Attached files
| file | filename |
|---|---|
| 8-K - MEDTOX SCIENTIFIC INC | form8k041410-2.htm |
Exhibit
99.1
MEDTOX®
Scientific, Inc.
First
Quarter Conference Call
April
14, 2010
Kevin
Wiersma, MEDTOX - COO - Laboratory Services Division and CFO:
Good
morning everyone. I’m Kevin Wiersma, chief operating officer of the
MEDTOX Laboratory Services division, and also CFO of the
company. Welcome to our first quarter conference
call.
Before
Dick Braun, our CEO, begins our prepared presentation, I’d like to cover one
administrative item: Forward looking statements in our conference
call today are made under the “safe harbor” provisions of the Private Securities
Litigation Reform Act of 1995. Any such statements are subject to risks and
uncertainties that could cause actual results to differ materially from those
anticipated. Such factors are described from time to time in the Company's
Annual Report on Form 10-K and other reports filed with the Securities and
Exchange Commission.
Our
call today is in listen-only mode, and we would also like to welcome those
listeners who have accessed this morning’s call on the
internet. Following our prepared remarks, we’ll have a question and
answer session that is accessible to institutional investors and qualified
financial analysts covering MEDTOX and our industry. We look
forward to your questions.
Also
joining us for our call is Jim Schoonover, our chief marketing officer, and at
this time I’m pleased to introduce Dick Braun, CEO of MEDTOX.
- 1
-
Dick
Braun, MEDTOX - Chairman, President & CEO
Thank
you, Kevin.
Our
Laboratory Segment drugs-of-abuse business again showed solid growth in new
sales. DAU revenue was net positive in the quarter for the first time
in 6 quarters. This is due to both increased sales and relative stability in
March in testing volume from existing clients. Our clinical business continued
to show solid growth in the quarter. Clinical laboratory revenues (excluding
Clinical Trial Services) increased 27.7% for the quarter. This increase is
attributed to our clinical laboratory expansion and diversification initiated in
2008. As we previously discussed in the year end call, Clinical Trial Services
revenues were down for the quarter compared to the record quarter the previous
year-due to deferral and cancellation of a number of trials. CTS activity picked
up in March and currently scheduled testing for the second quarter shows
continuing improvement.
In
the Diagnostic Segment, revenues were up quarter over quarter, also for the
first time in 6 quarters. Sales of devices sold into the
hospital market increased in the quarter. On April 5th we
received FDA 510(k) clearance for two additional drugs for our MEDTOXScan®
Reader. They are Buprenorphine and an Opiate 2000 cutoff level. Bringing to
fourteen the number of drugs detectible by the Reader. This is currently the
most expansive panel available on any point-of-collection testing reader in the
market.
The
relative improvement in DAU testing, Diagnostic revenue and increased clinical
revenue produced improved gross margin and gross profit quarter over quarter. We
look forward to continuing improvement in these metrics as the year
progresses.
- 2
-
Kevin
…
Kevin
Wiersma, MEDTOX - COO - Laboratory Services Division and CFO:
Thank
you, Dick. Here are some details regarding the quarter.
Revenues
were $21.2 million for the quarter, up 2.4% from the first quarter of last
year.
In
our lab business, first quarter revenues were $16.5 million, up 2.2% from the
first quarter of last year. Revenues from drugs-of-abuse testing
increased 4.1% for the quarter as a result of an increase in new account
revenues and more stable testing volumes from our existing workplace
drugs-of-abuse clients. Revenues in our clinical and other laboratory
services were up 27.7% for the quarter due to continued strong growth generated
by our expanded clinical laboratory capabilities. Revenues in
Clinical Trial Services were down 64.0%, and continue to be impacted by a
slow-down of projects and deferral of work into future quarters.
In
our diagnostic business, first quarter revenues were $4.6 million, up 3.2% from
last year due primarily to an increase in revenues from device sales in the
workplace market.
Our
overall gross margin was 38.3% in the first quarter, compared to 37.0% last
year.
Our
lab business operated at a 33.2% margin in the first quarter, up from 31.2% in
the first quarter of last year. Cost of services in our lab business
was flat with the first quarter of last year. The increase in gross
margin was due to increased volume through a stable cost structure.
- 3
-
Margins
in our POC diagnostic division were 56.3%, down from 57.8% last
year.
Our
selling, general and administrative expenses were $7.4 million or 35.1% of
revenues in the quarter, up from $6.2 million or 30.1% of revenues in the first
quarter last year. Our increased spending was primarily associated
with an increase in sales and marketing expense and the reclassification of
$195,000 from other expenses which were determined to be more appropriately
classified in SG&A expenses.
Our
sales, general and administrative expense of $7.4 million compared more closely
to the previous two quarters, where SG&A expenses were $6.8 million and $7.1
million respectively. The increase in the quarter, over the previous
two quarters, was due primarily to expenses relating to our year-end financial
audit and incentive based compensation.
Research
and development expenses were $549,000 in the quarter compared to $570,000 in
the first quarter of last year.
We
recorded other income of $4,000 in the quarter compared to other expense of
$190,000 last year. The change is due to the reclassification of
$195,000 to SG&A in the quarter.
In
terms of the balance sheet, our trade receivables are up from their year-end
level due to strong March sales and the timing of cash receipts. Our
days sales outstanding was 66.4 days for the quarter compared to 60.9 days last
year.
For
the first three months of the year, capital expenditures were $1.1 million and
depreciation and amortization was $1.4 million. Cash flow from
operations was $0.9 million in the quarter.
This
concludes our review of the Company’s financial performance.
- 4
-
Dick
Braun, MEDTOX - Chairman, President & CEO
Thank
you, Kevin. We would now be glad to take any questions that you may
have.
QUESTION
AND ANSWER
Steven
Crowley - Craig-Hallum Capital
Group - Analyst
Good
morning, gentlemen. A couple questions … In terms of giving us a feel
for the business flow from existing customers or same-store sales, Dick, I think
you made the comment about stability in March? I want to make sure I understand
that, but also for the quarter, what were same-store sales?
Kevin
Wiersma - MEDTOX - COO -
Laboratory Services Division and CFO
Same-store
sales, Steve, were down 6% in the quarter, compared to first quarter of last
year.
Steven
Crowley - Craig-Hallum Capital
Group - Analyst
Alright,
so I think your message was that March showed some stability. Does that mean
they were down even more modestly or were they roughly flattish year over year
in March?
Dick
Braun - MEDTOX - Chairman,
President & CEO
In March,
they were down less. In fact, they were about even.
Kevin
Wiersma - MEDTOX - COO -
Laboratory Services Division and CFO
They were
about even in March.
Steven
Crowley - Craig-Hallum Capital
Group - Analyst
Great,
great. In terms of new business acquisition or new customer acquisition, what
can you tell us about that across the various segments of your
business?
Jim
Schoonover - MEDTOX - VP &
CMO
Steve,
this is Jim Schoonover. The new account acquisition in the workplace side
continues to be strong and continues to follow through from what we saw last
year. On the clinical side, other than clinical trials, we’ve made good progress
in the pain and prescription management area. We’re not going to break that out
due to competitive reasons, but it had a very good quarter. In addition, we saw
increased clinical testing and increased customer acquisition within the
occupational medicine clinic area, corporate wellness; and also we’ve been able
to obtain some reference laboratory testing from other reference labs,
specifically in the clinical toxicology area. So it was a good quarter in terms
of overall account acquisition.
- 5
-
Steven
Crowley - Craig-Hallum Capital
Group - Analyst
Great. In
terms of the CTS business, obviously you had another difficult quarter,
something you telegraphed to a meaningful degree coming out of last quarter. It
seems like you’re talking much more positively about how the order book has
filled for Clinical Trial Services and I want to confirm that and try and get
some sense for what kind of bounce back in that business we might be able to see
in the second quarter. Last year's second quarter was around $1.6 million for
that business. Is that the kind of neighborhood we could see a recovery to or
what kind of flavor can you give us on that?
Dick
Braun - MEDTOX - Chairman,
President & CEO
Well
Steve, as we’ve said many times, it is somewhat unpredictable just because it’s
project-oriented, but now that we’re into the second quarter, we have a schedule
with our clients as to which projects we are going to be working on. They could
still move and they could still slightly be up or down, but I think it’s fair to
say that the number that you put out from the second quarter of last year is a
reasonable number to achieve in the second quarter this year.
Steven
Crowley - Craig-Hallum Capital
Group - Analyst
And as
you look farther out into this fiscal year, I know things can move around, but
are you relatively encouraged for how the back half of the year looks in the CTS
business?
Dick
Braun - MEDTOX - Chairman,
President & CEO
Yes.
Steven
Crowley - Craig-Hallum Capital
Group - Analyst
Okay. And
then the last question before I hop back into the queue relates to the hospital
drugs-of-abuse testing arena. What can you tell us about the progress you’re
making with Reader placements or customers or the razor blade
sales?
Jim
Schoonover - MEDTOX - VP &
CMO
So far,
Steve, we have 500 Readers out in the field. Of those 500, 100 are currently in
evaluation or in the evaluation phase and it was a good quarter for progress in
that area. I think March was actually the biggest revenue month we’ve had since
back in 2008, so we’re making good progress there. As Dick mentioned in his
prepared remarks, having 14 drugs on the devices for that market is important in
terms of taking market share and the sales group in that area is doing a good
job at placing these with new customers.
Steven
Crowley - Craig-Hallum Capital
Group - Analyst
In terms
of the utilization of consumables by the installed base of equipment, are you
seeing any surprises or any trends there that are notable?
Jim
Schoonover - MEDTOX - VP &
CMO
No, that
model has been pretty steady now for probably the last 12 to 14 months. We have
a formula that we use in terms of what we can expect from new hospital clients
based on their size and that model has been intact and has been predictable and
continues to follow suit.
- 6
-
Steven
Crowley - Craig-Hallum Capital
Group - Analyst
In terms
of the market landscape for hospital drugs-of-abuse testing, there have been
some changes underfoot at your major competitor in terms of how they’re going to
market. Have you seen any consequences or impact or effect from that out in the
marketplace?
Jim
Schoonover - MEDTOX - VP &
CMO
Not
really. I think people are evaluating our Reader based on its own merits and
based on our relationship with Cardinal Health. And I’m sure underneath the
surface, there may be some of those issues that are being considered by the
buyer, but it’s not been necessarily a driving force for us. I think the Reader
is a very good product and it’s getting its rightful share of the
market.
Steven
Crowley - Craig-Hallum Capital
Group - Analyst
In that
transition that they’re effecting in terms of how they go to market, are there
some opportunities for you to pick up some new distribution or some new partners
out there in the marketplace or have you already seen some of that
benefit?
Jim
Schoonover - MEDTOX - VP &
CMO
I don't
think we’re going to change how we go to market at this point. We’ve had a
long-term relationship with Cardinal that’s been very successful and we do some
direct sales with hospitals that don't have a relationship with Cardinal and I
don't anticipate that changing.
Steven
Crowley - Craig-Hallum Capital
Group - Analyst
Okay,
great. I'll hop back in the queue. Thanks for taking my
questions.
Marcus
Ortega - JP Turner &
Company - Analyst
Good
morning, gentlemen. Thank you for a strong quarter. Excuse my tone; I’m fighting
the tail-end of a flu at the moment, so I will be very brief. Dick, in your
opening comments, you mentioned FDA approvals recently on two new tests. Could
you repeat those and speak to those particular testing markets for
us?
Dick
Braun - MEDTOX - Chairman,
President & CEO
I will
let Jim speak to the market, but it is buprenorphine and an opiate 2000 cutoff
level.
Jim
Schoonover - MEDTOX - VP &
CMO
Yes, and
Marcus, the opiate cutoff level is simply a higher level that sometimes is
appropriate for hospital patients where they’re really looking for more overdose
type situations with opiate-based products. Buprenorphine is a drug that has
been a replacement or is becoming very much a replacement for methadone and;
therefore, it is being seen more frequently within hospital emergency room
patients, and I think was something that the market was asking us to develop
over the last probably 12 to 18 months. So it’s a nice addition to the overall
product line that we have for the Reader.
Marcus
Ortega - JP Turner &
Company - Analyst
Fantastic.
Thank you so much.
- 7
-
Steven
Crowley - Craig-Hallum Capital
Group - Analyst
Hi, guys.
Back with a couple financial questions or more financially-oriented questions.
Kevin, could you give us a breakdown of the point-of-collection revenues, the
three buckets for the quarter?
Kevin
Wiersma - MEDTOX - COO -
Laboratory Services Division and CFO
Sure, the
point-of-collection testing products were $4.1 million in the quarter, Steve.
Contract manufacturing was $0.4 million, and other diagnostic products, $0.1
million.
Steven
Crowley - Craig-Hallum Capital
Group - Analyst
Okay,
that's helpful. And then in terms of the discussion on SG&A and some of the
bounce SG&A had in Q1 relative to the last couple quarters. I understand the
reclassification on a year over year basis, but the implications of Q1 having
had some incentive comp and some other expenses; does that mean on a dollar
basis that we can see some ebbing back of the SG&A line as we move forward
in the year here? How should we look at that line?
Kevin
Wiersma - MEDTOX - COO -
Laboratory Services Division and CFO
Steve,
SG&A was a little high in the quarter. Certainly, we do maintain pretty good
focus on controlling those expenses and anticipate those expenses staying
relatively flat or within control going forward.
Steven
Crowley - Craig-Hallum Capital
Group - Analyst
And then
in terms of your efforts to continue to drive gross margin back higher. There is
obviously the variable that started to come into play here… we’re driving more
volume across a relatively fixed base and the workplace lab should be at work,
but the other factors – the clinical trial rebound I trust could have a
noticeable positive impact; and what do you have going on the product side of
the equation that could move that needle?
Jim
Schoonover - MEDTOX - VP &
CMO
Steve, I
think it's a similar situation. Our people down in Burlington do a great job at
maintaining cost control, and at the end of the day it really comes down to a
volume issue. So the more devices we drive through that plant, the more the
overhead gets spread over additional devices and the better the margin becomes.
So ultimately, it’s still all about top-line revenue and driving
business.
Dick
Braun - MEDTOX - Chairman,
President & CEO
And
Steve, I think also just to remind everyone. On a seasonal basis, the first
quarter is generally lower than the next two quarters, so we’re coming into
generally a stronger revenue-producing period.
Steven
Crowley - Craig-Hallum Capital
Group - Analyst
Great.
Final question from me really relates to other new product initiatives that you
might have underway. I know you've talked about some stuff on the product side –
maybe towards the government market – that might be brewing. Can you tell us
about anything on the new product front?
- 8
-
Dick
Braun - MEDTOX - Chairman,
President & CEO
Two
comments and I'll make one and I think Jim the other. We have a lot of things
going on right now and it's really all about execution. We have enough arrows in
the quiver to be successful, but there is one new product I think we alluded to,
or at least a format, form factor, which we've just really come out with. Maybe
Jim could comment on that.
Jim
Schoonover - MEDTOX - VP &
CMO
Yes,
Steve, that is sort of the next generation within our product offering both for
corporate clients and for government clients, which is a diagnostic dip product.
It’s a little bit simpler to utilize and also it’s less costly to manufacture
and we think it will allow us to compete in some of the more price-sensitive
parts of the diagnostic markets that we compete in. We have not had a dip
product of this caliber both in terms of its visual appeal and also the way that
it’s presented in terms of its form factor ever before. So this will be
introduced towards the end of April, early May and we believe it will give us
entry into some parts of the market that frankly have been a little too price
competitive for us in the past.
Steven
Crowley - Craig-Hallum Capital
Group - Analyst
Great.
Thanks again for taking my questions.
Dick
Braun, MEDTOX - Chairman, President & CEO
We
would like to thank you for joining us, and we look forward to speaking with you
again when we announce second quarter results. Thank
you.
- 9 -