<CMED CC Notes, copied from The Fool>
Subject: Saltman's CC notes Part 1 Date: 8/25/99 2:12 PM
Author: SValdes49 Number: of 513
This is my summary of the CMED CC on Mon. 8-23-99, following release of Q499 and FY99 earnings that same date. As my "cut and Paste" quit working right, I will email these to another board member for posting. As is my custom, the reporting is primarily factual as best I can do, with any editorial comments and my thoughts in parenthesis. Good luck investing, The Saltman.
CC conducted by John Anastoff, CEO and Pres, Stephen Hall, new CFO, and Greg Gould, director of Finance (I think). John first reviews accomplishments, including number 89 on Forbes 200 list, Business Week list, and 59 on Fortune list this week of fastest growing companies. All rankings based on sales, margins, and ROE. John then reviewed all press releases since last CC (only new tidbit was CFO is part time until 9-7-99). States it was a very good year, results better than anticipated.
Turned over to Stephen Hall, and he reviewed the numbers. Highlights-for the Q4, revenue up 32%, gross margins up to 38.5%, net income up 69%, and general expenses went down from 22.7% of revenue to 17.7% of revenue. For FY99, revenue up to 65.3m, up 38%, gross margins 38.3% up from 35.8%, general expenses down from 23.4% of revenue to 19.8% of revenue, and net income up 75%. Balance sheet is liquid and strong, 22.9m in cash and short term investments. 8m line of credit, zero balance. Operating cash flow increased 4m+.
Back to John to discuss business. For the future, we need to acquire and integrate and streamline. We have 5 key markets/divisions: 1) Invitro Diagnostics including DNA probe. The market potential is 300m (I think overall, not necessarily for CMED) and is growing 30% a year. This is a major focus for us for the future.2) Therapeutics-integrating catheter business with other business (not real clear on this and did not seem to be a big point). 3) Forming an Imaging and Power Systems Division, including Erbtec and Creos. Expects this to grow significantly. 4) Software Development and Validations. 5) Manufacturing and Automation. 50% of outsourcing work is here. John says wants to increase revenue and outsourcing. Outsourcing is 75% of business and John sees it changing over time (not sure which way, prior CC's referred to increasing proprietary products-maybe this is included in outsourcing work coming to CMED). Acquisitions continue to be a "major aspect" of CMED's business. Made a small one recently (Creos) and looking for more. (It is a little frustrating to hear this each CC when CMED is sitting on so much cash, BUT mgmt has been very careful and successful with past acquisitions so I just need to be patient and be glad they aren't wasting that 24m).
Questions and Answers were as follows:
Ken Turvich, Bigelow & CO.: International vs. domestic revenues? 10% international and this grew significantly. Hitachi and one other client will be larger in FY2000. Could result in beneficial matters from a tax standpoint-CMED is aware and looking at this.
Leon Solomon, Prudential Securities. Creos discussions. This was an asset purchase, planning to move to CMED facilities. Will be some transitional costs, but believes outstanding technical abilities acquired. Unusual expenses in first 6 mos, but should be positive when review for a whole year. Sales for Creos are 4m a year, and CMED is usually slower its first 2 qtrs anyway, so good time to integrate and then ramp up in Q3 and Q4.
Tom Moro, Advest (Boo, Hiss, Mr. Downgrade himself I guess): Biomed Y2k work will go down next year. Expect 5 to 8m in revenue for the year in sales (calendar year I believe). Planning other new projects to fill the gap after this work ends. Erbtec, now the Imaging and Power Systems divisions was "extremely strong" last qtr. And will be continuing forward. (You will recall Ertec is the last acquisition of any significance, so again mgmt goes slow but successfully in this arena). Creos had 27 employees and 25 are coming to CMED, only losing CEO (who had been there less than one year) and one assembly line worker. This division is "very important" to CMED. Crossover customers? Yes, Creos two largest were Hitachi and Picker (what is Picker?) and CMED 3 largest are GE, Hitachi and Picker. Creos makes power generators for a CT Scan system which spirals around an object being xrayed and makes a 3D xray (this sounds unique, anyone out there know about any competitors making this?). Creos and Erbtec will use same sales and marketing force.
Orin McCluskey, CWH Associates: When will Genprobe revenue be recognized? John says we have been recognizining R&D revenue for 2 years-25 to 26m. Started limited production work and delivered pilot production. Billed as delivered. Real manufacturing work probably in last half FY 2000. Maximum rate by FY 2001. Our days sales outstanding have greatly improved, now less than 40 days.
Craig Layton, Fleming Asset Mgmt: Emphasizes no production units shipped to Genprobe this qtr (seemed upset about this, anyone have details?). BioMed Y2k shipped 2.5m in FY99, will be total 5m to 10m for CY99. Running at a higher rate and in the black now. Proprietary revenue is 25%, outsourcing is 75%. Layton asks about the decrease in gross margins sequentially-Why? Mgmt responds that margins are up-never really resolved in the CC (but looks to me like they were up, even sequentially). Mgmt. Says discounts were given to some customers, but mgmt. Says this was a good qtr (a little defensive, but Layton seemed to be attacking without much ammunition). Tax rate, 37.5% is reasonable estimate. Notes founder of Creos, Ron Shore, will be VP in CMED and sales and marketing from Creos are staying.
Chris Thomason, Kenny Securities: Cash flow for qtr?-not given. 12.4 m for the year. Mgmt. Estimates 5m for the qtr. No. of DNA products? Working on 5 or 6, 90% are DNA related. If consider development and manufacturing, this is 40 to 50% of CMED. This is "very significant" to CMED and growing rapidly and we are seeing other opportunities here. Questions on competitors? Response is that often it is a question of the customer doing it inhouse rather than outsourcing to CMED. There are some European competitors and some in US, but no real dominant player in the US. Why R&D down year to year? This is b/c a lot of R&D people are on Hitachi project so not as much inhouse spending. More profitable to have these people on Hitachi project right now. CMED have adequate capacity? In engineering and manufacturing, CMED has adequate capacity plus some, in software, always a challenge to get and keep the right people.
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