Urologix, Inc. (NASDAQ:ULGX)
F2Q2011 (Qtr End 12/31/10) Earnings Call
January 25, 2011 5:00 p.m. ET
Stryker Warren Jr. – CEO
Brian Smrdel – CFO
Greg Fluet - EVP & COO
Good day, ladies and gentlemen, and welcome to the Urologix Incorporated Fiscal 2011 second quarter conference call. My name is Karis and I will be your coordinator for today.
At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of the conference. As a reminder, this conference is being recorded for replay purposes.
Statements made at this presentation may contain forward-looking statements that are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those projected in any forward-looking statements due to risk and uncertainties.
A detailed discussion of risks and uncertainties may be found in Urologix recent Annual Report on the Form 10-K for the year ended June 30, 2010 and other documents filed with the Securities and Exchange Commission.
At this time, I will turn the call over to Mr. Stryker Warren Jr., Chief Executive Officer. Please precede, sir.
Stryker Warren Jr.
Good afternoon. This is Stryker Warren and as Chief Executive Officer of Urologix, I welcome you to this earnings call to discuss the company’s results for the second quarter of Fiscal Year 2011.
Joining me are Brian Smrdel, the company’s Chief Financial Officer and Greg Fluet, the Executive Vice President and Chief Operating Officer of Urologix.
Before I share my perspective, I will ask Brian to review the financial results.
Thank you, Stryker.
Revenue for the second quarter was $3.3 million, 1% lower than the revenue reported in the first quarter of the 2011 fiscal year, and 18% less than the 4.1 million reported in the same period of Fiscal Year 2010.
The $31,000 decrease in revenue compared to the first quarter is primarily the result of smaller order volume from direct customers and fewer scheduled mobile cases from our current customers.
On a year-over-year comparison basis, the revenue decline is impacted by the temporary withdraw of a competitor’s product in the prior year.
To further break down the source of Urologix revenue on a sequential basis, revenue from catheter sales to direct accounts contributed 36% of overall revenue in the second quarter of Fiscal 2011 compared to 38% in the previous quarter.
Urologix Mobile Service Treatment revenue contributed 44% of overall revenue and third-party mobil revenue contributed 15% of overall revenue in the second quarter of Fiscal Year 2011 compared to 46% and 14% respectively for the first quarter of the fiscal year.
The net loss for the Fiscal Year 2011 second quarter was $712,000, or $0.05 per diluted share. This represents a 1% increase in net loss compared to the $708,000, or $0.05 per diluted share in the first quarter of 2011 fiscal year. And a $439,000 increase in our net loss compared to the net loss of $273,000, or $0.02 per diluted share in the second quarter of Fiscal Year 2010.
Cash and cash equivalence were $4.3 million at December 31, 2010 compared to $5.7 million at June 30, 2010 and $6 million at December 31, 2009.
Cash utilization decreased 588,000 from the prior quarter since historically cash utilization’s greatest in the first quarter due to a number of annual payments made during this period.
In the second quarter of the prior fiscal year, the company generated $22,000 in cash.
On a trailing 90-day sales basis, our day sales outstanding at the end of the second quarter, adjusted for a large non-customer receivable was 41 days, slightly higher than the 40 days reported at the end of the first quarter of Fiscal Year 2011 and 38 days reported at the end of Fiscal Year 2010.
As mentioned in today’s press release, based on our Fiscal Year 2011 projections, management believes that the $4.3 million cash balance at December 31st 2010 will be sufficient to fund our working capital needs beyond the next 12 months.
Gross profit for the first quarter of Fiscal Year 2011 was 1.8 million, or 56% of revenue, an increase of 1 percentage point when compared to gross profit rate in the prior quarter.
Gross profit as a percentage of revenue was down 1 percentage point when compared to the prior year second quarter. The 1 percentage point decrease in the gross profit rate compared to the second quarter of the prior fiscal year is a result of fixed costs being allocated over fewer units built due to decreased production targets that reflect the lower demand in the second quarter of Fiscal Year 2011.
Reported first quarter operating expense totaled $2.6 million, an increase of $37,000 or 2% when compared to the first quarter of Fiscal Year 2011 and a decrease of $42,000 or 2% when compared to the second quarter of Fiscal Year 2010.
The increase in operating expense when compared to the first quarter of the 2011 fiscal year is the result of an increase in sales and marketing expense due to training and travel costs for new members of our sales team.
The decrease in operating expense when compared to the second quarter of the prior fiscal year is primarily the result of lower commission payments due to the reduced sales level. This was partially offset by the company’s investment in additional R&D resources, increasing this expense by 33% over the same period in the prior fiscal year.
I will now turn the call back to Stryker.
Stryker Warren Jr.
Thank you, Brian.
The second quarter’s results are disappointing and inconsistent with the efforts towards sustained sequential revenue growth. We did not achieve our revenue goals. However, evident in the quarter were the continued efforts and results and accomplishments in our focused approach to operational improvements, the quality of Urologix product and the promotion of the comparative effectiveness of high-energy Cooled ThermoTherapy versus lower-energy competitors.
While Brian shared with you some of the particular factors affecting the quarter, I would like to share some observations of the broader market influences we’ve discussed during the past year; the impact to the economy and the reimbursement environment.
During my recent trips into the market to meet with customers and prospects, I’ve heard that elective procedure volumes are down in urology, a trend we must overcome to grow our business because in the midst of this BPH pharmaceuticals continue to grow.
These broader-market influences reveal the importance of our near-term goals to have more urologists present CTT as an alternative to chronic drug therapy for BPH patients who do not want the burden of daily prescription medication or are unhappy with the clinical outcomes. Many of these men often suffer silently. In other words, CTT is a non-surgical alternative representing a first line definitive therapy.
On another positive note, the Medicare reimbursement for calendar year 2011 is considerable more stable than a year ago at this time. One year ago physicians proving care to Medicare patients were struggling with short-term adjustments to reimbursement that continued throughout the year with looming threats of over 20% reductions.
In January 2010, the national average rate for our procedure was $2,380. It was later increased by 2.2% on June 1, 2010 to $2,430, but only until November 30. The uncertainty continued until the end of the year.
In November, the final one-month short-term patch for December 2010 was put in place days before the Thanksgiving recess. In December, Congress and the President acted to stabilize reimbursement for all of 2011.
While the compromise was reached in December to avert cuts in excess of 20%, the law that passed led to an approximate 8% reduction in the global conversion factor that applies to all Medicare procedure rates. This more than offset the 5% increase in value assigned to our specific code for transurethral microwave therapy with the earlier published Medicare rules, thereby resulting in a national average of approximately $2,350 for all of calendar year 2011.
Compared to one year ago at this time, we entered 2011 with the benefit of reimbursement clarity and arguably similar reimbursement. We are actively engaging in outreach to our urologist customers to ensure they’re aware of the recently stabilized reimbursement environment and that the protracted and even lingering confusion of 2010 is dispelled as quickly as possible.
Beyond the economy and some lingering confusion about reimbursement, the company’s revenue in the second quarter of Fiscal 2011 also continued to be affected for transition within the company’s sales force.
In the first quarter of Fiscal Year 2011 we implemented a more rigorous process to identify the ideal sales representative profile to actively recruit, to vet candidates and to train the new hires. These territory sales managers, or TSMs completed training and were in the field by November of 2010. We believe our revenues were impacted by the fact that our new TSMs began to gain traction only beginning in the last month of our second fiscal quarter.
In Q2 of Fiscal Year 2011 we increased sales management depth and this transition also disrupted our sales efforts to some extent.
Productivity is a [inaudible] catalyst to add new customers and increase existing customer utilization rates. We believe that our sales force and sales management in conjunction with our mobile application specialists in our clinical training department are now prepared to realize what we believe is their potential productivity.
Our success in increasing sales to our urologist customers will depend upon the extent to which we realize our goal of raising awareness that Cooled ThermalTherapy as a treatment option early in the BPH patient management protocol to provide patients an efficient and durable alternative to chronic medication that for most patients does not halt disease progression.
These initiatives are directed at both the urologist and the BPH patient. We’re not preferentially seeking the drug failures which we’re prepared to treat, but rather than newly prescribed BPH patients as well as those on chronic maintenance medication for BPH who do not know there is an effective, durable non-surgical alternative to drugs.
Our patient seminar work demonstrates there are many men unhappy with their BPH medication but previously unaware of a non-surgical alternative. We continue to subscribe to the theory supported by recent literature in particular that a high percentage of men taking BPH medication quietly suffer from inadequate symptom relief and from side effects. This has been corroborated through patient surveys we have conducted in patient seminars targeting the BPH patient on medical therapy.
With microwave therapy historically niched between medical therapy and surgery, we also tend to continue to take market share from other minimally evasive BPH options while positioning high-energy Cooled ThermoTherapy as an earlier solution in the treatment paradigm.
Our sales initiatives continue to be complimented by expense management with our focus on using our resources responsibly to invest in and grow the business.
Senior management is neither pleased nor satisfied with the financial results. We recognize we must demonstrate revenue growth. Incumbent upon us is to accelerate the market share gains while continuing to demonstrate why the patient seeks for the urologist who brings CTT as a definitive first-line therapy.
Our immediate focus remains unchanged; expand the in-office BPH market by providing and promoting CTT as an effective, durable and safe non-surgical alterative to BPH drugs. And while the second quarter’s revenue did not satisfy our objective, Urologix potential opportunity is significant enough that successful execution in developing the market should generate revenue growth, positive cash flow and meaningful shareholder value.
In closing, Urologix is the reliable choice; reliable product, reliable people and certainly reliable clinical outcomes. Amidst the challenging economy, continued reimbursed controversy, competition and significant advertising budget for pharmaceuticals, we shall continue to pursue a differential [inaudible] clinical posture while at the same time marshalling resources. In this regard, revenue growth and cash are our preoccupation.
Concluding Brian’s and my comments, we will now do our best to answer any questions you might have.
(Operator Instructions). At this time there are no questions in queue.
Stryker Warren Jr.
On behalf of the Board of Directors, I would also like to thank you for your attention from senior leadership and all of Urologix employees. It’s our intent to create shareholder value and I wish you all a good day and good health. Thank you.
Ladies and gentlemen, that concludes today’s conference. Thank you for your participation. You may now disconnect. Have a wonderful day.
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