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Edited Transcript of MSON earnings conference call or presentation 22-Aug-17 8:30pm GMT

Thomson Reuters StreetEvents

Q4 2017 Misonix Inc Earnings Call

FARMINGDALE Oct 9, 2017 (Thomson StreetEvents) -- Edited Transcript of Misonix Inc earnings conference call or presentation Tuesday, August 22, 2017 at 8:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Joe Dorame

Lytham Partners - IR

* Joseph P. Dwyer

Misonix, Inc. - Interim CFO

* Stavros George Vizirgianakis

Misonix, Inc. - CEO, President and Director

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Presentation

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Operator [1]

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Good afternoon, and welcome to the Misonix, Inc. Fourth Quarter and Fiscal Year 2017 Financial Results Conference Call. (Operator Instructions) Please note, this event is being recorded.

I would now like to turn the conference over to Joe Dorame, Managing Partner of Lytham Partners. Please go ahead.

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Joe Dorame, Lytham Partners - IR [2]

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Thank you, Gary. Thank you for joining us to review the financial result of Misonix, Inc. for the fourth quarter and fiscal year 2017, which ended on June 30, 2017. As the conference call operator indicated, my name is Joe Dorame. I'm with Lytham Partners. We are the Investor Relations consulting firm for Misonix.

With us on the call representing the company are Stavros Vizirgianakis, President and Chief Executive Officer; and Joe Dwyer, 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 or the referenced 10-K and 10-Qs, you can access them from the company's website at www.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 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 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 limit to -- limited to, factors discussed in the company's annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K.

With that, let me turn the call over to Stavros Vizirgianakis, President and Chief Executive Officer of Misonix. Stavros?

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Stavros George Vizirgianakis, Misonix, Inc. - CEO, President and Director [3]

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Good afternoon, everyone. Fiscal 2017 was a solid year in terms of operational and financial results, despite our share of challenges and historical issues. Revenues for the fourth quarter increased 23% on a year-over-year basis, and revenues for the full year increased a healthy 18%. So we achieved our goal of reigniting the sales engine and achieving double-digit growth.

Consumables sales grew at a rate of 26% on a worldwide basis in fiscal 2017. On the domestic front, we grew consumable sales in excess of 32%, and we also achieved our goal of total consumables sales accounting for more than 75% of our total sales. As our recurring revenue model continues to gain traction, we hope to achieve an 80-20 mix of consumables to equipment sales, thus making our business more sustainable and profitable over the longer term.

On the gross margin front, we exceeded our stated goal of 68% with an actual margin of 69.9% for the overall business. As I've indicated previously, we believe that the U.S. market offers the biggest opportunity for growth and we achieved a 26% overall growth over the prior year. U.S. sales now account for over 60% of the company's total revenue and we expect this trend to continue as we add additional resources to the U.S. market. We believe we are in a strong position to drive growth domestically and we know the market well. We know the locations of our installed base, and we are in a good position to service these customers and train more users through our clinical sales specialists. We added additional resources to the domestic sales team and ended the year with 21 sales resources on the ground. Our goal for fiscal 2018 is to add at least 10 additional clinical sales specialists to the team and increase penetration in the markets we serve.

On the international front, we are strategically reconfiguring personnel and distributor relationships to operate the business more efficiently. We are also appointing Misonix' sales personnel in key international markets and we believe the strategy is working, as we have seen a 23% growth in 2 key markets in Latin America, largely due to the efforts of our resource on the ground. We continue to see great enthusiasm towards our products at international meetings, such as the recent international meeting of spine technology held in Cape Town, where we trained over 50 surgeons on the use of our BoneScalpel.

We've also made great strides in terms of providing clinical data to support our sales efforts and we now have over 10 clinical abstracts relating to our wound debridement product range. This will further enforce the benefits of our products to the clinicians and also show hospital administrators that we are able to improve patient outcomes while reducing overall cost per event.

As we move ahead, we are working to create a new results-oriented culture within the company. We have simplified our sales compensation plans, with the goal of getting everyone on an equal footing and pursuing common goals.

We recently celebrated a significant milestone within the company as we exceeded the 50,000 surgical procedure milestone that we set ourselves for fiscal 2017. We've also set ourselves the goal of having Misonix consumables product utilized in over 100,000 annual surgical procedures worldwide within the next 3 years, and we are focused on achieving that goal.

We've taken some important steps in fiscal 2017 and we are entering the new fiscal year with a strong financial foundation, with cash on hand in excess of $11 million and no long-term debt. We look forward to the opportunities ahead in 2018.

Let me now turn the call over to Joe Dwyer, our Chief Financial Officer, for a review of the financial highlights. Upon conclusion of Joe's prepared remarks, we will open the call for your questions. Joe?

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Joseph P. Dwyer, Misonix, Inc. - Interim CFO [4]

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Thanks, Stavros. Net sales increased 18% or $4.2 million, $27.3 million in fiscal 2017 from $23.1 million in fiscal 2016, principally due to a 26% increase in domestic sales, aided by an 8% increase in international sales.

BoneScalpel sales were the primary driver, with an increase of $4.2 million or 33% from fiscal 2016. Consumables sales increased by 26% to $20.3 million for fiscal 2017. Our equipment sales declined slightly by 1% to $6.9 million. Consumables sales represented 75% of sales in fiscal 2017 compared with 70% in fiscal 2016.

Our fourth quarter was equally as strong with sales reporting in at $7.9 million, a 23% increase over the fourth quarter of last year. The fourth quarter in 2017 -- fiscal 2017 results for sales were each the highest reported in the company's history when you take into account the current mix of products. The favorable product mix of higher-margin consumables increased gross margin for fiscal 2017 to 69.9% compared with 66.9% in the prior year.

Operating expenses were $25.7 million for fiscal 2017, up $4.4 million from fiscal 2016. While $1.4 million of this increase related to sales commissions on the incremental sales for the year, the bulk of the increase, or $2.4 million, represents professional fees related to our investigation in addition to $500,000 of additional professional fees.

Our net loss for fiscal 2017 was $1.7 million compared with $1.2 million last year. The diluted loss per share was $0.20 compared with $0.15 in fiscal 2016. The financial condition of the company remains strong. We head into fiscal 2018 with a solid cash position of $11.6 million and no long-term debt. Working capital increased to $17.4 million at June 30, 2017, up 9% from $16 million at June 30, 2016.

We used cash in operations of $1.3 million, which was mainly due to the company's net loss of $1.7 million, an increase in accounts receivable of $1.3 million and an increase in inventory of $873,000, all offset by $2.2 million of noncash depreciation expense and noncash compensation expense.

Cash used in investing activities was $714,000, primarily consisting of the purchase of property, plant and equipment along with additional patent acquisition costs. Cash provided by financing activities was $4.3 million for fiscal 2017, which was principally Stavros's equity investment in October 2016 of $4 million, plus $300,000 in stock option exercises.

We're very happy with the progress we made in fiscal '17 and look forward to a strong 2018. Stavros?

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Stavros George Vizirgianakis, Misonix, Inc. - CEO, President and Director [5]

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Thank you, Joe, for that review. Let's now open the call for your questions. Operator, please provide instructions for our listeners to queue up.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Showing no questions, this concludes our question-and-answer session. I would like to turn the conference back to Stavros Vizirgianakis for any closing remarks.

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Stavros George Vizirgianakis, Misonix, Inc. - CEO, President and Director [2]

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Thank you. I think in closing, we would just like to reiterate our position that we're feeling good about the business right now. We've had a good year, and we're looking forward to a successful fiscal 2018. We'll also now mention that we will be presenting at the upcoming Sidoti Conference, which is in New York City on September 28, so I'd really reach out to investors and invite you all to pop by. Meet us in person. We'll be happy to take questions. Both Joe and myself will be attending. And I'd like to just thank you all for your participation in today's call. We look forward to talking with you again after the conclusion of the current quarter. Thank you, and have a great day.

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Operator [3]

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The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.