Bioanalytical Systems' (BASI) CEO Jackie Lemke on Q2 2014 Results - Earnings Call Transcript

May.15.14 | About: Bioanalytical Systems, (BASI)

Bioanalytical Systems, Inc. (NASDAQ:BASI)

Q2 2014 Results Earnings Conference Call

May 15, 2014 11:00 AM ET

Executives

Jackie Lemke - President, CEO and CFO

Analysts

Operator

Welcome everyone to the Bioanalytical System Second Quarter Results Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. (Operator Instructions). As a reminder this conference is being recorded today Thursday May 15, 2014.

I would now like to turn the conference over to Ms. Jackie Lemke, President, Chief Executive Officer and Chief Financial Officer. Please proceed.

Jackie Lemke

Thank you operator and thank you all for joining us for BASi’s fiscal 2014 second 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. The trend is settling proving operating performance of BASi continued in second quarter.

Revenue increased 14.7%, gross profit was up 59.9%, gross margin improved by 9.6 percentage points. Operating income increased by $105,000 and EBITDA increased to $504,000 compared to $497,000 last year. The improvement in our financial performance was incremental and are establishing a new $7,500,000 credit facility earlier this month was Huntington National Bank.

The new facility consists of $5,500,000 term loan at loss of 325 basis points and $2 million revolving line of credit at LIBOR plus 300 basis points. The substantial more favorable terms and the in long term debt and line of credit replaces our new credit facility, lowers the excise borrowing costs significantly and enhances our ability to implement our growth plan.

These tangible benefits obviously are important to us but in addition I think our new credit facility is stronger and confidence in BASi’s future and we are pleased that The Huntington National Bank has recognized our progress. To the three months ended March 31, 2014 revenue increased 14.7% to $5,912,000, this compared the revenue of $5,156,000 for the second quarter of fiscal 2013.

Service revenue increased 23.4% to $4,526,000 to this year’s second quarter compared to $3,667,000 for the prior year. This increase primarily reflected higher toxicology and bioanalytical revenues offset slightly by lower pharmaceutical analysis revenue.

Product revenue decreased 6.9% for the second quarter of fiscal 2014 to $1,386,000 compared to $1,489,000 primarily due to expected upgrades postponed to the third quarter.

Gross profit increased 59.9% to $2,012,000, or 34% of revenue, compared to $1,258,000, or 24.4% of revenue last year. Operating expenses for the second quarter increased to $1,907,000 versus $1,267,000 for the prior year. This reflected increases is in selling, G&A and R&D expenses and is in line with our business plan.

As I have explained on prior calls, we are leveraging our existing laboratory capacity and an incremental investment in people and skills to drive growth. We took steps to upgrade BASi's executive leadership during the second quarter, as we continue to build a management team with the depth, experience and dedication to take the company to the next level.

Operating income for the second quarter of fiscal 2014 increased to $105,000 compared to an operating loss of $9,000 last year.

Net loss for the second quarter of fiscal 2014 was $219,000, or $0.03 per basic and diluted share, this compares to a net loss for the second quarter of fiscal 2013 of $311,000, or $0.04 per basic and diluted share. Net loss for both the quarter and the same quarter of prior year included charges of $200,00 and $142,000 respectively for non-cash increases in the fair value of the warrant liability, which was established in May of 2011 at the time public offering. Excluding these charges, the non-GAAP net loss for the second quarter of fiscal 2014 was $19,000 versus a non-GAAP net loss for the second quarter of fiscal 2013 of $169,000, a $150,000 improvement.

The change in the fair value of the warrant liability is a function of the number of warrants outstanding at the end of each quarter and increase or decrease in the fair value of BASi's stock from one quarter to the next as calculated using the Black Scholes formula. As the fair value of the stock increases and warrants remain unexercised, the charge to the income statement recorded increases. There is no cash impact, no EBITDA impact as a result of this fair value adjustment.

EBITDA for the second quarter of fiscal 2014, this $504,000 compared to EBITDA of $490,000 for the second quarter of fiscal 2013. For the six months ended March 31, 2014, revenue increased 10.7% to $12,132,000. This compares to revenue of $10,960,000 for the first six months of fiscal 2013.

Gross margin for this year’s first half increased 33.5% to $4,157,000 or 34.3% of revenue compared to $3,114,000 or 28.4% of revenue for last year's first half. Operating income increased 92.9% to $567,000 compared to $294,000 a year earlier.

Net loss for the first six months of fiscal 2014 was $881,000 or $0.11 per basic and diluted share. This compares to a net loss for the first six months of fiscal 2013 of $55,000 or $0.01 per basic and diluted share. Net loss for both the first six months of fiscal year 2014 and the first six months of fiscal year 2013 included charges of $1,161,000 and $25,000 respectively for non-cash increases in the fair value of the warrant liability, which was established in May of 2011 at the time of the public offering. Excluding these charges, the non-GAAP net income for the first half of fiscal 2014 was $280,000 versus a non-GAAP net loss for the first half of fiscal 2013 of $30,000, a $310,000 improvement.

As previously noted the change in the fair value of the warrant liability is a function of the number of warrants outstanding at the end of each quarter and increase or decrease to the fair value of the BASI stock from one quarter to the next as calculated using the Black-Scholes Formula.

As the fair value of the stock increases and warrants remain unexercised, the charge to the income statement recorded increases. There is no cash impact or EBITDA impact as a result of this fair value adjustment. EBITDA for the first six months of fiscal 2014 was $1,416,000 compared to EBITDA for the first six months of fiscal 2013 of $1,342,000.

Turning to the balance sheet, at March 31, 2014, cash and cash equivalents were $379,000, down from $1,304,000 at September 30, 2013. This was due primarily to the pay-off and termination of our [line] credit in quarter one.

As we’ve previously reported, we have extended the maturity of the mortgage on our debt for October 2014. As a result this debt amounting to $4.953 million is classified as current on the March balance sheet. We similarly use our new term loan facility to pay-off the short-term debt.

Total long-term obligations, primarily leases were $331,000 at March 31st versus $471,000 at September 30, 2013. Shareholders’ equity increased to $9.621 million compared to $9.459 million at the end of the last fiscal year.

As I said on my first quarter conference call, flagship is will for the second quarter. We are pleased by our second quarter results, but not satisfied. We believe we can and will do better. We have focused our marketing effort on BASi’s established strength in specialty assay and drug discovery, regulatory excellence and our Culex automated sampling systems. As evidenced by the 23.4% increase in service revenue for the second quarter, this is generating the uptick in orders in our traditional line of businesses that we have hoped for.

Our efforts are also creating opportunities for us to win contracts in new areas such as discovery work on stem cell therapies and related preclinical work. This expansion of our portfolio of services especially important as we work to increase our book of business with the current generation of smaller specialty drug development organization to complement our position among the large pharmaceutical companies we have searched for years.

The smaller firms generally do not have the extensive scientific and regulatory capability to acquire significant drug candidates through the FDA approval process. We are seeking to develop a sustainable competitive advantage by balancing requirements of our large pharmaceutical company client with our higher taxable service approach to smaller biotech accounts. Our celebration of BASi’s 40th anniversary here continues. We are optimistic about the outlook for the year’s second half and we believe we are also on track to achieve our long term goal -- long term growth and profitability.

Operator, we are ready for the first question.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions). And your first question comes from [Lenny Dunn with Freedom Investors Corporation]. Please proceed.

Unidentified Analyst

Good morning, Jackie.

Jackie Lemke

Hi, Lenny

Unidentified Analyst

First, a comment, I am very happy to see that we have finally straightened out our finances or say you have. And we no longer have this sort of (inaudible) coming up every September 30 and at reasonably favorable rates which accounts too. What do you project the actual interest cost savings will be, not on the line of credit so much but under the fix part?

Jackie Lemke

Yes, if I look at fiscal year 2013, our interest expense is about $650,000. If I just take the next 12 months, I think our interest expense will be less than $300,000. So the impact is…

Unidentified Analyst

[30,000]?

Jackie Lemke

Yes.

Unidentified Analyst

Yes. That will effectively help the bottom line. Now second though we’re increasing sales, we clearly aren’t increasing the rate that we’d like. Do you think that we’ll start seeing better sales increases in the second half of the year?

Jackie Lemke

Yes, I think some. We expect to increase sales in the second half of the year.

Unidentified Analyst

Okay. So the new sales people are starting to finally workout, I realize there is a long lead time, but are you -- would you characterize the staff as currently assembled as the staff you want then?

Jackie Lemke

Yes, they are becoming effective in getting leads and getting into people who are interested and it just takes several months to develop the clients now to what we can do for them and that’s what we are working on.

Unidentified Analyst

Okay. And have you made any progress on replacing the [movement] around the lab or is that still a work in progress?

Jackie Lemke

No, I will be announcing in the next few weeks someone to come in as our Vice President of Bioanalytical. He is accepted and I just need to get some of the paper work in order and we’ll make an announcement.

Unidentified Analyst

Okay, great. Because I know you are looking for somebody that would actually bring some business to the table.

Jackie Lemke

Yes.

Unidentified Analyst

Yes. So that is very good news. And then my final question is about the warrants, I know we exercised some of our warrants in April, which were just showed up under March 31 balance sheet. Were there other people in April that exercised or is it going to be fairly static as what we know we exercise?

Jackie Lemke

No, I don’t think we saw so many exercises in April, no. So right now, as of the end of March, we had about 60% of the warrants unexercised, still outstanding, about $810,000.

Unidentified Analyst

Okay. That always makes the earnings announcement more confusing than it should be…

Jackie Lemke

I know.

Unidentified Analyst

Owning is the way it is, because it really has no effect on anything. But any how the balance sheet looks good, even though the cash has decreased because you used the cash effectively. So, it looks like we're in very good shape going forward and ready to start leveraging it up.

Jackie Lemke

Yes.

Unidentified Analyst

Okay. Well, thank you very much.

Jackie Lemke

Thanks Lenny.

Operator

And your next question comes from Ethan Stark; please proceed Ethan.

Unidentified Analyst

Good morning and congratulations on a nice quarter.

Jackie Lemke

Thank you.

Unidentified Analyst

I was wondering, the press release statements you have upgrade in executive leadership, could you expand on that please?

Jackie Lemke

We mentioned, yes the executive yes. We did retire senior director for the pharmaceutical analysis business, he started in January, PHD very effective already he began to test some programs. And as I just mentioned we are hiring vice president for Bioanalytical. And those were two key leadership roles that we just wanted to get people who are more looking towards potential growth opportunities bringing in some of their contacts, some of their relationships.

Unidentified Analyst

Okay, great. And how will be increased selling in R&D expenses pay-off down the road, do you see that -- and what's the beat time, it could be a long time before you see results, but just curious about that?

Jackie Lemke

Right. Well, I think we are seeing results on the business development side and we are -- from the selling, the general side we have more engineers currently in the company helping us to design next generations of our instruments. So I think you're going to see a pay-off in the next 18 months to two years.

Unidentified Analyst

Okay. Sounds good, looking forward to future quarters.

Jackie Lemke

Okay. Thank you.

Operator

And there are no more questions in the queue at this time ma'am.

Jackie Lemke

Okay. Well, thank you operator and thank you everybody for joining and for speaking with me about our second quarter conference call. We look forward to speaking with you on our fiscal 2014 third quarter call in the next three months. Thank you very much.

Operator

Ladies and gentlemen that concludes the presentation for today's conference. You may now all disconnect. And have a wonderful day.

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