Bioanalytical Systems' CEO Discusses F1Q2014 Results - Earnings Call Transcript

Feb.13.14 | About: Bioanalytical Systems, (BASI)

Bioanalytical Systems, Inc. (NASDAQ:BASI)

F1Q2014 Earnings Conference Call

February 13, 2014 11:00 AM ET

Executives

Jacqueline Lemke - President, CEO and CFO

Analysts

Tom Harenburg - Carl M. Hennig, Incorporated

Seth Hamot - Roark Rearden & Hamot Capital Management

Lenny Dunn - Freedom Investors Corporation

Operator

Good day ladies and gentlemen and welcome to the Q1 2014 Bioanalytical System Inc. Earnings Conference Call. My name is Briana and I will be your operator for today. At this time, all participants are in listen-only mode. Later we will conduct a question-and-answer session. (Operator Instructions) As a reminder this conference is being recorded for replay purposes.

I would now like to turn the conference over to your host for today, Ms. Jacqueline Lemke, President, CEO and CFO. Please proceed.

Jacqueline Lemke

Thank you operator, and thank you all for joining us at BASi’s fiscal 2014 first quarter financial results conference call and webcast. Please note that various remarks we may make on this conference call and our future expectations, plans and prospects for the company constitute forward-looking statements for the purposes of Safe Harbor provision 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.

We are very pleased with the first quarter results we reported this morning. Focusing on the highlights; revenues increased 7.2%; gross margin increased 15.6%; operating income increased 53% and net income, excluding the impact of change in warrant liabilities increased to 115% compared to the first quarter of fiscal 2013. In addition, BASi generated $1,036,000 in cash from operations during the quarter and we paid down $1.2 million on our line of credit while meeting all of our other obligations. In January, we also paid off the remaining balance on our line of credit.

For the three months ended December 31, 2013, revenue increased 7.2% to $6,220,000 compared to $5,803,000 for the first quarter of fiscal 2013. Revenue also increased on a sequential basis rising 12.9% compared to $5,508,000 for the fourth quarter of fiscal 2013. Service revenue for the first quarter of fiscal 2014 increased 5.3% to $4,916,000 from $4,670,000 for the third quarter of fiscal 2013, reflecting an increase in new order bookings I mentioned on our last conference call.

Product revenue increased 15.1% to $1,304,000 versus $1,133,000 for the prior year's first quarter, primarily due to higher sales of Culex automated sampling systems. Gross profit was $2,145,000 or 34.5% of revenue. This compared to gross profit of $1,855,000 or 32% of revenue from last year’s first quarter. Operating expenses for the first quarter of fiscal 2014 increased to $1,683,000 compared to $1,553,000 a year earlier, this increase was primarily due to planned increases in selling and R&D expenses. Operating income for the first quarter of fiscal 2014 increased 53% to $462,000 compared to $302,000 last year.

The net loss for the first quarter of fiscal 2014 was $662,000 or $0.09 per basic share and diluted share, which included a non-cash increase in the fair value of the warrant liability of $961,000. Excluding this charge, non-GAAP net income for the first quarter of fiscal 2014 was $299,000 or $0.04 per basic and diluted share. For the first quarter of fiscal 2013, net income was $256,000 or $0.03 per basic and diluted share, which included a non-cash decrease in the fair value of warrant liability of $117,000. Excluding this benefit, non-GAAP net income for the first quarter of fiscal 2013 was $139,000 or $0.02 per basic and diluted share.

EBITDA for the first quarter of fiscal 2014 was $912,000 compared to EBITDA of $851,000 for the first quarter of fiscal 2013. At December 31, 2013, cash and cash equivalents was $841,000. As we previously reported, we have extended maturity of the mortgage on our building to October 2014. As a result, this debt was classified as current on the December balance sheet. Total long term obligations, primarily leases, was $401,000. Shareholders’ equity was $840,000. The comparison at September 30, 2013, cash and cash equivalents were $1,304,000. The current portion of long term debt was $613,000, total long obligation was $5,112,000 and shareholders’ equity was $9,459,000.

I already mentioned that we had fully paid down our $3 million line of credit. We continued to pursue several alternatives including a sound impact of the West Lafayette building or a refinance of the mortgage debt. I’m optimistic that we will have good news on this front very soon. We are pleased by these results but not satisfied. We believe we can do better. As I’ve explained on prior conference calls we’ve got a sustainable business model that is both profitable and now beginning to grow. We remain focused on growing revenue even as we push ahead with our initiatives to control cost and improve productivity. To achieve these goals what we plan to do in fiscal 2014 is leverage our business model. We’ll use our existing capacity and the incremental investment in people and skills to support the long term growth we believe BASi is capable of delivering.

Our decision last year to concentrate our marketing programs on BASi's established strengths in specialty assay and drug discovery, regulatory excellence, and our market-changing Culex NxT automated sampling system is paying dividends. With our expanded sales team gaining traction in the marketplace, we are optimistic that the increase in new order bookings we have enjoyed in recent months will continue. BASi celebrates its 40th anniversary in 2014. This milestone is made all the more significant by the progress we have made these past couple of years in strengthening the company for the future. We are confident that we are pursuing the right strategy to enhance operating performance and build value for our shareholders.

Operator we’re ready for the first question.

Question-and-Answer Session

Operator

(Operator Instructions). And your first question comes from the line of Tom Harenburg with Carl Hennig, Inc.

Tom Harenburg - Carl M. Hennig, Incorporated

Jacquie, I have some questions here on these warrants. The reserve for those, was that piece done at December 31st price?

Jacqueline Lemke

Yes, the warrant valuation is based on the number of warrants outstanding, the remaining life of the warrant and then the stock price at quarter end and the difference between the stock price and the stake (Ph) price. And at quarter end, our stock price was 271 which was over the stake price, which made the value go up.

Tom Harenburg - Carl M. Hennig, Incorporated

Correct. So we’re going to see negative around these again assuming the price of stake (Ph) is above 271 come March 31st?

Jacqueline Lemke

Yes. I think we could expect that. We also will get some movement based upon whatever warrants or exercise.

Tom Harenburg - Carl M. Hennig, Incorporated

Okay. So how many warrants have been exercised so far?

Jacqueline Lemke

Well, at the end of December 31st we had 1 million warrants that were outstanding and so that is what we have available to exercise we’ve had a few 100,000 exercise since then.

Tom Harenburg - Carl M. Hennig, Incorporated

Okay, okay. So with the exercise of those warrants you’re getting $2 a share off of that but it’s helping your balance sheet does any change in your opinion at all as far as the sale lease back of the building?

Jacqueline Lemke

Well, we’ll be getting the cash when we finish the purchase act of amendment so right now the exercise of the warrants has done on the cash flows basis so they will get shares. But at that point which we hope is by the end of month yes we will be getting some cash. And that plus the availability of financing will all impact whether the sale on these factors is the right business decision.

Tom Harenburg - Carl M. Hennig, Incorporated

Okay, okay. But it just looks like your -- I mean you’re improving your balance sheet or you will be going forward and that so that actually the sale of the building probably becomes a little bit what I want to say less needed?

Jacqueline Lemke

Right, right.

Tom Harenburg - Carl M. Hennig, Incorporated

Okay. And going forward where do you see the bulk of the growth, do you see that coming from the service side or you see that coming from the product side?

Jacqueline Lemke

Well, I think this fiscal year we’re seeing an uptick in those service and product to probably little bit more in service but if we’re talking 2 million to 5 million out we think in product.

Tom Harenburg - Carl M. Hennig, Incorporated

Okay, okay. And much of that would be with the new Culex system?

Jacqueline Lemke

Right.

Tom Harenburg - Carl M. Hennig, Incorporated

Okay. And how many new Culex system have you sold so far this year or well I guess little bit in the first quarter. Were there any of those units in the first quarter?

Jacqueline Lemke

Yes, I was looking at that I know people are interested and last quarter, last year first quarter, remember we have just introduced this so we really didn’t have time for people to get it into their capital budget and we haven’t filled any this time last year and this year we sold 14 of them.

Tom Harenburg - Carl M. Hennig, Incorporated

14 of them. Okay, okay. And can you give us an indication of how many you have sold so far this quarter?

Jacqueline Lemke

I don’t have that.

Tom Harenburg - Carl M. Hennig, Incorporated

You don’t have that [indiscernible].

Jacqueline Lemke

Yes. But I would think we’ll be at least where we’re at in quarter one. We’re looking to expand that substantially we really need to get some market reach and brand awareness that’s what we’re working on.

Tom Harenburg - Carl M. Hennig, Incorporated

So your new sales force you’ve got two people new on the product side they’re starting to gain some momentum, are they?

Jacqueline Lemke

Yes. It’s really a function of getting out there and introduce because we have a great product. So we’re also going to look to our distributor network and we have a commercial running now which you can see on our website we’ve been talking about

Tom Harenburg - Carl M. Hennig, Incorporated

I saw that, very interesting. And also I wasn’t in the tenants (Ph) but I saw your presentation at the Nolan Financial Conference. Are you looking to get out there and make additional presentations at these conferences as they come up?

Jacqueline Lemke

I proud we will, there are a lot of them I probably will selectively take two or three in the year.

Tom Harenburg - Carl M. Hennig, Incorporated

So you don’t have any on the calendar yet?

Jacqueline Lemke

Not yet.

Tom Harenburg - Carl M. Hennig, Incorporated

Okay. Thanks Jacquie.

Jacqueline Lemke

Thanks Tom.

Operator

Your next question comes from the line of Seth Hamot with RRH.

Seth Hamot - Roark Rearden & Hamot Capital Management

Hi guys. Hi Jacquie.

Jacqueline Lemke

Hi Seth.

Seth Hamot - Roark Rearden & Hamot Capital Management

So just first question, what’s our -- can you tell us our cash position today?

Jacqueline Lemke

Yes. We’re paid down on the line of credit and I don’t know we probably have half of million in cash at any given time.

Seth Hamot - Roark Rearden & Hamot Capital Management

Okay, fine. So cash generation between the end of the year and now hasn’t been too great yet?

Jacqueline Lemke

Right, because we’re still working on paying down our liabilities. But it’s success was getting out from under a very expensive line of credit. So we’ve had three year.

Seth Hamot - Roark Rearden & Hamot Capital Management

Yes, absolutely. What I am trying to actually do is back into how much of the cash generation is due to operations, how much is due to working capital changes.

Jacqueline Lemke

Okay.

Seth Hamot - Roark Rearden & Hamot Capital Management

So I don’t’ know how to queue yet.

Jacqueline Lemke

It’s up there, it’s there, yes.

Seth Hamot - Roark Rearden & Hamot Capital Management

Oh, is it, okay. Fine, so I haven’t look for that. That million dollars in cash generation, what’s your feeling on your cash generation going forward for the next rest of this calendar year, if you can speak to that as where rest of the fiscal year?

Jacqueline Lemke

Our cash flow from operations this quarter was 1.6 million, 1.7 million I think it will be better than that each quarter. I can’t tell you exactly what and was that at but our goal is as revenues go up to finish paying down the tables that we walked into the past due situations and to -- so to put some money aside for strategic options.

Seth Hamot - Roark Rearden & Hamot Capital Management

Okay, super. Finally, could you tell me how you think, strategically, tell me about the market you think for Culex and how you’re attacking it without giving up anything proprietary of course. But so how big is that market, how do you think geographically it breaks up and are you focused on other geographies besides the North America? Give me here like the 32nd elevator, thanks.

Jacqueline Lemke

I think the market is about 20 billion I think that the bulk of the market is in the U.S. I think that right now we are scattered in our focus where we sell Australia, Asia and we sell all over the place. I think really if we concentrate on the Boston areas, San Francisco are and some selective global areas we can increase quite a bit. And it’s a question of how fast can we do it financially.

Seth Hamot - Roark Rearden & Hamot Capital Management

And so that’s quarter carrying sales for people? Just a question, right. Is that quarter carrying sales people, Boston to San Francisco?

Jacqueline Lemke

Yes. We have the quarter carrying sales people and two or four I don’t think is enough I think that we also have 21 distributors that are carrying our Culex we need to push through them a little bit more.

Seth Hamot - Roark Rearden & Hamot Capital Management

Okay. And are you meeting resistance through them or there is just not top line?

Jacqueline Lemke

No I don’t think we’ve paid enough attention to them at all I think we have to give them an incentive and a reason and understanding of how we sell. We’re trying to switch a little bit of our sales from just selling on the technical end and scientific end and more on the practical. What kind of money are we going to save, why would you do this, what’s your return on new investments, what’s…

Seth Hamot - Roark Rearden & Hamot Capital Management

You’re putting together business cases, right?

Jacqueline Lemke

Right.

Seth Hamot - Roark Rearden & Hamot Capital Management

Okay. And by the way the ROI there is an ROI calculation in that, right?

Jacqueline Lemke

Yes.

Seth Hamot - Roark Rearden & Hamot Capital Management

Okay, and that’s compelling, right? I Imagine.

Jacqueline Lemke

Oh yes, it’s very good. Yes.

Seth Hamot - Roark Rearden & Hamot Capital Management

Okay, super. Thanks a lot for your time.

Jacqueline Lemke

Sure. Thanks Seth.

Operator

(Operator Instructions) And your next question comes from the line of Lenny Dunn with Freedom Investors Corp.

Lenny Dunn - Freedom Investors Corporation

Yes. Good morning Jacquie, another good quarter. On the Culex sales is the fourth calendar quarter of the year normally just a little soft because not that many companies are buying because they’re setting up their budgets for the following year?

Jacqueline Lemke

Actually that quarter is usually our best quarter historically because they complete, they have their budgets and they want to spend it and it take some all year like they set up the budget at the beginning of the year and take some six-nine months to get the compelling story in the case and then to sell it. So usually that’s our best quarter.

Lenny Dunn - Freedom Investors Corporation

Okay, okay, can do. Obviously the Culex sales have better margins than the lab sales but the lab sales can have larger dollars. So we want to see low sides of the equation moving [indiscernible].

Jacqueline Lemke

Yes. Well, I think that you will find that if you look at the service gross profit margin it’s a pretty healthy margins too I mean they are I don’t remember exactly but they’re between 30% to 35%. Now that we’ve decreased capacity so the service side is very good.

Lenny Dunn - Freedom Investors Corporation

That’s great.

Jacqueline Lemke

Yes.

Lenny Dunn - Freedom Investors Corporation

Which is unusually [indiscernible] there with cutting costs and are you signing more I should say better reception now on your sales people call because the company is financially stable now and maybe you might have got little bit of negative feedback because the company didn’t work as stable?

Jacqueline Lemke

Yes, I think so. I think on this when I first I got here and we were changing so many thing that’s scary for the customers because they need to be able to climb and you’ve build put the projects review for 18 months to two years. But I think now that they see we’ve been here 40 years, we’re not going anywhere we’re in this to stay, we are committed to quality and regulatory excellence they’re starting to come back.

Lenny Dunn - Freedom Investors Corporation

Does look like you have returned around, now we have quite a few warrants that we want to exercise but not on a cashless basis, we want to pay the $2 and start the meter running for the long term again so you said earlier in the call that you anticipate that somewhere around the calendar end of this month you’d be able to have this we could start doing that?

Jacqueline Lemke

Right, we want to include the results that we just issued today in the post the Texas amendment and then the SEC has a few weeks to respond and then as soon as we get their response we should be able to list any restrictions.

Lenny Dunn - Freedom Investors Corporation

Okay, and will you put a news release out on that at that point so that we can act?

Jacqueline Lemke

Well, I’ll definitely put letters out to everybody and I know maybe letters might not be fast enough but we’ll get some communication out for the warrant holders to make sure they’re aware of it right away.

Lenny Dunn - Freedom Investors Corporation

Okay, because I see this is helping our investors but also helping the company because you have the cash and you reduce the book keeping problem that you’ve been having all along with the warrants.

Jacqueline Lemke

Right. No, that’s not.

Lenny Dunn - Freedom Investors Corporation

So a win there.

Jacqueline Lemke

Yes.

Lenny Dunn - Freedom Investors Corporation

Okay. Well appreciate the good quarter and you look forward to the next one.

Jacqueline Lemke

Thanks, we do.

Operator

Your next question comes from the line of George Gosford (Ph).

Unidentified Analyst

Yes. Good morning Jacquie question on the real estate the value could you please repeat the value again of what the asset is with on the balance sheet. And secondly in terms of possible sale lease back are you utilizing the square footage entirely or is there a possibility that yet either for yourselves to do a fair amount of some of the square footage or is that possible if on a sale lease back which you would acquire the rates for certain square footage or the whole thing would there be some potential square footage that would be offloaded to somebody else on a sale lease back?

Jacqueline Lemke

Right. So right now the face value is about 10 that’s acting site I don’t know the book value off of top of my head but it is in the k. and the plan is we occupied between 75% and 80% of the building. So we would sell the building probably lease back 100% and then sublease the other 20% ideally if we could just lease back the 80% we couldn’t then I don’t think that's what the investor wants. And right now we are working on some subleases we should have one in hand by next week. So we understand that our investor would want to buy the whole building and lease back a 100%, that’s our plan.

Unidentified Analyst

Okay, thank you.

Jacqueline Lemke

Okay.

Operator

And there are no further questions on the line.

Jacqueline Lemke

Okay. Thank you everybody for joining us this morning. I look forward to speaking with you on our second quarter fiscal 2014 conference call with up three months. Have a nice day.

Operator

Ladies and gentlemen that conclude today’s conference. Thank you for your participation.

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Bioanalytical Systems (BASI): FQ1 EPS of $0.04. Revenue of $6.2M (+7.2% Y/Y).