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Executives

Jim Green - President & Chief Executive Officer

Michael Levitz - Vice President, Chief Financial Officer & Treasurer

John Fry - Vice President, General Counsel & Corporation Secretary

Mark Namaroff - Director of Investor Relations

Analysts

Larry Solow - CJS Securities

Dalton Chandler - Needham & Co.

Josephine Millward - Dougherty & Co.

Steve Levenson - Stifel Nicolaus

Michael Martin - Small Cap Report

Ed Fowler - Small Cap Report

Analogic Corp. (ALOG) F4Q09 Earnings Call September 24, 2009 5:00 PM ET

Operator

Good afternoon and welcome to Analogic Corporation’s fourth quarter and year end conference call for fiscal 2009. The following corporate officers are present, Mr. Jim Green President and CEO, Mr. Michael Levitz, Vice President, CFO and Treasurer, and Mr. John Fry Vice President, General Counsel and Corporation Secretary.

I’d like to remind everyone that a supplementary financial presentation will be used during today’s call. If you have not already downloaded that presentation, you can do so at anytime at www.analogic.com. That presentation will remain available until October 23, 2009.

Now I would like to turn the call over to Mark Namaroff, Director of Investor Relations.

Mark Namaroff

Good afternoon everyone and welcome to Analogic’s fourth quarter and year end conference call. I am sure you have had a chance to download our press release issued earlier today describing our results for the quarter. If not you can do so via our website at www.analogic.com. Before, I turn the call over the Jim Green and Mike Levitz to review the fourth quarter and fiscal year end results. I would like to remind everyone of our Safe Harbor statement.

Today’s call may include forward-looking statements such as comments about our plans, expectations and projections. For more information on risks and other factors that would cause our actual results to differ significantly from our forward-looking statements. Please refer to our most recent Form 10-K and 10-Q on filed with the Securities and Exchange Commission.

Now I’d like to turn the call over to Jim Green, our President and CEO.

Jim Green

Thanks Mark. Let me take a minute first to just say how excited I am to have Mike Levitz, here as our CFO. Mike brings tons of energy and a history of strong profitable growth and an expectation to see a lot more of that. Mike good to have you on Board.

Michael Levitz

Thanks, okay let’s move to slide four of the presentation and let me start by saying and start of the economic downturn and the lack of clarity and US healthcare policy, Analogic as continued to deliver solid results. In the quarter at $98 million our revenues were down 16% from last year, however we were up 5% from last quarter.

Earnings per share came in of the loss of $0.02 on a GAAP basis and a $0.11 on an adjusted non-GAAP basis. We took a restructuring charge of $3.1 million or $0.15 of share, related to a combination of a reduction in force and downsizing of certain facilities.

Our adjusted income from operation with $1.4 million and we recorded positive operating cash flows of $7.9 million. Excluding the impact of the restructuring charge and a claims settlement both Medical Technology and the Security Technology segments while improved profitability.

We’ll move to slide five. Looking at revenue on adjusted EPS, our quarterly revenues of settled in at slightly under $100 million run rate. Adjusted EPS was down on the quarter from Q3, primarily from lower gross margins, which were impacted by a combination of discounts to clear out our older ultrasound equipment as we transition to the new FlexFocus scanner and under absorbed overheads prior to the reduction enforce.

From a year-over-year basis, gross margins and adjusted EPS were primarily impacted by the under absorbed overhead effect of lower volumes. We expect the overhead cost reductions from FY ’09 to start moving our gross margins back to previous rates.

Move to slide six. Let’s move to our higher gross margin B-K specialize ultrasound business, which sells directly into hospital acute care. Revenue up $23.7 million were up $4.5 million or 23.3% from last quarter and down $1.4 million or 5.7% from prior year; we had a pretax loss of $0.5 million, driven by a restructuring charge of $800,000, which puts us down $400,000 from last quarter and down $1.6 million from last year. Our Q4 gross margins were lower due to low margin international tender and discounts to clear out the older stock.

Looking to the highlights, for the surgery market is still under pressure with hospital budget. The urology departments are showing solid demand for innovative new FlexFocus family of scanners and finally, we began shipping our new line of consumable sterile biopsy guides.

On slide seven and moving to our Medical Imagining OEM business, our revenues were $51.2 million, up $1.2 million or 2.4% from last quarter and down $16.2 million or 24% from prior year. Our revenue numbers include the final washing through effect of approximately $1.5 million in delayed revenue recognition, a resulting from our move to consigned inventory with the major OEM.

We’ve recorded a pretax loss of $4.2 million, which reflected a restructuring charge to the Medical Imagining segment, up $2.3 million and charges related to a claims settlement totaling another $1.3 million. As for highlights, our Medical Imaging revenue stabilized with MRI and motion control showing modest growth.

Leveraging our Copley acquisition, we expanded an existing OEM relationship into a new product area for next generation gradient amplifiers system. We signed an agreement to provide next generation 3T RF amplifier systems to a leading OEM and we delivered our first operational prototype of PowerLink, our innovated new Non-Contact Power transmission systems for CT.

On slide eight, our Selenium-based mammography detector business continues to perform revenues of $8.4 million were down $1.9 million from an unusually strong prior quarter and down $400,000 or 4% from prior year. Pretax profit was $900,000, down $900,000 from the prior quarter and up $700,000 from last year.

As for highlights, we’ve now completed our transition of the business from legacy non-mammography digital detectors to our leading edge Selenium-based mammography detectors. I’m please to see that our FY ’09 full year results reflected greater than 50% growth in our Selenium-based mamo detectors.

Moving onto slide nine and moving to Security. Our revenues were $12.8 million, up $600,000 from last quarter and roughly flat to last year. Pretax profit was $1.8 million, up $200,000 from last quarter and up $400,000 from last year. As for highlights, we shift our first production eXaminer SX and we received the contract with the TSA to complete Analogic’s new OnGuard DualUse CT scanner for combined checks and check points in small airports.

So let’s move to slide 10, and I’ll turn it over to Mike Levitz.

Michael Levitz

Thank you, Jim. Good evening, everyone. To pleasure to joint you here is the most recent addition to the Analogic management team. Looking at slide 10, as Jim mentioned earlier, our net revenue in the fourth quarter increased by 5% over the third quarter to $98.3 million, while down 16% from the fourth quarter of last year. We were pleased to see revenue growth on a quarter-over-quarter basis in both our Medical Technology and Security Technology segments as the economic environment appears to be stabilized.

Gross margin fell during the quarter to 31%, compared to 33% in the third quarter. Primarily reflecting discounts in our B-K specialized ultrasound business to clear out all their ultrasound equipment in transition to the new FlexFocus scanner. The decrease, as compared to our gross margin of 35% in the fourth quarter of last year, primarily reflects the impact of under absorbed manufacturing overhead, based on lower sales volume.

Following the reduction in force and downsizing of our Canton, Massachusetts manufacturing facility here in the fourth quarter of fiscal year ’09, we expect our gross margin to begin moving back up to previous levels.

Operating expenses increased by $3.1 million over the third quarter to $32.6 million, reflecting the $3.1 million charge associated with the reduction in force and facility downsizing I just mentioned. Our results in the fourth quarter also reflect $1.3 million of chargers related to a claim settlement. The majority of which are included with in operating expenses.

On a year-over-year basis operating expenses decreased by 15%, primarily reflecting our focus on costs savings inactivates, as well as lower incentive compensation costs. As a result of the $3.1 million restructuring charge in the fourth quarter the company has reporting a loss from operations of $2.6 million and a net loss of $300,000 or $0.02 per diluted share.

The impact of the restructuring, our net loss is partially offset by favorable tax benefit. As well as the non-operating gain recognized during the fourth quarter, related to the release from escrow of proceeds from fiscal year 2007 investment sales.

During the slide 11. This slide presents our results on adjusted non-GAAP basis, which excludes the impact of the restructuring charge, the non-operating investment gain, the favorable tax benefits and certain other items. A full reconciliation between our adjusted non-GAAP financial measures and our reported GAAP financial results is provided in our fourth quarter press release issued earlier today.

As you can see on this slide, our adjusted operating expenses increased $1 million over the third quarter, primarily reflecting the claims settlement charge, I mentioned earlier. We’ve reported adjusted net income of $1.4 million or $0.11 per diluted share. The primarily cause of the decrease in adjust earnings per share, with the decrease in gross margin in the quarter that I described earlier.

Looking briefly at our annual results on slide 12 and we’re reporting net revenue for fiscal year ’09 of $396.1 million, a 4% decrease from fiscal year ’08. The decrease primarily reflects the drop in sales volume, due to the impact of global economic conditions on hospital spending. Offset in part, by a full year revenues from our Copley Controls subsidiary, which were acquired in April 2008.

The decrease in our gross margin to 32% primarily reflects the lower sales volume and related under absorption of manufacturing over the head costs. As I noted earlier, we expect our gross margin to recover to historic levels. Following the cost reduction efforts that the company undertook in fiscal year ’09, earnings per share, was $0.29 per diluted share on a GAAP basis or $0.81 per diluted share on an adjusted non-GAAP basis.

Moving on to slide 13, we’re pleased to report that we continued to have a strong balance sheet with a $160 million in cash, as well as positive operating cash flow of just under $8 million in the quarter. We generated $4.5 million in free cash flow after capital spending of $2.1 million and payment of dividends of $1.3 million to our shareholders.

With that let me turn the call back to Jim.

Jim Green

Okay, thank you Mike. Moving on to slide 14, for fiscal 2010 we feel we are well positioned for profitable growth and positive cash flows. Our direct sale B-K specialize ultrasound business, in spite of the United States ultrasound market declines we expect our new generation FlexFocus product to drive revenue growth and we’re expanding the FlexFocus family to enhance our offering in surgery and open up opportunities in a Jason market.

As for the OEM Medical Technology Group we have seen an overall stabilization and CT and return to modest growth in MRI. Digital Detectors shipments of fully transition to our high growth Selenium mammography systems and our motion control business is recovering. For the Security Technology segment we shift our first production eXaminer SX to receive TSA funding on the OnGuard DualUse progress. In the eXaminer XLB is in certification testing with the TSA.

Moving on to 15. In summary 2009 was one of the most challenging years in our company’s history. However we took timely actions to adopt these challenges. Our overall run rate is stabilize, excluding the impact of restructuring and claims settlement both Medical Technology and Security Technology segments are improved profitability. Our improved cost position we expect continued improvement in profitability and operation cash flows.

We expect falling hospital budgets in the new calendar year to bring the market fundamentally back to procedure base demand. Our continued focus on leading edge technologies, along with our innovated new product offerings, position Analogic for profitable growth and a bright future.

Thank you now we will open up the line for question.

Question-and-Answer Session

Operator

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

Larry Solow - CJS Securities

Could you just give us a little bit more indication on the imagining side business? I know that, you’re kind of head into new calendar year. Assuming that hospital orders sort of returning to some normalized level. Would there still be some delay in the OEM, how the OEM orders from here? Is there any visibility on their inventory?

Jim Green

With some of our large OEM, we get a pretty good view directly into their factories as they get orders and as they start to fill those orders. We get signals very quickly, when went to ship our some systems for their need. So we get a reasonable view with them, as far as what we expect to see happening as we get into the calendar year.

Everybody is interested in seeing how the hospital budgets start to develop here. No one, I don’t think is really making large statements about exactly what they expect. Other than just in general, we and our customers are seeing a lot more interest with RSNA coming up and the budget time at the year starting to develop here, starting with beginning of the year. We will see at that point, we’ll really be able to see how it’s developing.

At this point, most feel that with on the lower base here in the US that will just start to see a standard procedure based growth off of that, that’s will most everybody is really expecting at this point, but we really want to see what happens RSNA with quotes and with order taking at RSNA and as we enter into the new calendar year Larry.

Larry Solow - CJS Securities

Not depending down the timeline, but its sounds like at least seems like your imaging revenues are probably, remain relatively stable for the next couple of fiscal quarters?

Jim Green

Yes, that’s actually we said last time to that we expect this quarter, the next couple of quarters to be pretty stable and then at that point we’ll see what’s happening on the new order side and then what’s going to happen based on growth from there, but the next couple of quarters, we expect it to be fairly stable.

Larry Solow - CJS Securities

Then on the gross margin, I think last quarter, I’d asked the question, do you expect to see some improvement, as you had some reductions in workforce and the prior couple of quarter before this latest around the costs? You would start seeing a better impact maybe in this current quarter, obviously that didn’t occur, but just excluding that I mean that I mean that the new trend basis point drop quarter-over-quarter, is that all related to B-K Medical or is other things in there?

Jim Green

It’s mostly B-K with a discounting to get the old gear after shelves and transition to the new equipment. We took a really hard look at the quarter-to-quarter view, we also saw if you look at the reductions in the fourth quarter, those cost were still in the fourth quarter.

So that under absorption, on a quarter-to-quarter basis is still there and then on a year-over-year basis, we really see the major effects of under absorption, so that cost reductions we took throughout the year, we’re really intended to address the large under absorption that we saw on a year-over-year basis.

So as we get into next quarter, we do think, we expect that to be improving from a cost basis and then as growth starts to develop back into the business, that’s going to really see some real nice improvements.

Larry Solow - CJS Securities

Is there anyway just to get a rough idea, what the impact was just stripping out B-K Medical alone? Is there any…?

Michael Levitz

The B-K piece was the vast majority of it. The discounting on the old gear was I couldn’t get…

Larry Solow - CJS Securities

I mean, would it bring margins at least back to where they were in Q3?

Michael Levitz

I would say, pretty close.

Larry Solow - CJS Securities

The claims settlement, I think you mentioned was $1.3 million. You’re not actually stripping that out, you’re actually keeping that in your $0.11 number, is that correct?

Jim Green

That’s correct. We have not stripped that out.

Larry Solow - CJS Securities

That shows up above the line or…?

Jim Green

That shows up with in income from operations.

Larry Solow - CJS Securities

So that’s in one of your G&A or selling in marketing line?

Michael Levitz

Yes, most of that is within operating expenses. Some of that made its way up into margin, but a large majority of it’s in operating expense.

Larry Solow - CJS Securities

Then just last question, on the below the line that you had another loss of $1.2 million. Was there anything in there that stood out excluding the interest impact you had a loss of $1.2 million or even in your non-GAAP numbers?

Michael Levitz

I think there are a few things in there, but we were impacted by exchange gain or exchange loss, but I think actually it’s was a gain there. So we had some exchange gain in there. That was the biggest thing. We had an exchange loss the other piece that we had in there that was non-operating as we had a gain on some funds that we received related to a 2007 investment sale and so we strip that out.

Larry Solow - CJS Securities

You stripped out the gain, but not the exchange losses actually?

Michael Levitz

That’s right.

Larry Solow - CJS Securities

That’s fine that’s considerably related to fund. What was the tax credit?

Michael Levitz

The tax credit related to refunds from a few years ago and so that was favorable to us, but we did strip that out.

Operator

Your next question comes from Dalton Chandler - Needham & Co.

Dalton Chandler - Needham & Co.

Just I guess stick with the margin question for minute. You said that you are expect this to trend back up toward normalized levels and can you tell us what your view as normalized and how long you think its takes to get there.

Jim Green

Well at this point we thing over the next couple of quarters we see it getting back up into that mid 30s region. So, that’s mostly driven by the cost reduction and then as we get into volume growth that’s where we really start to see we expect improvements even on that as we start to fold in growth.

Dalton Chandler - Needham & Co.

Then on the operating expense side came in a little higher than I expected should that continue to trend lower with headcount reductions as well.

Michael Levitz

Dalton this is Mike. Some of our operating expenses are impacted by the amount of funded research and development cost that we have and so depending upon how much funding you get in a particular quarter, you will move those cost between R&D and sales cost of good sold, so that’s excluding the movement there.

I think you could expect that operating expenses will be consistent and we make we are always will focusing our cost reductions while we can but we also want to make investments are at make sense and so I don’t think you are going to see lot of large movements in operating expenses necessarily one way the other apart from the timing of funding of R&D.

Dalton Chandler - Needham & Co.

Then I guess you drop the non-mammography related portion of your DR business could you talk about that I mean I think that’s also a growing area what was behind that decision.

Michael Levitz

If you we’ll go back to couple of years, you would see that the majority of our DR business was non-mammography oriented that was in real time imaging for cardiac applications in some of the general DR, and we made the decision to move to really apply the technology where it works; that which is the mammography.

So if you would help us strip out the winding down of the older technologies and looks specifically at the mammography business itself, and with our new Selenium plates you would see that is a pretty fast growing segment. Just from the ‘08, ‘09 we saw growth of over 50% in that area and we’re real high on in that area, and we feel like our customers will get the clearance in the US later as we’ve get into next year. We expect that to be really good solid growth opportunity for us.

Dalton Chandler - Needham & Co.

If I understood this correctly, you’re discontinuing. I guess the general radiography plates is that?

Michael Levitz

That’s right.

Dalton Chandler - Needham & Co.

Would you want to focus more on the larger opportunity in the mammography or?

Jim Green

Well, it’s that and our technology really applies best in that area with Selenium. It’s really designed around very high resolution of very fast imaging and with the way we’ve designed our systems for us to maximize that opportunity and to get on to that growth curve, also then really work on improving our yields.

Having a downturn, a couple of main lines like that, saves us quite a bit with the large area detector configuration and then a smaller area detector configuration. It just make the lot more sense for us stick with that high growth area.

Dalton Chandler - Needham & Co.

Just finally a housing keeping question, how may EXACT unit did you ship in the quarter?

Jim Green

15.

Operator

Your next question comes from Josephine Millward - Dougherty & Co.

Josephine Millward - Dougherty & Co.

A question for you Jim, one of your competitors in Security revealed imaging, has received a very large EDS orders form the TSA funded by the stimulus? Can you give us an update on where the SX stand and whether you expect in Security opportunities from the stimulus funding?

Jim Green

That was a real interesting situation that took place and I don’t have all the detail behind that I can just tell you my understanding was with the stimulus fund that we’re told that they had to applied to a company that would have an open contract that was already in place and it goes back to something like a contract is that particular company had in place from 2006.

So we were told that our product didn’t meet the deadline for when it had to been an approved contract vehicle to get those particular funds that you’re referencing. So it’s unfortunate, you know we feel like, we should have been considered, but it’s an area that we don’t have a lot of visibility to our partner L-3 in that area. I know, it’s working to understand is there one opportunity for and then with the SX.

Josephine Millward - Dougherty & Co.

A follow-up on that, my understanding is TSA was originally going to award you a partner L-3 with a long term IDIQ for checked-baggage EDS sometime this fall, but it seems like they’ve decided to open this up for competition and can you give me a sense on when we might expect some sort of RFI or timing on a potential contract award?

Jim Green

Again it’s hard to me to say, since with the government it’s difficult to predict some of these things. We believe that our partners going to get a pretty good order here. There’s a lot of unit that they’re expecting to play for the 6000. We also believe and understand that there’s going to be quite a bit of replacement opportunity there developing here also as we reached the fall.

So we’re still assuming that we’re going to see some nice opportunity there and as far as new competition, I mean I don’t know that there’s ever that anyone ever really been walked out of bidding for this kind of work, but if you don’t have certified system, then it doesn’t do you much good to bid.

So there are huge barriers for folks to get in and do this, if you don’t already have the ability to get your system certified with the kind of tight specifications that exist and if anything those specifications look to begin in even more stringent. So in my mind, I don’t a real concern that others might want a bid because it’s not like they haven’t had the opportunity to bid in the past. They just haven’t been able to get systems in front of the government and get them certified.

Josephine Millward - Dougherty & Co.

So you think you could see an RSP from the TSA this fall?

Jim Green

Yes, I think so.

Josephine Millward - Dougherty & Co.

With contract award before the end of this year?

Jim Green

I really can’t comment on that because I’d be starting to step into an area that really I expect my partner L-3 to beginning with.

Josephine Millward - Dougherty & Co.

Jim, can you just remind us, how many units of exact you have in your funded backlog and a number of SX, if you do have some of your funded backlog there?

Jim Green

Yes, we’re expecting a new order here anytime. I think with sitting in the backlog right now is six units right now, we’re expecting to see another order and I think that we’ve been settling in at our rough run rate of about 15 a quarter and then depending on what happens here in the fall, that may modify that number. I don’t expect the number to go down. As you know, the way these orders work, you typically get more of a blanket order and then you fill based on the demand poll.

Josephine Millward - Dougherty & Co.

So best case you, still expect to ship at least 50 units of EXACT through the quarter, but you think there might be upside from what happens this fall?

Michael Levitz

Yes, that’s a fair statement, yes.

Josephine Millward - Dougherty & Co.

I just have one more question on digital mammography. It’s been a very nice growth driver for you this year, but Analogic, which is a key player in digital mammography, their North America business was down about 20% to 30% this year. Now, are you seeing any slowdown outside of the U.S.? Do you expect this business to grow next year?

Michael Levitz

A couple things first, we don’t at this point in time our new generation, our selenium units are not with any of the big OEMs that are clear to sell yet in the U.S.

Josephine Millward - Dougherty & Co.

Are you seeing slowdown overseas?

Michael Levitz

No, we really haven’t seen a slowdown oversees if anything were you saw the year-over-year growth from ’08 to ’09 and we still see that as great drilling business and then we believe we’re going see our partners get clearance for the U.S. as we get into next calendar year. So the whole story is a good story and we feel like we’re positioned really well with the best product on the market.

Josephine Millward - Dougherty & Co.

So you’re expecting Siemens and Philips and Toshiba to get FDA clearance next year to sell in the U.S.?

Michael Levitz

I’m certainly expecting Siemens and Philips, I can’t comment on Toshiba, because I don’t know exactly their plans as far as U.S., but certainly Siemens and Philips I expect to get a grant from U.S.

Josephine Millward - Dougherty & Co.

Would that be the early part of next year or later? Would it fall into your fiscal year I guess that’s what I can get.

Michael Levitz

We would expect that to fall into our fiscal year, yes.

Operator

Your next question comes from Steve Levenson - Stifel Nicolaus.

Steve Levenson - Stifel Nicolaus

Most of the questions I had been answered, but I had one of that B-K and it concerns that the volatility in revenues in margins in new and old products. What if anything is, you'll be able to smooth that out or extent the life cycle you reduced that volatility if that’s a possibility? Can the business standalone as it has got some sales force, unlike the OEM lines in medical imaging and security. If you can help me with that maybe we can go a step further. Thanks.

Michael Levitz

As far as volatility in the margins as such, as we transitioned to the new product line, when we get into discounting and getting the old gear off the shelf, you see certainly see some local margin erosion with something like that, but I think that the bigger situation with our direct ultrasound business is that, if you look at the two primary segments that we sell into it’s surgery and urology.

Now the surgery market is really attached to that large capital equipment market is the way the budgets are built in a hospital, so that segment is been really depressed now for a while for few quarter and that’s also an area where we saw a very high margin product and so we’re assuming as the budgets starts to fall hospital that we’re going to start to see our highest margin products are picking backup into the hospitals.

The good news is that with your urology is really been adopting our flex system, with really good solid demand. So the fact that surgery down has been some more offset, but the fact that urology is picking up for us and we see at surgery starts to come backup, we’re think we’re going to be hit in all cylinders and at that point, we should see a much better smooth effect will also, as that now would be pretty well cleared most stock of the old gear.

We trying to take advantage of the situations for instance if there’s a high volume tender outside the US or we can maybe moved on some of the old gear and just get everything position for the new equipment. So, at this point, I do expect that you’ll see that smoothing how nicely and moving in the right direction.

Steve Levenson - Stifel Nicolaus

What do you think the useful or you know the lifecycle would be for the current product line?

Jim Green

Well these kinds of products typically have, you see turnover around that six, seven year mark with most of this type of gear.

Steve Levenson - Stifel Nicolaus

A question on the XLB as the certification going and do you think that’ll be something that ends up getting purchased in large quantities or do you think it’s more of a special product that’s going to be limited to the larger airports?

Jim Green

Well first of all, it’s always hard to comment on the certification process, we’re cautiously optimistic or right in the middle of that process now. It is the process that can work against you and for you in some ways and then it keep’s lot of others out of the business, but we’re one of small number that how to do it. So we’re comfortable going to get through it.

As far as the opportunity, that we’re thinking and we’re understanding from the TSA and from airport authorities around the world that with the larger and larger airplanes starting to enter into the fleets that the demand it’s going to be moving more and more toward the high volume, so we’ve believe that we’re going to see and this is going to be a real good product for us not just a small niche because that the big opportunity is in the higher volume inline check.

Steve Levenson - Stifel Nicolaus

I guess the last question would be, I haven’t seen anything, but I’m wondering if you’ve seen any competitive product showing up yet. Certainly nobody has got anything in the certification stage, but I’m wondering if you…?

Jim Green

I’m not aware of anything new showing up honestly. So again it gets back to Josephine’s question about, “Are there a lot of people trying to get into this?” If there are, we certainly don’t see very many of them having the kind of luck that you’d expect, that complete luck that we’re seeing there. So we’re pretty happy with this particular segment.

Operator

Your next question comes from Larry Solow - CJS Securities.

Larry Solow - CJS Securities

Do you guys have any breakout for Copley and what the revenue was there?

Michael Levitz

The revenue from Copley was $62 million.

Larry Solow - CJS Securities

For the year, so…?

Michael Levitz

Last year since we bought them in April, we had $18 million.

Larry Solow - CJS Securities

Do you have a quarter there or I guess I can figure that out myself, but do you happen to have another quarter there? Yes, I guess it’s like $15 million or something about right $14.5 million?

Michael Levitz

Yes, you’re about right there.

Larry Solow - CJS Securities

Just clarifying on the previous question about the stimulus and review of getting that contract; I mean does that mean essentially that you don’t perceive yourself always initially getting any benefit from the stimulus, is that a fair statement?

Michael Levitz

We didn’t ever really expect to get much from the stimulus, because at least it appeared to us that most of the stimulus money was going into more infrastructures, maybe putting more brick and motor and putting wings on and we expected that then to generate more opportunity for putting the gear in.

But there’s just such a huge number of smaller airports that really don’t have anything other than trace detection and then when you think about the airports overseas, that with the law coming in Europe on 2012, 2013, they have to start moving to automatic electronic detection. The opportunities there is just a question of how fast has it developed and how fast do we get through some of these government agencies.

Larry Solow - CJS Securities

Then the FlexFocus, obviously B-K medical revenues were up. It looks likes maybe you’ve got some result from the older inventory, but I know you had a little bit of a hiccup last quarter getting that out the door, has that all been resolved?

Michael Levitz

Yes, we were honestly probably four or five months late getting that system out from when we had planned. So we went through some learning there in getting the supply chain leaned out and up and running as it needs to be, but at this point everything is smooth and it’s really just a matter of driving the top line with it.

Larry Solow - CJS Securities

Lastly, not to stay, I know you guys having your probably a first Analyst Day ever. Any preview of what we can look forward to?

Jim Green

That’s a top line. I guess we are going to show you a little what’s going on as far as our re-organizing our manufacturing operations and working toward a much linear environment. You’re going to see that we’re investing in having a world class operation here. You’re going to see a pick at some of the new technologies that we’re doing, which is some pretty exciting stuff.

I think in the past, we’ve tended to keep everything pretty hard under wraps, but there’s a lot of things going on here at that, I think we need to share more of it with you.

Operator

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

Michael Martin - Small Cap Report

Just a couple of questions, the replacement cycles for the 3DXs, there anything going on to TSA about that right now?

Michael Levitz

The systems that went back in 2003, if they are getting longer too, so depending on where they were installed then how hard they can run. Those units have to start going through a replacement cycle. There’s really not an opportunity to refurbish them there is a fixed life there. The TSA understands that they’ve got to go back with these units as they’re coming and figure out, where our new units going and then interleave where replacement units were going to go.

Michael Martin - Small Cap Report

Although the machines are getting old, there’s nothing it sounds like that TSA is not really got to program and place yet for it, is that correct?

Michael Levitz

No, I think they do. The airports, they indicate to the TSA, as the unit start to get older, that you start to see higher failure rates. You start to hear the bearing starting to go and they really can’t afford to let them come to a complete stop and be in an awful situation. So there’s no question that they’re looking at the timing and which particular airports are going to get replacement units and when they’re certainly looking at it.

Michael Martin - Small Cap Report

Are the SX, did you say you shipped one in the fourth quarter, was that correct?

John Fry

That’s right, one in the fourth quarter.

Michael Martin - Small Cap Report

Do you have continuing orders for the SX or is that hit for down?

Michael Levitz

We just started ramping up this product and…

Michael Martin - Small Cap Report

Those three of them?

Michael Levitz

I’m sorry, I misspoke, there were three of them went out in last quarter. It’s fairly slow ramp. At this point, we expect we’re going to start seeing a couple of month for the early adaptors, but the quote rates are very high there is a lot of interest in the product, it fits very nice niche.

So it just the kind of that normal time that it takes as you ramp it up. It would been an ideal to get the big flag of something from the TSA, but at this point we’re doing at the normal way, working with the various airports around the world and the US and generating the demand.

Michael Martin - Small Cap Report

Just one final question on the XLB and do you have any sense of how long the certification process it’s going to be or that is silly question?

Jim Green

Yes I would never say it’s a silly question, it could be anytime now. That’s about all I could really say and then I expect the certification here very quickly.

Operator

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

Ed Fowler - Small Cap Report

A little late in the day, most of my questions have been answered, but get back to the SX again. What kind of a backlog do you have on that I know what you shipped, but what do you have for a backlog in the next quarter? How many machines are on order?

Jim Green

Right now, we have nine on order.

Ed Fowler - Small Cap Report

Two a month, you’re saying?

Jim Green

Yes, it’s probably some around that right now we would say, that the time it takes to really build up the demand, where the quoting is taking place around the world and that’s going to be growing from there.

Ed Fowler - Small Cap Report

Did you give any, number on the amount of funding into the OnGuard product that COBRA?

Jim Green

Yes the contract that we’ve got was to really finish the development of that product and get it ready for fielding. I think the number was $1.2 million. My controller is shaking his head. He’s not really sure, but I seem to recall it was about $1.2 million.

Ed Fowler - Small Cap Report

You mentioned in your talk in the beginning that you shipped your first PowerLink CT product. Did I give that right?

Jim Green

That’s right, we shipped the first operational prototype unit, now that what happens with that if that goes into our fist customer CT and at that point, we’re work with them to workout the and get it ready for when our customer wants to launch into the full production. So, but that is the real key milestone for us to have a fully functional prototype up and running at a customers site.

Ed Fowler - Small Cap Report

Does it run it three times as speed is that normal?

Jim Green

It’s designed there is no contract to the slip rings, so it’s design basically to go at just about any speed, so easily two to three times the speed that any CT would be running today.

Ed Fowler - Small Cap Report

Yes, you eliminate the brushes, but we have a faster [entry] on them.

Jim Green

Its design exactly one only for faster entries, but also because if you look at why a service rep has to go to service a CT in the medical side, it’s up to half the time, it’s associated with something to do with these slip rings, whether it’s a metal dust from the rings or arching or bad rings or bad brushes. So not only does it give you much better performance, but it’s going to enable much of substantial reduction in the cost of service and the overall cost of ownership.

Ed Fowler - Small Cap Report

One last question is kind of like generic question relative to, how Medpack and the rest of these guys are dealing in Washington on increasing the usage of CT and MRI machines, it’s kind of like they want to get more use of these machines to lower the cost and reimbursement rates. So are you see anything regarding reimbursement rate with your customers saying that Mr. Bacchus or somebody wants lower the rates on this types of works?

Jim Green

It’s a really interesting and complex topic. I look at it a couple of ways, the reimbursement rates for whether it’s a CT or MRI, any diagnostic scan, those change all the time, and it’s honestly one of the primary funding methods for the hospital, how they pay for the operation. What I watch is, what are procedure rates. I mean what’s happening with the number of procedures.

Last time I check on people show up the ER with the problem whether it’s chest pain or broken leg. I mean they’re going to get some kind of imaging typically at CT or MRI. So as long as the procedure rates keep moving up based on the fundamental needs of the patient, they’re going to need gear and not to many people are interested and waiting longer because somebody in government wants to see higher utilization and I just don’t see how they do that. So the fundamentals that drive the demand for the equipment are the procedure rates and the procedure rates really don’t appeared to be dropping.

Ed Fowler - Small Cap Report

Is that one of the questions, your customers or customers of your OEMs are asking as how many procedures can you do a day and that kind of thing, another big question for them?

Jim Green

It’s is, I mean though the hospital customers will look to make sure that they want to gear that they can put the maximum number of people through. If you’re doing spring procedures, whether its mammography procedures that are CT or anything, they do try to optimize the use of the equipment, but I think the thing that hit us all last year was just this unknown.

The freezing of the capital markets were CFOs at hospitals just said, what we’re just not going to buy anything until we understand what’s going on with how we’re going to fund our system. That had to freeze thaw out, because you still have patient showing up and people are still getting older and getting sick and they still need the procedures.

Ed Fowler - Small Cap Report

It sounds like you’re basing a lot of your thinking on the growth in demand with more and more people getting into the healthcare systems, but anyway thank you very much. Appreciate your conference call.

Operator

Your final question comes from Larry Solow - CJS Securities.

Larry Solow - CJS Securities

Back in for one more, could you just give me anymore color? What exactly was the claims settlement?

Jim Green

The settlement involved a one-time commercial arbitration that was related to something that took place back in March of 2007. It was an agreement for the supply of patient monitoring products to a small OEM customer. The settlement provides for, basically the orderly conclusion of the relationship with the customer. We really don’t expect that the conclusion of this is going to have any material impact on our business going forward. Again one-time thing we put it behind us, something that just really needed to get sorted out.

Larry Solow - CJS Securities

Why not pull that out as non-GAAP then to me, that is more unusual than probably anything else. Considering you, I mean you’ve had several workforce reduction, which I would say certainly one-time, but you guard you maybe less one-time than this type of thing.

Michael Levitz

I’ll passed on your thoughts are order committee.

Larry Solow - CJS Securities

Last question, only a little constructive criticism, I know your presentation was actually not available until your call already started. It was available, you were able to follow through if you click into the webcast, but you couldn’t. You had to have a link in your presentation. You only had the last quarter’s call. Unless there were some my intent could be slow and it’s possible, but…

Michael Levitz

I guess with your question about the non-GAAP and I think the more realistically, we don’t want to be adding a lot more, we won’t be adding more of line item.

Jim Green

Okay, I guess that’s it and so let me just take a minute to thank everybody. Thank you for your interest in Analogic and I wanted to let you know that I wanted to invite you to our call again in December when the company will review our first quarter fiscal 2010 results.

We also want to remind you that Analogic will be holding its first Annual Investor Day at our facility in Peabody, Massachusetts on Thursday, October 15 at 10.00 am. Please contact Mark Namaroff, our Director of Investor Relations, if you’re planning to attend. Thank you again and have a good evening.

Operator

For listeners, who may have come in late, this call has been recorded. You can access the telephone replay by dialing 1-877-919-4059 or for international caller’s 1-334-323-7226 and entering conferee ID 75343875. The telephone replay will be available at that number beginning two hours from now and running through midnight eastern time Friday, October 23, 2009.

The webcast replay will be available on the Investor Relations page of our website at www.analogic.com beginning about three hours from now and will be available through Friday, October 23, 2009. Thank you for joining Analogic Corporation’s fourth quarter investor conference call. You may now disconnect.

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Source: Analogic Corp. F4Q09 Earnings Conference Call
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