Attached files
| file | filename |
|---|---|
| 10-Q - AMERICAN MEDICAL ALERT CORP | v194077_10q.htm |
| EX-31.2 - AMERICAN MEDICAL ALERT CORP | v194077_ex31-2.htm |
| EX-10.4 - AMERICAN MEDICAL ALERT CORP | v194077_ex10-4.htm |
| EX-15.1 - AMERICAN MEDICAL ALERT CORP | v194077_ex15-1.htm |
| EX-99.2 - AMERICAN MEDICAL ALERT CORP | v194077_ex99-2.htm |
| EX-32.2 - AMERICAN MEDICAL ALERT CORP | v194077_ex32-2.htm |
| EX-32.1 - AMERICAN MEDICAL ALERT CORP | v194077_ex32-1.htm |
| EX-10.3 - AMERICAN MEDICAL ALERT CORP | v194077_ex10-3.htm |
| EX-99.1 - AMERICAN MEDICAL ALERT CORP | v194077_ex99-1.htm |
| EX-31.1 - AMERICAN MEDICAL ALERT CORP | v194077_ex31-1.htm |
| EX-10.1 - AMERICAN MEDICAL ALERT CORP | v194077_ex10-1.htm |
| EX-10.5 - AMERICAN MEDICAL ALERT CORP | v194077_ex10-5.htm |
| EX-10.2 - AMERICAN MEDICAL ALERT CORP | v194077_ex10-2.htm |
Conference
Call and Webcast Transcript
Wednesday,
August 11, 2010
RANDI BALDWIN: Thank you
operator. Good morning, everyone and thank you for joining us today for AMAC’s
second quarter 2010 conference call. We apologize for the
technology based delay with the release this morning. This conference
call contains forward-looking statements that involve a number of risks and
uncertainties. Forward-looking statements may be identified by the use of
forward-looking terminology such as "may," "will," "expect," "believe,"
"estimate," "anticipate," "continue," or similar terms, variations of those
terms or the negative of those terms. Important factors that could cause actual
results to differ materially from those indicated by such forward-looking
statements are set forth in the Company's filings with the Securities and
Exchange Commission (SEC), including the Company's Annual Report on Form 10-K,
the Company's Quarterly Reports on Forms 10-Q, and other filings and releases.
These include uncertainties relating to government regulation, technological
changes and product liability risks. In addition, certain statements related to
the future expectations and timing for the development and commercialization of
Lifecomm’s mobile PERS solution, constitute forward-looking statements.
Important factors which might cause a difference between actual and expected
events include: (i) greater than expected and/or increased costs or unexpected
delays associated with the development and commercialization of Lifecomm’s
mobile PERS solution, (ii) inability to successfully develop the technology to
support Lifecomm’s mobile PERS solution, (iii) uncertainty relating to consumer
interest in and acceptance of Lifecomm’s mobile PERS solution, (iv) risks
associated with changes in the competitive or regulatory environment in which
Lifecomm operates; and (v) risks associated with prosecuting or defending
allegations or claims of infringement of intellectual property rights. The
Company does not undertake any obligation to update these forward-looking
statements for events occurring after the date of this conference
call. And now I would now like to turn the call over to Jack Rhian,
President and CEO of AMAC
JACK RHIAN: Thanks, Randi and
good morning, ladies and gentlemen. Thank you for attending AMAC’s 2010- 2nd Quarter
Earnings Conference call. Joining me this morning are the other members of the
executive management team: Richard Rallo, our Chief Financial Officer and Randi
Baldwin, Senior Vice President. Fred Siegel is travelling today. By way of
format this morning, Richard Rallo will discuss the financial results for the
second quarter of 2010. Thereafter, I will provide management’s observations
regarding our business plan for the remainder of 2010 and an early outlook at
2011. Subsequently, our team will be ready to respond to questions
from conference participants. Also on today’s call, we intend to spend extra
time explaining the multiple and significant benefits of our joint venture
investment in Lifecomm. At this time, I’d like to turn the call over to Richard
Rallo.
Richard
Rallo: Thank you Jack and good morning everyone.
On
today’s call I will discuss our results of operations for the three and six
months ended June 30, 2010 as well as some Balance Sheet items. Before
getting into the detailed numbers, I would just like to mention a couple of
financial highlights:
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The Company-wide net income
increased approximately 22% for the six months ended June 30, 2010 and 30%
for the three months ended June 30, 2010 as compared to same periods last
year and this is before the effect of the minority interest
charge.
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The HSMS division for the
second consecutive quarter achieved a gross profit level of 60%
and
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The Company recently declared a
second special cash dividend of $0.10 per
share.
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With
respect to the Results of Operations:
Revenues:
Revenues
for the quarter ended June 30, 2010 were $9,712,000, as compared to $9,518,000
for the same period in 2009, which represents a 2% increase.
Revenues
for the six months ended June 30, 2010 were $19,623,000 as compared to
$19,448,000 for the same period in 2009, representing a 1%
increase.
The
growth in revenues for the 2nd quarter
was primarily generated through the Company’s TBCS division. The growth was
realized through:
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An
increase in revenue within the Company’s non-traditional day-time service
offering. The increase is primarily the result of certain hospital
organizations expanding their services with us. Further expansion is
anticipated to continue throughout 2010 and into 2011 from these hospital
organizations as well as from a recently executed agreement with another
hospital organization.
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Gross
Profit
With
respect to Gross Profit, the Company’s overall Gross Profit percentage for the
quarter ended June 30, 2010 improved by over 1% to 53% as compared to 52% for
the same period in the prior year. This improvement was related to
improved gross profit margins within both segments. Additionally, as
previously highlighted, the HSMS division delivered a strong gross profit
percentage of 60% for the second consecutive quarter.
Net
Income
Net
income for the quarter ended June 30, 2010 increased 30% to $791,000 or $.08 per
diluted share as compared to $608,000 or $.06 per diluted share for the same
period in 2009. Net income for the quarter ended June 30, 2010 excludes
the Company’s share of the net loss of $69,000 in relation to the Company’s
investment in Lifecomm, Inc., the joint venture with Qualcomm and Hughes
Telematics, Inc. In accordance with accounting rules and regulations, the
Company is required to record its portion of net income or net loss associated
with this joint venture. This net loss primarily represents the Company’s
share of R&D and other selling, general and administrative expenses incurred
by the joint venture through June 30, 2010 for the development of the next
generation mobile PERS. The Company’s income for the quarter ended June
30, 2010 after taking into effect this charge was $723,000, or $0.07 per diluted
share.
As the
joint venture continues to develop this next generation mobile PERS, it is
anticipated that the Company’s share of net loss over the next several quarters
will increase significantly and continue until the product is completed and
commercialized. As a result of these net losses, the Company will
experience a decrease in its net income. At the same time the Company will
realize a significant tax benefit and have less cash outlay relating to income
taxes. Once the product is completed and commercialized, it is anticipated
that the joint venture will begin to become profitable and AMAC’s net income
will be enhanced by AMAC’s share of the joint ventures profit.
Net
Income for the six months ended June 30, 2010 was $1,679,000 or $0.17 per
diluted share as compared to $1,382,000 or $.14 per diluted share for the same
period in 2009. This represented a 22% increase. The net income
excludes the Company’s share of net loss associated with its joint venture with
Qualcomm and Hughes Telematics, Inc., as described above. The Company’s
net income for the six months ended June 30, 2010 after taking into effect this
charge was $1,610,000 or $0.16 per diluted share.
The
increase in Net Income was attributable to:
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An
increase in the revenues
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An
increase in the overall gross
profit.
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A
decrease in consulting expenses.
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A
reduction in commission
expenses
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A
decrease in depreciation expense primarily as a result of purchasing its
PERS product at reduced rates and
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A
decrease in amortization expense as certain assets, Customer Lists and
license agreements have now been fully
amortized.
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The
reduced expenses were partially offset by an increase in Sales salaries, which
was primarily related to the Company hiring additional sales and marketing
personnel to facilitate sales growth. In addition, the Company also
recognized a decrease in other income as a result of certain economic incentives
being received from the City of Clovis and State of New Mexico in 2009 which
were not received in 2010.
EBITDA
Earnings
before Interest, taxes, depreciation and amortization (“EBITDA”) for the six
months ended June 30, 2010 was $4,598,000 as compared to $4,428,000 for the six
months ended June 30, 2009.
EBITDA
for the trailing twelve months ended June 30, 2010 was $9,163,000 as compared to
$8,570,000 for the trailing twelve months ended June 30, 2009, representing a 7%
increase. The trailing twelve month EBITDA for 2009 reflects the pre-tax
exclusion of a onetime non operating charge incurred in the 4th quarter
of 2008 in the amount of approximately $887,000. Without this exclusion,
EBITDA growth for the twelve months ended June 30, 2010 as compared to 2009
would have been 19%.
Other
With
respect to the Balance Sheet, the Company continues to demonstrate financial
strength even after taking into effect the cash dividend paid in the amount of
$950,000 in January 2010 and its $4,000,000 cash investment in the joint venture
with Qualcomm, Inc. and Hughes Telematics, Inc. during 2010.
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At
June 30, 2010, the Company had cash in excess of $4,000,000. The cash is
targeted for the following items:
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To
fund a second special cash dividend, as previously
mentioned.
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To
launch an aggressive advertising campaign to market its MedSmart and PERS
products direct to consumer. This is anticipated to start at the end of
the 3rd
quarter.
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To
fund potential strategic
acquisitions.
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To
purchase PERS and health care related
products.
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To
continue to pay down debt on its credit
facilities.
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The
Company had working capital of $9,088,000, representing a ratio of 3.78 to 1, at
June 30, 2010. The Company also still maintained a very favorable
debt to equity ratio of .11 to 1.
CONCLUSION
Before
turning the call back to Jack, I would just like to take a few more minutes to
discuss certain aspects of the Lifecomm joint venture arrangement as this is a
significant transaction for the Company and we believe a very positive
one.
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1.
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This
joint venture provides us with an extraordinary important technology to
move forward into the future.
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2.
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We
believe our joint venture partners Qualcomm and Hughes Telematics are the
right partners for the development of the mobile
PERS.
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Within
this agreement, not only have we made an investment in the new technology
but we have also been provided with certain first mover
advantages.
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4.
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From
an accounting perspective, as previously mentioned, the joint venture has
been structured in a way which will allow us to receive the maximum tax
benefit during the start-up period. These tax benefits could
over 2010 and 2011 equate to approximately $1,600,000 which is
approximately 40% of our initial investment. This cash savings
can be redeployed into the Company’s business
expansion.
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At this
time I would like to turn the call back over to Jack.
JACK RHIAN: Thanks, Richard.
Richard Rallo’s, detailed review of our financial performance allows me to
direct most of my comments towards the continuing execution of our business
plan. Today’s earnings report continues to affirm that AMAC has built a
sustainable and profitable business model. We stand by our decision to focus our
management effort during the past three years primarily on earnings. Now that
our business model has demonstrated we can deliver high margin profits,
recognition that the revenue growth in existing and newly acquired or developed
business lines must now take priority for the company to expand and grow in a
manner we believe
possible.
The
guidance issued today and my comments expressed in the q2 earnings announcement,
illustrate with great clarity the expansion of our business development plan. We
recognize that future improvements to earnings will come primarily from new
revenue. Accelerating the pace of new revenue growth will be a key to our long
term success. We have stated that we believe the pace of new revenue generation
would increase beginning in the second half of the year and continue forward for
the next eighteen months.
When
issuing our guidance this morning we derived our confidence from the fundamental
belief in the value proposition of our products and
services. Economic indicators and trend data affirms that AMAC’s
solutions should be in greater demand in the years to come.
First and
foremost, technology to help people age in place is more readily available and at a more reasonable cost
than ever before.
Next,
baby boomers will skew the population distribution beginning in 2011. With the
first of this population beginning to turn 65, our aging process will change
dramatically given that this population group owns and accesses more
technology daily than any other previous generation. Studies show that seniors
and caregivers are interested in technology but are not necessarily aware of
options available. An AARP Healthy at home study revealed that 40% of
people 65+ would use an electronic medication reminder, but only 13% were aware
they existed.
Pursuant
to our plan to drive top line growth, we are investing significant resources to
support direct to consumer TV/Web advertising campaigns to accelerate both our
PERS and MedSmart products with the anticipation that the return on investment
will follow shortly behind the investment.
Moreover,
we believe the timing and commitment of these direct to consumer programs are an
excellent adjunct to our traditional B2B focus because it will create even
greater product awareness.
With
regard to MedSmart, our medication management system, I can say from personal
experience with my 85 year old mom who has been a MedSmart client for over six
months that MedSmart can make the difference between giving a loved one the
option to remain independent or being forced into some type
of less desirable and more costly institutional environment. It is my personal and profoundly
positive experience with this product, as well as feedback from our first
customers, that give me such conviction about MedSmart and its potential to
become a material contributor to the HSMS division.
We
also believe that investing in the development of new next generation cellular
based Mobile PERS technology is a mandate because our PERS service is, and
should remain, a core product offering of the Company. Moreover, I believe our
Lifecomm joint venture arrangement with Qualcomm and Hughes Telematics is an
opportunity to not only attain this technology but may provide us with an
opportunity to become the leader in the provision of mobile
PERS.
As also
mentioned previously, we are pleased with the business development
activities observed within our TBCS division because— not only are
we seeing a positive trend of new hospital solutions and PhoneScreen
Pharmaceutical support program awards, but we are also seeing the service
implementation and related revenue generation arising from these
awards. As emerging trends in reimbursement point
towards reducing readmissions through medication adherence tracking
and enhanced post discharge communication, our medication management system
and hospital solutions offerings will be in greater demand. Equally,
pharmaceutical manufacturers are putting emphasis on patient support
programs to ensure utilization and adherence. Based on these
observations we believe our complementary nature of our portfolio will continue
to have increasing value to our customers.
Notwithstanding
our enhanced plan for top line generation, we maintain our focus and conviction
that optimal earnings and cash flow generation is the mandate and that both are
deliverable over time. We also believe that our free cash flow generation will
allow us to fund a substantial portion of our business development activities,
thereby making our business expansion plan relatively low risk.
In
closing, it is my belief that management has either built or acquired access to
some of the most innovative and appropriate technology available in the
marketplace today, thereby positioning AMAC to lead and be recognized by the
healthcare community as the “go to” company for their RPM and communication
needs.
That
concludes our prepared remarks. We are now prepared to take questions
from conference participants and we thank you for your time this morning.
Operator.
Operator:
Operator: Thank
you. We will now begin conducting the question and answer
session.
Chris Lahiji from LD
Micro: Gentlemen. Good morning
Jack
Rhian: Good morning
Chris
CL: I have a
question; do the guidance moving forward, do they showcase any amount of growth
from the telematics, the new division with Qualcomm and Hughes?
Jack
Rhian: No, because, Chris the anticipated commercialization of the
product is anticipated for the later part of 2011 and frankly not having an
absolute launch date and some anticipation that there will be some start up time
to get awareness on this product we did not put anything in for
that. However, to that point it is our plan that over the next
several quarters we will be updating and trying to narrow the range and get more
specific about how we see top line generation shaping up. It is our
belief that both with MedSmart and even with Mobile PERS as we see the evidence
that these products are moving forward and being deployed in a way and fashion
and at the volume levels we anticipate we are hopeful that we will able to come
back to you and give you more accurate information and possibly even increase
that based on the results of our marketing efforts.
CL: I
see. Can you give us, Jack, a little bit more color on Walgreens and
how’s that going?
Jack
Rhian: Walgreens has been going consistently for an extended period
of time, as we’ve mentioned. Over the period that we have been under contract I
believe we have put on close to 11,000 units on and off. We don’t indicate the
exact number we have on at any given time. What we have invested in,
and part of this entire investment in direct to consumer, does in a large way
revolve around the Walgreens program, because it is the Walgreens program that
is direct to consumer. So what we are doing, starting in September,
that’s next month, we are going to be (a) reigniting and getting back onto TV
and with commercials and other support material. We also plan to and
are in the process of revamping and revitalizing our website that support the TV
advertising. So we believe that the Walgreens direct to consumer
program is going to have a pretty significant uptick because of the investment
and we believe that’s part of the overall aggressive program we are talking
about. We are also looking at, with respect to MedSmart, at multiple
ways in which we are going to be advertising the MedSmart program direct to
consumer and it is our belief, that in a very short period of
time, one of the ways in which we do advertise direct to consumer
with MedSmart will be working with Walgreens.
CL: I
see. In terms of MedSmart, are you guys pleased with what you are
seeing internally in terms of growth?
Jack Rhian: Well, a
straightforward answer is no. We believe that we would have been a
little bit further along by now. However, as you have seen between
releases and our talking about it in our talking points, you are seeing a major
commitment and major push to MedSmart. So with respect to the delay
getting the advertising program out that was something that we felt necessary to
get right and then once we were ready to go frankly we did not want to advertise
in the dog days of summer, in July and August, so we have been scheduling a
September release, which we think is a perfect time. September
through December, when people are back in their homes, they are not running
around doing all kinds of things during the good weather and we believe we are
going to go out at the right time and we are really confident that the
advertising group that we are working with is going to be able to portray the
value and significance of this product in the market place. We really
like the idea that unlike some other mature products that we are involved with
MedSmart is a fresh product, it is extremely helpful, and I cannot tell you how
much it has helped my relationship with my mom and our ability to manage her
condition. Having personal experience with this product, I feel a
very strong conviction that this is a valuable tool to keep people living
independent at home and we intend to showcase the ethicacy of this product in as
many ways as possible and we are not, in answer your pointed question, we are
not happy with the timing but we believe it’s right in front of us and for the
second half of the year going into 2011 we see this product as becoming a core
product. Let me not also lead you to believe that we are only going
at this from a direct to consumer campaign but rather part of the teams that we
have added to our sales and marketing groups are there specifically dedicated to
promoting on a B2B level MedSmart.
CL: I see. Last
question. Are we generating any meaningful revenues from Apria
Healthcare yet or no?
Jack
Rhian: That’s a very good question. We are very pleased
and we have some information that we are going to be publicly announcing in
about a week or so to give you a complete update on Apria, but my response to
that general question is that we are seeing good movement forward on behalf of
Apria and as I said there will be a public announcement around Apria within a
couple of weeks.
CL: Excellent.
Thank you guys.
Jack
Rhian: Thanks
Chris
Operator: Our next
question is from Mike Petusky with Noble Research. Please proceed
with your question,
Mike
Petusky: Good morning guys, just a quick question,
and forgive me, maybe I could figure this out, but I’m still going through the
releases. What is the pre-tax income assumption for
2011?
Richard
Rallo: The pre-tax income, and I will give it to
you from a range prospective, we are looking at about $6,000,000. Again that’s
before the application or applying the affect of the joint venture
MP: OK
RR: Once
you take that into effect it certainly will
MP: Ok,
so the pretax income, so essentially then, maybe I do not understand, what do
you expect your effective tax rate to be in 2011?
RR: I
anticipate, and then again projecting, at 40%
MP: Ok
and cash taxes will look like approximately what?
RR: I
will tell you, depending on certain things, but the cash will be to me
significant. Again, and I will say for a target, in the range
of $8-10 million dollars in 2011 and that is a target. Again I have
not gone through details and that is a target based on the items we have put
together.
MP: OK
I was actually asking about your cash taxes?
RR: OK,
are you taking into consideration the Lifecomm
MP: Yes,
essentially that is what I am trying to get out, if your effective tax rate is
40% I am assuming your cash taxes are considerably less than that?
RR: Yes,
our taxes will be. And that will be probably be 28-30%, our cash
taxes.
MP: Ok
very good, thanks guys
Jack
Rhian: Thanks
Mike
Operator: There are
no further questions and you may disconnect your lines at this
time.