Q4 2018 Meridian Bioscience Inc Earnings Call
CINCINNATI Nov 14, 2018 (Thomson StreetEvents) -- Edited Transcript of Meridian Bioscience Inc earnings conference call or presentation Thursday, November 8, 2018 at 2:00:00pm GMT
TEXT version of Transcript
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Corporate Participants
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* Eric S. Rasmussen
Meridian Bioscience, Inc. - EVP of Business Development and Strategy
* John P. Kenny
Meridian Bioscience, Inc. - CEO, Executive VP of Diagnostics Business Unit & Director
* Melissa A. Lueke
Meridian Bioscience, Inc. - Executive VP, CFO, Principal Accounting Officer & Secretary
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Conference Call Participants
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* Andrew Frederick Brackmann
William Blair & Company L.L.C., Research Division - Associate
* Catherine Walden Ramsey Schulte
Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst
* David Michael Westenberg
CL King & Associates, Inc., Research Division - Senior VP & Senior Equity Analyst
* Mark Anthony Massaro
Canaccord Genuity Limited, Research Division - Senior Analyst
* William Robert Quirk
Piper Jaffray Companies, Research Division - MD and Senior Research Analyst
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Presentation
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Operator [1]
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Good morning, my name is Jason, and I will be your conference operator today. At this time, I would like to welcome everyone to the Meridian Bioscience Fiscal Fourth Quarter Earnings Call. (Operator Instructions) Eric Rasmussen, you may begin your conference.
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Eric S. Rasmussen, Meridian Bioscience, Inc. - EVP of Business Development and Strategy [2]
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Thanks, Jason. Good morning. By now you should have access to a copy of the earnings press release. If you do not have a copy, please go to the investor relations section of our website to access the press release and this morning's presentation. Before we begin today, let me remind you that the accompanying remarks include forward-looking statements. Forward-looking statements are subject to numerous risks and uncertainties, many of which are beyond the company's control, including risk and uncertainties described from time to time in the company's SEC filings. The company's results may differ materially from those projected. The company undertakes no obligation to publicly update any forward-looking statement. Additionally, as discussed on Slide 3, we refer to non-GAAP financial measures, specifically operating expenses, operating income, net income and earnings per share. A reconciliation of these non-GAAP financial measures with the most directly comparable GAAP measures is included in our press release, which is again available on our website. Our agenda for the call this morning is on Slide 4 of the presentation materials. Jack Kenny, our CEO will start with a brief overview of some highlights from this past year. Our CFO, Melissa Lueke, will then review the fourth quarter and full year financial results and our guidance for fiscal 2019. Then, Jack will take some time to review the go-forward strategy for the company in each of our 2 businesses. We'll be glad to take your questions with the time remaining. With that, I'd like to turn the call over to Jack.
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John P. Kenny, Meridian Bioscience, Inc. - CEO, Executive VP of Diagnostics Business Unit & Director [3]
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Thanks, Eric, and welcome to our first quarterly investor conference call. Before we get to the financial results, I want to take a minute of your time to walk through Meridian's major accomplishments and announcements this past year. First, we took major steps in leveraging the combined strength and resources within our company by consolidating what was essentially separately run subsidiary companies into 2 global strategic business units. This went hand-in-hand with the realignment of our organizational structure, which resulted in fewer management layers and a more efficient cost structure that will help us free up resources for future growth initiatives. We also launched our new Meridian brand with the continued rollout supporting a fresh new image and a message to the channels and customers we serve with our products. More recently, we entered into a strategic collaboration with DiaSorin to sell a high throughput automated version of our H. pylori assay geared toward a new customer base. We also had some changes on our Board of Directors with the addition of Felicia Williams and the appointment of Dave Phillips as our new chairman after the recent retirement of Jack Kraeutler, who led our company as CEO for 10 years and most recently as Executive Chairman. And lastly today, we announced strong financial results to end our fiscal year and I'm looking forward to continued growth and improvement in 2019 as reflected in our financial guidance for 2019. Now I'm going to turn it over to Melissa, who's going to walk you through the financial results.
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Melissa A. Lueke, Meridian Bioscience, Inc. - Executive VP, CFO, Principal Accounting Officer & Secretary [4]
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Thank you, Jack. Good morning, everyone. As we reported earlier today, total revenues for the fourth quarter of fiscal 2018 were $53.1 million as compared to $49.7 million in the fourth quarter of fiscal 2017. The 6.8% increase in revenue was driven by 18.8% growth in our Life Science segment and 2.3% growth from our Diagnostics segment. We are very pleased that those segments posted these levels of growth, while executing efforts to integrate and streamline their respective commercial units. Gross profit margins of 60.5% in the fourth quarter fiscal 2018 declined 110 basis points from 61.6% in the prior year. This is due to the combined effect of pricing pressures, primarily within our gastrointestinal business and a higher mix of revenues from our Life Science segment, which generates lower gross profit margin as compared to the Diagnostics segment. Operating expenses on an adjusted or non-GAAP basis of $20.5 million declined from the fourth quarter of fiscal 2017 levels of $21.1 million. This decrease is a result of a decrease in research and development spending based on project timing, a decrease in sales and marketing expense from savings generated by streamlining our 2 commercial units, which is mostly offset by higher levels of commission earned on higher levels of revenue, and finally an increase in G&A expenses related to incentive compensation earned under the new fiscal 2018 incentive plan. On an adjusted or non-GAAP basis, fourth quarter operating income increased to $11.7 million or 22% compared to $9.6 million in the prior year. Higher revenue levels and reduced operating expenses more than offset the decline in gross profit margins. Also, on an adjusted or non-GAAP basis, net earnings increased to $8.6 million or almost 40% compared to the prior year level of $6.2 million, reflecting the improved operating income and lower tax rate after the passage of U.S. tax reforms. On a GAAP basis, $3.6 million in restructuring charges recorded during the fourth quarter associated with streamlining the commercial teams contributed to the increase in operating expenses of $25 million and to operating income declining to $7.1 million. Net earnings on a GAAP basis declined $5.4 million for the fourth quarter compared to $5.7 million in the prior year, reflecting the combined effect of the restructuring charges noted and a lower effective tax rate of 21% compared to 34% in the prior year. Now moving on to fourth quarter operating segment highlights. Revenue for the Diagnostics unit grew to $36.8 million, an increase of 2.3% over the prior year revenues of $36 million. Operating profit growth was slightly less than sales growth in the quarter with sales and gross profit increases partially offset by higher G&A spending. Strong volume growth in respiratory illness assays, along with growth in our lead or blood chemistry assays was partially offset by declines in gastrointestinal assays. More specifically, gastrointestinal assays declined 5%, primarily due to declines in C. difficile sales volume more than offsetting growth in H. pylori testing volume. The C. difficile declines also contributed to the molecular technology declines. Respiratory illness assays increased 29% on the strength of Group A strep and influenza sales, and blood chemistry or lead assays increased 12% due to increased penetration into pediatric offices, leading to higher testing volumes. Revenues for our Life Science unit grew 18.8% to $16.2 million as compared to $13.7 million in the prior year comparable period. Both molecular and immunological or immuno reagent categories had strong growth of 8.9% and 26.8%, respectively. Additionally, each geographic region posted double-digit growth. Sales of immunoreagents to IVD customers continue to grow at a strong pace as more IVD customers incorporate our immuno reagents into the production of their diagnostic assays. We are pleased with the improved profitability of the Life Science segment in the fourth quarter. Operating income increased 71.5% to $4.9 million compared to $2.9 million in the prior year comparable period. This reflects gross profit from higher revenue levels and a lower cost structure after streamlining the commercial teams, and lastly the closure of 2 non-strategic locations. Moving to the full year fiscal earnings summary. Total revenues for 2018 were $213.6 million as compared to $200.8 million in fiscal 2017. The 6.4% increase in revenue was driven by 10.2% growth in our Life Science segment and 4.8% growth from our Diagnostics unit. Gross profit margins of 61.1% in fiscal 2018 declined 80 basis points from 61.9% in the prior year for reasons consistent with those stated in the fourth quarter. On an adjusted or non-GAAP basis, fiscal 2018 operating income was essentially flat at $44.6 million compared to fiscal 2017 with margins on the higher level of revenue offset by the increase in operating expenses for incentive compensation earned in 2018, higher sales and marketing expense on higher commissions, our branding initiatives and more sales and marketing resources in our Diagnostics unit and higher R&D spend. Also, on an adjusted or non-GAAP basis, fiscal 2018 net earnings increased to $31.7 million or over 10% compared to the fiscal 2017 level of $28.7 million, reflecting the lower tax rate subsequent to tax reform passed in December 2017. On a GAAP basis, operating expenses increased to $98.9 million from $86.9 million in fiscal 2017, primarily due to $13 million in restructuring and litigation costs in fiscal 2018. This contributed to GAAP operating income declining to $31.6 million in fiscal 2018 compared to $37.4 million in fiscal 2017, which included a $6.6 million impairment charge. Net earnings on a GAAP basis increased to $23.9 million for fiscal 2018 compared to $21.6 million in fiscal 2017, reflecting the lower 21.5% effective tax rate for the fiscal year as a result of tax reforms enacted. Now moving to the full year operating segment highlights. Revenues for the Diagnostics unit grew to $150.5 million, an increase of 4.8% over the prior year revenue of $143.5 million. Strong double-digit volume growth in respiratory illness assays, mid-single digit growth in our lead or blood chemistry assays and slight growth in the gastrointestinal category combined to produce this level of growth.