Scully Royalty Ltd.
Q1 2010 Earnings Call Transcript

Published: 7 May 2010

[Operator:]

Good afternoon. My name is Tiffany and I will be your conference operator today. At this time, I would like to welcome everyone to the Millipore's First Quarter 2010 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Joshua Young. Please go ahead, sir.

[Joshua Young:]

Thank you very much, Tiffany. Good evening. I'd like to welcome everyone to Millipore's First Quarter 2010 Earnings Conference Call. My name is Joshua Young and I am the Director of Investor Relations for Millipore. And joining me on today's call are

[Martin Madaus:]

Thanks, Joshua, and good evening, everyone. And thank you for joining us on the call today. Q1 was an outstanding quarter for Millipore. We started 2010 right where we left off in 2009, delivering exceptional financial performance, outperforming many of our peers who faced easier year-over-year comparisons. We posted record quality sales and non-GAAP earnings per share in Q1. While continuing to improve our balance sheet, we generate attractive cash flow. Our execution is strong as it has ever been and we're launching innovative products that are taking market share from competitors, from our billing capabilities that are strengthening organization. So we're on track for a great 2010. The key takeaways for Q1 are the following

[Charles Wagner:]

Thanks, Martin. Now I'll provide some additional details on first quarter results beginning with a discussion of our GAAP operating results in the first quarter. Total revenues increased 14% from last year's first quarter, totaling $463 million, excluding a 5% favorable impact from changes in foreign exchange rates, organic revenue growth was 9% in the first quarter. Our gross profit margin in the first quarter increased 130 basis points on a year-over-year basis to 56% from 54.7% in Q1 2009, due in part to lower cost associated with our global supply chain initiative. Our higher gross margins helped to drive 150 basis points improvement in our operating margin. And our earnings per share increased 4% to $0.99 from $0.95 in Q1 2009. And remember, the Q1 2009 results included the effect of a $9 million gain related to our acquisition of Guava Technologies. In Q1 2010, earnings also were affected by a $2.1 million year-over-year increase in our fully diluted share count due in part to a higher Millipore stock price. This caused our convertible debt to become dilutive in the stock calculation, and a higher year-over-year share count lowered our Q1 EPS by about $0.03. From a geographic perspective and excluding the effects of foreign currency translation, our revenues grew an impressive 28% in Asia during Q1. This robust growth was driven primarily by China and Singapore. Additionally, our business in Japan rebounded nicely and generated 7% organic revenue growth in the quarter after struggling through most of 2009. In the Americas, we generated 14% organic revenue growth with both our divisions growing double digits in the region. The strength of the biotechnology industry and the strong performance of our Life Science business unit were the primary drivers of this growth. Our revenues declined 5% in Europe during Q1. This performance was the result of a weaker economy in Europe and the timing of orders with several large biotechnology customers in the region. On the next slide, we show our Q1 2010 non-GAAP operating results. Please review the non-GAAP reconciliation table in the press release for the detail of our adjustments. Our Q1 2010 non-GAAP gross margin of 56.6% increased 30 basis points on a year-over-year basis. The positive effects of changes in foreign currency and higher manufacturing volumes were partially offset by a negative product mix. Our SG&A costs increased 12% on a year-over-year basis. The increase was due to higher levels of sales and marketing promotions, currency translation and higher employee compensation costs. We also incurred $1.7 million of higher stock-based compensation cost compared to Q1 2009. As a percentage of revenue, our SG&A cost decreased 40 basis points from the previous year. Our R&D spending increased 19% in the quarter. We invested heavily in R&D last year. And we continue to fund our number of initiatives that will help us deliver growth in the future. Non-GAAP operating margin in Q1 2010 was 22.6%, which is an increase of 40 basis points over Q1 2009. Our non-GAAP tax rate in Q1 was 25½%, a 30 basis point increase from the 25.2% we recorded in Q1 2009, and the increase was due to a higher proportion of our pretax profit coming from the United States. Our non-GAAP net interest expense was $10 million, approximately $0.5 million lower than last year due to lower debt balances. Overall, we reported $1.21 in non-GAAP EPS, which was $0.15 higher than Q1 2009, representing 14% growth. Changes in foreign exchange rates increased earnings per share by about $0.07 in the quarter. Earnings growth in Q1 is particularly impressive given our substantial investment in R&D and the higher share count. Now turning to our balance sheet. Our networking capital increased at a rate considerably less than our overall sales growth. This is because we continue to improve all the key drivers of our cash conversion cycle. Compared with the first quarter last year, we achieved the four-day improvement in day sales outstanding to 63 days and a 20-day improvement in inventory days to 109 days. I am particularly proud of the improvement we've made in our inventory days. And just a few years ago, our days in inventory outstanding were nearly 150 days of supply. At 109 days as of the end of Q1, we've surpassed our long-term target in only 18 months of executing our working capital initiative. We hope to get below 120 days by the end of 2010 and we've already hit this target in Q1, and is a testament to just how successful this project has been. Overall, the net result of our DSO in inventory improvement is that we've improved our cash conversion cycle by 24 days compared to the first quarter of 2009. This is especially impressive given the dramatic improvement in working capital that we generated in 2009 as well. Continuing down the cash flow statement. Cash flow from operations during Q1 was $88 million, factoring in capital spending of $11 million. We generated $77 million of free cash flow in the quarter, representing 12% growth over Q1 2009. We used this cash flow to pay down an additional $32 million of debt, while increasing our cash balance by $54 million. We increased our cash balance in Q1 by the same amount that we increased cash in all of 2009. So to sum up our Q1 financial performance very simply, it was an outstanding quarter for Millipore. We posted 9% organic revenue growth and generated our highest level of quarterly revenues. We delivered an impressive 22.6% non-GAAP operating margin and we posted record breaking earnings. A quarter like this one is truly a pleasure to report.

[Martin Madaus:]

Thank you, Charlie. It is quite possible that this will be Millipore's last earnings call as an independent market company. Looking back at the last five years of leading Millipore, one of the most interesting and stimulating responsibilities of my job as a CEO, has been the building of great relationships with many of you and open dialogue. I want to thank all of you who invested in Millipore over the years for your trust in me and the management team. And to thank the analysts for their insightful and diligent work. I'll do everything in my power to ensure a smooth transition to Merck in the coming months. What happens, I'll look forward to speaking with you again sometimes in the future. Thank you for joining us this evening. And good night.

[Joshua Young:]

And before we close the conference call, we just want to correct one mistake. We indicated that our proxy and proxy dialogue was sent last week. And we commenced the mailing and sent these proxies earlier this week. And so shareholders will be receiving these materials over the course of the next couple of weeks. With that, we will conclude tonight's call. And thank you for joining us.

[Operator:]

Thank you for participating in today's Millipore's First Quarter 2010 Earnings Conference Call. This call will be available for replay beginning at 6