also, we’ve recruited our first sales director for Japan. Next to the US, Japan is the largest single market for advanced urological and incontinence devices.

In short, we’re doing very well in the international marketplace and believe our future prospects are excellent. Now in the US, we have three significant projects underway. Foleys in the acute care marketplace, our new Magic Intermittents in extended care, and now the FemSoft insert is emerging as a major opportunity as well. In the acute care marketplace, we continue to make what we believe is slow, but very important steady progress. Domestic Foley catheter sales increased a respectable 15% for the quarter. To date, we have a small but growing number of conversions, and we have important evaluations underway, and as expected, we are demonstrating in these evaluations very significant reduction in infections. We continue to see strong interest in our anti-infection technology, but certainly we also see the current economic conditions have caused most hospitals to adapt a conservative attitude toward initiating any activity which requires effort or resource in the short term.

As previously observed in a number of institutions we see a hesitation to replace latex with silicone due to differences in stiffness and relative frequency of balloon cuffing. Rochester Medical has been working on these issues in the development of its Foley line which we will introduce this summer. We had intended to introduce it in April, but purposely delayed it so we can make some additional nuanced but valuable improvements. Based on the positive feedback that we received from expert clinicians that have privately reviewed pre-release versions of the new Foley, I believe that our acute care activities will gain significant added impetus when we introduce this new line.

In the extended care market, our Magic III technology is being very well received here in the US just as it is in the overseas markets. US-branded intermittent catheter unit sales are up a very strong 23% for the quarter. This growth is being temporarily masked in dollar figures because the new reimbursement rules have encouraged changeover for a narrow group of patients for much more expensive kits to our hydrophilic strips. As this changeover is completed, the strong organic unit growth will also be reflected in sales for us.

As stated in the press release, we are very pleased with the CMS’s preliminary decision to grant a unique Medicare reimbursement code covering the FemSoft insert. We expect a final decision in late summer. As most of you know, the FemSoft insert provides incontinent women with a wonderful option for staying dry and comfortable. The company is putting marketing and sales plans in place to ensure that this unique technology is readily available and that women and their doctors are well aware of this great option. Overall, we believe the company is doing very well with multiple great opportunities going forward, and with that I’ll turn it over to David for some of the financial details.

David Jonas

I’m going to spend a few minutes highlighting a few results reflected in our just released second quarter fiscal 2009 earnings release. First, our sales: For ease of discussion, unless otherwise noted, all sales numbers will be shown in constant currency. I’m doing this to exclude the impact of foreign currency exchange which will show a true reflection of our sales growth.

As Anthony has explained, our sales results for the second quarter showed a 1.2% increase from the second quarter of last year. As I have discussed the last few calls, we are keenly focused on and have dramatically increased our investments and activity in our branded sales. This has been done for many reasons, including better market access, changing reimbursement rules, and an increased clinical demand for infection reducing in all-silicone devices.

We have called this an investment and growth strategy, and so far the early results are extremely positive. These investments and focus fuel the growth in worldwide branded sales, which were $5.5 million this quarter versus $4.8 million last year, an increase of 13% for the this quarter. This 13% increase included 52% growth in worldwide intermittent sales, 37% growth in Foley sales, and 7% growth in male external catheter sales.

Our branded sales accounted for 66% of our total sales so far this year. Let me first discuss our domestic branded sales in more detail and then our international branded sales. In total, our domestic branded sales for the second quarter were $1.7 million versus $1.6 million last year, a 6% increase from last year’s second quarter. Year to date, domestic branded sales are $3.3 million, versus $3.2 million last year, an increase of 2%.

Domestically, our advanced intermittent catheter sales grew 2% in the second quarter dollar wise and 23% unit wise, and for the year, our domestic branded intermittent sales are up 5% dollar-wise and 25% unit-wise. As Anthony stated, the difference in growth between units and dollars comes from the April 2008 Medicare change. In the short-term, it discourages kit usage and is driving users towards intermittent strips, which carry a lower overall selling price. In the long-term, we believe these reimbursement changes will greatly expand our market opportunities.

Our domestic branded sales of male external catheters grew 5% for the quarter and are now down 0.6% for the year. Our domestic branded Foley catheter sales grew 15% for the quarter and are now up 7% year to date. Most of this Foley growth can be attribute to the acute care market. As we’ve discussed previously, we have increased our efforts in the U.S. acute care market to take advantage of our superior silicone anti-infective technology and exciting changes developing in both U.S. reimbursement and state reporting. We also have increased our efforts in rehabilitation clinics getting our superior intermittent line in front of potential new customers. This is also a key with the reimbursement changes that have happened in the intermittent catheterization market.

For the second quarter internationally, our branded business continued to grow even though exchange rate drop masked the success we made. Again, to make sure everyone understand our true growth, the following numbers are using a constant currency showing ’08 sales at ’09 exchange rates.

In total, our international banded sales were $3.8 million this quarter versus $3.2 million last year, an increase of 17%. The majority of our sales internationally continue to come from male external catheters. This male external catheter business grew 7% in the second quarter and is flat year to date. Our advanced intermittent catheter sales grew 384% in the second quarter and are now up 193% year to date. Our new triple-core technology launched late in the first quarter has received rave reviews and should help us continue to grow market share in Europe. As Anthony stated, the warnings issued by the EU impact most of our competitions’ product and should boost the demand for our superior all-silicone intermittent catheters.

International branded Foley catheter sales grew 55% for the second quarter. They are now up 27% year to date. Our UK operations also include direct-to-the-patient prescription sales under our Rochester Medical Script-easy brand. These sales are for any urological products, including products not manufactured by Rochester Medical.

Now, let’s take a look at our private label business. Rochester Medical continues to have many excellent private label partnerships. As Anthony stated, their ordering patterns have continued to fluctuate the last few quarters. In this year’s first quarter, private label sales were up 18%, and now in the second quarter, they were down 16%. We believe that sales of our products out of our private label partners’ doors are growing moderately and our sales to them will continue to normalize going forward.

Our gross margin was 52% in the second quarter and now sits at 49% for the year. I’m very happy with this considering our margins are still under pressure from exchange rate fluctuations, raw material price increases, and advanced product mix changes. We’re dedicated to continuously improving our efficiencies and material costs, and that effort is paying off. We also continue to dedicate resources and focus to increase the margins on our advanced products, which is a key element in our future growth.

Our operating expense decreased $196,000 in the second quarter to $4.5 million and now sits virtually flat with last year at $8.8 million. We have increased spending with both our increase in investment in sales and marketing in both the US and UK markets and investment in R&D related to new products, intermittent, and Foley product lines. This is offset by a planned reduction in our administration costs.

Sales and marketing costs for the second quarter were up 3% from last year and are now up 9% year to date. For the year, they represent 30% of sales, which is up from last year’s 26%. The majority of this increase is from the previously mentioned increased efforts in both the US and UK.

Research and development costs for the second quarter are down 2% from last year and are now up 16% year to date. For the year, research and development costs represent about 4% of sales, which is up from last year’s 3%. This increase is directly related to new product development. We continue to cost effectively develop life changing new products.

Administrative costs for the second quarter were down 13% from last year and are now down 14% year to date. For the year, administration costs represent 19% of sales, which is lower than last year’s 21%. The majority of this decrease year-to-date comes directly from lower costs in legal, SOX compliance, and insurance costs.

This quarter, we had net income after taxes of $361,000 or $0.03 per diluted share versus a net loss of $167,000 or $0.01 per diluted share last year. Our 58% tax rate this quarter is higher than usual, primarily due to the tax treatment of stock options and the compensation expense booked as a result of these grants. Basically the deduction for the compensation expense booked on our stock options do not allow for tax purposes until the options are exercised. This resulted in an approximately $100,000 tax expense this quarter. The rest of the difference is a combination of rate differences between our UK and US taxes and timing differences in R&D credits. Our fundamental corporate tax rate still should be approximately 34% before the tax effects of our options.

I believe the non-GAAP disclosures in our press release are very helpful in understanding Rochester Medical’s operating results, apples-to-apples so to speak. Per this table in the press release, after adjustments for settlement income, deferred revenue recognition and tangible amortization, and stock option compensation expense, our second quarter non-GAAP net income was $207,000 or $0.02 per diluted share compared to $353,000 or $0.03 per diluted share last year. This decrease in non-GAAP net income is primarily from a reduction in our interest income on our investments.

Balance Sheet Highlights: Our balance sheet continues to be very healthy. We have approximately $35 million in cash, the majority of which is actually invested in T-bills. Our philosophy of tightly controlled management of working capital has served us well. It allowed us to acquire assets that have strengthened our company and built a solid foundation for growth.

I would like to hand it back to our CEO, Anthony Conway, for some more comments.

Anthony J. Conway

At this time, I’d like to turn it back to over to the audience here for questions, and we’d be happy to answer any that you have.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Tyson Bauer – Wealth Monitors, Inc.

Tyson Bauer – Wealth Monitors

David, if you have the depreciation number for the quarter, and then G&A, what do you see as far as that going forward? We’re up a little bit over Q2, still down from last year’s. Did we have additional legal costs in there or other things that bumped that up this quarter?

David Jonas

A little bit, but that should be fairly consistent going forward, Tyson, and I do not have the depreciation number in front of me, so I’m going to have to get back to you on that.

Tyson Bauer – Wealth Monitors

You talked about the EU impact regarding the PVC and some of your competitors. You in the past also had made it known that you’d like to have a more physical presence over there. Does this new ruling or actions by the French Government accelerate your desire, especially with the currency coming back in your favor a little bit with the Euro, to do something, maybe M&A activity or otherwise in EU?

Anthony J. Conway

It certainly accelerates our desire or at least highlights our desire to be more active in mainland Europe than we have been, and we’ve been talking lately how we want to replicate what we’ve been in the UK in mainland Europe. Certainly, we’ve looked at potential acquisitions, nothing that we’ve decided to consummate in that regard, but we’ve been very active lately in looking at increasing our direct activity in mainland Europe. To that end, as I said, we’ve just hired our first director of sales and marketing for mainland Europe—a very, very experienced person who’s worked for some years now with exactly these products with competitors, knows each and every market and all the European countries very well. We’ve also been launching from the UK some direct sales activity where we’ve had some of our expertise working directly with our distributors in each of the European countries that are currently selling under our own brand. So we’re enhancing the activity of the distributors, also our direct sales presence, and as I noted, this past quarter, we’re working with a major medical device company that is also going to start selling with their salesforce the Rochester Medical brand of products, beginning with MECs in Europe, so lots going on in that regard, and lots of opportunity there as we see it.

Tyson Bauer – Wealth Monitors

Your domestic branded products have been kind of ebb and flow, but somewhat stale for a number of quarters now as everyone still is anticipating that to take off. It would appear that we’re not expecting much change into Q3, but maybe thereafter that we’ll start to pick up?

Anthony J. Conway

Q3 is when we’ll introduce the new Foley catheter line which we think is going to give a strong impetus to our acute care activity. I want to emphasize that while I said the activity there is slow and steady, I want to emphasize the important progress part. We have gotten some additional conversions. Just to give you a flavor, if this is helpful, a couple of the evaluations that we have on our way right now are in very major topflight institutions that everybody would recognize the name of. Those evaluations are showing data for example were infection rates are cut in half, which is very dramatic but certainly not unexpected by us, so behind the scenes and not reflected yet in any numbers, there is a lot going on, and we certainly expect to get there, and in the intermittent marketplace, we’re already seeing unit sales increases that are very, very good, and because of the kit decline, which has been dictated as part of this new reimbursement plan, those fairly strong numbers have been masked, and they’re about to be unmasked as we go forward. So we feel very good about the domestic marketplace, and of course, with the new possibilities on FemSoft, that’s just so much more even than what it had been. So we feel very good domestic as well as international.

Tyson Bauer – Wealth Monitors

As you brought up FemSoft, now that you have a preliminary code and it looks like that will indeed transpire later in the summer, does that in essence allow you to go forth with a possible distributor partner on that side of it, and then the second thing to go back to what you just talked about, maybe we’re just misreading your comments, but it would seem that you have a greater deal of excitement and expectation to capitalize on the opportunities mainly in Europe and non-US markets as opposed to maybe the domestic side which may be drawn out a little longer and a little more difficult to capitalize than those markets. Is that not the case?

Anthony J. Conway

Let me answer the last one first. No, I don’t think that’s the case. I think that what I was trying to get across is that most of our US shareholders ignore our international opportunities, and we want to make them well aware of them because certainly we are today more active internationally and have been for some time than we are in the US. That is not to in any way diminish what we think is the opportunity in the US. We’re more optimistic I would say about the US in all three of those opportunities—acute care, extended care, and FemSoft—than we ever have been in the past.

Tyson Bauer – Wealth Monitors

Regarding the CMS code?

Anthony J. Conway

To us, that is tremendous news. It’s not finalized until the end of summer. Clearly, we expect it will be finalized with a code, but we can’t guarantee that yet at this point. There are still some steps in the review process, but we feel very, very good about it, and a preliminary recommendation is a very, very positive step. If we get that code, your question is regarding partnership and distribution, yes, clearly we are investigating all of that now as we speak. We see a very, very interesting direct-to-consumer opportunity nationally, and we are investigating that now.

Operator

Your next question comes from the line of Ernest Andberg with Feltl & Company.

Ernest Andberg – Feltl & Company

You may not have it handy, but Dave you talked about the stock-based comp effect in the quarter. Do you have an absolute number on the stock-based comp that went through the income statement?

David Jonas

It’s in the footnote to the press release.

Ernest Andberg – Feltl & Company

I missed that then. I’ll look and find it there. What about CapEx?

David Jonas

I don’t not have that one in front of me, but the stock option one is $478,000.

Ernest Andberg – Feltl & Company

Jim, Japan. Most small companies and even larger companies partner with one of the major manufactures or distributors over there. You say you’ve hired a director of sales?

Anthony Conway

Yes. Director of Sales and Marketing, and let me hasten to add that, yes, most companies do exactly what you said. We hoped to do exactly that. The person that we have hired has lived in Japan the last 10 years, speaks fluent Japanese, knows the country backwards and forwards, and will be interfacing with these types of companies that we hope to partner with.

Ernest Andberg – Feltl & Company

So the objective is not to sell directly yourself with this guy but either distributors or rather people selling to the consumer in Japan.

Anthony Conway

Our top priority would certainly be partnerships. If you go just directly the regulatory hurdles are very, very time consuming. Over time, we’ll likely be direct in Japan, but in the in the near term, we want to speak to these companies and work with these companies that we think we can partner up with in the near term so to speak.

Ernest Andberg – Feltl & Company

Can your catheters get sold in Japan right now or do they have to go through whatever ministry of approval?

Anthony Conway

Through the right partnerships, it can be sold now. Let me also be clear while we’ve initiated activity in Japan, clearly in the upcoming quarter, there are not going to be any sales in Japan.

Ernest Andberg – Feltl & Company

I’m just trying to get the process…if this is as you pointed out before the second largest market besides…

Anthony Conway

Not only the second largest market, but they are very focused on the high-end technologies. They are very big into the silicones. They can afford the better technologies which is what we provide. They’re very concerned about infections in hospitals and elsewhere. It’s a very good market for us. Strategically, we’ve been very focused in the United States and Europe up until now for good reasons, for focus reasons, and resource reasons, but now is the time we believe especially since we found this great resource that can work very effectively on the ground in Japan.

Ernest Andberg – Feltl & Company

Who’s the dominant seller over there right now?

Anthony Conway

The dominant American seller, depending what products you are talking about, especially if Foley’s is the dominant one, will be CR Bard.

Ernest Andberg – Feltl & Company

Do you need a separate reimbursement approval for your product or is there is a code that you can sell already and have reimbursement?

Anthony Conway

I don’t know the answer to that Ernest.

Ernest Andberg – Feltl & Company

What quarter do you normalize on intermittents in the US in terms of the issue you said of kits are going down and that you are losing revenue there, and you may sell more catheters but you get a lot less per catheter for an individual catheter? When do you annualize that issue?

Anthony Conway

We certainly expect it by year end that the major portion if not all that conversion will essentially have taken place. A little bit of that is guess work on my part.

Ernest Andberg – Feltl & Company

It’s more of a 2010 fiscal year event?

Anthony Conway

Or the end of 2009.

Ernest Andberg – Feltl & Company

The FemSoft in the US, you say you are getting a code, and I want to understand what you mean by a code. CMS is in the process right now of deciding reimbursement for 2010, and they’ll probably publish in July their reimbursement and have a comment period and then later in the year finalize for implementation in 2010. Is that what you’re talking about, the reimbursement when you say code?

Anthony Conway

Exactly.

Ernest Andberg – Feltl & Company

Your understanding is right now CMS under a code will provide reimbursement for FemSoft and that it’ll probably be effective for 01/01/2010?

Anthony Conway

Yes. They made a preliminary decision to that effect. They do go through several additional steps after that. They have a public hearing. As a matter of fact, there’s a public hearing on May 12^th so that they can receive input to consider these preliminary decisions, so it’s possible that those preliminary decisions can be changed based on public input. Certainly, we expect any input to be well in support for the pros of the FemSoft insert. We know of no opposition. The experience with the product has been very positive. They clinical testing has been extensive as you know, Ernie. It’s been eight clinical sights for a year and a half, major clinical sites, Mayo Clinic, Cleveland Clinic, so on. Female experience with the device has been usually positive, so we don’t see any reason why that preliminary decision would be changed, but we have to note that it is preliminary and it’s possible for it to be changed.

Ernest Andberg – Feltl & Company

You are describing the process as I understand it. You get it and it’s finalized and it’s a 2010 event for getting the money.

Anthony Conway

Starting in the beginning of 2010, the reimbursement would actually be built into the system.

Ernest Andberg – Feltl & Company

That sounds good. Are you going to spend money then yourself to promote this when you are looking at promoting to doctors and patients or do you think that it will come co-branded kind of promotion or a partner?

Anthony Conway

That’s a great question, and I can tell you that we have tremendous interest in this product. Certainly, we are looking at partnerships. I can’t answer what the final decision is going to be, but I can tell you where we are trying to get to Ernie. We are trying to get to a situation where it is marketed nationally directly to the consumer and at the same time to the clinician. I have often made the analogy in the past that we need an approach similar to contact lenses when they were first launched where the consumer needs to be made aware of this option. We want to be able to get right into women’s living rooms through TV, print, and so on to let them know that this is a phenomenal option. The option for the company is very, very significant. There are over 12 million incontinent females in the United States. Clearly if we could get 5% usage, the numbers are fairly staggering actually. If we can get 1% usage, the numbers are fairly staggering.

Ernest Andberg – Feltl & Company

Then I vote for getting them.

Anthony Conway

I do too.

Ernest Andberg – Feltl & Company

One of the hardest things over the last year of me working with you and Jim is I can’t seem to get the private label side of this thing consistently straight. I think Dave said that their sales, you believe the customer sales are growing modestly out there, but it never looks like they order so much inventory in one quarter that we should get knocked on the side of the head the next quarter. How are we dealing with that?

Anthony Conway

A couple of things. First of all, in about the last year, the last four quarters or so, we’ve seen bigger fluctuations than we have ever did in the past. All of our customers have been trying to manage inventories skillfully and lower their costs and then they find that they get in a bind and have to order more, so the last 12 months I would say historically have been bigger fluctuations quarter to quarter than we normally had ever seen before, so that’s one thing. We are fairly certain based on the input that we get our private label customers that there is very modest growth year to year in their sales of our products excepting, and I want to make sure this is clearly understood, the fact that as we announced previously and have discussed previously as of 12/31/08, our intermittent private label contract with Hollister was terminated. So independent of that which was negotiated between the two companies to end that, but independent of that, we certainly do believe, and based on what we see even though the ordering patterns are wild by comparison to branded, they are year over year increasing, and we are very confident from what we see already in Q3 that we’re going to see the flipside of it again, and the orders will be strong.

Ernest Andberg – Feltl & Company

Not to be argumentative, but was it the private label customers, the big ones there that were the problem in Q1 or was it some place else because I thought last call you felt that…

Anthony Conway

No. Q1 actually, our private label sales were strong.

Ernest Andberg – Feltl & Company

Outside the US, right?

Anthony Conway

Correct. Actually in Q1, we got one branded distributor, our largest branded distributor that once in a blue moon can fluctuate quarter to quarter. While that’s very unusual in our branded sales, but in the private label the last several quarters we’ve been alternating up and down.

Operator

Your next question comes from the line of David Butterworth with Townsend Group. Please proceed.

David Butterworth – Townsend Group

Regarding those salesmen that you brought in about a year ago, I’m wondering how would rate their progress and seasoning thus far.

Anthony Conway

On an individual basis to be true, that’s the best way to do it.

David Butterworth – Townsend Group

Is it a good group?

Anthony Conway

It’s a great group. These are guys that are up against the biggest companies in the business, the most aggressive companies in the business, companies that own the market place. They are good, they are smart, they are capable, and they have the tenacity that it takes, so I feel really, really good about them. I really can’t say enough about them.

David Butterworth – Townsend Group

Do you have any capacity utilization issues anywhere across the line?

Anthony Conway

No.

David Butterworth – Townsend Group

How would you rate your capacity utilization? You’re probably well below 50%, right?

Anthony Conway

Depends what products you look at. We are well above 50% on male external catheters, and on everything else we are below 50%. Regarding capacity, I’ll say this. It’s a good question in this regard because it’s probably good that I give everybody a heads-up in this regard. We’ve got a lot of capacity for the FemSoft. We’ve got a lot capacity for intermittent catheters. Both of those product lines we expect good things going forward. Those products are actually made on the same automated line, and what we are considering in the not too distant future is building an additional automated line and dedicating the FemSoft line to FemSoft and dedicating the additional line to the intermittents. Clearly, we don’t have to do that unless our sales are far above where they are now, but certainly that’s where we hope to be.

David Butterworth – Townsend Group

What are your male external catheters as a percent of revenue?

Anthony Conway

About 70%.

Operator

There are no further questions at this time. I would now like to turn the call back over to Anthony Conway for closing remarks.

Anthony Conway

Thanks to all of you for participating. We definitely appreciate that very much, and we look forward to next time.

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