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ABAXIS Incorporated (NASDAQ:ABAX)

Q4 2013 Earnings Call

April 25, 2013 4:15 PM ET

Executives

Joe Dorame - IR, Lytham Partners

Clint Severson - Chairman and CEO

Al Santa Ines - CFO

Donald Wood - COO

Martin Mulroy - CCO, North American Animal Health Sales

Rick Betts - Director of North American Medical Marketing

Analysts

James Sidoti - Sidoti & Company

Ross Taylor - CL King

Jeff Frelick - Canaccord

Ethan Rauf - Stifel Nicolaus

Ben Hayner - Felton and Company

Carter Dunlap - Dunlap Equity Management

Len Hughes - Estate Partners

Operator

Good afternoon and welcome to the Abaxis Fourth Quarter and Fiscal Year 2013 Financial Results Conference Call. All participants will be in listen-only mode. (Operator Instructions) After today’s presentation, there will be an opportunity to ask questions. (Operator Instructions) Please note this event is being recorded.

I would now like to turn the conference over to Joe Dorame of Lytham Partners. Please go ahead, sir.

Joe Dorame

Thank you, Denise. Good afternoon and thank you for joining us today to review the financial results for Abaxis for the fourth quarter and fiscal 2013 ended March 31, 2013. As Denise indicated, my name is Joe Dorame. I’m with Lytham Partners and we are the Investor Relations consulting firm for Abaxis.

With us today, representing the company are Mr. Clint Severson, Chairman and Chief Executive Officer, Mr. Al Santa Ines, Chief Financial Officer, Mr. Donald Wood, Chief Operations Officer, and Mr. Martin Mulroy, Chief Commercial Officer, North American Animal Health Sales, and Mr. Rick Betts, Director of North American Medical Marketing. At the conclusion of today’s prepared remarks, we will open the call for a question-and-answer session.

Before we begin, I would like to remind everyone this conference call includes statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including but not limited to statements related to the company’s cash position, financial resources, and potential for future growth, market acceptance of new or planned product offerings, future recurring revenues and results of operations.

Abaxis claims the protection of the Safe Harbor for forward-looking statements contained in the Reform Act. These forward-looking statements are often characterized by the terms may, believe, projects, expects or anticipates or words of similar import and do not reflect historical facts.

Specific forward-looking statements contained in this conference call may be affected by risks and uncertainties, including, but not limited to, those related to losses or system failures with respect to the company’s facilities or manufacturing operations, fluctuation in quarterly operating results, dependents on soul suppliers, the market acceptance of the company’s products and the continuing development of its products, required FDA clearance and other government approvals, risks associated with manufacturing and distributing its products on a commercial scale free of defects, risks related to the introduction of new instruments manufactured by third parties, risks associated with competing in the human diagnostic market, risks related to the protection of the company’s intellectual property or claims of infringement of intellectual property asserted by third parties, risks related to the condition of the United States economy and other risks detailed under Risk Factors in the Annual Report on Form 10-K and other periodic reports filed from time-to-time with the United States Securities and Exchange Commission. Forward-looking statements speak only as of the date the statements were made. Abaxis does not undertake and specifically disclaims any obligation to update any forward-looking statements.

With that having been said, I’d like to turn the call over to Mr. Clint Severson, Chairman and Chief Executive Officer of Abaxis. Clint?

Clint Severson

Great, thank you Joe, and good afternoon everybody and welcome. I’ll spend a little bit of time here reviewing the accomplishments and challenges for Q4 FY13 and for the fiscal year ending in March, and then I will cover some of the goals for FY2014. After my short presentation, I’ll ask Marty Mulroy, our Chief Commercial Officer of North American Animal Health and Rick Betts, our Director of Marketing for the Medical Market in the U.S. here, to give an update on their respective businesses, and then we will take questions.

Now while we had record performance in Q4, we did have some challenges in our medical business due to the transition from a direct sales model to a distribution model with Abbott. The assignment of distribution contracts in the last formal training session that was completed in late January resulted in field activity starting in February. There is always a startup period that can delay some sales in making big changes like we have, and we believe this transition will be fully complete over the next couple of quarters; more from Rick in a few minutes.

In Europe medical sales were also less than expected due to the difficulties in both the Italian and Spanish markets. Our theory programs implemented over the last few quarters affected Piccolo instrument sales in both these countries.

Total worldwide medical sales finished the quarter at $6.3 million, down about 18% versus Q4 last year and for the year medical sales finished at $31.6 million, up 4% versus FY2012. Domestic medical sales excluding the government sales finished the year at 21.2 million which was flat compared to last year, more to follow from Rick in a few minutes.

Now even though we had big changes in our medical distribution that resulted in some lower sales in the medical market for the quarter, we experienced record overall performance in Q4 2013. Total sales finished at a record $50 million, up 17% year-over-year and for the full year our sales totaled 186 million, up 19%. Worldwide Veterinary sales at 42.9 million were up 25% in Q4 compared to Q4 of last year, and up 8% compared to the last quarter. For the year, worldwide vet sales totaled $150.5 million up 23%, both new records. North American vet sales also set a new record finishing Q4 at $36.3 million up 26% versus Q4 last year. And for FY 2013, North American net sales totaled to $135.8 million up 25%; more from Martin in a few minutes.

We also have record domestic sales of 41.9 million for Q4 up 18% versus Q4 last year. And for FY 2013, domestic sales totaled to 152.8 million up 18% are also a new record. International sales for Q4 are finished at $8.1 million up 10% versus Q4 last year even with the difficulties in Spain and Italy.

For the year, international sales totaled 33.3 million up 20%. A Europe finished Q4 with sales of 6.2 million up 10% versus Q4 last year. And for the year, European sales finished in a record 26.1 million up 19%. PAC-RIM sales totaled 1.9 million in Q4 ’13 up 11% compared to Q4 last year and for the year, total PAC-RIM sales finished at 7.2 million up 26%; a new record.

Record vet disc sales at 1.5 million units for Q4 up 18% year-over-year. For FY 2013, net disc sales finished at 5.1 million units up 15%. Total disc sales for Q4 totaled 2 million units up 11% year-over-year. For the year, total disc sales finished at 7.5 million units up 11%. In dollars, total disc sales for Q4 totaled $27 million up 17%, year-over-year.

For the year, total disc sales finished at $99.3 million up 13%. Other debt consumable revenues that include i-STAT and COAG cartridges rapid test in and hematology reagent packs finished Q4 13 at a record $8.8 million up 25% compared to Q4 last year. And for the year other vet consumables totaled 28.2 million up about 8% also a new record.

AVRL sales in Q4 grew 31% quarter-over-quarter to a new record of $1.8 million while operating losses declined to 1.2 million at $132,000 improvement over Q3.

We had instrument sales in Q4 of 1,485 instruments up 13% year-over-year and for the year we sold the total of 6173 instruments up 30% over the last year.

We sold 473 Vet scans versus 545 last quarters and 456 Q4 last quarter. For the year, we sold 2,036 Vet scans up 15%. We sold 341 hematology instruments versus 285 Q4 last year and 395 last quarters. For the year, we sold 1,341 hematology analyzers, up 29% versus last year. We sold 183 Piccolos versus 264 Q4 last year and 306 last quarters. For the year we sold, 1,072 Piccolos up 29% compared to last year. And finally, we sold 488 i-STAT and COAG instruments versus 307 Q4 last year and 572 last quarters. For the year, we sold 1,724 i-STAT and COAG instruments up 55% compared to FY 2012.

Now, 21% of the sales for the quarter were capital sales while 79 were consumable and this compares with 23% and 77 Q4 last year and 28% and 72 last quarters. For the year the mix was 25% and 75. A 16% of total sales for international sales while 84% were North America. This compares to 17% and 83 Q4 last year and 16% and 84 last quarter.

For the year the mix was 18% and 82. 13% of sales were medical sales while 86 were Vet sales and 1% other. This compares with 18% and 82 Q4 last year and 18% and 82 last quarter. For the year, medical sales were 17% of total sales and Vet sales were 81 and 2% other.

Now the disc average selling price at $13.53 was up $0.28 versus Q4 last year and up $0.70 versus last quarter. Disc cost at $3.76 were down $0.17 versus Q4 last year and $0.01 versus last quarter. Disc gross margins finished at 72%, up from 70% Q4 last year and for the year disc cost were down $0.07.

Our gross profit for Q4 FY13 was up 12% year over year but gross margins were down about 230 basis points mostly due to the lower ASPs on medical products sold to Abbott and higher sales of other debt consumable products that have a lower gross margin in products we manufacture. For the year gross profit was up 15% and gross margins were about 150 basis points mostly due to AVRL losses in the Abbott distribution deal. Our operating expenses for Q4 finished at very efficient 34.4% of sales down from 39.7% of sales in Q4 last year and 36.9% of sales last quarter. For the year operating expense as a percent of sales excluding the adjustment for Cepheid legal settlement gain and related expenses finished at 37.9% of sales compared to 41.9% of sales last year. Our sales and marketing expenses for Q4 FY13 finished at 11.3 million or 22.6% of sales down from 26.2% of sales Q4 last year and down from 24.8% of sales last quarter. For the year sales and marketing expenses finished at 25.2% of sales down from 25.3% of sales last year.

R&D expenses for Q4 at 3.2 million or 6.5% of sales were down from 7.4% of sales Q4 last year and 7.6% of sales last quarter. For the year R&D expenses finished at 7.3% of sales down from 7.8% of sales last year. Now admin expenses for Q4 at $2.7 million or 5.4% of sales were down from 6.1% of sales Q4 last year and up from 4.4% of sales last quarter. For the year admin expenses finished at 6.9% of sales versus 8.8% of sales last year. The operating income finished at a record in Q4 at $9 million up 40% year over year and 17% quarter over quarter. For the year operating income excluding the adjustments for the Cepheid settlement totaled $27.7 million up 43%. Operating income per share excluding the Cepheid adjustment for the year totaled to $1.24 beating our goal of $1 a share operating income by $0.24. And our new company goal is going to be on 10% market share of the clinical chemistry market which is about a $5 billion market. And net income at 6.7 million for Q4 is also a new record and was up 42% year-over-year and 34% quarter-over-quarter or $0.30 a share.

Net income for 2013 as of for fiscal year 2013, net income totaled $27.5 million or $1.23 a share up 58% a share last year. Now, excluding the Cepheid adjustment for settlement gain and related expenses, our net income for the year finished at $18.7 million or $0.83 a share, up 43%.

Now on the R&D side of the business, we received FDA clearance on our lactate test along with the finger-stick clearance for cholesterol and HDL. We’re lucky as close to being submitted to the USDA and we continue to make progress in scaling up the manufacturing process for the hemoglobin test.

Goals for Q1 and FY 2014 include clearly a focus on the Abbott relationship and keeping the excellent sales momentum going with MWY. We’ll keep as a priority the building of our debt reference slab business to trends out very good and if we can keep this momentum going with an excellent chance of hitting our aggressive goals of this fiscal year we’re in right now.

R&D goals for the year includes finishing the menu of rapid desk, completing the scale up and submission on the hemoglobin supporting the two by two program in the factory and identifying a high sensitivity immunoassay platform that is comparable and particular.

This new platform can allow us to expand our test markets, our test menu in the markets that are even larger than the clinical chemistry market. Now in addition to closely working with Abbott to scale up our medical business we’ll also be working on the CRO retail and Canadian opportunities. We have two folks working full time on the CRO opportunity, one on Canada and the two folks working with Abbott are on the retail.

In the factory, the two by two programs continues to be a priority with the goal of getting closer to $2 in cost. In additional, all of this stuff, we also have very aggressive sales on marketing goals for 2014.

So, with that Martin, you’re on.

Martin Mulroy

Great, thank you Clint. Good afternoon. I my prepared remarks I’ll provide some additional details surrounding the North American Animal Health Business. In our fourth quarter fiscal year 2013, North American Animal Health recorded revenue is up $36 million, up 7% from our prior quarter over 2.3 million and year-over-year up 27% an increase of 7.6 million. For the fiscal North American Animal Health recorded revenues of a 124.5 million in revenue up 26% versus FY 12, an increase of $25.4 million, as Clint mentioned AVRL contributed 1.8 million to the Q4 revenue up 31% from the prior quarter, our reference laboratory segment annual run rate is exceeding a $7 million business. In our Q4 a 167 customers purchased or leased instruments combined with one or more AVRL program accounting for a total of 274 instruments and $2.3 million in revenue. In dollars, along with AVRL records were set in Q4 for hematology reagents, (inaudible) product line and (inaudible) with (inaudible) revenue in Q4 at a record $18.5 million, we are also pleased with our total instrument revenue, instrument revenue up 40% year over year, much of this success we attribute to the impact of our AVRL sales and marketing programs, combined with our investments in infrastructure, (inaudible) expansion, continuous product improvement and new product development and with that I'll turn it back to Clint.

Clint Severson

Great, thank you Marty, okay Rick you're next.

Rick Betts

Thank you Clint, good afternoon all, for the quarter the domestic medicals division brought in (inaudible) million which was open in a fiscal year total of 20.695 million versus 20.997 million the previous fiscal year. The quarterly total included a 130 Piccolo instruments and 346,000 reagent discs sold to Abbot for distribution in the U.S. (inaudible) market. Q4 was filled with a mountain of activities associated with helping Abbot get up to speed as quickly as possible, Abbot sales team are quick learners and since they began selling in early February each passing week has seen a growth in Piccolo placement. While a considerable amount of work remains on both Abbot and our part to ensure success we are encouraged by the professionalism, level of engagement and determination of this Abbot's sales organization. In addition to Abbot's ongoing ramp up we began to make some significant attraction in the (inaudible) markets of Canada and clinical trials, in Canada we signed a new agreement with Intermedical, one of the largest and most respected medical distribution companies serving the Canadian markets, and we received (inaudible) for Piccolo placement in prevention clinics rural labs and smaller remote hospitals. We are also making some good in roads with our clinical trials initiative where the Piccolo can be useful as a standardized platform for stat patient dosing decision.

We have met with a variable who’s who in the market and are very encouraged by the excitement and feedback we’re receiving from some of the world’s largest and most respected pharma, CRO, and clinical lab company. Thank you, I will now turn it back over to Clint.

Clint Severson

Great, okay thank you Rick. Okay with those comments we’re open for question.

Question-and-Answer Session

Operator

Thank you, sir. We will now being the question and answer session. (Operator Instructions). Our first question will come from James Sidoti of Sidoti & Company. Please go ahead.

James Sidoti - Sidoti & Company

A lot of thoughts going so we’ll start with MWY, now they had disclosed previously what their orders to the first half of year would be, do you see any indication that they would slow down at this point some of those restocking orders or do you think they will continue with roughly this pace going forward?

Joe Dorame

Yes, so Let Martin address than one.

Martin Mulroy

Hey James, the trend looks very-very good and they’re moving a lot of products any further detail rather you go ahead and ask MWY as far as detailed sale number, if they’re open to disclosing that but you know trend looks good and I anticipate the business to continue at a close to the same cliff that’s been going?

James Sidoti - Sidoti & Company

I assume needed to add capacity either shifts or people in order to fill this first you know first half of the year orders to MWY, are you going to maintain capacity at the level you have now going forward?

Martin Mulroy

Actually we’re going to be as in the seventh shifts up, we’re actually going to be adding seven shifts so we’re able to meet all of our commitments here with the shifts that we had six shifts but we’re going to be having seven shifts some time now later this quarter or next quarter.

James Sidoti - Sidoti & Company

Okay, so it doesn’t sound like you considered these stocking orders, you would say this is something that’s going to continue going forward?

Martin Mulroy

We do.

James Sidoti - Sidoti & Company

Okay, as far as the Abbott relationship goes what do you think you need to do to get them started? Or get them back to where you were prior to signing on with them?

Martin Mulroy

Yes, so this was a big disruption. We went from having our own sales force, that was trained and knew what they were doing, and now we are going to the Abbott model. We had to get all the distribution arrangements that we had out there and turned over to Abbott, we reassigned them to Abbott and then we had to train all their sales people, and it’s a process. Abbott is a big company and these things get integrated at kind of their timeframe. But we believe that Abbott as a company is like a machine. Now once they get going, they start building momentum and it just keeps going. So I think the start was kind of what we expected and we look forward to them now beating the numbers going into Q1 through Q4 of this year. And we think they will be fine.

James Sidoti - Sidoti & Company

You had to…

Martin Mulroy

Yes go ahead Jim.

James Sidoti - Sidoti & Company

You were going to cut back on some of your sales people as a result of this distribution going on with Abbott, did that happen at the end of the third quarter, or did that happen in the fourth quarter?

Martin Mulroy

Yes so going into Q4, well you noticed that sales and marketing expenses were way down.

James Sidoti - Sidoti & Company

Right, right that’s why I am asking.

Martin Mulroy

There you go. I think operating expenses is not positive on this, but I think they are at an all-time low as a percent of sales.

James Sidoti - Sidoti & Company

So that’s the kind of level we should expect to see going forward?

Al Santa Ines

Yes, I mean I think you see operating expenses going down, of course gross margins get affected a little bit, but the operating margin went way up.

James Sidoti - Sidoti & Company

Right, and now the tax rate was lower in the quarter, is that the R&D tax credit?

Al Santa Ines

That is correct. And it’s a combination of accumulation of the last three quarters loaded into the fourth quarter and I am jumping on to your next question, what should be the rate for next year? Correct?

James Sidoti - Sidoti & Company

Yes, you know me Al.

Al Santa Ines

We would be using 36%, okay 36 for next year.

James Sidoti - Sidoti & Company

And what was the international VET sales in the quarter?

Martin Mulroy

It will take us a couple of minutes to calculate …

James Sidoti - Sidoti & Company

I know, you said overall international was up 10%?

Martin Mulroy

No, Europe was up 10%.

Al Santa Ines

That stands for the quarter international is 1.4 million; sorry it’s 6.7 million.

Martin Mulroy

6.7 million.

James Sidoti - Sidoti & Company

And how does that compare to a year ago?

Al Santa Ines

A year ago; it’s a 5.8 million.

Martin Mulroy

5.8

James Sidoti - Sidoti & Company

Okay so it’s nor to 10% and that has nothing to do MWI then?

Martin Mulroy

Nothing to do with MWI, no.

James Sidoti - Sidoti & Company

Okay so that's about 16% growth? Okay.

Operator

The next question will come from Ross Taylor of CL King. Please go ahead.

Ross Taylor - CL King

Hi, I wonder if anyone could give any color on how your other North American distributors in the vet market are performing; assuming new MWI bought with a; he disclosed they were in a buy in a quarter but it looks like their purchases are probably going down year-over-year but I just wonder if you could talk it all that how their reacting whether their performance is what should be like.

Martin Mulroy

This is Martin. I mean mutually there was obviously some concern from our distributors as to market shift but I tell you I am very pleased that we have got strong relationships with this legacy distributes the traditional distributors. And I would say today that they are all; everyone one of them are more engaged today than they probably ever been.

Ross Taylor - CL King

Okay and just in terms of; the instruments in your placements or in your router sales, kind of meeting your; did they meet your expectations for Q4; I guess as the quotas you were expecting for your next fiscal year; I mean any material changes there, over the last year in mind?

Martin Mulroy

No material changes there. They are performing as we expected in most cases.

Ross Taylor - CL King

Okay also you have talked at some point over the last quarter to the; you thought MWI might end up picking up a lot of the business you were doing directly. Is that occurring or any comments you can make about that?

Martin Mulroy

Its transitioning over the time but we still have some direct business out there, contracts but a lot of it is moving towards MWI, yes.

Ross Taylor - CL King

Okay just two other questions; Clint I think in his prepared remarks mentioned something about looking for a new immunoassay platform that would be; I think you said compatible with piccolo and I just wonder if you could elaborate on that at all and what kind of opportunity you see and just you know how quickly something like that may occur?

Martin Mulroy

So we have been looking for a system that would allow us to do a high sensitivity immunoassay, it’s now for the last few years and when we look at our number of small startup companies that have some very unique approaches to this, solving this problem and we have identified one that looks like it can meet our need. So we are doing our feasibility study that starting at the end of this quarter and so we have allotted some resources to complete that feasibility and if the feasibility works then we will go into a full development program with that company and license our technology for our type of business, medical diagnostics and then build it in. So, I think again it’s early in the game but the data that they have shown us to give us a feeling that feasibility is going to be successful on the moneys we are investing looks really good, so that’s we will start working on that probably in the end of May, first part of June.

Ross Taylor - CL King

Okay and forgive the dumb question but would it be technology that would work on top of the piccolo platform or is it kind of just completely separate platform and how with this, work with your added relationship as well.

Martin Mulroy

It will work on the disc, it will work on the disc and so our design goal has always been to be able to do a chemistry immunoassay with the same sample on one disc. So, that’s what the goal is. We think disc can do that and I am not really sure what impact this would have on the having deals at this point in time but early in the game but if it work, it’s another big game changer for Abaxis, yes.

Ross Taylor - CL King

And do you think you could take that technology to that market as well and some of the infection could be clear?

Martin Mulroy

Absolutely yes, so there is a number of immunoassays that folks have asked R&D to work on and with this new platform, yes it will be a lot of easier to develop test, yes.

Ross Taylor - CL King

All right and last question. I missed you’re the data point you gave road or ASP in the quarter?

Martin Mulroy

It was $13.

Operator

Our next question will come from Jeff Frelick of Canaccord. Please go ahead.

Jeff Frelick - Canaccord

Hey Clint just to find of follow up on the immunoassay initiative of project. Can you be a little more specific just to find of what the attraction on, what specific assays do you think you are likely to pursue on immunoassay platform?

Clint Severson

So clearly we are looking at thyroid and other hormones as well as potential of doing cardiac markers and those kinds of tests.

Jeff Frelick - Canaccord

Okay I assume using it in the physician office setting need to get or want to pursue a clear waver would that be on you or would that be on the your likely partner.

Clint Severson

That would be on us. So what the partner is the technology so they have a patented technology that allows high sensitivity in a system like ours. And so then we have to modify the plastic disk somewhat and there is a bunch of technical stuff that we are have to prove out in the feasibility and if that all works out then we will start developing the tests in-house using that technology that we will license from that company.

Operator

(Operator Instructions) The next question will come from Jonathan Block of Stifel Nicolaus. Please go ahead.

Ethan Rauf - Stifel Nicolaus

Hi this is Ethan Rauf actually on for Jonathan Block just a follow-up question maybe to start off from Ross’s question on MWI would you be willing to provide any commentary related things into which MWI sales have come from a shift in the channel away from some of the other distributors versus market share shift where you are actually displacing competitive products?

Clint Severson

So I will comment and then I will let Marty, yes Marty probably is closer to this than I am so clearly when you look at our instrument sales both Q3 and Q4 and you look at our rotor sales both U.S. and outside the U.S. it is clear that this stuff is selling through and yes we are very pleased with the performance of MWI I think some of our smaller distributors clearly are going to lose some business because they were selling into MWI comps that had Abaxis’ products. And that customer is going to; it is going to be more convenient for the customer to stick with one distributor. On the other side of the coin, our little distributors now have the incentive to go out there and do what MWY is doing and that is going after you know ideal customers that are service by other distributors as well as Abaxis customer are maybe serviced directed or by MWY.

So we got these all kinds of incentives now to go out there and trade our comparative instruments. And so we think that the MWY staff is moving through very nicely. Martin gets sales data from MWY, I think on a daily basis so we keep close track of this because again we make sure that our products they won’t sit on the shelf somewhere because we’ve got another quarter here, we’ve got objectives we need to hear it could get R&D things we need to do, we’ve got bounces on profit share that we’d like to pay and you can’t pay or do any of that’s if unless your sales are moving through the system. Anyways, that’s my comment. Martin, you want to say anything else.

Martin Mulroy

Clearly a percentage of the re-aging business in MWY has sold through the past 3 months has been market shift but I’ll tell you that Abaxis and MWY working alongside each other, there is been significant number of instruments that we sold together that is a 100% incremental and MWY will also, it is obviously and needs to support rapid task line and the MWY customer base that has adopted to run Abaxis rapid task, the great majority of that as well is incremental business.

Ethan Rauf - Stifel Nicolaus

And the if I recall correctly, you’ve taken price on the sales last several quarters, there is something you’re planning to continue and through for the remainder in the fiscal year and it’s so, will the price increases be similar to what we sell in 2012.

Unidentified Company Representative

We’re right now evaluating whether we need to increase the price of consumers I think that process will go on for probably another month or two and then we’ll make a decision, right now we don’t have a decision on that.

Ethan Rauf - Stifel Nicolaus

Okay. And then I just have one last one. Can you speak to any plans that company might have for integrated diagnostic results and what I mean by that is not that you are only the reference side market, are you working in any products or systems that would allow a customer for few hours, remotely or compare the reference side results with those around in clinic.

Unidentified Company Representative

Absolutely, we’ve been looking at this for some time insurance our commercial lab results along with their (inaudible) and we've got projects underway as we speak. Let me add to that, that doesn't necessarily always make the decision when it comes to the veterinarian, whether the results of that two pieces of paper, one piece of paper, what they're mostly interested in is the quality of the results, the ease of the use of the instrumentation the cost of (inaudible) and there's a lot more to it than the IT aspect.

Operator

Our next question will come from Ben Hayner of Felton and Company, Please go ahead.

Ben Hayner - Felton and Company

What do you think about the sales reorganization going on at one of your competitors do you think that's something you might be able to gain some additional traction given some of the changes they're implementing there?

Clint Severson

I'll let Marty comment on that one first.

Martin Mulroy

I agree 1000% I mean it’s our model. When we launched AVRL it was critical to me that we were not going to have 2 or 3 or 4 sales forces, I wanted one point of contact. I wanted cross trainer sales force whereby they could present their commercial lab services, they could bundle the instruments, demonstrate the rapid diagnostics. We found that and my competitor will as well will find that a lot more efficient and a lot more productive and it's worked very, very well for us, now we as my competitor has indicated the (inaudible) turnover, we've had a little bit of turnover as well because there aren't two salespeople that prefer to only sell capital, and there are some salespeople that prefer to really take care of the customers, sell the disposables, sell the rapid diagnostics. But (inaudible) having a hybrid sales force, one point of contact, cross train them across the entire product portfolio has worked well and as far as my competitors change, imitations about complements.

Sounds like you're ahead of the curve there.

Ben Hayner - Felton and Company

And then on the amino assay platform assuming that works out, you're licensing technology from them, how quickly could you potential hit the market with something like that?

Martin Mulroy

Yes so feasibility if it goes really well probably about 6 to 8 months process if the feasibility is successful then development or the first group of test is probably about 12 months and then you’ve got regulatory after that so it’s probably a couple of years we sell anything on that platform.

Ben Hayner - Felton and Company

And then lastly on the Canadian opportunity for the Piccolo, can you kind of bit give a little more information about the distributor that you patterned up with regard to kind of their position within the market and then how big does that opportunity look to you guys down the road?

Martin Mulroy

Okay I’ll talk about in a medical day or as I mentioned one of the most respected firms up in Canada they are the laboratory firm, so they do sell the majority of the laboratory products in Canada and they do have a presence in the physician office laboratory which is exactly what we’re looking for up there, so we’re pretty encouraged by them.

With regards to the opportunity up in Canada, now Canada is a much smaller than here in the United States we guess that is about 10% of the potential for what is here in the United States overall probably about a $30 million, $40 million, $50 million market when it comes right down to it.

Ben Hayner - Felton and Company

Great, that’s very helpful that’s I have, thank you guys.

Operator

Our next question will come from Carter Dunlap of Dunlap Equity Management. Please go ahead.

Carter Dunlap - Dunlap Equity Management

There’s been some press announcements about some of the drugstore chain retailers’ plans on their clinic efforts, can you make any comments about what you see competitively as in any business loss or is it all the still same opportunity set?

Martin Mulroy

That’s all comment now let Rick comment as well. Yes, so we’ve done to most of these organizations, we’ve done a beta study with one of the organizations that’s actually pretty extensive went on for months. And so we believe here that if these alternate site primary care clinics, if they want to do well they stay they want to do and that is to the bridge the gap between traditional healthcare providers that are very expensive high overhead to provide alternate approach little overhead facility with probably somebody other than a doctor like a nurse practitioner, physician assistant; and they want to do things like re-up medications and do diagnosis based on a formulary or simple things, identify high blood pressure, hyperlipidemia, potential diabetes and potential liver problems, kidney problems, those kinds of basic things, they need a Piccolo; because they are not going to be able to do it without the Piccolo. Sending it out is probably not going to be an option because it takes two three days to get the result, who knows where the patient is going to be two to three days from now. So we think that we have a very good shot at selling Piccolo instruments to these new types of clinics.

Now for somebody to make a decision to add a Piccolo there is a lot of stuff that has to happen. I mean there is, thousands of people that you have to train. One particular site we discussed this with the number came to about 10,000 people. And then there is turnover there. So we then figured, maybe 2,000 people a year need to be trained. And then what do you do with the patient that’s abnormal on everything?

You got to have something in place. Because probably can't deal with that patient in that setting, and so there is all this stuff that has to happen before they can really implement a program like this. And so we are working with all of them that are interested in working with us. And we think some day that there will be a huge opportunity for us. But yet who knows exactly when, so (inaudible).

Clint Severson

Yes a couple of these organizations that Clint had mentioned have publically stated that they intent to be the largest providers of primary care in the United States and this is all stemming from the affordable care act that the Obama administration is pushing through. So if you get 40 million, 50 million new patients into the system, the current primary care system it is going to need more flexibility to be able to handle those patients.

And it looks to me, and us like the chronic conditions like diabetes, hyperlipidemia, obesity et cetera; those chronic conditions can be managed at a retail type operation, and will be managed at those retail operations. So the more capabilities they have at the retail operations, the better it’s going to be for care in the future. Does that answer your question?

Carter Dunlap - Dunlap Equity Management

Yes, it says the potential is still there and we are still waiting, and that’s good.

Operator

(Operator Instructions) The next question comes from Len Hughes of Estate Partners, please go ahead.

Len Hughes - Estate Partners

My question has been asked, thank you.

Operator

And so this will conclude our question-and-answer session. I would like to turn the conference back over to Mr. Clint Severson for his closing remarks.

Clint Severson

Great. Thank you very much and thank you everybody for joining the conference. I want to congratulate all the employees of ABAX and we had a record sales year and got record earnings here in an environment that clearly is been difficult for a lot of companies and for us to perform debt levels, required the team work from all groups operations sales, marketing finance and customer service, technical service and everybody really pull together and thank you all for; all you ABAX employees for making this happen. And we look forward to the next conference call; it will be scheduled in late July where we can review Q1 and FY 2014. So, thank you all for joining and we look forward to the next call. Thank you.

Operator

Ladies and gentlemen, the conference has now concluded. We thank you for attending today’s presentation. You may now disconnect your lines.

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