Immucor CEO Discusses F2Q2011 Results – Earnings Call Transcript

Jan. 7.11 | About: Immucor, Inc. (BLUD)

Immucor, Inc. (NASDAQ:BLUD)

F2Q2011 Earnings Call Transcript

January 7, 2011 8:30 am ET

Executives

Michele Howard – VP, IR

Nino De Chirico – President and CEO

Rick Flynt – EVP and CFO

Analysts

Quintin Lai – Baird

David Turkaly – SIG

Joshua Zable – WJB Capital

Bill Quirk – Piper Jaffray

Scott Gleason – Stephens, Inc.

Daniel Owczarski – Avondale Partners

James Sidoti – Sidoti & Company

Operator

Good morning, ladies and gentlemen. Thank you for standing by and welcome to the Immucor conference call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Michele Howard, Immucor's Vice President of Investor Relations. Ms. Howard, you may begin.

Michele Howard

Good morning and thank you for joining us to discuss our second quarter fiscal 2011 results. Participating with me on this call are Dr. Nino De Chirico, our President and Chief Executive Officer, and Rick Flynt, our Chief Financial Officer.

Before we begin, I'd like to read the following Safe Harbor statement. Many statements on this call constitute forward-looking statements that reflect our judgment about future events and circumstances, including statements or projections about future financial results or economic performance, or statements about plans and objectives for future operations.

Actual results could differ materially from these forward-looking statements. The company does not intend to update these forward-looking statements unless required to do so by the federal securities laws. For a detailed discussion of factors that could cause actual results to differ from these forward-looking statements, please refer to yesterday's press release and the company's most recent SEC filings.

We'll make some brief comments and then go to Q&A. I would now like to turn the call over to Nino.

Nino De Chirico

Thank you, Michele. Good morning. I would like to start this morning with a brief update on overall industry conditions. The US market continues to experience softness, which we believe is primarily due to the macroeconomic environment. Demand for blood from hospitals continues to be weak, which is negatively impacting testing volume.

We believe the total decline in US blood demand for fiscal year 2010 and 2011 combined will be between 6% and 7% as compared with fiscal 2009 levels. This is confirmed by both internal and external data. We believe the lower blood demand is primarily driven by the economy and it’s evil [ph] influenced by the number of insured and under-insured people. The lower blood demand is evident in our lower year-over-year reagent revenue.

For our fiscal year 2011, which ends in May, we continue to expect industry demand in the US market but to be 2% to 3% below fiscal 2010 depressed level. Over the longer term, due to the aging population and with an improvement in the macroeconomic conditions, we believe that the industry in the US will return with historic low-single digit growth rate.

As we discussed last quarter, we believe that instrument orders have been negatively impacted by the weak economy, which has resulted in a longer sales cycle and more economic buyers involved in the process such as hospital purchasing groups and CFOs. As the selling process has become more complicated, we have taken steps during the second quarter to compete more effectively in this difficult environment. We continue to expect our effort to have a positive impact on orders in the second half of fiscal 2011.

Our instrument orders in the second quarter met our expectations. Let me start with NEO. We had 26 NEO orders in the second quarter with 9 in the US and Canada and 17 orders in the rest of the world, including distributors. We have received regulatory approval in all of our direct markets for NEO, and we have been very pleased with the favorable reception of this new high volume instrument as received from end users. With expanded functionality, faster turnaround times and highest throughput available worldwide, we believe NEO is in a category of its own in meeting the needs of high volume labs.

Our competitive takeaway rate for NEO in the quarter was roughly 35% and approximately 15% of the orders were capital sales. In our release last night, we reiterate our new order guidance. We continue to expect to receive between 80 and 120 orders for NEO in fiscal 2011. We continue to expect approximately 20% of the orders will be competitive wins and approximately one-third of the orders will be capital sales.

Turning to Echo, we had 29 Echo orders in the quarter, with 16 orders in the US and Canada and 13 orders in the rest of the world, including distributors. Our Echo orders have been nowhere in the past several quarters because of the economy and more complicated selling process in the US market that I discussed earlier.

Echo was specifically designed to meet the needs of low volume labs, and despite its great success in the three years since its launch, we believe there is still a lot of opportunity for Echo given both the large number of manual customer in the US and the superior functionality of Echo compared with the competitive instrumentation.

As I said earlier, we continue to expect our Echo order rates to pick up in the second half of fiscal 2011 and we continue to expect to receive between 140 and 180 orders for Echo in fiscal 2011. At the end of the second quarter, we had instrument order and backlog of 106 Echo and a combination of 51 of Galileo and NEOs.

We are continuing to work on our molecular offerings, which we believe is an important part of our future growth. We showed the prototype of our new molecular automated instrument at ABB in October, and it generated a lot of interest. We are targeting to our researches on instrument available towards the end of the first half of calendar 2011.

When we get closer, we will update you on our FDA and CE Mark submission plans for our molecular offerings, including the platform. As you may remember, the current semi-automated instrument and it says are CE marked in Europe and can be used as test of record. The full marketing over the new platform will begin after regulatory approval, both in the US and in Europe.

Before I turn the call over to Rick to give you a summary of our second quarter financial results, I want to comment briefly on our share repurchase program. We have 2.2 million shares remaining on our share repurchase authorization. We did not repurchase shares in the most recent quarter. As you know, we do not comment on why we do or do not repurchase shares at any given time. I can assure you though that we believe share repurchase is a good use of our free cash flow. And we now turn the call over to Rick.

Rick Flynt

Thanks, Nino. In our second quarter of fiscal 2011, revenue was $81.5 million, down $1 million or 1% compared with the second quarter of fiscal 2010. Currency negatively impacted revenue by $1 million. The year-over-year revenue decline was attributable to positive price contribution of $900,000, offset by negative volume contribution of $900,000.

Volume contribution was negatively impacted in the current year quarter compared with the second quarter of fiscal 2010 due to lower sales volume of reagents because of weaker industry demand in the US as well as fewer ship cycles. When looking at our reagent revenue by product line, additional reagents declined primarily due to lower sales volume because of weaker industry demand in the US market.

Capture revenue growth was negatively impacted by approximately $2.1 million related to fewer ship cycles and the accounting for instrument reagent rental, which requires Capture revenue to be reclassified instrument revenue. Capture reagents were also negatively impacted by lower same-store sales because of the weak US market. These negative impacts were partially offset by additional Capture reagent revenue generated from incremental instrument placements.

Turning to gross margin, consolidated gross margin was 71.6% in the second quarter compared with 70.4% in the prior year quarter. Prior year margins included $1.8 million related to our quality project, of which external spend was completed in the third quarter of fiscal 2010. There was no material external spend related to the project in the current year quarter. Current year margins were negatively impacted by unfavorable manufacturing variances resulting from lower production volume.

Additionally, fluctuations in foreign currency exchange rates negatively impacted gross margins by approximately 50 basis points. Capture margins were also negatively impacted by instrument reagent rental accounting, which requires a portion of the reagent revenue to be reclassified instrument. But none of the costs are reclassified.

Operating income was $32 million or 39.3% of revenue in the current year quarter compared with $30.7 million or 37.2% of revenue in the prior year quarter. Operating expenses were lower year-over-year primarily due to lower sales and marketing expenses and lower G&A expenses. Our tax rate for the quarter was 34.3% compared with 35.9% in the second quarter of last year. We continue to expect our effective tax rate for fiscal 2011 to be in the range of 34% to 35%.

Diluted earnings per share was $0.30 in the current year quarter compared with $0.28 for the same period last year. Cash flow from operations for the first six months of fiscal 2011 was $47.7 million compared with $34.1 million last year.

In our release last night, we reiterated our fiscal 2011 guidance. We continue to expect revenue to be in the range of $320 million to $332 million and gross margin to be in the range of 69.5% to 71.0%. We expect lower gross margins in the second half of fiscal 2011 because of the increased number of instruments expensed from capital sales of NEO as well as unfavorable manufacturing variances due to lower production volumes. We continue to expect diluted earnings per share to be in the range of $1.08 to $1.18.

Now I’ll turn the call back over to Nino for some closing remarks before we begin Q&A.

Nino De Chirico

Thank you, Rick. In this difficult environment, we believe that we are making the right adjustments in our business to foster growth when macroeconomic conditions improve. Given our innovation, innovative offering, and market-leading products, we continue to believe in the growth potential of the business over the long-term. At this point, I’ll give the call back to operator to begin our Q&A.

Question-and-Answer Session

Operator

Thank you. (Operator instructions) Our first question today comes from Quintin Lai. Your line is open and please state your company name.

Quintin Lai – Baird

Quintin Lai from Baird. Good morning, all, and happy New Year.

Nino De Chirico

Happy New Year, Quintin.

Rick Flynt

Good morning, Quintin.

Quintin Lai – Baird

First question I have for you, Nino, is that you expect that the changes in marketing and getting the Echo out there to accelerate in the back half of the year? Given that the quarter that just ended in November, we've got December and some of January, are you seeing any pickup here recently in terms of Echo orders?

Nino De Chirico

Well, like I said – like I said also in the previous conference call, this economy is giving some chilling effect on orders. Like I also said this morning, during the second quarter, we have taken steps to compete more effectively in this difficult environment. And we believe that in the second half of the year we will see the results of this effect.

Quintin Lai – Baird

And then I think that you talked about the expectations for NEO to be, I think, one-third capital sales. What are you expecting for Echo in the back half of the year?

Nino De Chirico

Well, I don’t think the purchasing mix will change for Echo. I still believe that would be predominantly reagent rental.

Quintin Lai – Baird

And then final question from me and I’ll jump back into the queue. In November, the DOJ sent you a notice that they closed their investigation. So does that impact you in terms of lower G&A costs on legal going forward? And I guess what should we expect now that that’s closed?

Nino De Chirico

That's partially yes. We will see maybe some less expenditure for that in that direction, but as you know, legal expenses is also unpredictable and there are still some other action we need to confront in terms of legal.

Rick Flynt

With respect to Q2, you notice that G&A expenses were down. That’s primarily driven by legal expenses, but we do expect the moderation of those expense levels.

Quintin Lai – Baird

All right. Thank you very much. I’ll jump back in the queue.

Operator

Our next question comes from David Turkaly. Your line is open and please state your company name.

David Turkaly – SIG

Hi, it’s SIG.

Nino De Chirico

Hi, David.

David Turkaly – SIG

How are you?

Nino De Chirico

Good.

David Turkaly – SIG

Given the ship cycle impact we’ve seen and given that you guys have probably some pretty specific information, is there any way to help mitigate when these happen – like, can you remind us how many there are per year? And if there is a negative impact one quarter, can we expect an ensuing positive in the next?

Nino De Chirico

Like the word cycle says, yes, you should expect a positive impact on the next. It’s very complicated, because like Rick has explained at several times, there are a lot of products involved and a lot of cycles involved. We can say, for instance, that the second quarter was negatively impacted on Capture, and there is only one – to give you an idea, I think there is one cycle of Capture that alone worth $2.5 million. And if that cycle gets in the quarter or outside the quarter, it can be a big impact on the revenue. To give you an estimation – no, it will be too complicated, I think. What are you saying, Rick?

Rick Flynt

Yes, David, it's complicated by the fact that their ship cycle is not only for Capture but also for our traditional products in the red cell lines. And each of those cycles ships on a different schedule. So the cycles ship either every week, every two weeks, four weeks, or eight weeks. They have a mix of cycles that are shipping. So it doesn't always come back in the very next quarter, and sometimes year-over-year there are fluctuations in the number of cycles overall that are shipped. Last quarter you saw a down-cycle for the red cell products, and this quarter you are seeing a down-cycle from the Capture products.

David Turkaly – SIG

And thank you for that clarification. But as you kind of look ahead – I'll switch over to – on the competitive side, have you seen – I know you mentioned the lower demand that you expected this year, 3% to 4% below last year, Bio-Rad out there all. Can you give us any comment on, is that having an impact as well as just the overall demand?

Nino De Chirico

Like I said in my remark, first of all, the decrease in demand is a big factor – the largest factor in terms of revenue year-over-year. As a matter of fact, if you heard from Rick comment in terms of volume, Q2 was a good volume in terms of analysis. Said that, but we are still seeing some competitive pressure. And like I said before, we have taken steps to compete more effectively in this competitive environment.

David Turkaly – SIG

Can you just tell us maybe what the steps might actually be? I mean, is it something like hire more people or is it focusing on your core accounts? I just had a curiosity.

Nino De Chirico

It's a curiosity that unfortunately I cannot satisfy, because as you know we are in a competitive disadvantage also when we make this conference call, because we are the only one in this industry to have a conference call and any information we are giving can be used by the competition. In general, it's (inaudible) to the market means in the way we approach the market and ensure that our sales team has the right focus and the right tools to be successful.

David Turkaly – SIG

Last one I had was just on – the impact that you are seeing on the cycle, do you think it's more pronounced now because of the size that you guys are? What would you explain, as you know, kind of last couple of quarters or even last year as to why that's kind of crept upon us and become an issue versus the past? Thank you.

Nino De Chirico

Of course, for Capture, the cycles are becoming bigger and bigger, and you can have what you said is correct. I mean, when the cycles becomes bigger, of course, the impact on the cost will be bigger. Overall though the business as is – because it's our business is mostly on standing orders, this is impacted by cycle and was impacted by cycles before too.

David Turkaly – SIG

Great. Thank you.

Nino De Chirico

You’re welcome.

Operator

Our next question comes from Joshua Zable. Your line is open and please state your company name.

Joshua Zable – WJB Capital

Joshua Zable, WJB Capital. Good morning, guys. Thanks for taking my questions here and congrats on closing up that DOJ thing. I'm glad to see you guys and some other people who I'm sure are listening on the line clear to of anything on there. Just a number of questions here. I want to push back on the order guidance here, Nino. The guidance right now for the Echo, 140 to 180, would effectively mean you'd have to double your order guidance in the next two quarters. Quintin asked a good question about what you are seeing so far quarter-to-date and your response seemed to be that – your response was that there still is a chilling effect on the order environment. So I guess I'm just wondering – have you seen a level of improvement? And to get to that 180 number would seem like a significant step-up given that you sort of haven't seen an improvement in the environment – haven't yet seen an improvement in the order environment, what gives you the confidence here that that 180 number is reasonable at all?

Rick Flynt

Josh, we don't really comment on what our orders are for the existing quarter, but what we did do is we reiterated our guidance. So I think the chilling effect was really what we have seen historically. So I just wanted to make that point before Nino –

Nino De Chirico

Yes. And like I said at the end of the second quarter, we took steps to change our go-to-market strategy to compete more effectively in this chilling market, like you said. The results of that actions we expect to see in the second half of the year.

Joshua Zable – WJB Capital

I mean, have you seen any of the steps sort of begin to show signs of improvement because –?

Nino De Chirico

Well, like I said, this was – we developed the plans and we start to implementing plan, as we speak now.

Joshua Zable – WJB Capital

Okay. So just to be clear, and again I'm not –

Nino De Chirico

It's too early to comment on that.

Joshua Zable – WJB Capital

Have the changes been made, or are they in the process of being made? Just to be clear.

Nino De Chirico

They are just being made.

Joshua Zable – WJB Capital

They are currently being made. Okay. In terms of just overall demand for blood, I know you guys have made similar comments last quarter about the 6% to 7% decline. You're sort of reiterating those comments here. Can you just give us some more color around the environment? Are you seeing any level of improvement? Are you seeing it getting worse? Is it exactly the same? Just any color would be helpful, what you're seeing out there?

Nino De Chirico

There is – like I said – and we are not experts here, but like I said, it seems that there is some correlation with uninsured number and underinsured number, mostly based on out-of-pocket expenses. And this is giving a chilling procedure volume for electric surgery in the United States. It's not only to us but also to many other industries. What is the expectation? The expectation, it seems that some analyst is saying that in the second half of calendar year 2011, the year-to-year ratio of uninsured should turn positive. Still though out-of-pocket issue is it remains and remains negative. Said that, like I said in my remarks, of course, I think that it will be positive after our fiscal year '11. And the aging population coming through also would be a big impact in our industry. And like I said in my opening remarks, I believe that after this storm goes away that the industry will go back to a single-digit growth.

Joshua Zable – WJB Capital

And so just to be clear, relative to your comments last quarter, you are pretty much seeing the same. Nothing is improving, nothing is getting worse, it’s kind of a similar type environment.

Nino De Chirico

Yes. The data we have, of course, are external data through September 2010. We don't have real-time data, but to that date, that's what we see.

Joshua Zable – WJB Capital

Okay. And then one final here and we’ll follow-up offline here. Just can you give us an update with the FDA? Are we close there? Are we just – I know last time there were couple of more things that need to be updated. I know you guys are working diligently on that. I know you guys have invested in doing that. Can you just – just any update would be helpful. Thanks.

Nino De Chirico

We are responding. We had a visit from FDA in June. And like we said in the previous call, they said that we have made substantive improvements, but we still need some fixing to do. And we have continuously communicating to FDA our plans and our improvement, and everything is going fine.

Joshua Zable – WJB Capital

Great. Thanks very much, guys.

Rick Flynt

Thanks, Josh.

Operator

Our next question comes from Bill Quirk. Your line is open and please state your company name.

Bill Quirk – Piper Jaffray

Thank you. Piper Jaffray. Good morning, everybody.

Nino De Chirico

Good morning, Bill.

Bill Quirk – Piper Jaffray

So, Nino, first question. In terms of the competitive changes recognizing for obvious reasons, you don't want to necessarily get into all the details here. Can you talk about whether or not you have seen any impact since you put those in, again, recognizing they are fairly recent, but if you have seen any impact whatsoever thus far? And if so is that part of why it continued to show confidence in terms of your overall instrument guidance?

Nino De Chirico

Like I said, it's too early. We are just now starting the implementation phase.

Bill Quirk – Piper Jaffray

But the expectation is certainly reinforcing.

Nino De Chirico

The expectation is positive, yes, like we said.

Bill Quirk – Piper Jaffray

Okay. Very good. Couple of housekeeping questions for you. Can you give us the traditional breakdown between North America and rest of the world? And obviously same question for Capture as well.

Nino De Chirico

I have the Capture, it is – USA is $11.3 million and rest of world is $7.7 million, and traditionally reagents, $37.6 million and rest of the world is $12.0 million.

Bill Quirk – Piper Jaffray

Okay, great. Thank you. And then, Nino, just a question on BioArray. Just thinking about the bigger term market here, you've had this out as a research use only product in a semi-automated form for some time now. Obviously you have a number of fairly high profile customers out there that are using this, writing scientific studies et cetera. How are you thinking about the overall market now that you know that Red Cross has its own donor pool? They are genotyping BloodCenter of Wisconsin, New York Blood Center, et cetera. You've got a little better handle now on how these guys can use this tool. Can you talk to us little bit about the overall market opportunity?

Nino De Chirico

Our outlook of molecular has not changed. As a matter of fact, I think we can confirm that everything we said about molecular is going to happen, in our opinion. We believe that extended sanitizing, better match between donor and recipient, can be a solution for many of the problem that the industry has today. That like you said, main institution is using the technology, and our technology is today the benchmark for molecular. And the key question is to when we will go larger in many, many customer. Like I said in my introduction, it will be depending on regulatory. We are starting some conversation with FDA, and like we said, CE Mark is already there for semi-automated instrument. I think the key for this industry – for this market will be once the platform will have regulatory approval both in the United States and in Europe.

Bill Quirk – Piper Jaffray

So you would expect to see an expansion of testing with an automated platform?

Nino De Chirico

Absolutely, absolutely. There is a need of a better match. Like we have said before, a better match between donor and recipient can solve many problems. It can be also part of solution in terms of this blood management issue. I think a better match between donor and recipient is the future of this blood bank industry.

Bill Quirk – Piper Jaffray

Okay. And then last question from me and I’ll jump back in the queue is that – five years from now, what percent of the population, what percent of the blood donors I should say, is getting genotype?

Nino De Chirico

The model I look at is immunized patients. Today, when you have an immunized patient, you have to identify the antibody. Assuming you are able to identify the antibody, you have to move on to find the unit that is negative for that antigen. Instead, when you have an immunized patient, you can reflex the molecular, do a perfect match between a donor and recipient, and you don't need really to care about which antibody the patient takes theoretically. I think the number of immunized patient is, overall it's around – between 3% and 6% of the total screening. We are talking about in the range of more than 3 million potential patients that are immunized between Europe and United States.

Bill Quirk – Piper Jaffray

Got it. Thank you very much.

Operator

Our next question comes from Scott Gleason. Your line is open and please state your company name.

Scott Gleason – Stephens, Inc.

Nino and Rick, thanks for taking my question.

Rick Flynt

Good morning, Scott.

Nino De Chirico

Good morning, Scott.

Scott Gleason – Stephens, Inc.

If we look at the pricing growth in the quarter, it looks like little over 1%. Can you remind us of what kind of your annual contractual price increases are on both your non-automated and automated accounts?

Rick Flynt

Scott, I guess, first of all, you really can't equate price contribution to what price increases are. Price contribution is a calculated number based on the average selling price of all of our products one period compared to another. So that doesn't really match in there. It's impacted by mix, both product mix as well as customer mix.

Scott Gleason – Stephens, Inc.

Rick, can you give us what the contractual price increases are though on like an annual basis?

Rick Flynt

Our automated contracts have about a 3.75% of price increase on an annual basis.

Scott Gleason – Stephens, Inc.

Okay. And then, Rick and Nino, I guess if we're just kind of looking at the numbers here, I understand the issues in terms of sales cycles and also the market headwinds that you guys have talked about. But if we look at the installed base of instruments, it's grown about – of active instruments, it's grown about 30% since this time last year. And the Capture revenue, since that period over the last five quarters, has stayed kind of relatively flat plus or minus $1 million. Can you maybe give us a little bit of a sense for what you guys think is going on there and why maybe the installed base growth is not leading to that number being a little bit higher?

Nino De Chirico

Well, like I said, like Rick said also, I think the same-store analysis shows us that the demand – are you there?

Scott Gleason – Stephens, Inc.

Yes, sorry, that’s another call.

Nino De Chirico

Okay. The demand is really – the blood demand is really the issue. When we do the analysis of our own customer, we see that there has been a volume decrease that is directly correlated with less demand in the numbers, like I said you before, and this fiscal year will be between 3% and 4%.

Rick Flynt

I think the other factor that's impacting now are Capture growth rate, if you will, is the fact that we do have to have a re-class of revenue with respect to reagent rental agreement. So we only have one stream of revenue coming into the company for those reagent rentals and that's reagent revenue. And we have to re-class a portion of that revenue into our instrument revenue line. And with respect to margins, none of the costs related to that reagent re-class is reclassified.

Scott Gleason – Stephens, Inc.

Okay. Thanks for taking my questions.

Operator

Our next question comes from Daniel Owczarski. Your line is open and please state your company name.

Daniel Owczarski – Avondale Partners

Yes. Avondale Partners. Thanks for taking my call.

Nino De Chirico

Good morning, Dan.

Daniel Owczarski – Avondale Partners

From your comments, should we assume that quoting activity is flat to down or is there any change there? Any kind of commentary on this early, early stage of the sales cycle as it relates to the quoting activity out there?

Nino De Chirico

Well, I think that – I guess with respect to the question, you’re really asking about what our order rates going to be going forward. Is that right?

Daniel Owczarski – Avondale Partners

Well, just – no. I'm more interested in initial demand or interest in the product, given that these sales times are lengthening and everything like that, but what about our people – at that initial stage, what is the activity out there?

Nino De Chirico

I think that's a good question because we always consider the quotes out there like pipeline. And I think the quoting process has not changed. What has changed is that the length of the cycle. If I look at the quoting also in the last quarter and I look at the length of the cycle, the pipeline looks encouraging, but looks encouraging before too. Then – I think like I said in my initial remarks, it's that the cycle that is getting a length – a much longer cycle, basically the initial step did not change.

Daniel Owczarski – Avondale Partners

Okay. And then, Rick, as far as the ship cycles go, is there an easy way to think about how they look for this quarter, this third quarter, how they look versus the second quarter or a year ago? Are they comparable? I guess we'd expect them to be up a little bit sequentially. Is that correct?

Rick Flynt

Yes, sequentially we could expect them to be up a little bit.

Nino De Chirico

Yes. That’s year-to-year – last year was higher than this year from a cycle perspective. Last year was favorable comparing with this fiscal year. We accounted for that when we did our forecast.

Daniel Owczarski – Avondale Partners

Okay. Thank you.

Nino De Chirico

You’re welcome.

Operator

(Operator instructions) Our next question does come from James Sidoti. Your line is open, sir.

James Sidoti – Sidoti & Company

Good morning. Can you hear me?

Nino De Chirico

Yes, we can hear you, Jim. Good morning.

James Sidoti – Sidoti & Company

Just two questions. One, regarding the FDA, is another visit going to be required to resolve these final issues or do you think you can do that without a visit?

Nino De Chirico

It's not a question I can answer. I think it's a question that we will see what the FDA will do basically. At this point, we cannot predict. The only thing we can predict that, of course, FDA will respect us as they do all the time on a routine basis.

James Sidoti – Sidoti & Company

Okay. And then, as far as the business environment, are you seeing any improvements in Europe? You were pretty clear that you haven't seen too much of an improvement in the US, but –

Nino De Chirico

Well, in Europe, the only country where we see not big issues is Germany. And as you know, the Germany economy is doing very, very well. I think it is now the driver around the world. We still see some tender delay in Italy, in Spain, in France, and UK. The tender delay is because there is some programs to cut costs that are delaying the tender. I don't think in the long-term they can avoid to do testing of course, but in these countries we see some tender delay.

James Sidoti – Sidoti & Company

Okay. Thank you.

Nino De Chirico

You’re welcome.

Operator

And we have no further questions at this time.

Michele Howard

Thank you for joining us this morning. We look forward to speaking with you in the future. Bye-bye.

Operator

That does conclude today's presentation. Thank you all for joining. You may disconnect at this time.

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