Q1 2020 Earnings Call
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Welcome to the right Amedica Corporation first quarter 2020 financial results Conference call. Currently all participants are in a listen only mode and at the end of the call. We'll conduct a question to that so session.
As a reminder, this call just to be a record. It today April Thirtyth 2020. It contains time sensitive information that is accurate only as of today.
Earlier, a red emitter released financial results for the first quarter 2020 caught a.
A copy of this press release announcing the company's earnings it's available under the heading news on their website at <unk> Dot com.
The press release will also be furnished to the securities and Exchange Commission on form 8-K, it can be stopped at <unk> Dot Gov.
This call. This spring broadcast live over the Internet on the company's website at <unk> Dot com and the replay of the call will be available on the website for the next 90 days.
The agenda for today's call will be as follows mostly Macdonald, President and Chief Executive officer ever Red emitter represent opening comment then Chris Scott or by the Mets Chief Financial Officer will summarize the Companys financial results before opening the call. It's a question.
The mother of the information to be furnished in today's session will constitute forward looking statements within the meaning of the private Securities Litigation Reform Act stuff might see 95.
Forward looking statements are those focused on the future performance results players and events and it may include the company's expect it was lost for 2020.
Right about reminds you that future results may differ materially from the from these forward looking statements due to a number of risk factors.
Description of their well look at risk and uncertainties that may affect the company's business. Please see the risk factor section of the company's most recent reports filed with the Securities and Exchange Commission, which again it'd be obtained apart [laughter] Ccs website at <unk> as you see that goes I.
I wouldn't like to turn the call over to likely Macdonald, President and Chief Executive officer quite a bit collaboration with Mcdonalds.
Thank you and good morning earlier today, we announced first quarter revenue of 8.7 million, which is an increase of 2.8% over the first quarter last year. We also reported GAAP net income of 14 cents per diluted share and non-GAAP net income of 18 cents per diluted share. These results were negatively impact.
Good body, Kobin 19, pandemic and similar to the current discussion being had across much of the medical device industry. We expect to continue to feel the impact in some form for the remaining portion of 20 Twond.
Regarding our ability to solar product in the current environment much of the sales cycle products recognizing revenue during the first quarter was completed in the fourth quarter 2019. Additionally, as we progressed to the first quarter 2020, and the impact of Koby night team continued to spread throughout the world we experienced an acceleration.
In the decline of orders for our products as our customers spoken their efforts on preparing for in treating those infected with the virus and deferring decisions to purchase our product into the future.
Also during this time many of our hospital customers began restricting access to healthcare workers only diminishing our ability to generate sale, which may delay the timing of future orders.
We may be further impacted hospitals choose to maintain their restrictions on hospital in France and limit their capital spending plans until their operations have stabilized.
So despite the significant uncertainty created by Cobiz 19, we believe that this is a shorter term dynamic and at higher demand for our product will return.
During the quarter there were several bright spots for us to focus on.
The first is revenue from our international channel exceeded our initial forecast and total international revenue grew almost 73% over the first quarter last year.
Second we have received kobin related orders for IB pumps for some customers because of its remote control capabilities and its uses the primary infusing device in isolation room configuration that really probably be able to contribute to the overall treatment efforts for this virus.
And third revenue from sales of our Ivy. So also exceeded our initial forecast in part due to kobin related demand.
During the quarter, we learned that some customers were using one version of our Ivy tubing side to infuse patients located in isolation room utilizing a pump that is positioned outside that.
With the current shortages of critical care supplies random and wanted to do more health care providers combat the increased demands at Cobiz 19 has placed on them. So we are using our clean room at <unk> dot manufacturing expertise to build standard extension to be that can be substituted for any ivy extension to be in our customers are having trouble.
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It's just a simple ivy to abusing the same quality materials and components, we use in our regular to me and we expect sales of the seemed to be used to begin within the next few day.
During Q1, we filled key leadership role and sale regulatory affairs in quality assurance and R&D is part of succession planning and to continue building out our capabilities that will help support the growth we anticipate in the years ahead.
We also continue making progress in our product road map and have not seen any significant changes to timelines at this point. However, I will point out that there are steps in the new product testing phase that require that used to third party and given the stay at home restrictions implemented by many government authorities there may be shifts to original talking schedule.
Now from a supply chain standpoint, we're not experiencing any delays in obtaining the material [laughter] we're fine.
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Overall, we are experiencing significant changes to our business due to cobot. During this time, we are focusing on the things that we can control and continuing to make investments in the companies that are supportive of is longer term, how what the gold emerging from the pandemic even stronger.
And our efforts to manage through this environment, we're looking to four lines is.
The first one is product innovation for future growth.
As mentioned, we have recently filled key technical leadership roles and continued to make progress on our product roadmaps.
The second one is serving our customers whether through modifying a version of variety to be to facilitate infusions from outside in isolation room or supply or I'd be pumps for its remote control capabilities or providing virtual product training, we stand ready to support our customers delivery of critical care for cobot 90 patients.
The third lenses, taking care of our employees, we have a highly trained workforce and have implemented several policies that support their health and wellbeing. During this time he's ranged from enhanced cleaning procedures at our headquarters facility to remote working arrangements where feasible.
The fourth is cost containment.
We've already taking several steps to contain costs, including implementing reduced hours and some departments.
I'm fine with travel and entry restrictions buyer field sales in clinical support team.
We will continue to look through these four lenses as the situation develops and we'll evaluate taking additional steps if needed.
Now I'll turn it over to Chris just [laughter] financial results.
Thank you good morning.
As always I'll be discussing our financial results on a GAAP basis as wells on a non-GAAP basis.
Non-GAAP operating results exclude stock based compensation expense and the related tax effects.
Infrequent tax items are considered based on their nature, then excluded from our provision for income taxes. As these items are not indicative of our normal provision for income taxes.
Free cash flow is cash flow from operations less cash used for purchases of property and equipment.
We believe the presentation are these non-GAAP measures along with our GAAP financial statements can be helpful and providing more thorough analysis or ongoing financial performance.
You can find a reconciliation of these non-GAAP measures to the nearest GAAP measure on the last page of today's press release.
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As we reported this morning first quarter 2020 revenue increased 2.8% over the first quarter last year.
Revenue from domestic sales decreased 10.6% to 6.3 million during the current quarter [laughter], while revenue from international sales increased 72.7% to $2.4 million for the current quarter.
The decrease in domestic sales was primarily driven by lower pump sales and the increase in international sales was driven by higher pump and monitor sales.
Revenue from sales of our devices decreased 6.8% to $5.6 million for the first quarter 2020.
This decrease was driven by a 36.4% decline in IP pump revenue that was partially offset by 63.5% increase in revenue from our monitoring systems.
The average selling price of RMR compatible I'd be infusion pump system. During the first quarter 2020 was approximately $29900 compared to approximately $35800 for the same period and 29 team.
The decrease in ASP relates to higher international sales of our infusion pumps, recognizing revenue when compared to the first quarter last year.
The average selling price of our MRM compatible patient vital signs monitoring system. During the first quarter 2020 was approximately $35400.
Turning to approximately $37400 for the same period in 2019.
The decrease in the U.S.P. relates to higher international sales of our monitoring system recognized in revenue when compared to the first quarter last year.
Revenue from sales of our disposables services and others increased by 30.7% to $2.7 million.
For the first quarter 2020 from $2 million for the same quarter and 2019.
And lastly revenue from the amortization of extended maintenance contracts increased 4% $12 million for the current quarter.
Gross margin was 74.5% for the 2020 corner and 75.7% for the 2019 quarter.
The decrease in gross margin as a result, apart international sales as a percent of total revenue.
Partially offset by unfavorable inventory costing adjustment recognized during the first quarter last year.
Operating expenses were $5.7 million or 66% of revenue compared to 4.9 million or 57.8% of revenue for the first quarter last year.
On a dollar basis operating expenses increased due to higher expenses for payroll benefits and stock compensation.
The higher headcount.
Higher employee recruiting costs and higher legal and professional fees, partially offset by lower sales commissions.
Our effective tax rate for the 2020 quarter was negative 111.7% compared to negative 14.9% for the 2019 quarter.
The lower effective tax rate is primarily due to discrete items related to stock compensation [noise].
And do a state tax benefit.
Additionally, we recognized a benefit resulting from a care that allowed us to carry back our net operating loss for two years prior to the enactment of the tax cuts and jobs there.
Which increased the benefit to the previously enacted federal tax rate of 35 person versus the current federal tax rate of 21%.
Net income on a GAAP basis was 14 cents per diluted share for the first quarter 2020, compared to 15 cents for the 2019 quarter.
Non-GAAP basis net income was 18 cents per diluted share for the current quarter.
Compared to 13 cents for the first quarter last year.
From a cash flow perspective, we generated $1.2 million of cash from operations.
Compared to $700000 for the 2019 quarter.
For the three months ended March 31st 2020.
Cash provided by operations was provided where was positively impacted by cash inflows from accounts receivable and deferred revenue and negatively impacted by prepaid income taxes inventory and accrued payroll and benefits.
For the three months ended March 31st 2020, and 2019, our free cash flow non-GAAP measure was $1 million and $600000 respectively.
And lastly, we exited the quarter with a combined cash and investments balance of $47.4 million and no third party debt or other restrictive covenants.
And with that I'll turn the call over for questions operator.
Thank you well now begin the question answer session to ask a question. Please press Star then be number one I got telephone keypad, Oh pause for just a moment took up how the Q1 day roster.
Your first question, Scott Henry with Roth capital.
Thank you I and good morning.
A couple of questions.
I guess first just big picture question.
I recognize you don't want to give guidance been can you talk qualitatively about how we should think about two Q.
Relative to two one Q given covert 19.
Okay.
Well Scott. This is lastly, all up maybe start off by providing a little of that qualitative contact for that kind of short to medium term and then Chris can add to my comments you don't when we think about you know how is that returned to growth what's it going to look like the timeframe you know, which just happens are gonna be uncertain, but yeah. We think about her portfolio. It really is.
Well positioned with its remote capability and rice safety in transport ability, we have a nice mix of equipment and critical care disposable where geographically diversified so is different countries around the world you know recover from this pandemic at different rates you know, we will see benefit from that and be able to participate in that.
Im probably finally, yeah, we believe the need to do M. arise critical patients and those needing sedation, who will absolutely continue you know when factors accumulating evidence, suggesting that patients with severe koby 19, maybe at risk for instance, philosophy, which is actually causing an increase in critical care patients need amreit exam.
So there's a few thoughts to kind of put some qualitative context around that path back to higher girl.
And and I guess, just to kind of follow up in and I know you don't want to get too granular, but I mean is it reasonable to think good business being down.
40% to 50% in Twoq you.
Just just trying to get a sense of the magnitude and along that line could you could you give me a sense of how your business typically performs in and if there was it a recessionary environment I would think it would be relatively defensive but curious your take.
So Scott I mean, I think you're hitting on a lot of the uncertainties that really caused us to withdraw our financial guidance in the beginning.
And you know to legalese point the duration.
That were impacted or the duration of the other pandemic itself when is the country going to reopen how is that going to look when or other countries going to reopen.
And how does that play out.
I I think there's.
There's a lot of a lot of the uncertainty exists around and trying to quantify that is quite challenging at this point.
Could you know to your question could could revenue be down 50%.
Assuming you're talking about 50% from the first quarter.
That would put us somewhere around or no call it $4.3 million to $4.4 million and I mean [laughter] my sense is.
That's a pretty drastic move.
But certainly not out of the realm of possibilities.
[laughter], but.
It's challenging trying to answer your question specifically.
Okay, No Chris that's actually really help flip I appreciate just kinda the context behind that.
And then I I did want to ask a in first quarter.
The monitor sales were were very strong relative to expectations. I mean, there were strong in Q4, typically Q1, maybe we dropped back down but did you lose a really solid number, particularly given that the background, but then pumps got hit a little more which not not totally unexpected.
But can you talk a little bit about those trends between you know the the strong monitor sales and in a little more weakness and the pump sales in Q1.
I I mean, you know part of this goes back to just our international channel performed very well with both pumps and monitors.
Domestically, we struggled a little bit more on the pump side, then no I wouldn't say when compared to compared to the international side.
I think part of this goes to how the hospital restrictions were rolled out.
The you know March for let's say the third month in every quarter as always you know the most important month for us when it comes to bookings.
And.
You know for really we started to see restrictions on our our ability to access hospitals and you know mid to late February.
We are those rumors we're starting to float around an isolated instances of hospitals really shutting their doors to vendors and then of course as we progressed throughout the month of March definitely became the norm and there and it and it impacted our ability domestically.
Sorry, I can't.
You know there wasn't anything you know out of the ordinary related to pumps, but ER.
[noise] other than other than the impact from proven and hard to put a hard to put a finger on anything else other than <unk>.
Okay, great. It just a final question just.
Can you just clarify it looks like the tax gain in Q1 was not excluded from non-GAAP bps is that correct.
That's right it wasn't meaning it wasn't pulled out it wasn't pulled out that's right.
Okay, Great Alright, Thank you very much for taking my question.
Thank God.
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Your next question is from a Lisa Springer with singular research.
Good morning, I do in your remarks, you mentioned that.
But related or orders for I'd be sets I was wondering if you could or do you have a sense of how much of the increase in disposables was related to cobot 19 type demand.
So Lisa this is a lift when Mcdonnell we're not we don't have a good enough sensor that to be able to break that out.
We saw the biggest surge in the Ivy set business in what we call. Our extension types that now those are typically used in critical care environment. So I think there was definitely a positive impact from customers buying ahead as well as I've seen an opportunity to use that to be offer patients.
Who weren't isolation room settings, and they wanted to control the pump from outside that room.
Okay.
And you also doing her remarks, you mentioned a cost containment as one of your Ah the legs of the company going into 2020 could you give us a little more detail around what areas you might be looking at and have you set specific goals for cost containment.
Well I think at this point, we're looking at you know a lot of things we've taken some steps already regarding.
Reducing hours, where possible restricting travel things like that we're sort of play booking and you know a lot of different options, but at this point, it's too early to.
To to carry out any of those plans.
So.
Okay.
And do you have any sense in terms of or the mix between domestic versus international going into the second quarter is it going to be.
Stronger international again, or do you have a sense of that.
I mean, Lisa I think that really will depend on how fast the a U.S. hospitals open up to manufacturing partners coming in in supporting them. It's <unk> you know were seen into that reports about in different places in the United States I'm kind of hard to gauge that relative.
To to the pace of recovery and in other countries I think our international business will continue to stay strong the comment I made before about that geographically diversified revenue base I think it's going to play in play in our favor because of all that uncertainty.
Okay. Thank you.
At this time there no further questions I'll hand, the call over to Mike Mcdonnell.
I would like to thank everyone for listening and participating in the call. These are unpredictable time, we're taking steps that came out of this pandemic stronger than ever to manage through this we're focusing on the things in our control and being vigilant in the areas that product innovation, serving our customers taking care of our employees and assessing the impact of hoping on our cost.
I'm sure wishing you all continued good health and we look forward to speaking with you again after Q2.
Thank you. This concludes the call you may now disconnect.