Span-America's (SPAN) CEO Jim Ferguson on Q3 2016 Results - Earnings Call Transcript

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Span-America Medical Systems, Inc. (NASDAQ:SPAN)

Q3 2016 Results Earnings Conference Call

August 05, 2016 10:00 AM ET

Executives

Jim Ferguson - President and CEO

Richard Coggins - CFO

Analysts

Douglas Weiss - DSW Investment

Operator

Good morning. And welcome to the Span-America Medical Systems Third Quarter 2016 Conference Call. This call is being recorded.

Before we begin today’s call, let me remind listeners that this conference call contains statements that are forward-looking as defined within the Private Securities Litigation Reform Act of 1995. We wish to caution the listeners that these statements are only predictions. Actual events or results may differ materially as a result of risks and uncertainties facing the Company including the inability to achieve anticipated sales growth in the medical segments, the possibility that anticipated declines in sales of consumer bedding products could be greater than expected, the possibility of a loss of a key customer or distributor for our products, risks related to international operations and foreign currency exchange associated with our Canadian subsidiary, the possibility of having material uncollectible receivables from one or more key customers or distributors, the potential for volatile pricing conditions in the market for polyurethane foam, raw material cost increases, the possibility that some or all of our medical products could be determined to be subject to the 2.3% medical device excise tax imposed by the Affordable Care Act, the potential for lost sales due to competition from low-cost foreign imports, changes in relationships with large customers or key suppliers, uncertainty about whether or not we will continue to be awarded one-time seasonal promotions with major retailers, which can have a large impact on annual revenues and earnings, the impact of competitive products and pricing, government reimbursement changes in the medical market, FDA and Health Canada regulation of medical device manufacturing and other risks referenced from time-to-time in our Securities and Exchange Commission filings.

Span-America is not responsible for updating the information contained in this conference call beyond today or for changes made to this call by the conference call company or internet services.

I would now like to turn the call over to Mr. Jim Ferguson, President and CEO of Span-America Medical Systems. Please go ahead, sir.

Jim Ferguson

Thank you, Amy. And good morning. Thanks to everyone for being on the call today.

In the third quarter, we had somewhat of a mix bag of results. Our sales were down 3% but our operating income was up by 13%. This gave us an increase of 3% in income before taxes due to currency valuation between the Canadian dollar and the U.S. dollar. Ultimately, our net income after taxes was down 3%. So, earnings per share ended up at $0.34 a share versus $0.32 in the third quarter a year ago. As I said, it was somewhat of a mix bag.

On the sales side, our misses came in bed frames in the medical business and mattress overlays in our consumer business. Bed frames have been soft most of the year. We don’t see this as a lasting trend but a short-term situation. It seems that available capital dollars have been tight, even though there continues to be a need. In the consumer business, our miss was due to the loss of our large retail customer and which we spoke about on our last call. Our final shipments to this customer took place in the early part of May.

On the positive side, our legacy medical business sales, they were up during the quarter. And we see this, as a continuing trend. When asked why bed frames were down but mattresses or surfaces are up, my response is that the facilities need to treat and prevent pressure ulcers but the bed frames have mothering to do with this. Therefore, the surface is a priority and the frame is not. The other issue in the medical business is the turnover and the ownership of facilities. You’ve had many long-time nursing home change divesting facilities such as Extendicare who sold all of their homes in the U.S. but kept the physicians in Canada. This tends to slow things down for us as we need to reestablish relationships with new owners, many of which we have established for many-many years with the old owners. So that has really slowed us down a little bit. In the quarter, we continued with our usual customers such as the VA, MediLogix, our rental partner and McKesson, our distribution partner. These are always going to be strong with us.

In the custom products business, we may have lost some sales but we have turned the corner on profitability as sales were down approximately 8%, but we went from a loss to a profit on a quarter-to-quarter basis. This was due to a new customer coming on-stream, as we spoke about on our last call. We were able to be more efficient in our processes, which led to a much more profitable situation. We moved from a loss of approximately $50,000 to a profit of approximately $280,000. That was a big turnaround for us during that third quarter.

Also on the custom products side, our industrial segment continued their march forward. Sales were up by 6% during the quarter. This was a relatively small segment of the business but over the last several years, they have posted consistent growth.

And the last thing I want to touch on in terms of the quarter is we just again, once again announced a regularly quarterly dividend, and that is our normal $0.16 per share. That was our 107th consecutive dividend announcement.

So, with that, I would like to turn the things over to CFO, Richard Coggins, and he’ll be glad to fill you in on many of the financial details of our third quarter performance. Richard?

Richard Coggins

Thank you, Jim; and thank you to our listeners today. We appreciate your interest in Span. As we normally do, I would like to review the financial results for our most recent quarter. First, I’ll cover the financial highlights from the third quarter of fiscal 2016 sales and earnings results, then I’ll discuss our balance sheet and cash flow for the quarter, and then I’ll turn the call back over to Jim to get his comments on the quarter and our future outlook.

As I hope you saw in our earnings release, our third quarter results were somewhat mixed but overall, it was a very good quarter for Span. Our big picture trends in the third quarter were actually very similar to the trends that we saw in the second quarter. We had a small decline in sales, a large increase in operating income, a slight decline in net income, and a moderate increase in our earnings per share.

Here’s a summary of the third quarter performance. Sales were down by 3% due to slight declines in both our medical and custom products segments. Our operating income was up by 13% because of margin improvements in our custom products business. Net income was down by 3% because of foreign currency exchange losses from our operations in Canada. And, then finally, our earnings per share were up 6% because of our stock repurchases, near the end of fiscal year 2015.

Now, I’d like to give you just a few details behind those numbers. Let’s first take a look at sales in the medical segment. Our total medical sales were down 1% in the third quarter to $11.5 million compared with $11.7 million in the third quarter last year. The decrease in medical sales came from our medical beds and our in-room furnishing products made at our plant in Canada.

Our Span-Canada sales were down 21% to $2.6 million in the third quarter of this year compared with $3.3 million in the same quarter last year. We saw a relatively weak demand for beds again in the third quarter, similar to what we saw in our second quarter this year. And I used the term relative, because we’re saying that demand was weak compared with last fiscal year when demand for our beds was unusually strong. In other words, we seem to be seeing an average level of demand for beds this year compared with what has turned to be an above average level of demand last year.

As we mentioned in the release and as Jim mentioned in his introduction, one of the factors that’s affecting our bed sales this year is the relatively large number of changes in the ownership of facilities in the long-term care market. That activity has caused some of our customers and our prospects to either postpone or reduce orders for beds and other capital equipment items.

Looking now at the other part of our medical business, we had solid sales performance among our pressure management product lines. Sales of these pressure management products were up by 7% in the third quarter this year to $8.9 million compared with $8.4 million in the third quarter last year. Sales of our therapeutic support surfaces, which is our largest single product line, were up by healthy 8% to $6.3 million compared with $5.9 million in the third quarter last year. And sales of our other pressure management product lines as a group increased by 4% to $2.6 million in the third quarter this year. I am very glad to see this kind of steady, broad-based sales growth from this important part of our medical business.

In thinking about the two largest parts of our medical business, I would say that demand for our therapeutic support surfaces has been solid and steady so far this year. However, demand for our medical beds has been average, just not vigorous like we saw for most of last year. We’re still encouraged that our quoting activity and the market for beds in support surfaces has been lively, which we certainly hope will translate in the stronger demand and firm orders in futures quarters.

Moving now to our custom products segment, our total custom products sales were down by 8% to $3.8 million in the third quarter this year, down from $4.1 million in the same quarter last year. The largest part of our custom products segment is our consumer business where sales decreased by 12% to $2.7 million in the third quarter this year, down from $3.1 million in the third quarter last year. The decline in consumer sales was in entirely the result of the large customer that we lost earlier in the third quarter, which we announced this past April. We actually replaced a significant part of that lost business with sales to a new customer with a new consumer sales program that began in May of this year, but our sales -- our new sales were not quite enough to offset the account that we lost.

The other part of the custom products segment is made up of our industrial product lines. Industrial sales were up 6% in the third quarter this year to $1.1 million compared with $1.0 million in the third quarter of last year. This was a near record for our industrial sales group. And we’re encouraged by the growth and the solid performance that we’ve seen in this part of our business during the last several years. That covers the highlights about our sales performance. Now, let’s take a look at our third quarter earnings results.

Our gross profit level increased by 4% to $5.7 million in the third quarter this year, up from $5.4 million in the third quarter last year. Our gross margin percentage also increased in the third quarter to 36.8%, and that’s compared with 34.4% in the same quarter last year. The increases in gross profit level and margin came mostly from our custom products segment and were the results of improved margins within our customer product lines, as Jim mentioned. And as we mentioned on last quarter’s call, we’ve taken a number of actions to improve the profitability in our custom products business, and we’re glad to see those efforts bearing fruit.

In the medical segment, our gross profit level was down by 1% in the third quarter this year compared with same quarter last year, but our medical gross margin percentage was flat during the quarter this year and last year. And that’s because the sales and margin growth that we had in the legacy pressure management part of our business was offset by lower sales volumes of our bed.

Below the gross margin line, our operating expenses were up slightly by 1% during the third quarter, mostly because of an increase in administrative expenses during the third quarter this fiscal year compared with the same quarter last year. And as we mentioned in our release, the increase in admin expenses was caused by higher incentive compensation accruals and by a building maintenance project that we completed in the third quarter.

So, the combination of increased margins in the custom products segment and solid sales growth from our medical pressure management products gave us a 13% increase in our operating income, which was up to $1.5 million in the third quarter this year compared to $1.3 million in the third quarter last year.

Now, normally I don’t comment much about our non-operating income, but we had some noteworthy changes in that category so far this fiscal year. Our total net non-operating income swung from income of $64,000 in the third quarter last year to expense of $67,000 in the third quarter this year. That’s a swing of $131,000 in this net non-operating income category. And for the third quarter, the reduction in non-operating income was entirely due to foreign currency exchange transaction form our operations in Canada. In this case, the Canadian dollar strengthened against the U.S. dollar in the third quarter this year. And in the third quarter last year, we had the opposite trend with the Canadian dollar weakening against the U.S. dollar. And if you look at our year-to-date numbers, you will see the same trend just on a larger scale through the first nine months of fiscal 2016.

As a result of the swing in our net non-operating income from income in the third quarter last year to expense in the third quarter this year, our net income for this year’s third quarter was down by 3% to $935,000 compared with $963,000 in the third quarter last year. However, our earnings per share increased by 6% to $0.34 a diluted share compared with $0.32 per diluted share in the third quarter last year. The increase in our earnings per share was a result of having fewer shares outstanding, because of our large stock repurchases near the end of fiscal 2015. We will continue to see the accretive effect of that stock repurchases on our earnings per share during the fourth quarter of fiscal 2016.

That finishes my comments about our third quarter sales and earnings performance. Now, I’d like to change subjects and make just a few comments about our balance sheet and cash flow for the first nine months of fiscal 2016.

As we are usually able to report, our balance sheet at the end of the third quarter continued to be in excellent shape. If you follow Span closely, you might recall that our balance sheets at the end of fiscal year 2015 and at the end of the first quarter of fiscal 2016 looked a little unusual because of the effects of the large seasonal promotion of consumer products that was in process during the fourth quarter of fiscal 2015 and the first quarter of fiscal 2016. The effects of that promotion have now washed through our balance sheet, so the balance sheet at the end of our third quarter reflected our normal day-to-day operations.

In general, our balance sheet and financial condition are strong. Our level of cash is growing again after the large stock repurchase last fall and after funding the working capital requirements for this fall seasonal promotion. We have no long-term debt and our equity base is increasing, giving us a strong foundation for future growth.

Finally, let me mention our cash flow performance for the first nine months of fiscal 2016. Just as our balance sheet has now returned to normal after the seasonal promotion, our cash flow from operations is now reflecting a more normalized view, since the effects of the seasonal promotion have not dissipated.

Cash flow from operations was down by 1% to $3.96 million during the first nine months of fiscal 2016 compared with $4 million in the first nine months of fiscal 2015. And the main reason for the slight decrease in cash flow during the year-to-date period was the combination of changes in our working capital accounts during the first nine months of fiscal 2016 compared with the same period last year.

The net change in our working capital accounts from period-to-period reduced our operating cash flow by $149,000, which was enough to cause the small reduction in our total cash flow for the year-to-date period. But looking at our absolute results instead of relative results, cash flow generation of $4 million through the first nine months of fiscal 2016 is a strong performance for the Company. Our largest uses of cash during the first nine months of this fiscal year were first, cash dividends paid of $1.3 million; second, capital expenditures of $392,000; and third, stock repurchases of $210,000. Overall, our financial condition is still excellent, and we look forward to continuing that trend in the future.

That wraps up my comments on our financial results. I’ll now turn the call back over to Jim for his view on the business.

Jim Ferguson

Thank you, Richard.

As we start to look at the fourth quarter, we feel like our results will be similar to what we saw a year ago on the earnings side, but potentially down from the sales side, primarily due to the loss of our large retail customer and once again, a little bit on the sales side for our bed frame sales. However, we do have some great potential to do better if things fall the way that we would like them to during that fourth quarter.

In the medical business, we have an order already in-house for approximately $1 million of foam mattresses from one of our longtime customers; that will ship throughout the fourth quarter. This is one the items which we spoke about on our last call. As I have told you time and time again, once we get these large onetime corporate orders, they tend to run through the business and make a big positive reaction for us.

We also will get another group of orders from our Australian partner Alphacare and that order will be for both bed frames and surfaces. This should put us over the $0.5 million level for the first seven months of our agreement. This is not bad for the early part of what has happened with that group. They seem to be having great success with their products and their business. The interesting thing is that when we first met with them, they only wanted to talk about our bed frames, but as things have evolved, they’re having equal success with our surfaces. And as a matter of fact, they’re also now looking at wheelchair cushions. Our relationship with them is becoming more and more broad, as we move forward.

On the City of Toronto contract front, which we talked about again on the last call, we are scheduled to ship their first order in September. This will be for both, bed frames and surfaces. After that order, they will take a look at what available funds they have for the remainder of the year and determine if we will get more orders by the end of December. This has been a little bit slow going but should pay bigger dividends for in the future.

For our relationship with MediLogix who, again, is our rental partner, it continues to grow. We have an ongoing evaluation with one chain, which could lead to some nice growth with this customer. This chain has some 300 facilities across the U.S. And we think we have a good shot at passing the evolution and giving that piece of business. Also with MediLogix, we have developed the pace of co-marketing literature, and that is to be used by our sales force and their sales group when approaching potential customers. It’s pleasure to have MediLogix as a partner and being able to go in side by side and all for not only the sale of our product but also the rental.

We will also continue our focus on the VAs along with working very closely with their distributor partner McKesson. They are our go-to place for particularly our legacy products, surfaces; overlays; positioners, those are the people that are out there making those things happen on a regular basis.

Finally, on the medical side, I would like to congratulate both, Bill Daumen and Dave Champion. Bill will be retiring on October 1st. He has been a long-term Region Manager in our western region and he has been at Region Manager for his entire tenure here with the Company. Dave Champion will be taking over his region in west. And again, I would like to wish them the best of luck as they both move forward to new stages in their lives. Bill did a great job for us over many years. And we really like to wish him the best of luck. He has had a great run with us.

As for our custom products business, things will become more clear in September as many back to school programs fade away. We will be at a much better handle on what we have to do with. As I said before, our new consumer customer will make up about 40% of the large retail customer which we lost. So, that means we still have some work to do in order to try to plug the gap on the other 60%. But, what we don’t want to do is start knowing it on price. We’ve got ourselves in a position where we are making a little money off the sales that we have. What we’ve got to do is try to get out there and find the opportunities that will allow us to keep that business profitable. Those opportunities do exist. And we will continue to work with our partner Hollander to quote many of the retailers in the marketplace. Again, the good part has been the increased profitability in this business and that’s something that we have really struggled with over the last couple of years.

We also expect the industrial business to continue performing at a high level. The automotive business has been slow, but we found other areas to participate in, which is primarily packaging oriented. And the local automotive manufacturer BMW, they just announced, they had an 8% decrease during the month of July for domestic cars here and through the first nine months of their year, they’ve actually got 4% decrease. So, things are slowing down quite a bit in the automotive industry. But, Jim Ross, our Sales Manager back there in the industrial group has been able to find those opportunities, those packaging opportunities. We do work with a local kayak manufacturer which we’ve continued to increase our business with. So, we’re finding place that we can go and get business for that industrial segment.

So in summary, we feel like our business continues to be solid. We continue to work our way out of the hole that was fiscal 2014. There is great deal of opportunity with our regular business but we continue to look for other channels for our products as well as acquisitions, which we can tuck in our business to help push us forward. As you look at things like Alphacare, as you look at things like MediLogix, we’ve got to find those channels. We’ve got a great group of products but we’ve got to have other alternate channels to try to push those products through. And again, we’ve got to try to look for other businesses that we can take up to add on that we can potentially put in our sales group’s bags to get up there and sell.

So, with that, I’d like to thank you. And I’d ask that Amy come back, and we will take some questions.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] And our first question is from Douglas Weiss with DSW Investment. Please go ahead, sir.

Douglas Weiss

So, pretty comprehensive overview there. On the -- it’s a pretty good quarter for gross margin, and I guess that’s partly mix and partly the fact that custom was profitable. I guess breaking that down, do you think you can maintain some profitability in the custom line even if sales drop off a bit?

Jim Ferguson

We believe we can. We’ve got some other things that we think are coming along, and we think we’ll be able to pick that volume up a little bit. September is kind of going to be the telltale month that will let us know where we are because we will have gotten over a lot of the back-to-school programs and some of the things that we’ve been doing. But, I think we have a good opportunity to maintain the profitability over there. Main thing we can’t do is we can’t drive back to where we’re losing $1 million in year’s [ph] time. We got to keep that thing at breakeven and preferably profitable moving forward.

Douglas Weiss

Is it possible as you begin to comp against the strong quarters early this year that even though sales are going to be down, you could actually be flat on profit or even improve the profit somewhat?

Jim Ferguson

Yes, I think we have a great opportunity to do that that we will be flat or will be making a small profit even though sales will be down. And it’s very much what you saw in the third quarter here, even with sales being down, we kept that thing profitable and fairly profitable, so we got a little bit to work with there.

Douglas Weiss

Right. I guess, I can’t remember off hand what the profitable was in -- I’ll come back to that. You mentioned -- you sort of alluded to M&A there in terms of expanding your what the sales people have to take with them. How are things looking on that front?

Jim Ferguson

We’ve had -- we are actively pursuing that, we’ve looked at a number of opportunities. Without going into too much detail, we’ve got a couple of things we’re pursuing. And we will just leave it at that. We think there are things that we can deal with. But again, it takes some time.

Douglas Weiss

And then, I guess just coming back to gross margin quickly, I guess what’s tough as I followed you guys over the years is your gross margin moves around quite a bit. I guess that’s a function of foam prices -- and I’m not sure that you guys always have that much of visibility on a quarter-to-quarter basis either. Is there anything sort of that would be lead you to believe that this level is -- that you can hold at this level or do you think that it is still going to be sort of quarter-to-quarter?

Jim Ferguson

I think one of the things that you see is our level of gross margin tends to drop higher the level of custom products business there is. And as the custom products business begins to drop back, you find that the gross margin will increase because the medical business which carries the higher gross margin, has a much bigger impact on that level. And Richard, do you have a comment on that.

Richard Coggins

There are really three large factors that affect our gross margin. One is -- and you’ve named two of them already. One is mix, the mix between our medical products and custom products segments. Two is on volume and that tends to have -- volume tends to have more of an effect on our custom products business than our medical business. And three would be foam prices. And really, those are the three main elements that cause our gross margin to swing. If you look at the different segments or parts of our business, one thing I could say is that our legacy medical business, the gross margin in that business tends to be high and relatively stable. We don’t see a lot of fluctuation in that -- in the margin for that business, I mean on the gross margins level for that business.

If you look at our Span-Canada gross margin business which is the other part of the medical segment, we do get -- we can get some significant fluctuations in the gross margin in the Span-Canada business because of volume. In that business, two years ago, we were close to the breakeven level. And so, small changes in volume in either direction could get disproportionate changes in margin. And last year, we had a real strong sales year, were well above the breakeven point and so our margin tended to be more stable and higher. This year, our sales have been off roughly 20% but our margin in the Span-Canada businesses held up, in part because of trying to maintain some attractiveness from a pricing standpoint, but also in part because of the exchange rate effect on our gross margin out there.

Last component is gross -- we tend to get the most volatility in gross margin in our custom products business, and even zeroing in more on that, it’s most volatile in the consumer part of the business. And that is what produces most of our overall margin volatility is changes in volume and in pricing in that part of our business. And we’ve seen that move around a lot this year, this fiscal year because we had the large seasonal promotion of consumer products in the first quarter, which gave us a big spike in volume, but it was low margin business for us. And that was only a one quarter opportunity and then we saw the second and third quarter -- or second quarter was kind of a normal quarter for us; third quarter involved a loss of the customers and replacing it with new more profitable business. So, unfortunately, I wish we could give you a little bit of guidance on the margin, but as you mentioned, I think you said, we don’t have that good visibility of it, and that is true because it depends on these variables that can move around quite a bit.

Douglas Weiss

How about foam, is foam pretty much steady state at this point?

Jim Ferguson

Right now, it is stable. We actually have got a couple of small decreases, nothing large, but we’ve had a couple of small decreases since I guess about March. So, things keep kind of moving along there. They threaten an increase, those foam manufacturers threaten an increase which will be passed on to us sometime about the middle of the June, but that quickly got withdrawn and we’ve not heard anything since that point in time. So, things remain fairly stable at the moment.

Douglas Weiss

Okay. And then, last question and I’ll let someone else get on. When you talked about your expectations for next quarter, you’ve kind reiterated what was in the press release but then you listed a number of things, large corporate -- large onetime customer order, the export relationship, the Toronto business. Are those already incorporated in the guidance or are those incremental to the guidance?

Jim Ferguson

Those are incorporated in the guidance and you got to think across the entire business. When you think of the medical business, I think the medical business will have an opportunity to be up. But in terms of the volume that we’ll lose out of the consumer business that may make us again slightly down on the sales side. And, right now, depending upon what happens from an earnings perspective, we’re trying to just be a little more on the cautious side here I think, as you know well we usually are. We don’t want to try to project something that is going to be too much fluff I guess. We try to be as conservatives as possible. But we do have an opportunity to do well here in the fourth quarter, if things -- as I said, if things fall the way. We’ve got a number of things in place right now and we could do well. It all depends upon, particularly what happens in September once we get here with the full situation of what’s going to happen in custom products.

Douglas Weiss

Right. So, you have a good visibility on the medical side, you have a little less visibility on customs, is that the way...

Jim Ferguson

That would be -- if you want to summarize, that’s probably true.

Douglas Weiss

And it sounds like one of the opportunities is on the margin, so you actually could see a little more improvement on the margin, given the way things are shifting.

Jim Ferguson

Could be. I wouldn’t say it would be significant but there could be some slide improvement.

Richard Coggins

We should get some help from the -- on the margin side, we should get some help from the medical business if our volume ends up being solid as we expect. But, on the custom products business, our margins going to depend on how much of a volume drop-off that we get. So, we are going to have -- we should have kind of the win behind us on the medical side but against us on the custom product side. So, we’ll have to see how it shakes out.

Douglas Weiss

Right, okay. I actually have one more question, but I’ll get back in the queue, and I’ll back come back.

Operator

[Operator Instructions] And we do have again Mr. Weiss with DSW Investment. Please go ahead, sir.

Douglas Weiss

So, I just wanted to get a sense of this on the M&A front. Obviously you guys had the bad experience few years back with the safety products. And I think maybe after that you were -- you’ve been a little more cautious -- or I guess what were kind of the learnings, because in some ways that I think was viewed as another -- something else to put in the sales persons’ bag and it didn’t really work out. And I wonder why that product didn’t work out and what are you kind of taking away from that and how you put differently going forward?

Jim Ferguson

Well, in reality, it really wasn’t -- that wasn’t something that we could put in our own sales. That was kind of us looking at our new avenue and trying to look at different things. And that was something we had to develop because it was very much acute care oriented, EMS oriented prices, where actually those people don’t spend a lot of time. So, we had to develop our own sales channels. It was a great product, it was a little bit ahead of its time. I think the problem with that situation, one thing we learned out of that is when you’re going to go up against some real big competitors such as Becton Dickinson and so forth, the quality of the product or the product itself, not only that you have to have the best thing out there, but price is a big deal. And we learned very quickly that when you’re going into these committees in the acute care setting, we thought it would be sort of like a majority rule, and it wasn’t bad at all. If you had a nine-person committee, if eight of them voted for our product and one wanted to keep Becton Dickinson, they kept it. It had to be a complete consensus of the entire group. So, that was kind of an eye opener for us. And as we look at it now, we’re trying to find things that we can go into places that we know, put it in our own sales people’s bag and do it with our organization as opposed to having to do it differently.

Douglas Weiss

So, probably something that would appeal sort of the long term care market?

Jim Ferguson

Well, just like MC Healthcare. That was a great. I mean, it has been a good acquisition for us. We picked up -- however you want to look at it, say an average of $12 million a year, and $1 million in profit. So, we felt like that was a good investment on our part. But not only was it a good investment and a good business to pick up, but it’s widened [ph] our main street for our guys to go out there and sell. So, we want to be able to find more things like that that we can give to our sales force. We consider from a strategic standpoint, our sales force is one of the strong points of our overall business. We look at ourselves as somewhat of a manufacturer, and we think we are good at manufacturing. We’re pretty good at that. But I am going to tell you, for a company our size, we have gotten extremely experienced, very good, very efficient sales force.

Douglas Weiss

That makes and that sounds like a good way to think about things. Just on the -- in terms of the where you’re on your product refresh, on your core medical products, you’ve introduced a bunch of new things over last couple of years. You haven’t talked as much as in recent calls. Do you have a kind of product refresh over the next year or two?

Jim Ferguson

Yes, we’ve got a couple of things that we’re working on right now. We’re looking at something with our Easy Air product. That’s one of the things that we’ve looked at a number of times. We think we’ll be having something there pretty quickly. We’re working on couple of things on the bed frame side of the business, and hopefully to make the products little better and reduce some cost. So, we’ve got a lot of things we’re working on in the pipeline. And again, those things -- the one thing about products now, it used to be where we could come out with say a mattress product, you could that within two or three months. Now, with the way things are with -- and the way you have to get things certified and tested, and UL certified and so forward. It’s a much longer process than what it used to be, say 5 to 10 years ago. So, it’s a little more difficult now.

Douglas Weiss

Right. But I think that’s kind of a mix plus thing, right? It’s same for everyone.

Jim Ferguson

It is.

Douglas Weiss

Just on export, can you say how large that was this quarter or if you guys not want to break that out?

Jim Ferguson

I don’t have a number right off the top of my head, to be quite honest…

Richard Coggins

$260,000…

Jim Ferguson

$260,000...

Richard Coggins

I’m assuming you are talking about Australia not...

Douglas Weiss

Yes. As opposed to what?

Jim Ferguson

Well, as opposed to Canada for example. I mean…[Multiple Speakers]

Douglas Weiss

And so, will that -- do you think that’s going to grow in coming quarters or is that kind of a good run rate for that number?

Jim Ferguson

We think they have an opportunity to grow. But, it will take some time. You’ve got to remember, we’ve only been doing this since late January or early February. So, in terms of our agreement we signed, we got things started to ship, so this has only been going on six or seven months. And we think there is a lot of opportunity. They tell us that there is going to be 80,000 new beds purchased in Australia over the next five years. So, we think there is a lot of opportunity there.

Douglas Weiss

80,000 for long term care?

Jim Ferguson

Yes.

Douglas Weiss

And what’s the price on those -- on your beds that go to Australia?

Jim Ferguson

It just depends on which bed it is. We’ve got a Rexx, we’ve got Advantage and we’ve got the Encore. So, range is anywhere from say $700 to $800 up to $2,500, depending upon which bed it might be.

Douglas Weiss

That’s with the frame and the mattress?

Jim Ferguson

No. That would be just the bed frame.

Douglas Weiss

Just frame? And you started both, frames and mattress?

Jim Ferguson

Correct.

Douglas Weiss

Okay, alright. Well, I appreciate the time as always, and talk to you next quarter.

Jim Ferguson

Okay. Thank you.

Operator

[Operator Instructions] It appears there are no further phone questions at this time.

Jim Ferguson

Okay. We would again, once again like to thank everybody for being with us today. And we look forward to giving you our yearend results, and that will happen November, sometime in November. Thank you.

Operator

This concludes today’s call. Thank you for your participation. You may now disconnect.

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