Oxysure Systems Inc. (OTCPK:OXYS) Q2 2014 Earnings Conference Call August 15, 2014 9:00 AM ET
Casey Stegman - IR
Julian Ross - President and CEO
Dan Trang - Stonegate Securities
Welcome to the Oxysure 2Q14 Earnings Call. My name is Don and I'll be the operator for today’s call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. Please note that this conference is being recorded. And I'll now turn the call over to your host Casey Stegman, Investor Relations. Please go ahead.
Thank you, Don. Good morning, everyone, and welcome to the Oxysure second quarter 2014 financial results conference call. I am Casey Stegman and I will be the host for today’s call. With us today are, Mr. Julian Ross, Chief Executive Officer and Chairman of Oxysure Systems. After the presentation, Mr. Ross will be taking your questions. As a reminder, this discussion may contain sort of forward-looking statements. These statements are subject to the factors which may cause our plans to change or actual results to differ materially from described in this presentation. Additional information regarding these factors is discussed in our Annual Report on our Form 10-K and our Form 10-Q, another filings which make the security with Securities and Exchange Commission. We assume no obligation to update publically any forward-looking statements whether as a result of new information, future events or otherwise. All our filings can be found in the investor section of our Web site under the SEC filings link.
And now for the rest of your presentation, I would like to turn the call over to CEO and Chairman of Oxysure, Mr. Julian Ross. Julian?
Thank you, Casey. Good morning, everyone and welcome. Coming out of the Q1 this year, we are resurgent. We posted another strong quarter and what can I say here we go again. Revenues were up 42% from last year at $678,111 for the quarter. This is our eight consecutive quarter of double digit growth and some of you might recall during those eight consecutive quarters we had five quarters of triple digit growth.
Gross profit was up $89,656 or 27.7% to $413,255. Other income was up 123% to $42,465. SG&A was up 26% to $689,248. Net loss per share was flat at $0.01 for the quarter. And our model $615 shipment was up 65%. If you not recall from our last earnings call, we indicated that we expect our margins to be restored back to what we are accustomed to in the mid to high 50s and low 60s range.
As you can see, we came in at 61%, well in line with our expectations. You should note that our gross margin last year was positively impacted by non-product revenues such as licensing revenues. Gross profit was up $89,656 and 27.7% to $413,255 up from $323,599 in the second quarter of 2013.
Revenues increased as [indiscernible] by 42% to $678,111 from $476,071 in the second quarter of 2013. The increase was primarily driven by an increase in product sales in the United States. Now as you might expect as we grow and we need to balance the need to growth and enhance investment and growth with the need to watch the bottom line.
We believe our results indicate this balancing act is working well. This past quarter, we took the opportunity to invest in sales and market share acquisition, marketing and branding, equipment, research and development, and corporate development.
Sales and marketing expense was up 15%. R&D was up 30%, other G&A was up 12% and interest expense was up 219%. Total SG&A was up 26% to $689,248 from $547,828 last year. We believe we will be pleased with the returns on these investments in new course.
Our net loss for the quarter was just under $276,000 or $0.01 per share as compared to $224,000 or $0.01 per share for the first quarter last year. Our net loss during the second quarter was also about 100,000 less than the first quarter of this year mainly on a consecutive basis.
For the six months revenue return we look at the slide. For the six months, revenue was up 45% to just over $1 million. Gross profit was 10% to approximately $564,000 from $511,000 last year and gross margin percentage was down to our historically expected range at 55%. Please recall the margin percentage last year was hiring part due to the effect of a positive impact of non-product revenues last year.
Our shipments of Model 615 increased by 65% year-on-year. As of June 30, 2014, replacement cartridges shipped represented 39.7% of the know n Model 615 installed base, up slightly from 39.1% as at March 31, 2014, which is the first half of our balance sheet. I am going to leave the financial statements for your view but we’ll point out a couple of items. We had almost a million receivables and we have already started collecting on those receivables.
One of the items that may not be quite obvious with our current ratio is over 1 at a healthy 1.11. On the library side, our notes payable went up slightly by about $80,000 and here is our income statement to your review. The net loss per share of $0.01 basically account for weighted average shares outstanding of 25,996,642 and 23,167,439 for the quarters ended June 30, 2014 and 2013, respectively.
Looking ahead to the rest of the year, we plan to continue our consecutive quarterly pace as we achieved more different width in the U.S. market and as we start realizing the benefits of deals overseas. We are much further along with process with start last quarter and before, including the development of our overseas footprint, our product development and our corporate development.
For example we are close now on at least three overseas launches. We are in negotiations on multiple new overseas distribution agreements, all with minimum sales commitment components. Countries involved include Thailand, Taiwan, Greece, Saudi Arabia, Singapore and China, and we expect to be adding new countries to this funnel.
We have made progress with the development of our direct to consumer plan. We have made considerable progress regarding the second part of our Australian TGA approval. We continue to add new distributors in the U.S. and strategic accounts while working to make our entire sales channel more effective.
We have advanced talks with high calibrate executives to expand our team. And we have made considerable progress with our asset tracking and incident reporting system. Our customers are showing excitement about this and we are considering various revenue models with this new solution to track not just Oxysure devices but also AED and AED accessories and other medical equipment such as IOS [ph] patients, Stryker chairs and the like.
In summary, we are resurgent. We had another excellent building quarter. We are [indiscernible] and on track and a lot of our hard work and your support is just starting to pay off. We are successfully balancing our growth and bottom-line objectives. Our strategy of diversifying our solutions to military and other markets is paying dividends. Our growth over the last eight quarters has been consistent and in some cases even dramatic.
And we are presented with new opportunities more and more frequently now. While we cannot discuss any details at this time, some of these we expect to be announcing soon. And finally while we are executing on our plan, we have not sight of our strategic long-term goals. We are making progress on all fronts and we expect to advise you of some milestones in the near future.
And that concludes the results portion of my prepared remarks. It’s Friday and I’ve promised some people I would be brief today and I hope I was. As always this presentation, the audio file of this call and our 10-Q filings will be available on the Investor Relations section of our Web site.
At this time, I will hand the call back to the operator for Q&A. Operator?
Thank you, we will now begin the question and answer session. (Operator Instructions) Our first question comes from Jason Napodano from Zacks Investment. Please go ahead.
This is actually David. I am dialing in for Jason today. I was wondering if you could talk a little bit about what are the steps necessary to get product launched in Europe now that’s you got approval for it?
Thank you, David for the call. The most important step is behind us, which is of course the CE marking approval, which we received back in the first quarter. There are various steps and to some degree it's dependent on the country and the distributor that we have. But it includes and obviously not limited to language translation, collateral development, market development, pricing. In some countries our distributors are sort of acting as master distributors, so they developing resellers and on the deal areas of underneath them, so it’s a two-tier structure and so those are all kinds of things that are happening behind the scenes. It takes a little bit of time, maybe a few months, but once we hit the ground it will be running. And so that’s in a nutshell some of the things that taking place in preparation for launch.
Okay, do you have any type of timeframe when the first launch in Europe might occur?
I don’t of course have a definitive time but I feel confident that we will see in the third quarter at least one or two or maybe all three getting out the gate. I know that some of the guys are very close. They have spent a lot of effort, time and resources on getting ready for the market and in some cases they have developed sales and have put out quotes -- but there basically sales have been developed and so hopefully by the time we launch they will be right away.
Okay great. Now as far as your R&D with the military application, are there grants available or in place for this work or is this something that’s being funded fully by the Company right now?
They are sort of enthusiast [ph]. There are some grants available through entities like NIH and so forth. At the moment we are getting some form of support from certain sections of -- for example Special Forces, they have this C-STAR Division that’s contributing things like testing and the like and so there is some level of support, not necessary financial. And we think that as we prove ourselves in some areas, we will be very likely candidates for larger support and even financial support via grants and other things in the future.
And when might the company be able to disclose more about the project themselves. I don’t how much the military have been keeping under wraps, but just curious when we do you hear more about what the actual applications are?
We have previously stated that one of the projects we’re working is a handheld device for [indiscernible] and Combat Use that is still obviously the same, but unfortunately this series for Special Forces and [Spec Ops] is very keen for us to not say too much about it for understandable reasons.
Okay and my last question is the increase in sales in the U.S. is this mostly driven by new customers or is it a mix of repeat and new customers?
It’s a mix of repeat and new customers and also the military.
Thank you. Our next question comes from Dan Trang from Stonegate Securities. Please go head.
Dan Trang - Stonegate Securities
Wondering what is the biggest hurdle towards adoption right now? What’s the biggest challenge you’re facing toward selling your value proposition?
We believe the biggest challenge for us is awareness and we believe that our direct-to-consumer plan will be a significant factor in promoting that awareness and also education of the market of product and its value proposition.
Dan Trang - Stonegate Securities
Now the direct-to-consumer, how do you get your -- how do you build brand awareness? How does the end-consumer understand why having your device is important?
We think there is some very easy ways to do this and of course we have a plan that part of that involves testing learn and so what you do is you don’t go to the market with organs bleeding. You would do some testing learn and then as you figure out the formula, you basically scale it from there. Now by way of example, one of the ways you could do this is to -- of course you want the awareness and you want to the branding but you also want singles added process and so to accomplish that you have to be very specific in your targeting and one example of how we can do that is to go out for example the asthma market as a for instance. We have always talked in the past about at risk markets as opposed to placement markets.
To date all of our sales efforts have been focused on placement markets. But yes when the areas of segments of the at-risk market is asthma, so we go to that market with a very targeted message. You can target the entire population, which is some 23 million people or you can target some segment of that let’s say kids between ages of 5 to 17. That sub-segment is approximately 6.8 million kids. And so in that particular case, you would target a message to the parents. We think that that is a [indiscernible] approach and strategy and very little price resistance. But certainly you would target your message to your audience and in the process you should generate a lot of sales and get at the same time branding and awareness and that mind you will also crossover to the institutional markets and the sales efforts that we are in going there because they will benefit from that [indiscernible] demand that you will get form the strategy.
Thank you. Our next question comes from Juan Noble from Taglich Brothers. Please go ahead.
This is actually Howard pinch-hitting for Juan today. Could you describe a little bit of the typical sales cycle from when you get in touch with a potential commercial customer and how long does that process take?
It used to be a few years ago. That sale cycle was a fairly lengthy process. We’re finding that the sales cycle is getting shorter and shorter as we get better and as the awareness gets up there. And the clinical trial education market, the cycle has shortened for us significantly as our name has grown in that market segment and as we have gotten better at it. There are multiple constituencies that we sell to, we like to sell at school district level for instance and in that case we have multiple constituencies that you have to address.
For example you’ve got the nurses or the district nurse, you have the administrators and you have the coaching staff. And typically to shorten the cycle you want to have also three of those constituencies in your first presentation. On commercial side, the sale cycle is also getting shorter and shorter. It’s shorter typically on the commercial side than it is in the clinical trial education side. This represents many more components there. But we are encouraged about how that is evolving and it’s getting shorter and as we get better and as our name gets out there, it’s getting shorter all the time.
And how would you say I guess for the schools, how does the funding come about there? Are there grants or it is just part of the overall school budgets?
That’s a great question because it’s really at the core of our success, only part of this our success in clinical trial education market. We have learned some things, as we went along. For example typically if you go in to the sport side, if you go through the athlete director, that approach, there is usually more budget available as compared to maybe let’s just say going through the nurses office. They have their own budgets typically. And we are finding it easier going through the athletic side. If schools or districts are at a situation where the budgets are constrained, we have found that our product actually qualifies to go through the technology budget. So we have learned those kinds of nuances about how to excess the budget accordingly.
Thank you. At this time, I have no further questions. I will now turn the call back to Julian Ross for closing comments.
Thank you, operator. That wraps up our call for today. On behalf of the Board and I thank you very much for participating and thank you for continue support. Have a great weekend and you will hear us from us again soon.
Thank you ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.
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