Rochester Medical Corporation F3Q10 (Qtr End 06/30/10) Earnings Call Transcript

| About: Rochester Medical (ROCM)

Rochester Medical Corporation (NASDAQ:ROCM)

F3Q10 (Qtr End 06/30/10) Earnings Call Transcript

July 29, 2010 4:30 pm ET

Executives

Anthony Conway – Chairman, CEO and President

David Jonas – CFO, Treasurer and Secretary

Analysts

Tyson Bauer – Wealth Monitors Incorporated

Beth Lilly – Gabelli

Michael Boulegeris - Boulegeris Investments, Inc.

Operator

Good day, ladies and gentlemen, and welcome to the third quarter 2010 Rochester Medical Corporation earnings call. At this time, all participants are in listen-only mode. (Operator instructions) We will accept your questions at the end of this conference. As a reminder, today's call is being recorded.

I would now turn the call over to Mr. Anthony J. Conway, President and CEO. Please proceed.

Anthony Conway

Thank you for joining our third quarter conference call today. I am Anthony Conway, the company's President and CEO, and with me is David Jonas, Rochester Medical's Chief Financial Officer.

To start, I will review the highlights of the quarter and then David will present detailed information on the financials and what they signify. And after that, we will be happy to take your questions.

As always, before starting, let me remind you that we will be making some forward-looking statements today. And I would refer you to the Safe Harbor statement found in today’s press release and also to the Risk Factors section in the company's Annual Report on Form 10-K for the year ended September 30th, 2009. These statements further clarify the risks and uncertainties that are associated with the forward-looking statements.

All right. First, let me review the results as reported in the press release. We reported record sales of $10,244,000 for the current quarter compared to $8,908,000 for the third quarter of last year. That's approximately a 17% increase in overall sales on a constant currency basis.

Rochester Medical branded sales rose 35% on a constant currency basis. The branded growth continues to be led by strong sales of our all-silicone MAGIC3 and Hydrosil layered hydrophilic intermittent catheters, and our new Strata brand Foley catheters. We have only a very small market share with these products and we expect excellent growth to continue going forward.

We feel very good about the FemSoft pilot activity, both here in the United States and in the United Kingdom. In the U.S., we have concluded that the clinical sell through urologists, urogynes, and gynecologists is the most effective approach to market and we plan to expand our domestic extended care sales force to take dual advantage of the MAGIC3 and FemSoft opportunity on combined sales calls. Clinicians react favorably to both product lines and we believe that the addition of FemSoft to the call will work very well for both products.

We said earlier in the year that we expected the U.S. FemSoft reimbursement rate to be finalized by the end of July. This is not yet the case. CMS has had several errors and mix-up regarding reimbursement procedures and processes for the device. We are working with them to get it resolved and we believe we will have final reimbursement established in the near term.

FemSoft introduction in the United Kingdom is off to a good start with some early adopting clinicians writing multiple prescriptions and speaking very highly of the device. As an example, we had one clinician over there that so far has written 29 prescriptions; that's just from a single clinician. That's not normal, that's the highest we've got, just to make clear, but we do have clinicians that are very, very excited about the device.

We believe that FemSoft is a natural fit for the U.K. health care system where conservative approaches to controlling incontinence are generally preferred to surgery. As we said in the press release, it is still too early to predict the market potential for the device, but we are far enough along to now have confidence in the FemSoft as a viable and integral addition to our product lines, both in the United States and the United Kingdom. We are also in discussion with interested potential distributors in other countries.

Now, let me turn it over to Dave and he will give you further insight into the numbers. Dave?

David Jonas

Thanks, Anthony. I'm going to spend a few minutes highlighting a few results reflected in our just-released third quarter fiscal 2010 earnings release.

First, our sales. For ease of discussion, unless otherwise noted, all sales information will be discussed in constant currency. I’m doing this to exclude the impact of foreign currency exchange, which will show a true reflection of our sales growth.

As Anthony has explained, our sales results for the third quarter showed very good overall growth, especially in our key branded markets in the U.S., U.K., and the rest of Europe. As we have discussed in the last couple of years, we are focused on and have increased our investments and activity in our worldwide branded sales. This has been done for many reasons, including better market access, changing reimbursement rules, and an increased clinical demand for infection reducing in all-silicone, non-latex, and non-PVC devices.

We call this our investment in growth strategy and the results have been positive. These investments and focus fueled the growth in our worldwide branded sales, which were a record $7.6 million this quarter versus $5.6 million last year, an increase of 35% for the third quarter. This 35% increase included 66% growth in worldwide intermittent sales, a 33% increase in worldwide Foley catheter sales, and a 16% increase in male external catheter sales. Our branded sales accounted for 74.2% of our total sales in the third quarter, also an all-time high for Rochester Medical.

Let me first discuss our domestic branded sales in more detail and then our international branded sales. In total, our domestic branded sales for the third quarter were $2.34 million versus $1.8 million last year, a 30% increase from last year’s third quarter. For the year, our domestic branded sales were up 27.5%. Domestically, our advanced intermittent catheter sales grew 45% in the third quarter, and are now up 41% year-to-date. This growth, which reflects both new patients and increased usage, is very encouraging.

Our domestic branded sales of male external catheters increased 16% in the third quarter, and the year-to-date 7.5% growth is a little better than expected. Our domestic branded Foley catheter sales grew 41% in the third quarter, and are now up 60% year-to-date. The majority of this Foley growth can be attributed to the acute care market and recent hospital conversions. The launch of our all-silicone Strata technology has been very well received and interest, trials, and conversions have never been higher in our advanced Foley products and anti-infection technology.

For the third quarter, internationally, our branded business continued to grow. Again, to make sure everyone understands our true growth, the following numbers are using a constant currency, showing '09 sales at 2010 exchange rates. In total, our international branded sales were $5.3 million this quarter versus $3.9 million last year, an increase of 33%. So far, this year, we have sold over $15.1 million of branded products internationally, which is up 29%. The majority of our sales volume internationally continues to come from our male external catheters. This male external business was up 15% in the third quarter, and is up 13% year-to-date.

Our branded advanced intermittent catheter sales grew at a very strong pace of 106% internationally in the third quarter, based primarily in the U.K. where the intermittent growth rate was 103%. For the year, branded intermittent sales internationally are up 114%.

Our new triple-core technology, launched a year ago, has received excellent reviews and should help us continue to grow market share in Europe. Our U.K. operations also include direct-to-the-patient prescription sales under our Rochester Medical Script-easy brand. These sales are for any urological products and drug tariff, including products not manufactured by Rochester Medical. This business grew at a healthy 86% in the third quarter, and is now up 56% year-to-date.

Now, let’s take a quick look at our private label business. Rochester Medical continues to have a number of excellent private label partnerships. As previously discussed, their ordering patterns can be and have been erratic quarter-over-quarter. In 2010, we continued the trend with the first quarter being up 22%, and the second quarter being down 12%, and then the third quarter being down 16%.

Part of the decrease in the second and third quarter relates directly to the fact that one of our private label partners in Europe is not selling our Rochester Medical brand. Factoring that into the equation, our private label sales were down 6% this quarter and are actually up 5% year-to-date. We still believe the sales of our products out our private label partners' doors are growing moderately and our sales to them will show moderate growth over longer periods.

Now, our gross margin. Our gross margin was 49.2% in the third quarter of 2010 and it's now at 47.2% year-to-date. We fully expect our margins to stay in this range until sales volumes of our advanced products reach higher levels, resulting in significantly higher efficiencies and lower per-unit fixed-costs.

Our operating expenses increased 9.7% or $422,000 in the third quarter, the $4.8 million being very much in line with our expectations. We have increased spending with our increased investment in sales and marketing in both the U.S. and European markets, especially our FemSoft marketing campaign where we have spent over $1.1 million in the U.S and U.K this year. This long-term investment in this potentially large market is strengthening our resolve that this device has very definite potential through a clinical sell point that aligns up very well with our other home care sales calls. While cautious, we are very optimistic moving forward on this exciting new technology in market.

Sales and marketing costs for the third quarter were up 24% from last year and are now up 16% year-to-date. For the year, they represent about 29% of our sales, which is about the same as last year.

Our research and development costs for the third quarter were down 30%, and are now down 4% year-to-date. For the year, research and development costs represent 3% of sales, which is down a little bit from last year's 4%. This spending is directly related to new product development. We continue to cost-effectively develop life-changing new products and have brought two new breakthrough products, MAGIC3, our exciting new triple-core intermittent technology, and Strata, our exciting new Foley technology that will change the way people think about silicone Foleys to the market.

Administrative costs for the third quarter were down 6% from last year and are up 5% year-to-date. For the year, administration costs represent 16% sales, which is slightly lower than last year’s 18%. Majority of this spending increase comes from higher costs in accounting and legal, related to last year's fiscal year-end.

This quarter, we had net income after taxes of $95,000 or $0.01 per diluted share versus a net loss of $77,000 or $0.01 per diluted share last year. I believe the non-GAAP disclosures in our press release are very helpful in understanding Rochester Medical's operating results, apples-to-apples, so to speak.

And for the table in the press release; after tax-affected adjustments for non-recurring legal settlements, intangible amortization, and stock option compensation expense, our third quarter non-GAAP net income was $428,000 or $0.03 per diluted share compared to $245,000 or $0.02 per share last year. Year-to-date, our non-GAAP net income was relatively flat with last year. And I am proud to say that so far, we have executed our plan very well, investing in growing our branded business with increased profits generated, while staying in the black and preserving our cash.

On our – on the balance sheet side, we continue to be very healthy with secured liquid cash and very little debt. Our cash position is $35.4 million; our philosophy of tightly controlled management of our working capital has served us well. As most of you know, most of our cash is in highly liquid and secure U.S. government T-Bills and CDs. We have $5.7 million in short and long-term debt, a majority of that coming from the debt associated with our June 2006 asset acquisition.

Lastly, I would like to say how excited I continue to be about what lies ahead for Rochester Medical and the customers that we are dedicated to serve. We are well positioned for a sustained, meaningful growth, which in the end means more people will be using the best technology in the world.

I would like to hand it back to our CEO, Anthony Conway, for some more comments. Thank you very much.

Anthony Conway

Thank you, Dave. In summary, I would just say we feel very good about our opportunities going forward. Based on market reception of the MAGIC3 intermittent product line and the Strata Foley product line, and the FemSoft Insert, we will be expanding our domestic sales efforts over the next year. We also will be expanding our efforts in the United Kingdom and mainland Europe, while exploring new sales and distribution opportunities in other parts of the world.


Thank you. And with that, we will be very happy to take your questions.

Question-and-Answer Session

Operator

(Operator instructions) And our first question comes from the line of Tyson Bauer with Wealth Monitors Incorporated. Go ahead.

Tyson Bauer – Wealth Monitors Incorporated

Good afternoon, gentlemen. I guess, two key topics or questions are one, should we expect any kind of acceleration of growth, especially on the branded side of the business either here domestically or in the U.K.?

And then secondly, you mentioned in your last comment regarding increase in expenditures for sales and marketing as you go last quarter, this year, and into next year. Are we going to see – what does that mean? Give us a little more color as increasing those expenditures and is that going to be in step with revenue increases or is this another round of increasing that line item and hopefully getting revenue growth after the tax [ph]?

Anthony Conway

Hi, Tyson. Good questions. As you might imagine, at this time of the year, we are right in the middle and quite far along actually in putting together our next year's and our new three-year plan. I will give you much more detailed answers to those questions, by the way, in our next conference call as we finish that process up. But let me give you some flavor of it.

We are already far enough into the three-year plan to know that we believe we can achieve very strong growth over those three years. We believe we will be very significantly increasing our domestic sales efforts and our sales force. And we also believe that in the first year of that three-year plan, we will be generating enough revenue to operate under the same scenario as we have been, meaning that additional gross profits will pay for most, if not all, of that major expansion

We also believe in the three-year plan that the second and third year will generate – will pull significant amounts to the bottom line. And we are going to be willing in the next conference call, at the very end of fiscal 2010, to be much more transparent about that than we have ever been in the past, simply because the math is becoming much more foreseeable for us.

Now, we are seeing with our intermittent catheters, and our Strata in particular, what is generated by additional effort and it makes us – makes it much easier for us to make solid projections. So I would leave it at that for now and with a promise that we will give you a deeper window into it when we finalize that three-year plan.

Tyson Bauer – Wealth Monitors Incorporated

Okay. And I won't get into numbers; I don't think that you are going to answer anyway at this point. But having a clearer crystal ball is an interesting comment from you. Is that just due to your ability to extrapolate what you have been able to see from this last round of increasing sales and marketing or is that because you would now have enough data gathered from your customers and potential customers that you know when certain institutions will be carrying your products and that type of growth going forward?

Anthony Conway

Yes, basically the former of those two things. We are able to calculate based on the efforts we put in, sales man hours, marketing dollars, and so forth, what we are likely to generate as a result. And we are getting some very specific data, and I would stress again that is on the intermittents and on the Strata Foley. I'm still leaving FemSoft out. I would stick those comments. Independent of FemSoft revenues, we are expecting accelerating growth and strong movement to the bottom line in the second and third year.

Tyson Bauer – Wealth Monitors Incorporated

Okay. And all of these projections are completely organic, does not include any M&A activity –?

Anthony Conway

Speaking totally organic growth, over and above that, we still continue to search for acquisition; we still are very active in looking for business in other areas. Japan, we have been talking about for some time. We are going to be back over in Japan in September, certain discussions are underway there. But those things do not yet factor into these – into my statements.

Tyson Bauer – Wealth Monitors Incorporated

Okay. At what point do you look at that cash balance that you've had for quite a while now and start doing – this is really a disservice holding that in these – all that's [ph] having negative interest or return on that cash that there needs to be an impetus that that gets put to use for the shareholders.

Anthony Conway

Well, clearly, we want to put it to use with an acquisition. I think when we detail our three-year plan; you will consider it to be very aggressive. The good news is, even though it is very aggressive, we believe that gross profits generated will be paying for most, if not all of it, almost right from the get-go. So I think keeping that cash for other purposes, for now, is still the right thing to do.

Tyson Bauer – Wealth Monitors Incorporated

Okay. Thanks a lot, gentlemen.

Operator

Our next question comes from the line of Beth Lilly with Gabelli. Go ahead.

Beth Lilly – Gabelli

Good afternoon.

Anthony Conway

Hi, Beth. How are you?

Beth Lilly – Gabelli

Just great. How are you doing?

Anthony Conway

Doing wonderful. Thank you.

Beth Lilly – Gabelli

Good. Jim, I have a couple of questions. One is, can you – it's interesting you've used the word strong growth many times in the call. Can you quantify that for us, what does strong mean?

Anthony Conway

Well, let's just look at the quarter we've just finished. Clearly, branded products are becoming an increasing share of our total sales. And branded, they are about three-quarters of our sales right now, and we just grew them 35%. I consider 35% a strong growth.

Beth Lilly – Gabelli

Okay. All right. So when you say strong, we are not talking about 15% growth?

Anthony Conway

Well, I would stick to my former statement.

Beth Lilly – Gabelli

Good. Okay. I just wanted to – okay. Okay, good. All right. And when you talk about strong growth, you are talking about on the branded side, because you are – I mean, clearly, that's the focus for the company going forward. And so that –

Anthony Conway

That's – that's exactly right.

Beth Lilly – Gabelli

Okay.

Anthony Conway

We are, as I say, looking at other countries outside of our primary focus, Japan being one of them. And it's very possible that the structure of distribution in a country like that could potentially be private label, but our focus is on the brand.

Beth Lilly – Gabelli

Okay. All right. Second question. FemSoft, you are doing some trials in North Carolina and Florida. Is that correct?

Anthony Conway

Yes. Those trials are actually winding down. That – that's a pilot. We have invested quite heavily in those trials as you know, trying to determine what is going to be our plan and best approach going forward with FemSoft over the next three years. We have concluded fairly strongly that the clinical sell is definitely the best place to go. And let me expand on that a little bit.

Some of the tests we did were, whether or not we can drive a consumer into a continence care center for example, where she would not normally go. The answer to that for most women is no. Even though they have tremendous interest in the product and respond very strongly, they want to see their own doctor. Not only do they want to see their own doctor, they don't want to have to go to the wrong doctor and explain the product or try to convince their doctor about the product. They want to go to their doctor where the doctor is very familiar with the product, knows all about it, is supportive of it, and recommends it.

And that tends to dovetail very nicely with what we have discovered to be the best way to sell our MAGIC technology over the past year. That too was a clinical sell. We are expanding that business by getting new prescriptions, primarily for new patients, because the clinician becomes a believer in it and wants the best technology for their patient.

So we are calling right now with our extended care sales force on urologists and urogynes primarily, some gynecologists, and now we are combining that FemSoft sell in that same call. And the idea is to get a percentage – hopefully somewhere the road, a high percentage of those clinicians prescribing FemSoft on a regular basis to those women who are not candidates for surgery for their incontinence and FemSoft being really the only alternative to provide immediate dryness. So that's the idea.

We already have some clinicians; some of them very important clinicians that are prescribing FemSoft on a regular basis that are strong believers in it. The reception clinically, across the board in Charlotte I would say, has been very, very positive. And we think that's the right way to move it forward. So we will be expanding the sales force, driving it primarily through the sales force, consumer advertising on FemSoft will be initially fairly minimal. So that $1 million spend on the test was exactly that and we think we have just drawn in a tremendous amount of data from it.

Beth Lilly – Gabelli

Okay. So that was a test and now you are going to come up with your three-year plan and build up a sales force and the sell-through directly through the sales force?

Anthony Conway

Correct. And just to give you a little bit of insight, our extended care, meaning our home care sales force, that has been driving these great increases in sales on intermittent catheters, is a staff of three and that is going to be expanded very, very significantly as we incorporate FemSoft into their bag as well.

Beth Lilly – Gabelli

Got it. Okay. All right, so the expenses that you have been incurring are in essence going to go away on the test?

Anthony Conway

That – most of the consumer-driven expenses are going to go away. And our new expenses going forward are going to be combined with our other products as we increase the sales force.

Beth Lilly – Gabelli

Yes, okay. And those will start ramping up fourth quarter or next year?

Anthony Conway

They – mostly next year. We are still finalizing the plans and we are putting together the new management. We just put together a part of the new management structure and announced it internally this week in order to reorganize from the top for what is going to be a pretty significant effort.

Beth Lilly – Gabelli

Okay. And so going forward and – your margins – your gross margins will stay between 40 – it will stay a little bit below 50%?

Anthony Conway

Right around where they are right now until we push the advanced products, meaning the intermittent Strata and FemSoft, to higher levels. And we've kind of consistently been saying that and you saw a little bit of movement this quarter. But we are in that range right now. We will get at some point to 60%.

Beth Lilly – Gabelli

Of course, that comes with volume.

Anthony Conway

Good volume.

Beth Lilly – Gabelli

Yes.

Anthony Conway

Exactly.

Beth Lilly – Gabelli

Okay. And you will take all the excess – you will take the excess profit below the gross profit line and reinvest it into the business, right?

Anthony Conway

We see in the first year that that will be the case, and we see in the second and third year of the plan that we should be able to flow some significant amounts to the bottom line and – like I said to Tyson, we hope to be much more transparent about that in the next conference call than we have been in the past as we finalize our plan.

Beth Lilly – Gabelli

Okay. Okay. All right, I have two more questions. On the Bard conference call – and I don't know if you saw, I mean – on the transcript they – and in the conference call, they talked about their Foley volumes being down. And their point was – is that the hospitals are using less catheters, because they are concerned about catheter infections – based infections. And so as a result, they are being very cautious about using them. And that's what they said, that that was the reason that their volumes were down. But – I mean, your Foley volumes, what were they up in the U.S.?

Anthony Conway

Oh, up over 40% in this quarter, 60% year-to-date. We are not operating with the same obstacles as they are. First of all, I am sure that to some extent, they are right. In the face of infections, it has always been recommended to hospitals, don't use Foleys unless you have to and only use them as long as you have to. So nothing has really changed there, other than there is higher awareness of infections.

Also, they may have mentioned – and I did not hear this, so I expect they are correct on that point. They may have also mentioned that certain procedures are down actually in hospitals. So the demand for Foley usage would be down somewhat. But that has really no bearing on us, we have such a tiny percentage of the market, it's like fertile ground everywhere we look for our sales force, for our expanding our business just because we have such a tiny amount. Bard has the opposite problem, they essentially have all of the business and if it shrinks a little bit, there is nothing they can do about it.

Beth Lilly – Gabelli

Yes. Yes. So you are gaining share obviously?

Anthony Conway

Correct. Right. No, still – it's still tiny. The market – I mean, the Foley market is close to $400 million. So what we have is just a very tiny amount at this point, which is good for us going forward. Like I say, it's just fertile ground everywhere and opportunity everywhere we look.

Beth Lilly – Gabelli

Yes. Okay. Last question, you've got $33 million in cash on your balance sheet and you do have a repurchase program in place, correct?

Anthony Conway

We do, yes.

Beth Lilly – Gabelli

Yes. Did you buy any stock back last quarter?

Anthony Conway

We did not. And the last month – when the stock really – I think it went all the way down to $8.67. And we got asked this question a lot and you have to realize that two weeks prior to the actual end of the quarter, which is mid-June, so we are talking six weeks ago, we move into blackout period and we don't emerge from blackout period until two days from today. So for the last six weeks, had we chosen or wanted to buy stock, we cannot.


So during the worst of this storm here where we were just getting hammered, we could not buy stock. Would we have bought stock right there? I think the answer is just, likely, we would have. But I can't answer definitively, because we didn't – we couldn't make the decision.

Beth Lilly – Gabelli

How about below $10? I mean, the stock today is –

Anthony Conway

I'm not going to set the area where we would buy and I don't think it's strictly related to price. One of the things that I think is important is that the entire market is collapsing. We are not going to try to prop up and save our stock in the face of a collapsing market, because it's just going to keep going down right past us. Now, when we believe our own individual stock is just being undervalued for reasons that are not meaningful and it gets to a point where it just makes good sense to buy it back, that's a different question.

So we have to consider all of those things at the same time. We also have to consider the fact that we really, truly do believe – and Tyson, this goes back to your question, that we will make use of the – accretive use at some point of that $35 million that we have in the bank. And we have – we thought we were going to get another one here just recently and those discussions are right now in a state of abeyance, not to say they won't come back again. So we have to look at that as well.

Beth Lilly – Gabelli

Even given the prospects for your business and where you think you can take the company, in your mind, it doesn't make sense to buy back stock today? Is that what you are saying?

Anthony Conway

No, I am saying that we have to make all of those considerations and I'm not going to pre – set down the preconditions on where we would or where we would not buy stock. Clearly, we have a plan in place and – there – we've bought stock back in the past, as you know. So it's not that we are never going to buy stock back, we do from time to time. I just don't want to pre-commit as to exactly where that point is or when it is.

Beth Lilly – Gabelli

Okay. All right. Those are all my questions. Thanks so much.

Anthony Conway

Thanks, Beth.

Beth Lilly – Gabelli

Thank you.

Operator

Our next question comes from the line of Michael Boulegeris with Boulegeris Investments, Inc.. Go ahead.

Michael Boulegeris - Boulegeris Investments, Inc.

Hi, Jim and Dave. Just finally one on that line of questioning. Given the – really the state-of-the-art technology, which some of us believe to be cutting edge and superior to some of your much larger competitors, aren't you concerned with the market – I mean, surely you are concerned with the market capitalization of Rochester.

I mean, addressing – if one were to have confidence that female incontinence can be a billion-dollar market, then Rochester is in effect addressing close to a total of $2 billion of established markets with leading technology. I believe there is only one other competitor who had a device similar to FemSoft approved by FDA. So in essence, we are about a – even at a 20% premium to current price, someone can come along and scoop up Rochester for about $100 million, using – taking out – using Rochester's cash to fund a substantial part of the acquisition. So surely you must be concerned about the market capitalization – current market capitalization.

Anthony Conway

Is that a question, Michael or?

Michael Boulegeris - Boulegeris Investments, Inc.

Yes. I'm –

Anthony Conway

Are we concerned about it? Well, the answer to your question is that we think that we are severely undervalued.

Michael Boulegeris - Boulegeris Investments, Inc.

But then though we are concerned that a strong rendering might come up and scoop us up at a very – even a 20% premium to existing price would be – well, my judgment would be a gross undervaluing of the company and I hope you would agree with that.

Anthony Conway

I would agree with that.

Michael Boulegeris - Boulegeris Investments, Inc.

And that being so, are there any additional actions that you – I mean, management does have a significant interest in the company obviously that you would consider to try to have our capitalization reflect the bright future of that; you commented on in today's press release. And if so, maybe can you expand on what those might be?

Anthony Conway

Well, I can't go into a lot of detail. I can tell you we are very aware of our market cap. We are very aware of activities that could occur that would be unfavorable and – to us at this lower market cap. Having said that, we have always said to our investors that if an offer came along that truly is good for the shareholders, we would not stand in the way of it. So there is a balance.

We are aware of ways and means to manage those situations. But – and I have looked into it oddly enough in times when market cap is pushed down significantly across the board as it has been, not just for us, but for everybody over the past two years. Oddly enough and counter-intuitively, hostile takeovers go down. And the rate of them over the past two years has gone down fairly significantly. And also, we are a company very, very wrapped up intricately in technology and hostile takeovers of a company where the technology is that complex is not always a good idea.

Michael Boulegeris - Boulegeris Investments, Inc.

Well, certainly that's – that technology gives us intrinsic value that, in my judgment, is substantially higher – that would warn a substantial higher market capitalization. Let me ask you this maybe in another direction. I believe you presented at a Jefferies Conference earlier this year.

Anthony Conway

Yes, we did.

Michael Boulegeris - Boulegeris Investments, Inc.

After this three-year plan is announced, do you think maybe management might make efforts to raise the visibility of Rochester in the investment community?

Anthony Conway

Yes, we are also looking at that as well. We – I can tell you that we have been considering some IR and professional PR firms. We have actually already had a significant long meeting with one of them. It's very likely that we will take some of those actions. I also think that as the market itself corrects and as money that's on the sideline moves into the market that our price will correct right along with that. I think that's part of it. But we are looking at those types of things, yes.

Michael Boulegeris - Boulegeris Investments, Inc.

You discussed earlier the deployment of cash from an acquisitive standpoint. Could you give us some general metrics that management would use, immediately accretive or accretive after one year, two years, or?

Anthony Conway

Basically, the – all of the things that we have been looking at would be essentially immediately accretive.

Michael Boulegeris - Boulegeris Investments, Inc.

And in terms of – would your focus more be on a technology type of an acquisition or more so in terms of, let's say, market penetration of existing products from a sales standpoint? Could you give us some –?

Anthony Conway

Yes, more of the latter for sure where we would immediately gain additional market share, some with our products and some with related products.

Michael Boulegeris - Boulegeris Investments, Inc.

Given the instability of the euro, let's say, in the quarter, my – I was so impressed with really the results. It seems like in U.K. that continued to be very strong. But has some of the turbulence in Europe perhaps provided some opportunities to perhaps emulate the – what Rochester has successfully done in the U.K. into – on to the main continent?

Anthony Conway

We are working very hard on that. We hired – it's been about a year now where we have got a dedicated sales director dedicated to mainland Europe. Well, I say dedicated, he also operates somewhat in the Middle East, but primarily dedicated to mainland Europe. We are looking there at enhancing the distribution that we already have, potentially gaining new distributors, and Europe is our primary focus for – mainland Europe is our primary focus for potential acquisitions.

Michael Boulegeris - Boulegeris Investments, Inc.

And has the weaker euro enhanced that potential opportunity or not?

Anthony Conway

Let's – so far, it has not. As far acquisition, it has not. As a matter of fact, if anything, it has put a little bit of pressure on the fact that we get a little bit of complaining about how high the prices are of goods manufactured in the United States, but we have not had any issues from it. We sell into Europe in dollars.

Michael Boulegeris - Boulegeris Investments, Inc.

Okay. And with respect to the pilot program, my understanding then is DTC as a no-go, basically is what you said. Is that correct?

Anthony Conway

For the large part, I would say yes. There would be some efforts that are DTC that are continuing. I was talking about DTC directly from us on a massive scale is pretty much a no-go. But we have a distribution partner that we are doing some DTC activities with. Some of those will continue, not just on FemSoft, but on our other products. There is some DTC activity going on right now with our intermittent catheters, which you are likely to see in the near term. We actually have two partners doing some national advertising on the intermittent side of it.

So there will be some direct-to-consumer activity. What I was saying, there won't be any massive scale where we feel we can go on to a city and drive the business by going directly to the consumer and get them into a continence center, they want to see their own doctor, at least for now. That could change when the FemSoft becomes more well-known and popular. We are – but right now, women need to be told and – by someone they trust that this is something they can do. There is an initial hesitance that I've talked about before that they don't know if they can do this and they don't have a friend who is doing this. They want to go to somebody they trust.

Michael Boulegeris - Boulegeris Investments, Inc.

Does – but did that argue for Rochester maybe teaming up with a larger sales force that already has those call points in place? I mean, wouldn't that – in other words, three years from now, is the established market for female continence for this product going to be at $100 million or is it going to be $500 million?

Anthony Conway

No, we don't know. Now, one of the things you have to consider is that in the United States at least, all these home care products go through distribution, which means there are already two margins that have to be divided up for the product from the reimbursement rate, do you follow me? Now, if you link up to a third one, in most cases, there just aren’t three good margins in these products.

Michael Boulegeris - Boulegeris Investments, Inc.

Okay. And lastly on your three-year plan, which my understanding is you are going to be announcing next quarter –

Anthony Conway

Well, it's not exactly an announcement. I – what I'm saying is we are going to be more transparent in explaining what our three-year expectations are.

Michael Boulegeris - Boulegeris Investments, Inc.

And those goals – will those goals include bottom line EPS, so at least –?

Anthony Conway

Yes, we will give your some guidance on that.

Michael Boulegeris - Boulegeris Investments, Inc.

Okay. Will it also include market share goals?

Anthony Conway

Well, I think from the top line numbers, you will get at least some idea of what the market share goals would be.

Michael Boulegeris - Boulegeris Investments, Inc.

Okay, very well. Well, congratulations on a solid quarter.

Anthony Conway

Thank you, Mike. I appreciate it.

Operator

Ladies and gentlemen, that does conclude our Q&A session today. I would like to turn the call back over to Mr. Conway for any closing remarks. Please proceed, sir.

Anthony Conway

Thank all of you for attending, and we appreciate your questions and your interest very much. And we will talk to you next time. Thanks again.

Operator

Ladies and gentlemen, thank you for your participation in today's conference. That does conclude the presentation, you may disconnect. Have a wonderful day.

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

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

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