Misonix, Inc.
Q1 2016 Earnings Call Transcript

Published: 8 Nov 2015

[Operator:]

Good afternoon, and welcome to the Misonix, Inc., First Quarter Fiscal Year 2016 Financial Results Conference Call. All participants will be in listen-only-mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please also note today's event is being recorded. I would now like to turn the conference over to Joe Diaz with Lytham Partners. Please go ahead, sir.

[Joe Diaz:]

Thank you and I thank all for joining us to review the financial results of Misonix Incorporated for the first quarter of fiscal year 2016, which ended September 30, 2015. As the conference call operator indicated, my name is Joe Diaz, I am with Lytham Partners. We are the Investor Relations consulting firm for Misonix. With us on the call representing the company are Mike McManus, President and Chief Executive Officer; and Richard Zaremba, Senior Vice President and Chief Financial Officer. At the conclusion of today’s prepared remarks, we will open the call for a question-and-answer session. If anyone participating on today’s call does not have a full text copy of the release, you can access it from the company’s website at misonix.com or numerous financial websites. Before we begin with prepared remarks, we submit for the record the following statements. Statements made by the management team of Misonix Incorporated during the course of this conference call, that are not historical facts, are considered to be forward-looking statements subject to risks and uncertainties. The Private Securities Litigation Reform Act of 1995 provides a Safe Harbor for such forward-looking statements. The words believe, expect, anticipate, estimate, will and other statements of expectation identify these forward-looking statements. Investors are cautioned that forward-looking statements made during the course of this conference call are based on management's current expectations and involve risks and uncertainties that could cause actual results to differ materially from the statements made. The company disclaims any obligation to update forward-looking statements. Risk factors include but are not limited to factors discussed in the company's annual report on Form 10-K, subsequent quarterly reports on Form 10-Q and current reports on Form 8-K. With that said, let me turn the call over to Mike McManus, President and Chief Executive Officer of Misonix. Mike?

[Michael McManus:]

Thanks, Joe, and thanks to all of you for participating on today’s call. As always, we greatly appreciate your interest in Misonix and we look forward to your questions. We believe that fiscal 2016 is off to a good start. Revenue for the first quarter was up 16% versus last year’s first quarter, primarily driven by strong BoneScalpel and SonicOne revenue increases of 30% and 43% respectively. U.S. sales were up 43% compared to last year. Internationally, while revenue from Canada and Mexico increased 76% and revenue from the Middle East increased 58%. Overall international revenue was down slightly. We’re particularly pleased with the continuing momentum in our recurring revenue component which comprises 67% now of our total sales in the just completed quarter compared to 54% in the first quarter of fiscal 2015. Our razor/razorblade model continues to drive revenue growth and positions us with strong performance throughout fiscal ‘16. Acceptance of our BoneScalpel, SonicOne and SonaStar products continue to increase in the U.S. as well as around the world. During the quarter, we participated in the number of major surgical conferences including the just recently completed North American Spine Society Meeting in Chicago that I attended, the EuroSpine 2015 in Copenhagen, Denmark, and recently the International Meeting of Advance Spine Technologies knows as IMAS in Kuala Lumpur, Malaysia. These events provide us with an opportunity conduct training sessions and workshops with a broad cross section of surgical professionals from around the world and there always conducted for us by a number of highly respected key opinion leaders that use our instruments on a regular basis and can test to all of their colleagues to the benefits of using Misonix’s products. We estimate that during the course of these events, approximately 250 surgeons from numerous countries participated in these workshops. As I said, they were led by our KOL key opinion lead doctors - leader doctors. These workshop opportunities are proven invaluable to introducing surgeons to our products and to building relationships. During the quarter, we released a newly developed Faster SonicOne Ultrasonic Wound Debridement Procedure, a new single use disposable debridement prop with increased ultrasonic amplitude allowing surgeons using the product of potentially reduce the operating time necessary by up to 50% brining speed and effect debridement while preserving live tissue to the SonicOne product line allows users to take advantage of those ultrasonic benefits without compromising procedure time. These advancements extend our leadership position in the wound debridement field as well as our other markets. We’re also conducting training sessions for our distributors and surgeons on our new higher vac aspirator, our SonaStar. The next session will be in Milan next week, the participation from our European, Russian and Turkish distributors. We also unveiled our new Better Matters corporate brandings that we’re excited about the Better Matters brand is more than just a color logo or tag line the commitment that we make to all Misonix stakeholders, they were dedicated to the development of new procedure applications while continuing to innovate around those technologies where Misonix is already commenced a leadership position. We are changing and growing Misonix with market penetration and new product extensions in MIS, Minimally Invasive Surgery, other surgical procedures and in the treatment of burns, we’ve reflected the energy and excitement from this process in this new book and dedication to Better Matters. We want the markets know that we’re growing faster in engaging key surgeons around the world. Looking ahead, the company continues to be in a strong financial position with cash that exceeds $9.7 million and no long term debt. We are pleased to see the continued performance of our sales team, distributors and employees around the world and by the increasing acceptance of our products across the broad surgical base. With that let me turn the call over to Richard Zaremba, our Chief Financial Officer for review the financials. And after Richard’s comment, we’ll open up the call for your questions. Rich.

[Richard Zaremba:]

Thanks Mike. Revenue for the three months ended September 30, 2015 was 5.3 million, a 16% increase when compared to revenues of 4.5 million for the same period in fiscal 2015. BoneScalpel revenues increased 30% to 2.9 million; SonicOne revenues increased 43% to 859,000 with SonicOne OR revenue increasing 98% to 647,000 and SonaStar revenues decreasing 7% to 1.4 million. The company reported a loss for the three months ended September 30, 2015 of 220,000 of $0.03 loss per diluted share as compared to net income of 383,000 or $0.05 income per diluted share for the same period in fiscal 2015. The company’s cash position as of September 30th, 2015 was 9.7 million, days sales outstanding was 63 days, inventory turnover is 1.5 times and the company has no longer term debt. The company’s backlog of unfilled orders as of September 30th, 2015 was $87,000. Most orders are shipped when received. I’d like to turn it back to Mike.

[Michael McManus:]

Operator, we’d be happy to take questions now if there are some.

[Operator:]

Absolutely, we will now begin the question-and-answer session. [Operator Instructions] And our first question comes from Scott Billeadeau of Walrus Partners. Please go ahead.

[Scott Billeadeau:]

Hi guys.

[Michael McManus:]

Hi.

[Scott Billeadeau:]

If you can fill us a little bit on the international side, you know certainly you had some decent price, but overall it was negative. Could you talk a little bit what’s going on there?

[Michael McManus:]

Yeah, you know we like a lot of people realized a short fall overall of I’d say about 10% but it was up in some place. And the one place that was down was as you might expect Asia, China was short, well you know what China went thorough in the first quarter. And so it really wasn’t surprising but the business there is good, we’ve a good partner and I expect it to recover.

[Scott Billeadeau:]

And then on in terms of new placements or at least - what - I think that was down year-over-year in terms of just a number of units. Is that a little bit more of a focus on the razorblades as opposed to put new razors out?

[Michael McManus:]

Not at all, now you know the highest priority we’ve talked about this a little bit before is to get systems in the hands of the right doctors, doctors that do the right procedures, we think the more complex procedures. And we’ve got a terrific deep metrics now to identify those doctors. There were some consignments that rolled over we’ll in the second quarter. But I think in the United States, we were even in terms of the units, I think we had some sales. But now the focus is still on the economic proposition here is to train very thoroughly doctors that are high volume users that can be identified across the United States in the case of domestics consignment and get them to start using the product and go back and help them feel more comfortable to use the blades more often. We track that as well. And then we look to pick up their associates referrals and their interns and build depth around the boxes we have, so that you go from one box in a hospital to eventually five boxes if it’s big enough hospital. That’s still a formula that we used and it worked very well for us and I am very confident that it will go in forward.

[Scott Billeadeau:]

Okay, great. And then is there - do you have a metric for you know somewhat same box you know razorblade sort to speak disposals per - disposables per box, is that something you disclose?

[Michael McManus:]

Well, yeah we track - we track, the is difficult about it is that you know it’s effected by growth because when you put a new box in, the doctors are just starting to use, so the number of uses are less and we can’t track it outside the United States where you a little bit less than half of our sales are from. So yeah we’re building up the metrics that’s an important thing for us to do because you know as we track usage across each surgeon, if that number isn’t going up for an individual surgeon, it means one of our surgical applications, people have to go back in and make sure that they comfortable with their training and that if see whether there something we can do to help them.

[Scott Billeadeau:]

Okay. And just one more, is - can you talk a little bit about what the sales and the resources you’ve been dedicating to sales and marketing, is that - what’s been the growth rate, how many - if you have quarter carrying or how that works Q3 or Q1 of this year versus how that’s ramped up over the last quarter’s?

[Michael McManus:]

You’re talking about full time at place?

[Scott Billeadeau:]

Yeah, full timers and particularly if more with on the sales side, you know the sales effort for the most part?

[Michael McManus:]

Right, so that’s a great question and that goes back to your question about international because it just add two new seasoned people, one to manage the Asian market and the other to manage Europe and the Middle East and Latin America. We still have people beneath them that are well trained in selling the products and in training sales people and doctors to use the products. So we’ve added some depth on the international side. And we’ve announced that we added a Vice President of Marketing recently and we added some support below that. And as we did last year, last year I challenged the team to tell me what they needed to help us grow faster and we added a couple of what we call clinical specialist, the people that really go out and work with, train the doctors, stay with them for a couple of procedures. And we’re going to add probably four more those this year. I think we’ve added two and we added one regional manager to be able to stay on top of our metrics and goals for each of the regions of the country.

[Scott Billeadeau:]

Great and so these are - I mean, do you have quarter carrying guys, a number of quarter carrying guys and kind of where they on their lifecycle of the company, just getting up the curve as opposed to fully effective, fully patients there so forth?

[Michael McManus:]

Yeah, so that’s another good point because as I said, we added some last year and they prove to be very effective. But as you say, in the first couple of months they are getting used to the product, they are going through training and so there is a built up ability and result. But those four people from last year are now fully seasoned. Two of them actually were two of our best people. And so there is some time for new people to start and catch up, but you know most of the people that we add are people that understand the orthopedic system have been in the operating room, they know something about the science. So we find they pick it up pretty quickly but there is no question that we would expect that is. We add people the result quarter-to-quarter going out, the fourth quarter would build overtime as it has in the past.

[Scott Billeadeau:]

Okay. I’ll hop off and see if someone else has a question. If not I may bother you again.

[Michael McManus:]

Happy to talk to you.

[Operator:]

And our next question comes from Al Katz [ph] a private investor. Please go ahead.

[Unidentified Analyst:]

Yes, I have two thoughts. And the wound debridement area, would it be logical to set up a reporting area in this area alone?

[Michael McManus:]

Well you know it’s a different market but the rules I believe are that who manages that. And as CEO, I have management overall with these areas, and so you know we don’t want to setup a separate division for because then you have vent for structure.

[Unidentified Analyst:]

That was my point. Just reporting, in the reporting area so you can isolate it and we can -

[Michael McManus:]

Well we did.

[Unidentified Analyst:]

If we can - yes.

[Michael McManus:]

We do strike it out, we do manage it in terms of their different hospitals, different goals, we manage each hospital with usage with doctors performance, with the sales guys performance. So it’s not is therefore not tracking the business internally as a separate business, it’s all just managed. Go ahead.

[Unidentified Analyst:]

Yeah, that was into trust of my question. As you reported in your quarter, I’d like to see reported just as disposable so recorded in number actual performances in this area that you have during the quarter?

[Michael McManus:]

Yeah, well understand that we haven’t reported it that way, we don’t report it that way lot of depth. We will go and forward talk about the number of units consigned. But that’s a business it’s just starting to grow, we just really started in the operating last year. So you’ll see the same kind of visibility as we have with the BoneScalpel.

[Unidentified Analyst:]

Okay, is one this is early discernable and isolated, I think it’s really important, I love the field, I think you’re going to do great in the field except, we’ll know that.

[Michael McManus:]

You’ll know it, believe me I’ll find a way to tell you.

[Unidentified Analyst:]

Okay. Second, the acceleration of the stock options, we can any more of that in this year?

[Michael McManus:]

Well, you -

[Unidentified Analyst:]

The expense I am talking about.

[Michael McManus:]

Well, the expense is a function of option and a valuation the Black–Scholes valuation. You see it makes us make. And so the point is what generates the expense, what generates the expense is paying people or compensating people on the basis of the fair salary perhaps a bonus based on goals and in some cases stock options. All of those rate buckets are important with for us to be able to retain good people and we have the discursion to use each bucket as we see or Board sees fit, the Board is actually the ones that it should up.

[Unidentified Analyst:]

Okay, you had $600,000 writing off in this area in the first quarter, are you going to have more in the second, third or fourth quarter?

[Richard Zaremba:]

Yes. Yes, it’s going to be pretty much the same. As you know Alan, each option is value as Mike has mentioned under the Black–Scholes. And what we do is the way we measure it and it’s put in the 10-Q in terms our volatility and as the price of our stock goes up, the volatility increases and therefore the pricing option increases. So that’s the math of the whole thing. We don’t have - this is the SEC and the account rules required that we do this on a quarterly basis. So I guess we follow it.

[Unidentified Analyst:]

I am sure you will. I think the results were great.

[Michael McManus:]

Thank you so much. Thanks for your questions.

[Richard Zaremba:]

Thank you.

[Unidentified Analyst:]

Okay.

[Operator:]

[Operator Instructions] Our next question is a follow-up from Scott Billeadeau of Walrus Partners. Please go ahead.

[Scott Billeadeau:]

Hey guys, is there - maybe you could give us a little feel in terms of you know obviously some new marketing resources, you continue to push on there. Where you are on that in terms of if you had, so if you could, hey does not worry about maybe some loss if I could push, you got money on the balance sheet, is it something you can hit the gas pedal on to push it or is it like push it on a string and it’s a little bit even see as you can only more so fast, maybe talk about what’s your thoughts there are?

[Michael McManus:]

Right, so as I said, you know every year I challenged the team for faster growth, what resources do you need to do better than what we did last year and to grow overall. And so you could throw a lot of money added and bring an additional people. But the question is can you manage it and can you stay focused and can you infrastructure support it. And so it’s not just a matter of putting more people in the field or getting more marketing support. We have increased our selling expenses and honestly I think the challenge is to drive our revenue growth, our sales and marketing expenses are smaller percentage of our overall revenue and that were generating some income. But we have increased our expense this year and we increase them to the amount that we thought would drive the sales that that we’re looking for. And I don’t right now see areas where we could spend more money affectively. As I said before, we’re bringing on new people. That takes time, they have to be trained. We are doing business on lot of countries and we are providing support for a new launch of the SonicOne and two, the operating, new manage burns, we are introducing the new product on the SonaStar platform and we’re introducing a new product in the minimally invasive surgery. So know you where the company with 72 employees and $22 million in sales that’s a lot of on our plate and I believe it’s important to focus. So I tried to do too many things, I am not comfortable. I am going to do the mall well. And right now we’ve got great goals of unique technology and I think we have to do is focus and build market share in each of those categories.

[Scott Billeadeau:]

Great, any infrastructure holds you have right now that you can thing of?

[Michael McManus:]

No, not really. As we told you on the last call and prior to that we did invest last year and building our IT capability and we are outsourcing part of that, that’s always an issue and the benefit of that is we know have the very deep capability with a vendor called [indiscernible] where we can build up a platform to really drive deep metrics in terms of where the opportunities are, how long it takes to close, what’s the value of a customer and really good targeting information to all of our people across the country. So that their times effectively spent in places where there are high volume targets in surgeons with a large practice.

[Scott Billeadeau:]

Great, alright guys, that’s it from me. Thanks.

[Michael McManus:]

Thank you.

[Richard Zaremba:]

Thank you.

[Operator:]

And our next question comes from Michael Kaufman of MK Investments. Please go ahead.

[Michael Kaufman:]

Hi Mike and Rich. Good job in building up the company and to take advantage of what I think it will be great opportunity. Two questions, one, how are you going to pull the levels in terms of ensuring that you stay positive on the P&L line of the time because that’s always a good discipline. And the second point is I noticed still we haven’t have any analysts kind of reporting on the company, is there any progress on that? At last conference call, you said you thought there might be some.

[Michael McManus:]

Yeah, so thanks Mike, two big questions. So the first - I guess to the first question is it we - you mentioned discipline, so the discipline that we’re managing from is a budget that shows a positive bottom line at the end of the year and you know we fully expect to - everybody’s goals are based around the accomplishment of certain goals and that’s certainly one of them as well as sales and unit growth. So we drive that discipline off of a careful managing of what we said we’re going to do through the budget process. And with regard to the second question, we had an analyst from Sidoti who left, went to firm in Chicago, I visit with him at the NAS meeting which was in Chicago and I hope his firm will pick us up. I am hope in Sidoti will find somebody to replace the individual to cover us. And that they are the only firm that has been covered us in the past. I hope to pick it up again with somebody new. And then as you mentioned I have talked to firms in, there is a lot of firms that are interested, they love the story. The problem is you know they say, look if I write a research report and especially if they make money by selling the reports, the people are going to buy the reports, so guys that go out and they want to buy 250,000 shares and establish a big position upfront and understand the liquidity of their investment. And that’s a little bit difficult given our capital structure in the number of the share we trade.

[Michael Kaufman:]

Well, I guess once the company becomes highly profitable, that’s not going to be a problem.

[Michael McManus:]

I don’t expect it to be and I think that you know it’s pretty clear that there are more people that know who we are, there are more people that call that want to come in and talk to us. And I think it’s just a matter of time before they talked in the education and the understanding of what we’re doing becomes coverage, but I can’t tell you when that be or by home.

[Michael Kaufman:]

Alright, well, good luck, keep up the good work and we’ll be in touch.

[Michael McManus:]

Thank you.

[Richard Zaremba:]

Thank you.

[Operator:]

And that concludes our question-and-answer session. I’d like to turn the conference back over to Mr. McManus for any closing remarks.

[Michael McManus:]

Thank you very much. I want to thank all of you for the questions and for your participation. As I always say, I appreciate the gaining of your insights and always ask good questions. We do want to continue to provide visibility to what we’re doing and we’re working on that as I said the metrics and the measuring and managing from those is what we like to do. And so we’ll try to get greater visibility to you overtime. But I think it was a good quarter. I was excited from being at NAS, the reception we had was I thought terrific. Leading surgeons in the spine industry gave presentations. The presentation area was standing modally and I love the fact that [indiscernible] ended his presentation with this technology just really a game changes because we think he is exactly right and we appreciate his support and interest in Misonix. And so once again, I thank you for being on the call. And I look forward to talking to you in the next quarter. Have a nice evening. Thanks. Bye.

[Operator:]

And thank you, sir. Today’s conference has now concluded. And we thank you all for attending in today’s presentation. You may now discount your lines and have a wonderful day.