Bioanalytical Systems' CEO Discusses Q3 2012 Results - Earnings Call Transcript

Oct.18.13 | About: Bioanalytical Systems, (BASI)

Bioanalytical Systems, Inc. (NASDAQ:BASI)

Q3 2013 Earnings Call

October 18, 2013 11:00 AM ET

Executives

Jacqueline Lemke – President and Chief Executive Officer

Analysts

Thomas Harenburg – Carl M. Hennig, Incorporated

Lenny Dunn – Freedom Investors Corporation

Operator

Good day ladies and gentlemen and welcome to the third quarter 2013 Bioanalytical Systems Inc. Earnings Conference Call. My name is Dave. I’ll be your operator today. (Operator Instructions) As a reminder, the call is being recorded for replay purposes. And now I would like to turn the call over to Ms. Jacqueline Lemke, President and CEO.

Please proceed ma’am.

Jacqueline Lemke

Thank you operator and thank you all for joining us for the BASI’s fiscal 2013 third quarter financial results conference call and webcast.

Please note that various remarks we may make on this conference call about future expectations, plans and prospects for the company, constitute forward-looking statements for the purposes of Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. Actual results may vary materially from those indicated by these forward-looking statements. As a result of various important factors, including those discussed in the company’s filings with the Securities and Exchange Commission. The statements made on this call are made only as of the date of this call and the company assumes no obligation to update these statements.

Let me begin by saying we are sorry for the delay in releasing our third quarter results. When we recognized that the company had to release about the value of the warranted equity rather than as a liability, moved as quickly possible to restate the previously filed financial statements for the periods impacted beginning with the quarter ending June 30, 2011 and through the quarter ended March 31, 2013.

All of the restated results are now publicly available. It’s important to note that while the restatement affected shareholder’s equity and liability, there was no impact on revenue or cash.

For the third quarter, I am happy to report that BASi returned to profitability as sequential revenues and gross margins increased, generally an increase in operating income to $438,000, compared to an operating loss of $9,000 in quarter two of fiscal year 2013 and an operating loss of $540,000 for the same quarter in the prior fiscal year.

For the three months ended June 30, 2013, revenue increased sequentially compared to $5,136,000 for the second quarter of fiscal 2013, but decreased to $5,600,000 compared to $7,186,000 for the third quarter of fiscal 2012.

Gross profit was $2,032,000 or 36.3% of revenue, compared to $1,258,000, or 24.4% for quarter two and $2,059,000, or 28.7% of revenue, a year earlier. This increase in gross margin, as well as a 19.3% reduction in year-on-year in operating expenses has created the $978,000 increase in Q3 operating income this quarter as compared to the same quarter in the prior year.

With regard to revenue mix, service revenue for the third quarter of 2013 was $4,156,000, which is a sequential increase compared to $3,667,000 for the second quarter of fiscal 2013, but a decrease versus $5,200,000 of service revenues for the same quarter of the prior year.

Year-over-year service revenue comparison was affected by the consolidation of BASi’s Oregon laboratory into our West Lafayette facility in the second half of fiscal 2012.

Product revenue for the third quarter of 2013 was $1,444,000 which is a 3% sequential decrease compared to $1,489,000 for the second quarter of fiscal 2013 and a decrease compared to the $1,986,000 product revenues for quarter three at fiscal year ’12, primarily due to Culex NxT shipment delays in the quarter four of fiscal year ’13 and volumes lost due to delay in the launch of Culex NxT.

Net income for the third quarter of fiscal 2013 is $576,000, or $0.08 per basic and $0.07 per diluted share, which included income due to a pre-tax decrease in the fair value of warrant liability of $318,000. This compares to a net loss for the third quarter of fiscal 2012 of $246,000, or $0.03 per basic and diluted share, which included income due to pre-tax decrease in the fair value of warrant liability of $458,000.

EBITDAR, which excludes restructuring expenses and warrant revaluations. For the third quarter of fiscal 2013, it was $896,000, an improvement of $406,000, compared to quarter two EBITDAR of $490,000 and an improvement of $180,000 compared to EBITDAR of $716,000 for the third quarter of fiscal 2012.

For the nine months ended June 30, 2013, as compared to the first nine months of the prior year, gross margins increased and operating expenses decreased generally an increase in operating income of $4,279,000, despite the decrease in revenues year-over-year.

For the nine months ended June 30, 2013, revenues decreased 23.6% to $16,560,000, compared to $21,668,000 for the first nine months of fiscal 2012. Again, this is a substantial portion of this decrease where the anticipated consequence of the consolidation of BASi with Oregon laboratory into our West Lafayette facility.

Gross profit increased to $5,146,000, or 31.1% of revenue, compared to $4,684,000, or 21.6% of revenue, for last year’s first nine months. Operating income for the first nine months of fiscal 2013 increased to $732,000, compared to an operating loss for the first nine months of fiscal 2012 of $3,547,000.

With regard to revenue mix, service revenue for the first nine months of fiscal 2013 was $12,493,000 which is a 22.4% decrease, as compared to $16, 90,000 for the first nine months of fiscal 2013. The year-over-year service revenue comparison was affected by the consolidation of BASi’s Oregon laboratory into our West Lafayette facility in the second half of fiscal 2012.

Product revenue for the first nine months of fiscal 2013 was $4,067,000 which is a 27.1% decrease compared to $5,578,000 for the first nine months of fiscal 2012. The delayed launch of the Culex NxT as well as the mix of upgrades in fiscal year 2013, versus full year units in fiscal year 2012 represents the majority of the decrease year-over-year.

Net income for this year's first nine months is $521,000, or $0.07 per basic and $0.06 per diluted share, which included income due to a pre-tax decrease in the fair value of warrant liability of $293,000. This compares to a net loss for the first nine months of fiscal 2012 of $3,621,000, or a loss of $0.51 per basic and diluted share, which included income due to a pre-tax decrease in the fair value of the warrant liability of $458,000.

EBITDAR, which excludes restructuring expenses and warrant revaluation, for the first nine months of fiscal 2013 increased to $2,238,000, compared to an EBITDAR loss of $1,009,000 for the first nine months of fiscal 2012.

Cash provided by operations for this year's first nine months was $1,343,000, versus cash used in operations of $437,000 last year. This represents a $1,780,000 improvement same period year-over-year.

On the balance sheet at BASi reported cash and cash equivalents of $313,000, the current portion of long-term debt of $5403, 000, which represents the more of its debt that matures on October 31, 2013. Total long-term obligations of $540,000, and shareholders' equity of $9,211,000.

The Company continues to pursue several options to deal with this debt, including a sale and leaseback transaction on its building in West Lafayette of mortgage extension or a loan emplacement. At September 30, 2012, cash and cash equivalents were $721,000. The current portion of long-term debt of $5,83,000 representing the mortgage debt due in the next fiscal year, total long-term obligations were $5,998,000, which included mortgage debt with maturity of greater than one year and shareholders' equity of $8,377,000.

Each of our critical operating metrics including revenue, gross margin, operating income and cash flow, improved sequentially in the third quarter compared to this year’s second quarter. Cash increased and debt decreased during the third quarter compared to the second and cash provided by operations for the third quarter was $855,000.

We believe the profits we are linking is sustainable and we believe we can effectively leverage our model with our existing capacity and an incremental revenue generating investment in people and skill.

Our marketing initiative is focused on our established strength in specialty assay and drug discovery, regulatory excellence, and our market-changing Culex® NxT automated sampling systems are gaining traction among current and new customers.

On the product side, as previously announced, we have collaborated with Data Sciences International to add value to our Culex system with – capability with more efficient and less cost data collection and with Pinnacle Technology to create a better way to monitor blood glucose levels.

We are currently presenting the results of both studies at various conferences to showcase our ability to meet our customers’ needs for accurate cost-effective data collection and analysis to enable key drug discovery decisions.

On the services side, we continue to provide IND-enabling safety and toxicology studies for NanoViricides, Inc. as part of the preferred provider agreement which they assigned with BASi earlier in the year.

And just the other day we announced that we have entered into a preferred provider agreement with G1 Therapeutics, under which BASi will provide pre-clinical services including toxicology, bioanalytical and analytical testing to support G1’s drug development programs.

These wins show that BASi has built a reputation for delivering the quality and timely data that are a critical part of the drug development practice. This is a solid foundation for generating the long-term growth and profitability we are striving for.

To sum up the quality of our revenues have increased significantly and revenues by $5.2 million, our gross profit on $16.6 million revenues as compared to $4.7 million of gross profit dollars on $21.7 million of revenues in the prior year.

Operating income is $4.2 million better for the first nine months than the first nine months of last year and cash flow from operations is $1.8 million better. SG&A is right-sized, business development is picking up and we are profitable with positive cash flow from operations at relatively low volumes and are committed to growing revenues profitable.

Operator, we are ready for the first question.

Question-and-Answer-Session

Operator

Thank you, ma’am. (Operator Instructions) Please standby for your first question and this comes from Tom Harenburg at Carl M. Hennig. Go ahead please.

Thomas Harenburg – Carl M. Hennig, Incorporated

Good morning Jackie. Congratulations on the continued progress you are making. Very pleased with the way things are headed. Let me ask you, I have got a number of questions. The first one revolves around some trading activity in the stock.

Probably about two months ago and I don’t know if you are aware you probably were, but the stock had a substantial spike and about the last half hour of trading, we’re at over 100,000 shares traded followed by about ten minutes later, a rather sharp decline in the price of the stock with not quite 100,000 shares traded, but some substantial volume.

Can you shed any light on what went on there? It sort of looked to me like maybe, somebody bought or had an order for 100,000 shares, bought the wrong stock and then, once they realized, it turned and sold it?

Jacqueline Lemke

Yes, that’s what we think happened. We think somebody put in an order to buy a company’s stock that was very close to ours.

Thomas Harenburg – Carl M. Hennig, Incorporated

Okay.

Jacqueline Lemke

They bought a big – 100,000 shares of it and realized that was wrong and traded it.

Thomas Harenburg – Carl M. Hennig, Incorporated

Okay, okay. That was kind of my assumption. Okay, going back with this restatement dilemma, is there any chance that you can go after make Cox and retreat your expenses on this?

You know my feeling is from the day one he was hired and he walks away with a $165,000 severance package and this was clearly under his regime, I mean, if you were on a company, working for the company today, he’d be fired for cost. What possibilities of going after him?

Jacqueline Lemke

Well, I don’t know there is possibility. The audit committee has asked for a legal investigation. I can’t talk to what they are going to find either way. I think by law, I don’t think we could go after him for expenses, but if there were any issues, we could go after him for any bonuses paid in relation to the stock offering. But I don’t know that will comes that or not, it’s really up to the attorneys of investigation.

Thomas Harenburg – Carl M. Hennig, Incorporated

Okay, okay. And you’ll keep us posted as to how that’s going.

Jacqueline Lemke

Yes, sure.

Thomas Harenburg – Carl M. Hennig, Incorporated

Okay, okay. Here we are 18 days into the first quarter of next year, I know you don’t give guidance, but can you let us know was the fourth quarter which ended September was that profitable?

Jacqueline Lemke

Well, I am not allowed to talk about that because it’s not audited yet, but, it’s just at least as good as the quarter I think.

Thomas Harenburg – Carl M. Hennig, Incorporated

Okay, okay, okay.

Jacqueline Lemke

I don’t – the actual numbers bottom-line but it was just going well.

Thomas Harenburg – Carl M. Hennig, Incorporated

Okay, boy! That’d be great because you’ve got, I mean, you’ve got four new hirees on the sales side that started about the 1st of July and you’ve got expenses with them. So, I mean, if you can do anywhere near which you did in the third quarter, I think that would be outstanding. Can you give us a little bit of a resume on these four people that have been hired and are they all still with you?

Jacqueline Lemke

Yes, they are with me or with us.

Thomas Harenburg – Carl M. Hennig, Incorporated

Excellent.

Jacqueline Lemke

We actually hired five people, three are on the services side, two are on the product side and so we have a PhD in Chemistry who is in charge of our electrochemical product development. We have a bachelor’s degree in biological sciences who is going to start to do some BD work for us on the product side.

And on the services side, we have people with experience in sales, some with some background in the pharma industry that’s recently Thermo Fisher, Novartis, Covance and so we have someone on the west coast, someone in California, someone in Boston who is considered our east coast person and then someone in the central U.S. Indiana. So they just started, I think on the product side, the might have started in May, but the other one started in June.

And they are already getting a lot of traction. They are sending a lot of work our way talking to the scientists, making sure that we have a good team that’s talking to potentially new clients and even stretching the work we already have with the existing clients.

Thomas Harenburg – Carl M. Hennig, Incorporated

Okay, were any of these instrumental in securing the recent announcements of orders that you had?

Jacqueline Lemke

The G1 and the NanoViricides?

Thomas Harenburg – Carl M. Hennig, Incorporated

Right, right.

Jacqueline Lemke

No, that was already in place.

Thomas Harenburg – Carl M. Hennig, Incorporated

Okay.

Jacqueline Lemke

Yes, that was in place with our experienced top people.

Thomas Harenburg – Carl M. Hennig, Incorporated

Okay and can you give us a little bit of a, maybe an idea as to how they are being compensated? Is there probably salary plus commission or are they heavily incentivized to perform?

Jacqueline Lemke

Yes, they are. They are – it’s a little bit of I think what I want to say at that way, they have a decent base, because they had a lot of experience. But they also could change what they make substantially if they can bring the sales in the door.

Thomas Harenburg – Carl M. Hennig, Incorporated

Okay.

Jacqueline Lemke

As commission.

Thomas Harenburg – Carl M. Hennig, Incorporated

Excellent, very good, well, again, congratulations. I think you are doing a great job. Keep up the good work.

Jacqueline Lemke

Thanks, Tom.

Operator

Thank you. Your next question comes from the line of Lenny Dunn at Freedom Investors Corporation. Go ahead please.

Lenny Dunn – Freedom Investors Corporation

Yes, good morning, Jackie and first I have to compliment you because this is a terrific quarter and you’ve turned this company around to the point where even on a small base of sales, we can be profitable and clearly top-line, am I guessing wrong that each million dollar incremental in sales is probably $350,000 or more in profits. So, is that a reasonable figure?

Jacqueline Lemke

Well, we are still through that model, because we know we are heavily people-based and we are working on how can we increase our capacity without increasing our cost too much. I can’t tell you the drop so at this point. But it’s a substantial drop there.

Lenny Dunn – Freedom Investors Corporation

Because we use – as I used it wasn’t that long ago have substantially more of sales, so it would seem to me…

Jacqueline Lemke

Right, right.

Lenny Dunn – Freedom Investors Corporation

Background noise there.

Jacqueline Lemke

Yes, yes, so we should had leverage at this point, we should be able to leverage the top-line and drop through quite a bit to the bottom-line. I can’t tell you that it’s 350 for a million. That’s what I am still working through.

Lenny Dunn – Freedom Investors Corporation

Okay.

Jacqueline Lemke

And it depends on the mix too.

Lenny Dunn – Freedom Investors Corporation

Well, of course, but I am not out of the ballpark here. Okay, and do you plan to announce substantial contracts as you did with the data sciences? I know you missed the NanoViricides, but at that point, you were overwhelmed with doing the back work get us caught up on our filings. Do you plan to announce those sorts of contracts going forward as they come in?

Jacqueline Lemke

If the client agree, the NanoViricide is one I think we announced probably about six months ago for the purpose of agreement. Yes.

Lenny Dunn – Freedom Investors Corporation

They made an announcement on October 8 and they mentioned you necessarily - I found hard about it not through BASi. So, the NanoViricide has actually announced on October 8.

Jacqueline Lemke

Right, they’ve announced their breakthroughs, but I think we announced our preferred provider agreement with them, I am looking up to six, nine months ago we wanted to and I don’t know if this comes up or not. But, yes, as we get preferred provider agreements, if the client agrees, we would like to announce them.

Lenny Dunn – Freedom Investors Corporation

Okay, well, that all helps, because we are fairly obscure, so, it’s an announcement as I was not puffery. It reminds people that we are in business. But, okay, and as far as the building itself in previous conversations with you.

I have told you – I wasn’t as comfortable with you doing the sale or leaseback until you showed some profitability, because I thought you get a much better price for the building, once that occurred and clearly you are starting to show some real profitability. So, I know where we have this reputation I had, but are you getting serious enquiries yet?

Jacqueline Lemke

Yes, we are. We had an all-cash offer that sells through, so we are definitely getting serious enquiries and I do agree with you as our financials show more solid cash flow and profitability that will get better in terms of the interested parties.

Lenny Dunn – Freedom Investors Corporation

Okay, as far as nothing – so we don’t do a fire sale here, the fact that you are paying closed to $1 million a year on the principal of the mortgage, it would certainly the bank happy I would guess. So…

Jacqueline Lemke

Yes.

Lenny Dunn – Freedom Investors Corporation

I would assume that you have no trouble in October, but, in theory you’d have it paid off in five years up which is not that far away.

Jacqueline Lemke

Thanks.

Lenny Dunn – Freedom Investors Corporation

Okay and thank you again for the terrific job you are doing, because you really turned this company around.

Jacqueline Lemke

Thanks, Lenny.

Operator

Thank you. Your next comes from George Gespa [ph] a private investor.

Unidentified Analyst

Yes, good morning. Jackie, I think, couple of questions here on the outlook for you going forward sector-to-sector and how do you see, what kind of objectives can you put together on an annual basis from your base revenue stream of the last quarter, looking forward on an annualized basis?

And then secondly, whether it’s going to take – where are you at in terms of capacity utilization and what the CSO having to do in terms of expansion?

Jacqueline Lemke

Okay, I am sorry, we are getting back to that. I am hearing myself – that I am going to – not give actions up for revenue forecast. So we do see some pick up in business, in the pharma business that’s all based upon our clients.

And of course on the product side we are now getting some traction with our sales and with our electrochemical product manager we think that’s going to take off. So on the revenue side, we are going to have a definite increase this year with a disappointment in the level that we came to.

But we are putting everything in place to get moving on that. We see recovery already in all areas of the business. So we are excited about that. I am sorry, your other two questions?

Unidentified Analyst

The other is related to the capacity expansion requirement as you see things.

Jacqueline Lemke

We won’t be needing a capacity expansion, probably until we get closer to 35 in revenues. We have quite a bit of capacity, we might need a little capacity expansion in the tox business but nothing that would be considered substantial from a capital point of view.

We have quite a bit of laboratory capacity. Our issues has been on when do we bring on more people versus over time and shift and other ways to handle capacity issues. So I don’t see any large capital expenditures for capacity.

Unidentified Analyst

And then, do I calculate this right that you mentioned that you are somewhat over $8 million on the book value or on the equity side. So, your book value is got to be in the range of about $1.10 is that correct?

Jacqueline Lemke

No, I don’t know. I would have to look at the numbers, but you’d probably did calculated right. You have our shares?

Unidentified Analyst

Kind of that seven million nine or whatever?

Jacqueline Lemke

Yes.

Unidentified Analyst

And you mentioned that that equity number was – was it 8.2 or 3 or?

Jacqueline Lemke

I think it was 8.3 that’s after all the adjustments for – no equity right now is 9.2.

Unidentified Analyst

9.2?

Jacqueline Lemke

Yes, the 8.3 was the prior year.

Unidentified Analyst

Okay, 9.2, okay, well, then you’ve got. Okay, so you are up there at in a pretty closer above $1.10 or so. Yes, okay and what’s your first objective here in terms of product development going forward from where you are now as you are looking into this New Year? Is there something special that you are going to try to concentrate on in new product development from what you have in – now currently?

Jacqueline Lemke

There is, I don’t know if my product guys will be happy with me if I tell you. There is nothing that we’ve announced yet. We are working on few bigger product lines or the in vivo products which are the Culex and the consumables and the electrochemical products. And we think that we can have the electrochemical business line. We are working on the plan to figure out how that will be.

Unidentified Analyst

Okay, could you just explain a little bit, Jackie, the electrochemical product, what’s the application there? Can you explain that please?

Jacqueline Lemke

No, I am not very good at it. It’s basically used an analysis of the nodes in the testing for the drugs. I can’t tell you the details, but I can have my electrochemical specialist talk to you.

Unidentified Analyst

But it’s related to the analysis of the material composition of the drug – material going into drugs?

Jacqueline Lemke

Right, exactly.

Unidentified Analyst

Gotcha, okay and that is – do you perceive this as being an area that is requiring or offers opportunity and it’s requiring some upgrading from an industry point of view?

Jacqueline Lemke

That’s what we are trying to find out right now. We are talking to – we have a loyal base of customers who basically pick up the phone and order from us. We haven’t done a lot of outreach in that product line for a while. So we are trying to find out what are they looking for that they might be going to the competition for how can we upgrade what we offer them.

Unidentified Analyst

Okay, all right. Well, and as Tom indicated to you, congratulations on your performance here. There is quite a turnaround. You’ve got tremendous – your margins look wonderful, so you can stay anywhere near that and start to push this revenues number toward the $30 million range you should be able to deliver some pretty good results. Thank you.

Jacqueline Lemke

All right, thank you.

Operator

Thank you. Ma’am you have no further questions at this time. (Operator Instructions) There are no further questions coming through. So I would now like to turn the call back over to Ms. Jacqueline Lemke for closing remarks.

Jacqueline Lemke

Okay, I just want to thank everybody for joining us this afternoon and I look forward to speaking with you on our fiscal 2013 annual results conference call later this year. Thank you very much.

Operator

Thank you very much for your participation in today’s conference. This concludes the presentation. So you may now disconnect. Good day, have a great weekend.

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!