Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Immucor (NASDAQ:BLUD)

Q3 2011 Earnings Call

April 07, 2011 8:30 am ET

Executives

Michele Howard -

Richard Flynt - Chief Financial Officer, Principal Accounting Officer and Executive Vice President

Gioacchino De Chirico - Chief Executive Officer, President and Executive Director

Analysts

William Quirk - Piper Jaffray Companies

Daniel Owczarski - Avondale Partners, LLC

David Turkaly - Susquehanna Financial Group, LLLP

James Sidoti - Sidoti & Company, LLC

S. Brandon Couillard - Jefferies & Company, Inc.

Matthew Notarianni - Robert W. Baird

Joshua Zable - Natixis Bleichroeder

Bill Bonello - RBC Capital Markets, LLC

Operator

Good morning, ladies and gentlemen. Thank you for standing by, and welcome to the Immucor Conference Call. [Operator Instructions] 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 third 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 law. 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 will make some brief comments and then go to Q&A.

I would now like to turn the call over to Nino.

Gioacchino De Chirico

Thank you, Michele. Good morning. I'll begin this morning with a discussion of overall industry condition in both the United States and Europe.

In the United States, the market continues to experience softness due to macroeconomic environment. Consistent with our previous expectations, we continue to believe that demand for blood from hospital in our fiscal year 2011 will be down between 3% and 4% from the depressed level since fiscal 2010. We believe that the lower blood demand in the United States is primarily driven by the economy and is heavily influenced by the number of uninsured and underinsured people.

Blood demand is an important factor in the volume of testing performed in the industry and the volume of our reagents used by our customers. We believe that demand for blood in the United States market may stabilize in our fiscal 2012 even though it will be at depressed levels.

Over the longer term, due to the aging population and with an improvement in the macroeconomic conditions, we believe that the industry in the United States will return to its historic low single-digit growth rates.

Turning to Europe. We are seeing ongoing macroeconomic issues with continued delays in the tender process in some countries. Having said that, Germany, a major market for us, continues to be strong, and we had another strong quarter for NEO orders in Europe.

Let me give you the details on instrument orders in the third quarter, starting with NEO. We had 39 NEO orders in the third quarter with 22 orders in United States and Canada and 17 orders in rest of the world including distributors. Our competitive takeaway rate for NEO on a launch-to-date basis is more than 40%. NEO continues to generate excitement with end-users worldwide because of its functionality, turnaround time and what we believe is the highest volume throughput available in the market. We take NEO orders on year-to-date basis. We now expect to be near to high end of our previous NEO order guidance range of between 80 and 120 orders for fiscal 2011.

Turning to Echo. We had 31 Echo orders in the quarter, with 20 orders in the United States and Canada and 11 orders in rest of the world including distributors. As we have stated previously, we believe our Echo orders in the past several quarter in the United States have been negatively impacted by the economy, which has resulted in a longer sales cycle and more economic bias involved in the process with increased oversight from legal, purchasing and finance departments.

We have taken steps to compete more effectively, which we believe are paying off. We had a good March in terms of Echo orders, and we have a strong pipeline for the remainder of our fourth quarter. We expect to be near to the low end of our previous guidance range of between 140 and 180 orders for Echo in fiscal 2011.

We continue to believe there is a significant opportunity in the lower-volume labs for our product offering as Echo, which was specifically designed to meet this category’s needs, combined with our deep line of traditional reagents, allows hospital to meet the full range of testing needs and achieve the benefits of automation. At the end of the third quarter, we had an instrument order backlog of 95 Echos and a combination of 62 Galileos and NEOs.

I would like to give you an update on our Molecular business before I turn the call over to Rick to discuss our third quarter financials.

We continued to develop our molecular offering, which we believe is an important part of our future growth. As you may remember, the current semi-automated instrument and assay achieved CE Mark approval in Europe in fiscal 2010 and early fiscal 2011 and, as a result, can be used as a test of record in Europe.

For United States regulatory approval, we plan to follow a similar process as we did in Europe by focusing in the current molecular offering first for FDA approval. We are continuing the work on the automated instrument, although our Research Use Only timing has changed. We now expect a Research Use Only instrument to be available in calendar 2012. We do not see this change as a delay in the timing for our overall FDA approval process or our commercialization plan for our molecular offering.

I will now turn the call over to Rick.

Richard Flynt

Thanks, Nino. In our third quarter of fiscal 2011, revenue was $83.3 million, up $2.9 million or 4% compared with the third quarter of fiscal 2010. The year-over-year revenue increase was attributable to price contribution of $1.4 million and volume contribution of $1.9 million. Currency negatively impacted revenue by $400,000 in the third quarter of fiscal 2011 when compared with the prior year quarter.

Volume contribution in the current year quarter was positively impacted by an increased number of ship cycles for both our traditional and capture reagents when compared with the prior year quarter. Lower sales volumes of reagents, primarily because of weaker industry demand in the U.S., continued to negatively impact our overall year-over-year revenue growth rate. Additionally, as we have previously discussed, we revised our go-to-market strategy in the second quarter to better address the economic downturn as well as the competitive pressures that we have historically experienced in our traditional Reagent business.

Turning to gross margin. Consolidated gross margin was 70.8% in the third quarter compared with 69.2% in the prior year quarter. Prior year margins included $1.8 million related to our Quality Project for 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, which benefited margins.

Current year consolidated gross margins were negatively impacted by the mix of instrument-related revenue in the quarter, as well as more instruments expensed in the current year quarter when compared with the prior year quarter. While not impacting overall margins, capture margins, specifically, were negatively impacted by instrument reagent rental accounting, which requires a portion of the reagent revenue to be reclassified to instruments with none of the costs being reclassified.

Operating income was $33.9 million or 40.6% of revenue in the current year quarter compared with $30.9 million or 38.4% of revenue in the prior year quarter. The increase in operating income is attributable to revenue growth and margin expansion, which offset slightly higher consolidated operating expenses in the current year quarter. We expect operating expenses to be higher sequentially in the fourth quarter of fiscal 2011 due to the timing of expenses.

Our tax rate for the current and prior year quarters was 33.1% and 34.0%, respectively. We benefited in the current year quarter from the reinstatement of the federal R&D tax credit in December 2010 and the increase in the production activity deduction year-over-year. We expect our effective tax rate for fiscal 2011 to be around 34%.

Diluted earnings per share was $0.32 in the current year quarter compared with $0.28 for the same period last year.

Cash flow from operations for the first nine months of fiscal 2011 was $73.7 million compared with $55.5 million last year.

Turning to fiscal 2011 guidance. We now expect revenue to be in the range of $328 million to $330 million. We expect fourth quarter revenue to be down sequentially from the third quarter due to the impact of fewer ship cycles. We expect gross margin to be near the high end of our previous guidance range of 69.5% to 71%, and we now expect diluted earnings per share to be in the range of $1.18 to $1.20.

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

Gioacchino De Chirico

Thank you, Rick. We are encouraged by our performance in this difficult economic environment. We believe there is a strong demand for our products as labs worldwide look for tools to help them operate more efficiently. Our proven automation offering and our developing molecular offering are key differentiators in the market and platform for future growth worldwide.

At this point, I'll give the call back to the operator to begin our Q&A.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Dave Turkaly with SIG.

David Turkaly - Susquehanna Financial Group, LLLP

Just a little clarity on the impact. Could you tell us the amount that was included in the quarter in terms of what was allocated to instruments and then also the ship cycle impact, if you have that number?

Richard Flynt

Well, Dave, I guess we'll start with the impact on the ship cycles. For capture, it made up roughly 2/3 of the year-over-year increase. But remember, in that net number of increase, there's the headwinds of the industry volume decline. For traditional, the revenue from the increased ship cycles helped to offset the industry volume decline impact. Without the ship cycle impact, the traditional would have gone down about what we're saying for the overall industry volume decline 3% to 4%. With respect to the reclass, I can say that it has increased year-over-year by, I believe, around $800,000.

Gioacchino De Chirico

It’s $500,000 in capture and $300,000 on the remaining reagents.

David Turkaly - Susquehanna Financial Group, LLLP

Great. And then Nino, you mentioned the kind of the return or the stabilization in kind of the business. Did you say -- I think you said in fiscal 2012, so would that mean that even starting in, say, like the first quarter of that year, the comps on the reagent side, do you think they actually start to show that kind of 3% or 4% growth then?

Gioacchino De Chirico

I said we believe that sometime in fiscal year '12, the market will stabilize on a depressed level though. And without showing growth, stabilize means no more loss. If you look at the volume today of blood demand, went back what it was in 2005. Basically, between 2005 and 2008, kept growing on a lower single-digit, but then in the last two years, went down -- went back what was in 2005. What we believe now is that based on level of uninsured year-over-year will turn positive during the next fiscal year, even though underinsured will remain still a negative turn. Then, we believe that it's possible that during the next 12 months, next fiscal year, the market will stabilize at depressed level though.

David Turkaly - Susquehanna Financial Group, LLLP

Great, thanks a lot.

Gioacchino De Chirico

Now long term, it's possible that the market goes back to growing at single digit, and this is mostly because of aging population and the baby boom coming and becoming aging. And also more procedure in the hospital, more sophisticated procedure like transplantation or other sophisticated procedure that requires transfusion. We can bring this market back where it was.

Richard Flynt

And as well an improvement in the macroeconomic environment.

Gioacchino De Chirico

Yes.

Operator

Our next question is from Quintin Lai with Robert W. Baird.

Matthew Notarianni - Robert W. Baird

This is actually Matt in for Quintin. Nino, you mentioned, I believe, that March saw a little bit of a solid quarter or a solid month for Echo. Just kind of wondering was there anything else notable in terms of evaluation time by customers or lead time from kind of the end of calendar '10 over the course of fiscal Q3 month-to-month. Was there anything notable there?

Gioacchino De Chirico

Now what we saw in March and what we saw in the last two or three months is basically our revised go-to-market strategy start to be in place and start to get some results. Then, we start seeing some strong pipeline of the instrument orders, mostly in the IDN situation. Still remain, though, that the microenvironment issue about the length of the sales cycle is still there. It's still longer than before. But that's exactly what we did then when we addressed with a revised go-to-market strategy. We addressed both, like Rick said, the microenvironment downturn and also some competitive pressure.

Matthew Notarianni - Robert W. Baird

And then in terms of the NEO placements, that was a pretty good number. Just wondering on the non-competitive takeaways, is that still being driven kind of by the conversion from manual to automated? Is it Galileo swap-outs or is there like conversion time going on? Any color there would be great.

Gioacchino De Chirico

First of all, we are very pleased with the NEO performance. I mean, the number is outstanding and above our expectation. And also the 40% competitive takeaway, I think, is as we expected is a very good number. In terms of -- we see both. We see cannibalization of replacement of Galileo and also new customer who adopt NEO that used to use our manual reagents.

Operator

Our next question is from Bill Quirk with Piper Jaffray.

William Quirk - Piper Jaffray Companies

First off, just a quick housekeeping question. Just the North America traditional and North American capture numbers, please?

Gioacchino De Chirico

Capture for North America was, for the quarter, $14.2 million, and traditional reagents for North America was $37.7 million.

William Quirk - Piper Jaffray Companies

Okay. Very good. Nino, just thinking a little bit about some of the competitive dynamics in the marketplace, we could see a bit of a changing landscape here over the coming year or so given the recent customer -- competitor announcements and obviously given some of the timing issues around IP and distribution arrangements expiring, et cetera. Can you help us think a little bit about just how you're looking at your business, the competitive dynamics? Just how are you going to position the company here you going forward?

Gioacchino De Chirico

Well, first of all, yes, I agree with you that going forward, we're going to see a different competitive landscape in the United States. Of course, in North America. United States, mostly, because the competitive landscape is already there in Europe. I mean, all these players are already competing in Europe with us. It's too early to say what is going to happen in the interest [ph]. For sure, we will see more competition going forward. Timing, it's not clear yet because there is all this regulatory issues that some of these competitors still have to go through, and regulatory issues, as we know, can take quite a long time. This one thing we need to consider. The second thing we need to consider is if you look at what you just said, if you look at the patent expiration in Europe -- in the United States, sorry, in Europe, the patent is expired already. What we are going to see basically would be more gel competitors than, in my opinion, there will be more competition in what we call market segment that prefers gels. As you know, we use a different technology than gel. We use solid phase technology that has -- it's different in terms of performance and in terms of market segment than gel.

William Quirk - Piper Jaffray Companies

Very good. And then just, Nino, just thinking about the percent of your customers that are tied into longer-term deals. You've provided this in the past. Can you just give us an update on -- and I guess I'm thinking specifically around North America, but to the extent you can talk about that. And if memory serves, you're looking at average deals of five years and so just thinking about, I guess, the average life of some of these contracts as well.

Gioacchino De Chirico

Of course, when we sign an instrument agreement, it's a five-year agreement and with some closing side of agreement. Then anytime we have an instrument customer, an instrument order that we tell to the market, to investor, that means that, that customer is committed to buy our products for the next five years.

William Quirk - Piper Jaffray Companies

And so just noted [ph] on roughly what percent of the North American customers are currently on contracts?

Richard Flynt

Well, roughly I think when you look at it, Bill, we have also customers under contract that are GPOs, et cetera. So if you look at it, about 2/3 of our business is under contract and worldwide.

William Quirk - Piper Jaffray Companies

Okay, got it. And then last question for me, Rick, and I'll jump back in the queue here. Did you guys purchase any shares in the quarter?

Richard Flynt

No, we did not purchase any shares in the quarter, and we can't really comment on the reasons why we did or didn't. We still have approximately 2.2 million shares that are available for repurchase under the program. And as Nino said previously, we continue to believe that repurchasing shares is a good use of our free cash flow.

Operator

Next question is from Joshua Zable with WJB Capital.

Joshua Zable - Natixis Bleichroeder

Just a couple of quick ones. Most of my questions were answered. But just in terms of Echo here, I know you guys had sort of the go-to-market strategy. Can you just kind of talk about when that was implemented? And then just give me specifics, if you can, you talked about your guidance near the low end. To get to the low end would still -- you've had sort of a run rate of 30, which still imply a significant step-up. Can you kind of talk about what you're realistically expecting and maybe why?

Gioacchino De Chirico

Of course. When we put down guidance, we make assumptions based on what we have and what we see. To answer the first part of your question is -- like I said in the last conference call, we implemented our revised go-to-market strategy in the third quarter -- in the second quarter, yes. And then we start to see results in the third quarter, and we keep seeing results now. Then, the way we come up with that assumption is based on the number of order we received in March and the pipeline of orders that we see coming in the next month. Tell you exactly the number, it’s always difficult. Predicting business in the instrument business with exact number is very difficult, but we believe that we are comfortable to be -- what we said to be near to the lower end of our guidance of 140, 180.

Joshua Zable - Natixis Bleichroeder

So you expect a significant step-up in Q4 Echo orders?

Gioacchino De Chirico

Yes, sir.

Joshua Zable - Natixis Bleichroeder

Okay. And then just on the molecular platform, can you just kind of -- just help us remind us -- kind of, I know you talked about a little bit, it's always helpful, maybe where you sort of thought you would be from a research standpoint, Europe and the U.S., kind of what the change in the timeframe is specifically. And then from a commercialization plan where we're on track to be, if that hasn't changed?

Gioacchino De Chirico

The commercialization plan has not changed. And the key factor in the commercialization plan, of course, will be FDA approval. Basically, what we have to consider in the process here that there are two components of the system: One is the equipment, and one is the reagents. Now as you well know, the reagents being PMA will take longer, and the instrument being a 510(k) will take shorter. And with that said, then this delay I said in the development of the Research Use Only instrument will not impact the overall timing because at the end of the day, you need to have both reagent and equipment FDA approved to go to market.

Joshua Zable - Natixis Bleichroeder

Okay. So just to be clear, there's sort of a delay in more on the equipment side than the reagent side, but since the equipment theoretically gets approved quicker, that's why the commercialization plan is intact?

Gioacchino De Chirico

That's correct.

Joshua Zable - Natixis Bleichroeder

Okay. And have you given a timeframe on that commercialization plan?

Gioacchino De Chirico

No, we have not given yet. But what we have said in the past that we confirmed that the operation will become accretive one year after FDA approval.

Operator

Our next question is from James Sidoti with Sidoti & Company.

James Sidoti - Sidoti & Company, LLC

Any update on the FDA? Can you tell us if they were back to inspecting during the quarter?

Gioacchino De Chirico

No, there is no update. We keep working, but there is no change from last quarter.

James Sidoti - Sidoti & Company, LLC

Okay. And then as far as the semi-automated system goes, can you remind me, have you filed the application for FDA approval for that?

Gioacchino De Chirico

No, we did not.

James Sidoti - Sidoti & Company, LLC

Okay. Will you let us know when that gets filed?

Gioacchino De Chirico

Yes, we'll think about that. Like I said, we did not give yet a timeline on FDA, but when we get closer, we will give you more details about that.

Operator

Our next question is from Jon Wood with Jefferies.

S. Brandon Couillard - Jefferies & Company, Inc.

This is Brandon Couillard in for Jon this morning. Rick, can you discuss the instrument gross margin in the period? Was there a mix impact or any pricing pressure that may have contributed to the softness there?

Richard Flynt

It's really more of a mix impact. When you look at what the -- there were two things that happened. One is on the instrument revenue side. There was a mix impact from -- I think you're all aware that we have a different treatment for revenue depending on whether it's a sale or of it's a rental. A sale with a reagent contract typically that gets spread over -- the revenue get spread over the five-year period typically, and the cost is recognized upfront. But with the rental, the cost is recognized over the term. And so there's an impact of the mix there. And we had more instruments that were expensed in the current year quarter as compared to the prior year quarter.

S. Brandon Couillard - Jefferies & Company, Inc.

Any chance you can quantify percentage-wise the number of instruments that were expensed versus last year?

Richard Flynt

I don't think we have typically quantified it, but I would -- I'd say the increase was about 50% over what was last quarter. But the problem is you also have to take into account the mix of those instruments that were expensed between Echo and NEO. So that's the percentage increase. And there were more NEO involved this quarter versus last quarter as compared to the Galileo last quarter.

Michele Howard

And we had said previously that we expected instrument orders to be negatively impacted in the back half as NEO was newly launched last year, and it's ramping up.

S. Brandon Couillard - Jefferies & Company, Inc.

Okay. And then lastly, can you quantify the impact of fewer ship cycles in the fourth quarter from a revenue perspective? How much of the sequential change is attributable to that variance in the ship cycle versus just the general market volumes?

Richard Flynt

I don't know that we are prepared to quantify that. I would say generally that we will see a decrease in the fourth quarter ship cycles. It's even a little more than the increase we see in Q3.

Operator

[Operator Instructions] Our next question is from Bill Bonello with RBC.

Bill Bonello - RBC Capital Markets, LLC

Just kind of a follow-up on that last question on the margins. As I understand it, there's two sort of accounting-related factors that impact margins. One has to do with the shift towards reagent rental on the capture side, and then one has to do with the Galileo and the NEO and the cash instrument sales. Can you just -- if we overall look at sort of what's happened with margin, can you give us a sense of sort of overall sort of shift in margin? How much of that is really just a function of accounting versus how much of it is a function of any kind of underlying economic deterioration?

Richard Flynt

Bill, you're specifically talking about instrument margins?

Bill Bonello - RBC Capital Markets, LLC

Well, not just -- yes, but I mean didn't you also -- isn't there also on the -- so you have it on the instrument side, but then don't you also have it on capture reagent side as you have a shift to reagent rental? Doesn't that also have a negative impact on margin from more or less the way you have to account for that?

Richard Flynt

Yes. Bill, I think overall margin, the reagent rental revenue reclass does not impact our total margins. It's simply a move of the revenue from capture to instruments without any costs being moved. So all the cost still stays in the capture margin and the revenue goes to instruments, which increases the instrument margin. Offsetting that will be the acquisition option mix. So if there are more instruments that are sold in any quarter, then you'll have a negative impact on the instrument margins. So the economic impact is really not there for the instruments themselves. It's more a shift between the two categories, but overall margin remains the same.

Gioacchino De Chirico

Let me give you -- everybody a suggestion and do like I do. I don't look anymore at single-line margin. I look at overall margin because with all this accounting rule, profit has moved from one line to another, and then it's misleading to look at line or another. The overall margin, though, what it tells that this quarter the margin grew comparing with last year quarter, and grew quite dramatically then. Even though you see line by line, start to look at some line go down and some lines goes up, at the end of the day the overall margin was 70.8% comparing with 69.2% last year.

Bill Bonello - RBC Capital Markets, LLC

Right. Well, that's what I was just trying to get a sense for if we did look at those pieces if that was all about just sort of the shift in the...

Gioacchino De Chirico

Yes, it's this accounting rule that -- there are $800,000 more reagent that are allocated to instrument, but no cost is allocated to instrument. And basically, this reclassification changed the margins of all lines. But what counts at the end of the day is the bottom line. What is the real margin? And the real margin is growing at 70.8%.

Richard Flynt

And Bill, if you look at the capture margin decrease, it's really -- that is the reason for the decrease.

Bill Bonello - RBC Capital Markets, LLC

Okay. That's good. That's very helpful. That's why I was just trying to clarify. That really was what it was all about. And then just on the molecular side, is there any incremental investment that you're expecting on the instrument side then? I mean is there -- can you just sort of -- what sort of accounts for the delay? Does it sort of -- you said it doesn't delay your sort of overall commercialization strategy, but I mean, do we need to be at all sort of worried about, I guess, where you're at in the instrument process and what it's going to take to have that available?

Richard Flynt

Bill, I think you can look at our current run rate. The costs related to development of the instrument are being expensed. So I think our current run rate is something you can look at going forward for R&D.

Bill Bonello - RBC Capital Markets, LLC

Right. So there's nothing going on that requires a significant step-up there for instance?

Richard Flynt

No.

Gioacchino De Chirico

No, Bill.

Bill Bonello - RBC Capital Markets, LLC

And there's nothing that sort of calls into question your confidence and your ability to get an instrument developed?

Gioacchino De Chirico

No, Bill. Not at this time.

Operator

[Operator Instructions] The next question is from Daniel Owczarski with Avondale Partners.

Daniel Owczarski - Avondale Partners, LLC

You talked about when you place an instrument, you get the five-year agreement, and I thought that maybe last time you talked about having pricing increases kind of built into your contracts on the order of 3% or so. First of all, is that right? And then second, are people pushing -- are your customers pushing back at all trying to get some of these price increases a little bit of relief from them because volumes are down and everything like that?

Gioacchino De Chirico

Well, it's always very difficult for us to answer this kind of question, mostly considering that we have listened to this conference call over all our competitors. What I can confirm you though that all our agreement include clauses that depends on customer and situation can also change. But I'm not going to comment more, anymore, about this kind of details in the contract because I'm sure everybody agrees that it's giving free-of-charge -- free information to competition.

Daniel Owczarski - Avondale Partners, LLC

Okay. And then with Echo-targeted customers with your change of go-to-market strategy, are you seeing a different profile of customer that's more likely to buy the Echo today versus the ones you were placing two years ago or a year and a half ago? Are you finding any -- a difference or increased interest in a certain type of potential customer for the Echo that you're dealing with, with the sales cycle now?

Gioacchino De Chirico

No. We don't see difference in customer mix. It's a similar customer we saw before, including also the ratio between cannibalization. Competitive takeaway remains the same.

Operator

And our next question is from Joshua Zable with WJB Capital.

Joshua Zable - Natixis Bleichroeder

Two quick ones here. Just we're trying to do the math here and working out a couple of clients and I think there's just some confusion. So can you just help us understand from a reagent growth, x the sort of ship cycles, the organic sort of growth, and I know there's obviously pricing and volume in there, what that would have been?

Richard Flynt

Well, I think, Josh, if you will go back to the impact of the ship cycles in capture, it was about 2/3 of the increase related to ship cycles. And then we also have additional volumes coming from instrument, new instrument placements. And overall, that increase, we also have the headwind of the decline in industry volume. So that's what comprises the capture side. On the traditional side, the increase in ship cycles helped to offset the decline in the traditional reagents. If you exclude the ship cycle from traditional, you would have a 3% to 4% decline, which is consistent with the overall industry decline that we anticipate.

Gioacchino De Chirico

Josh, another suggestion. The way I look at this is I always look at not on a quarter-to-quarter basis because the ship cycles can change quarter results. Then I always look on 12-month basis and to see growth on capture and the other reagent line.

Joshua Zable - Natixis Bleichroeder

Okay. But you don't have the number just excluding -- just the same way the traditional excluding the ship cycles would be sort of in line with market?

Gioacchino De Chirico

There is two variable here really. One variable is what is the ship cycles in this quarter. But the second variable is what is the ship cycles impact in the previous quarter? Meaning last year, what was the impact on the third quarter of ship cycle. Then if you start to enter in this circle, it's difficult to quantify, then the best thing to do is to look at, for capture, on running, moving 12 months and see the growth.

Richard Flynt

And you also have currency that impacts that.

Gioacchino De Chirico

And there is also currency impacting. This quarter, we had a negative impact of currency of $400,000 that impacted. So overall -- and there is an additional variable that you have to consider that in this quarter, we have $800,000 of between capture and traditional reagents that are reclassified in instrument that last year was not there. Then you have to add under this two line of reagents $800,000.

Joshua Zable - Natixis Bleichroeder

Okay. And then just on clarity on the fourth quarter, operating margin coming down. Is that -- just to be clear and I know you guys talked about it, but just to keep it simple here for some of us. Just a function of lower revenues, so to speak, ship cycles affecting that and then just timing of expenses. So when you just combine lower sales with higher expenses, you're going to get lower operating margin, pretty simple?

Richard Flynt

Yes, it is. We expect lower capture ship cycles in the fourth quarter, which will negatively impact both revenues and margin, and then we've got some expenses that we anticipated to be incurred in the third quarter that have now slipped and will be expensed in the fourth quarter.

Operator

At this time, there are no further questions.

Michele Howard

Okay. Well thanks, everyone for joining us, and we look forward to speaking with you in the future.

Gioacchino De Chirico

Thank you.

Operator

Thank you, everyone, for participating on today's conference. The conference has concluded. You may disconnect at this time.

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!

Source: Immucor's CEO Discusses Q3 2011 Results - Earnings Call Transcript
This Transcript
All Transcripts