PLCSF: Consumables Sales Up 300% In 1H 2013

Zacks Small Cap Research
August 19, 2013

By Brian Marckx, CFA

Q2 Results:
  Consumables Revenue Increases Almost 300% Through 1H 2013…

PLC Systems (PLCSF) reported financial results for the second quarter ending June 30, 2013 on August 14th.  For the fourth straight quarter PLC beat our revenue estimate.  While consoles revenue fell significantly, this was more than offset by continued strong sales of single-use disposables.  Sales of single-use disposables, which also have the benefit of being relatively high margin, have been on a tear in 2013, with sales up 299% through the first six months of the year.  And while we still expect there may be some quarterly gyrations from things such as stocking orders, the recent growth in consumables, which should be the long-term driver of total revenue, is clearly a positive sign.


Q2 revenue of $372k was an increase of 3% from Q2 2012 and was up 7% sequentially.  Through the first six months of 2013, revenue is up 88% from the same period in 2012.  Q2 revenue was about 5% better than our $354k estimate and marked the fourth straight quarter that revenue beat our number.  PLC does not specifically disclose the number of consoles and consumables sold but did note that consoles sales fell $229k and consumables sales increased $237k from Q2 2012.  Console sales, which we estimate were probably in the low single-digits (or zero), fell due to lower sales to international distributors.  As noted, however, we expected and continue to expect some quarterly variability.  Meanwhile, consumables sales tracked significantly better than our expectations in Q2.

We continue to project revenue from consoles to be roughly equal to that from consumables through the end of 2013 but then sales from consumables, which should be feeding an ever larger installed base, to begin to outpace that of consoles beginning in 2014.

Q2 gross margin at 64% was significantly better than our 51% estimate and benefitted from the bulk of revenue coming from consumables, which we estimate are higher margin than consoles.  Operating expenses of $1.5 million were meaningfully higher than out $1.1 million number - the 10-Q notes that additional investor relations expense was recorded in the quarter.  Net income and EPS, which benefitted from non-cash gain of change in fair value of derivatives, were $7.9 million and $0.06 compared to our $1.4 million and $0.02 estimates.

Cash balance stood at $1.1 million at Q2 quarter end, down from $1.9 million at the end of Q1.  PLC also has $500k in restricted cash that was part of the recent $4MM capital raise and is escrowed for investor relations purposes.

Cash used in operations was $712k in Q2.  Excluding changes in working capital, cash used in operations was $1.3 million.  We continue to expect that PLC will look to raise additional operating capital in the near term to fund operations including their U.S. clinical trial.


On the operational front, PLC continues to make progress with patient enrollment for their pivotal U.S. RenalGuard trial, expanding their international presence including entry into new territories (most recently in Brazil where PLC gained regulatory approval), capital raising (including $4.0MM raised during Q1 2013) and building greater awareness of RenalGuard and CIN through attendance / presentations at key industry conferences throughout the world.  PLC also recently noted that they are now exploring potential opportunities outside of CID with RenalGuard to expand their target markets - PLC has not provided any details but we would expect to hear more on this front in the future.

PLC also further beefed up its IP and strengthened its patent protection.  In May the company announced it was granted its first European patent for RenalGuard.  The patent covers the core RenalGuard device and its redundant infusion rate monitoring which allows RenalGuard to safely infuse saline at very high and accurate rates. The patent has a term extending to April 2027.  Then in June the company received a new U.S. method patent covering the use of RenalGuard to protect the kidneys from potentially toxic therapeutic agents - which expands their existing patent portfolio to now include additional toxic agents and in more therapeutic settings.

Specifically related to recent awareness-building efforts, RenalGuard data was presented at the International Conference of the Israel Heart Society in early May.  Two researchers from Israeli hospitals presented clinical results using RenalGuard which indicated lower incidence of CIN than what would be expected without use of RenalGuard.  One of the investigators, Fr. Eyal Ben-Assa of Tel Aviv Medical Center noted, Based on these results, RenalGuard has become the standard of care for at-risk patients at our center."  The other presentation at ICIHS was by Dr. Eyal Nacum of Sheeba Hospital in Petah Tikvah, titled "Incidence of Acute Kidney Injury in the Patients Undergoing Surgical TAVI".

Then in late May data from RenalGuard therapy was presented at EuroPCR.  The presentation, titled, "Minimizing Acute Kidney Injury During TAVI (transcatheter aortic valve implantation) Procedures", detailed how RenalGuard can be safely used during a TAVI procedure, which oftentimes results in the development of acute kidney injury from contrast agents.  Dr. Vaikom Mahadevan, who is a Consultant Cardiologist at Manchester Royal Infirmary and made the presentation noted that, "RenalGuard has performed very nicely in this difficult patient population. My experiences so far lead me to believe that RenalGuard can be used effectively as a treatment for TAVI patients with renal impairment to reduce the risk of renal function deterioration."

Awareness-building, through event attendance / presentations as well as via investigator sponsored trials is expected to continue to be a key part of PLC's early marketing-related efforts. 

Maintaining Outlook / Recommendation /  Price Target

We have made only minor changes to our model following Q2 results and are maintaining our outlook and Outperform rating.  Our price target has moved from $0.35 to $0.30 per share.   

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 PLC Systems Report

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