Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Sharps Compliance (NASDAQ:SMED)

Q3 2013 Earnings Call

May 01, 2013 11:00 am ET

Executives

Deborah K. Pawlowski - Director

David P. Tusa - Chief Executive Officer, President and Director

Diana P. Diaz - Chief Financial Officer, Principal Accounting Officer, Vice President and Secretary

Analysts

Joseph P. Munda - Sidoti & Company, LLC

Brian J. Butler - Wunderlich Securities Inc., Research Division

Kevin M. Steinke - Barrington Research Associates, Inc., Research Division

George Walsh

Operator

Greetings, and welcome to the Sharps Compliance Corporation's Third Quarter Fiscal Year 2013 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Deborah Pawlowski, Investor Relations for Sharps Compliance. Thank you, Miss, you may begin.

Deborah K. Pawlowski

Thank you, Donna, and good morning, everyone. We appreciate your participation in our third quarter fiscal year 2013 financial results conference call. You should have a copy of the news detailing Sharps' results that was released earlier this morning. If you do not have the release, you may obtain it from the company's website at www.sharpsinc.com. On the call with me today are Dave Tusa, Sharps' President and CEO; and Diana Diaz, its Vice President and Chief Financial Officer. David and Diana will provide formal remarks, after which we will open it up for questions. If you are listening via webcast, note you do have the ability to submit questions through the Internet. If you are aware, we may make some forward-looking statements during the formal presentation and a question-and-answer portion of this teleconference. These statements apply to future events, which are subject to risks and uncertainties, as well as other factors that could cause actual results to differ materially from where we are today. These factors are outlined in our earnings release, as well as in documents filed by the company with the Securities and Exchange Commission. These can be found at our website or at sec.gov. So with that, let me turn the call over to David to begin the review and discussion. David?

David P. Tusa

Thank you, Debbie, and welcome, everyone. I'll briefly review the third quarter and discuss our progress in key targeted markets as well as growth strategy, then I'll turn the call over to Diana, who will review the financials in a bit more detail.

We reported revenue of $5.4 million for the third quarter, up just 7% over the prior year period when you exclude the January 2012 CDC business. While we did book some advanced flu shot orders during the third quarter, which bolstered the Retail market billings, we didn't have any large program orders such as for our pharmaceutical manufacturer or Patient Support Programs. These orders are usually lumpy as pharmaceutical manufacturers order in bulk as part of our vendor management inventory offering.

Additionally, our third quarter distributor orders for the Professional and Home Health Care markets were lower than we expected due to timing of orders. Now comparing with the trailing second quarter of fiscal year 2013, revenue decreased $300,000 or about 5%. The second quarter of fiscal year 2013 included large pharmaceutical manufacturer orders related to Patient Support Programs totaling about $500,000. There were no comparable orders in the third quarter fiscal year 2013.

Our Retail market continues to grow where our billings increased 25% in the third quarter to $1.7 million. A significant portion of the Retail market billings is related to the flu shot season, a market where we believe we're the leader in providing retailers for the solutions designed to manage medical waste generated as part of flu and other immunizations.

The current quarter included carryover orders from the 2012 flu shot season, as well as advanced orders for the 2013 flu shot season for one large customer. Sales in the Retail market were also higher by $185,000 for our consumer-focused Complete Needle Collection & Disposal System and $85,000 for the TakeAway Environmental Return System.

Professional market billings, which represented about 17% of the total billings, grew over 7% to $875,000 in the third quarter fiscal year 2013, from about $815,000 in the prior year period. The driving force behind the Professional market billings is a telemarketing activities in our e-commerce-driven website. Billings through the inside and online sales channel increased about 22% year-over-year to nearly $800,000 in the third quarter. We're building stronger awareness of our cost-effective solutions per the inside and online sales channel and the Professional market, and believe we should continue to see substantial inroads in the coming quarters.

Offsetting the growth in the Professional market inside and online sales were lower sales through to distributor channel, which has adversely affected by the timing of orders. We continue to wait for decision-making on the Veterans Administration consumer medication return envelope program. And as we have discussed on prior occasions, we believe our TakeAway Environmental Return System envelope is uniquely qualified to meet all of the requirements of the contemplated program. But in saying this, we can make no assurances that the VA will launch a nationwide program nor select Sharps Compliance as its vendor.

We're building a solid pipeline of opportunities, including significant activity through our joint marketing alliance with Daniels. Excluding government, our pipeline targeted opportunities currently exceeds $30 million in annual recurring revenue opportunities, with over 60% of these opportunities that attributable to alliance type of opportunities where both the mail back and the pickup service are integrated into the service offering. We've been awarded annual recurring revenue opportunities associated with alliance of about $900,000 so far and expect to see -- begin to see the impact, the revenue impact of the success beginning in the June quarter -- June 2013 quarter.

We continue to transform the company into a comprehensive medical waste management provider, which we believe should accelerate our penetration into the entire medical waste market. And with that, I'd like to turn it over to Diana, who'll provide more details on the financials. Diana?

Diana P. Diaz

Thank you, David. Gross margin was 28% in the third quarter of fiscal 2013, down 80 basis points from the prior year period. The margin contraction reflected 160-basis-point impact associated with additional accrued loss for lease-related liabilities upon the complete sublease of the Atlanta facility during the quarter. SG&A expense from the third quarter of $2.35 million was up about $135,000 when compared with the prior-year period. The current quarter included almost $200,000 of severance costs as well as continued investments in our sales and marketing initiatives. We expect to maintain the level of about $2.2 million in SG&A expenditure over the next several quarters. We had an operating loss of about $940,000 in the fiscal 2013 third quarter, compared with an operating loss of about $800,000 in the same period of the prior year.

Earnings before interest, taxes, depreciation and amortization or EBITDA was a loss of about $670,000 for the third quarter of fiscal 2013, compared with EBITDA of just over $525,000 in the same period of the prior fiscal year. Net loss for the fiscal 2013 third quarter was about $955,000 or $0.06 per diluted share, compared with a net loss of about $520,000 or $0.03 per diluted share for the prior-year period.

Our breakeven is quarterly revenue of about $6.2 million with a corresponding gross margin of about 34%.

Now looking at a few of the highlights for the 9 months ended March 31, 2013. Core customer billings, which exclude the CDC contract, increased 3.7% to $16.2 million. We experienced strong growth in Professional billings of over 26% for $2.8 million while Assisted Living billings increased by almost 24% to $1.2 million. Core Government billings were up 83% or about $270,000 to $600,000 as a result of the large, stocking order placed by the U.S. Department of Defense for about $200,000 through our distributor channel earlier in the year.

Retail billings were relatively unchanged at $4.3 million for the period, compared with the first 9 months of fiscal 2012. Retail billings were impacted by the timing of orders and new program launches in the prior year period of the TakeAway Environmental Return System solutions. Flu business for the 9 months ended March 31, 2013, was basically flat in comparison with the prior year period at $3.2 million.

Our balance sheet remains solid with $16.1 million in cash and cash equivalents as of March 31, 2013. As we mentioned last quarter, we continue to see a decrease in cash and cash equivalents from June 30, 2012, of $1.4 million due to our continued investment in sales and marketing and maintenance of operational infrastructure just for the much larger revenue run rate than we currently generate. Our financial position is very strong and bodes well for us as we invest to build a larger company.

Given the Board of Directors' confidence in the underlying fundamentals of our business and the strength of our balance sheet, the Board authorized a stock repurchase program in January of 2013 for up to $3 million over a 2-year period. During the quarter ended March 31, 2013, we repurchased 25,360 shares at an average price of $2.93 per share. Our outlook for our business is strong, and we believe repurchasing our stock is a good use of available capital. With that, I'll turn the call back to David.

David P. Tusa

Thanks, Diana. But before we turn the call over to Q&A, I just want to make a few comments. The question I probably received most from current and prospective shareholders is as follows: What's the biggest challenge you see in growing the business? I think I've been pretty consistent in my response, which has been significantly increasing the awareness of the company and of our solutions in the marketplace. So in addition to our current marketing and awareness initiatives, I see 2 items that could further drive this awareness. Now the first is our concerted effort to be more recognized as a provider of medical waste management services, not just a mailbag company. This approach has landed us in front of much larger and higher profile prospective customers. And by the way, we believe we're only 1 of 2 companies in the country that can effectively launch a nationwide medical waste management program with multiple offerings. So our repositioning of the company has not only greatly improved the quality of our pipeline, but it's also increased the awareness of the company and its solution offerings.

Now the second item that I believe is increasing awareness is the impact of uncertainty created in the current state of health care. As a result of the uncertainty, our prospective customers are looking for cost savings now more than ever. Simply said, during uncertain times, you may not be able to control your revenue, but you sure can control your cost. Most of our prospective customers are looking very hard at every line item in their P&L, and this seems to be a common theme we hear in the marketplace. I believe we're very well-positioned to answer this call and provide the market with not only cost savings, but also excellent customer service, regulatory support and operational efficiency. So with that, operator, why don't we open it up for questions?

Question-and-Answer Session

Operator

[Operator Instructions] Our first question is coming from Joe Munda of Sidoti & Company.

Joseph P. Munda - Sidoti & Company, LLC

Real quick, Dave, or actually, Diana, I mean to start off with you. The Atlanta facility and the impact on the gross margin line, when should we see a clean gross margin number for you guys?

Diana P. Diaz

Well, we completely subleased that facility during the quarter. So you should see no impact from the Atlanta facility next quarter.

Joseph P. Munda - Sidoti & Company, LLC

Okay. So and I'll get into that, but as far as the target gross margin for breakeven, is that achievable at these revenue levels? Or it has to be at 6-point -- I forget what the number was.

Diana P. Diaz

It needs to be at $6.2 million.

Joseph P. Munda - Sidoti & Company, LLC

Okay. And then, David, you spoke of timing of orders impacting top line. So are we expecting to see a bump in the fourth quarter based on those comments?

David P. Tusa

Well, what we had on the distributor side, in particular, there was about $150,000 of orders that should have come in the March quarter for the distributor side. They would have put that Professional markets above $1 million for the quarter. And yes, we should see that falling or rolling over to the June quarter. And that affects the Professional market.

Joseph P. Munda - Sidoti & Company, LLC

Okay. And that distributor, is that in reference to Daniels or?

David P. Tusa

No, no, it's distributor in the Professional market. It's a distributor primarily in the dental market.

Joseph P. Munda - Sidoti & Company, LLC

Okay. And then, I mean, on your last comment and then I'll hop back in the queue, you spoke of the biggest challenges and possibly Obamacare creating opportunities for you guys due to the cost savings. Are you seeing any market share gains as a result of some alleged price hikes from competitors? Are you seeing customer feedback or customers turning towards you guys instead of the competitor?

David P. Tusa

Well, let me say it this way. With the pipeline that we've created as a result of having both the mail back and the pickup offering, it's really enhanced our prospects. So what these prospects were chasing and proposing on much larger opportunities, multiple facilities across the country. And what's driving that is a new provider, the increased awareness, right, because before they weren't aware that there was a provider that was a competition with the primary service provider. So they're aware now of a new player and then they're also aware of the prospects of cost savings when you combine both the mail back and the pickup. And that's what's really driving the opportunities that the -- larger opportunities that were closing.

Joseph P. Munda - Sidoti & Company, LLC

Okay. And following up on that, I mean, when do you expect to see -- I mean, obviously that's kind of building up right now. When do you expect to see the gains from the awareness that you're describing from customers?

David P. Tusa

Well, if you talk about the 900,000 or so that we have closed already, we'll start to see the impact probably about 100,000 or so in the June quarter and hopefully ramping up to about 20,000 start in the September quarter. But as we close more and more of these larger deals and we'll start to see the impact in the P&L. So it's directly a function of our ability to close the deals that we have in the pipeline. And that's really what I see as creating the awareness and driving more opportunities and the opportunities to close them.

Operator

Our next question is coming from Brian Butler of Wunderlich Securities.

Brian J. Butler - Wunderlich Securities Inc., Research Division

First one, on the strength you saw on the Retail, some of that was from last season's flu season kind of rolling over, and then you said advance orders -- how did those advance orders compared to last year's advance orders in this period?

David P. Tusa

That's an excellent question. The advance orders that were included in the March quarter for last year were about, what, $1.3 million? About $1.3 million. In this year, in the March quarter of this year, the advance orders were about $700,000. So the advance orders actually in the March quarter were smaller than what they were in the prior year period. If we would have had all of the advance orders in this quarter, then we would have been higher by another, what, $500,000 to $600,000.

Brian J. Butler - Wunderlich Securities Inc., Research Division

Okay. So if those orders are just more of a timing issue, then you'd expect to see those in the next, call it the fourth quarter or the first quarter as the flu season gets on its way, is that right the right way to think about that or is it?

David P. Tusa

Yes, you're right. It would impact the June quarter. We've been involved in this flu shot business for years and years and years. And it seems like every year, the ordering pattern changes depending upon the perceived flu shot season, the severity of it. But we got again $700,000 in advance orders so far this March quarter for the '13 season and we should have quite a bit more in the June quarter.

Brian J. Butler - Wunderlich Securities Inc., Research Division

What was the -- did the June quarter last year get impacted negatively in a sense it was kind of pulled forward? So I think Retail was like $1.3 million in the June quarter last year. And I just wanted if that shift that down from first quarter or I'm sorry for -- I got the quarters mixed up. The June quarter was like 800,000, I'm sorry.

Diana P. Diaz

Yes, about $600,000 of that was fully related.

Brian J. Butler - Wunderlich Securities Inc., Research Division

About $600,000, okay. And then on the Professional side, you said that the distributor impact was like $150,000 of an order that got pushed out. So if you included that, your growth in the Professional would've been closer to like 25% year-over-year in the quarter. So thinking about fourth quarter or -- yes, your fourth quarter '13, you should have the potential there to have a very strong year-over-year growth. I mean, if you're going to include that $150,000 plus to kind of a run rate of a $1 million where you've been -- anyways.

David P. Tusa

You're exactly right, since you just spill over that $150,000 into the June quarter. But just with all of the things that we're doing on the web and the inside sales initiatives, we should see growth there as well. So the June quarter should bode well for the Professional market.

Brian J. Butler - Wunderlich Securities Inc., Research Division

And if Daniels partnership -- I thought there was going to be some contribution in that period. Was that my mistake or it has something been pushed out a little bit on the timing of some of that rolling in?

David P. Tusa

We had our first large customer rollout start in January, but it really rolled out across the quarter instead of all at the beginning of January. So the impact wasn't as high as what we had hoped for, but you will see the full impact of that in the June quarter. And again, it should be about $100,000.

Brian J. Butler - Wunderlich Securities Inc., Research Division

About $100,000, okay. And on the health care, or the Home Health Care piece of the business, you had I think about -- it was like $240,000 or $250,000 that was a delayed order that came in January. So if you account for that, it seems like the Home Health Care segment was pretty weak. Is there another -- is something else been pushed out into the June quarter or is there something else going on in that from a structural point of view?

David P. Tusa

That has been a market that has been very, very difficult for us to manage. You would think with Home Health Care, the increase in Home Health Care, that, that market would be growing. As a matter of fact, that's one of the markets that our new senior VP of Sales is going to focus on and drill more into that market and look for more and more opportunities in that Home Health Care, especially the infusion markets and not only review the existing customer but more importantly give much more focus on landing more opportunities in that marketplace, which is growing. It is a key market portion. It should be growing. It should be growing and not struggling.

Brian J. Butler - Wunderlich Securities Inc., Research Division

Okay. One or 2 more here, just on the Pharmaceutical side, you guys have been seeing a very good ramp over the last 4 or 5 quarters, kind of that target of $3 million in annualized revenues for the Pharmaceutical side. And now, we've seen a big step here back in this quarter, and I understand that there is lumpiness but what's the right way to think about that, I guess, going into the fourth quarter and then to the fiscal 2014? I mean is that $3 million in annualized revenues still a realistic target? Or is that going to take longer to get to?

David P. Tusa

We still think it's a realistic target. It is taking a bit longer to get to that. One of the larger programs that we have, with the return rate on that particular market is a little bit weaker than what we had expected. And that particular program is driven by split model where we had some of the revenue in the backside when the unit is returned. So the return rate on that one is a bit lower, which really adversely affected revenue here. As a matter of fact, we'll be at that customer later in May to visit what we can do to improve the returns. Because, us, just like the pharmaceutical manufacturer, wants to see the mail back used. They want to see the patient use the mail back and they want the mail back return. So I think we still have the opportunity to get to the $3 million. It's taking a little bit longer than what we would expected. But we may need another quarter to get it closer to that run rate.

Brian J. Butler - Wunderlich Securities Inc., Research Division

Okay. But theoretically, this quarter was kind of a low in $300,000. I mean we should be going up from there.

David P. Tusa

Sorry, there were no bulk orders. I mean, they order in bulk and we inventory them through a vendor inventory management program. We had those in the last couple of quarters and we didn't have it this quarter because there were sufficient inventory.

Brian J. Butler - Wunderlich Securities Inc., Research Division

Okay. And how does that inventory look?

David P. Tusa

I'm sorry?

Brian J. Butler - Wunderlich Securities Inc., Research Division

How does that inventory look going into the fourth quarter? Is it high or low?

David P. Tusa

Well, I mean, the inventories, I mean, they change every day. They're dependent really upon how many more patients come on the program, how many patients come on and off treatment. So we really won't know -- we probably won't know for a bit what -- when the next bolus of reorders are, and that's why we're going out and actually spending some time with the customers. It's very difficult to predict. It's lumpy. Sometimes, Joe, it has to do with funds that they have. When they have a particular quarter where they have extra dollars, sometimes they'll throw it out and increase their inventory. So you really got to look at that and really more like a trailing 12 days basis.

Brian J. Butler - Wunderlich Securities Inc., Research Division

Okay, and then last one. You mentioned the VA mail back and that RFI that was out there. Do we have a little bit more color on that? I haven't seen an RFP. Is that -- do you guys know of that being in the works or the timing on that? Because I originally I think the RFI itself suggested timing sometime in May or March or April for an RMP. But again, I was just hoping you might have a little bit of color on timing of that piece?

David P. Tusa

Well, it looks as though the program rewards have been delayed. And that's evidenced by just what you just said. They haven't met their published schedule. So it just looks like it's delayed.

Brian J. Butler - Wunderlich Securities Inc., Research Division

Is that anything, like is that more tied, or do you know, I mean, is that tied to just the general economic environment in the sense the government cutting back? Is it potential that RFP will never be issued? I mean I guess that's always a potential, but are you hearing anything through the people that you talked with the VA that suggest this program might just be going away.

David P. Tusa

Well, I really can't speak for the VA. What I can say is that our solution, our Takeaway envelope we think is, again, very, very uniquely positioned to be able to facilitate or meet all of their needs. And we think we're well-positioned. But is really I can't speak for them and timing.

Operator

Our next question is coming from Kevin Steinke of Barrington Research.

Kevin M. Steinke - Barrington Research Associates, Inc., Research Division

Just wanted to talk a little bit more about the Retail market. You highlighted some higher sales of both Complete Needle Collection as well as Takeaway. Are those restocking orders for existing customers? And can you just kind of give some overall commentary on how those 2 products are progressing?

David P. Tusa

The majority of those orders are, they're restocking orders for existing customers. I tell you, Kevin, we've been pleased with the fact that both of these products are in pretty much all of the retail chains that you can run into while you're out and about. And all the key ones and a lot of the regionals. The one area where we have been disappointed is on the return rate of that Complete Needle. The Complete Needle we've sold, what is it, 300,000, 400,000 of these units out to the retail? But our return rate on that -- and that's a product where we placed some of the revenue on the backside with the return. And the return rate has been lower than what we had expected. So what we do is we work with the retailers and we work with pharmaceutical manufacturers on sponsorship and we work to try to put initiatives in place to subsidize or make it much more cost effective for that return. So it's been lower than what we had expected on the backside. But as far as getting units out in retail and selling the actual units, put them on the shelf, we've been pretty pleased.

Kevin M. Steinke - Barrington Research Associates, Inc., Research Division

Okay, okay, thanks for that. Any more activity in the sponsorship pipeline? Do you continue to work on new opportunities there?

David P. Tusa

We do. We continue to work on new opportunities and we have one in particular that we're working on right now. And hopefully we'll know something over the next month or 2. But it could be a potential program that could provide sponsorship, could have been more units.

Kevin M. Steinke - Barrington Research Associates, Inc., Research Division

Okay. And you also highlighted some good growth in the Assisted Living/Hospitality market this quarter. Is there anything in particular to highlight or delve into further there? Is perhaps some of that growth being helped by the alliance? Or is that just maybe more one-time in nature?

David P. Tusa

That is so far, it's not the alliance, it's just a business. Assisted living long-term care is a great market, is growing. And our solution offerings are just a perfect fit for that market. I think we're doing a better job of selling more to existing customers as well as the new customers. I've always liked this market. Again, we can save the Assisted Living long-term care markets 30%, 40%, 50% over what they're spending right now. And then that market is growing. So it's just a good market for us and we expect to see further growth in the coming quarters.

Kevin M. Steinke - Barrington Research Associates, Inc., Research Division

Okay, great. You also highlighted in the press release the addition of a new senior VP of Sales. I'm just wondering what he is going to focus on and what -- how you see that benefiting your business going forward?

David P. Tusa

Now that's a good question, Kevin. Berkley brings to the company experience in a couple of different areas that I think will bode very well for him and the company. One, a lot of experience on the complex sale, and he's done a lot of that in the past in his career, and I think that makes him a good fit, as well as he has experience in the medical waste arena and in medical waste, he had closed some large deals. So his focus in coming into the company, the primary focus is to focus on moving the large deals, going through our prospect list and improving the prospects by further research and identification of prospects and then working with our sales team to move these deals forward and close these deals. So he understands complex sales, and he also understands very well both the pickup and the mail back that can be integrated into an offering. So we're glad he's here, and we think that with him and the field sales team, we could drive some closure on some of these larger deals.

Operator

Our next question is coming from George Walsh of Gilford Securities.

George Walsh

I'm wondering if you could -- I just have a question regarding the analysis by sales channel that you have in the news release. It would seem just rhetorically that direct sales and the online sales in particular would be above -- growing above the distributor sales but it seems more the distributor sales is where more of the growth is coming from. Just as a trend relative to your marketing focus, maybe I'm looking at it the wrong way in terms of the categories there, but it just seems like more would be happening relative to your mix in terms of your sales channel.

David P. Tusa

Well, it's really difficult to look at it from that way, George. If you look at the 9 months ended you see the distributor sales up 9%. Well, distributors impact the Home Health Care market. A lot of the Home Health Care business runs through a distributor but also the Retail business. Flu shot business, we have a very large distributor in the flu shot arena. So flu shots were up and flu shots business are happen to be going through this particular distributor then it will show as distributor sales are up. It's really those 2 market -- it's really difficult to draw conclusions between the switch. I mean, you could have a customer that says, hey, great, sign me up but I want to run to this particular distributor. That's fine with us as long as we get the business.

George Walsh

Okay. And as far as the pipeline with Daniels, is there anything you can kind of quantify that a little bit in terms of geographic locations or the number of prospects within that, maybe an average size or something.

David P. Tusa

What we work on in that pipeline, we mentioned a $30-million-plus pipeline, but that's focused on nationwide deals. So we're focused on deals where the alliance can service a customer across the country. And that's very, very important because, again, we think we're only 1 or 2 companies that can do that. The alliance affects many of our markets. It's not just 1 market. It's many of the markets. And if I had to look from a deal side -- an average deal size, then you're probably looking somewhere in the $500,000 area that we would focus on.

George Walsh

Okay. And do you think you'd get these in terms of getting a national contract or you'd get a regional, something regionally to start and then it would roll out or is it something where you'd get a national?

David P. Tusa

It's a national. And you can understand that from a customer perspective. When a customer launches a program, they want consistency in all of our their branches, in all of their facilities and what they're doing. So when you're going to launch it, you're going to launch it across the country or you're probably not going to launch it all.

George Walsh

Okay. And what do you think the biggest need that they have? Is it cost? Does it -- they need things run better? What's the thing as you're talking to your potential customer?

David P. Tusa

I think it's a couple of things. I mentioned earlier the awareness. I think, first of all, we're making them aware that there is another nationwide player in the country that can provide them with great service and great pricing. I think that's first and foremost because a lot of them don't know that there's a competitor out there to their current provider. Believe it or not, that's one of the first drivers. And then when we get in, it's about the operational efficiency. It's about the combined offering. I said this on a number of calls, when you can go into a facility and maybe the mail back is great in 60% or 70% of facilities but maybe you have to have a pickup in 30% or 40% because of volumes are too large, we customize a solution that best fit their company and saves them money. And I think we're the first ones that has really done that. And that gets the attention as well. So cost savings are important as well. As I mentioned earlier, it seems in all of our markets that the prospective customers are really being driven by cost savings because of the uncertainty in health care. And I think that's helping us as well, but we have no lack of opportunities that we're chasing on a nationwide basis.

George Walsh

And who's the guy you talk -- is Berkley himself going and speaking to these large clients or potential customers?

David P. Tusa

We all are, whether it's Berkley, myself, and we had a couple of key field sales people that will be out talking with as well. So we're very busy in meeting with prospective customers. And it's a good day when we each have to go to a different prospect because they happen on the same day.

George Walsh

Okay. And does this awareness, is that mean that a larger marketing budget as you go forward relative to this?

David P. Tusa

It could be. It could be. We're looking for more and more creative ways to get the word out that there's a nationwide provider that can manage all of the medical waste streams in all-size facilities. And it's more marketing. The other thing is really just getting out and meeting with some of these large customers. George, until we have this aligned, we weren't able to do that. So now, we're able to get out and get in front of the larger customers. And you can do marketing all day long, but unless you get face-to-face, across the table, in front of a prospective customer, especially one that's going to be large, say $500,000 or more, then you'd probably not going to get the business with marketing. So we're spending more and more time with better prospecting, refining the prospecting and just getting out the road and getting in front of these large customers.

Operator

[Operator Instructions] Our next question is coming from the Joe Munda of Sidoti & Company.

Joseph P. Munda - Sidoti & Company, LLC

Yes, Dave, just a quick follow-up. How many direct reps do you have currently?

David P. Tusa

We have about -- the direct reps, we got like 6 direct reps. We're actually -- we're in a continual interview mode. Actually, we got 2 open positions right now that we're actively interviewing for. So we'll probably get that up to 8. And then as we start to see success, then we'll let you bring more in.

Joseph P. Munda - Sidoti & Company, LLC

And then just a follow-up to the other caller's question with the marketing budget or the SG&A line, you guys spoke of $2.2 million a quarter year. So is that devoted towards mostly towards the marketing effort or is that going to be devoted towards the hiring of these new reps? How should we look at that?

David P. Tusa

The hiring of new reps, we think, since we're going after these larger deals, and we need face-to-face meetings. Again, we can market all day long, but unless we have solid field reps sitting across the table from prospective customers, then they will probably not going to get the deal. So I would see it more in terms of adding additional field sales reps.

Joseph P. Munda - Sidoti & Company, LLC

Okay. And then in terms of his role at Waste Management, was it similar platform to what you guys have now or was he focused on one particular market, whether it be Professional, Pharmaceutical, was he in charge of the entire platform?

David P. Tusa

He was -- what he was focused on is primarily the hospital and large health care facilities, as he'll tell you that he was focused primarily on the pickup and what they did is, if they had to potentially integrate the mail back, they would. We're kind of the opposite here. We lead with the mail back and bring in the pickup as needed. But he's very successful over there in landing some large deals, understands the market, understands the business and was really able to quickly upon landing to start to work with the field sales force to get out there and work on moving deals.

Joseph P. Munda - Sidoti & Company, LLC

Okay. So in our view, I mean, is it safe to assume that if his background is in that space, that's where the focus of growth is going to occur for you guys going forwards?

David P. Tusa

I'm sorry, Joe, the bulk of?

Joseph P. Munda - Sidoti & Company, LLC

Of sales growth for you guys going forward if he's familiar. If that's...

David P. Tusa

Well, sure, I mean, the sales growth -- having him come from the larger opportunities -- a typical large opportunity is one where there's multiple facilities and maybe we could facilitate 60%, 70%, 80% with the mail back and the remainder with the pickup. So that's where I think you're going to see the opportunities, the larger opportunities will land, will look like that.

Operator

At this time, I would like to turn the floor back over to management for any additional or closing comments.

David P. Tusa

Thank you, operator. We just want to say thank you for your participation in the call. We appreciate your continued support of the company, and we'll talk to everyone in the next call. Thank you.

Operator

Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines at this time, and have a wonderful day.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Sharps Compliance Management Discusses Q3 2013 Results - Earnings Call Transcript
This Transcript
All Transcripts