Jack and all,
Well, I listened to the call early this morning. I can't say I get this selloff. They will have more sales and marketing expenses due to their decision in December to hire a direct sales force for hospital sales. I suppose that introduces some uncertainty and a little more risk with higher expenses. However, they believe (of course!) that the expense will be more than made up by the increased exposure in higher margin institutional sales. PSS will still handle private office sales. As Triiboy said, they experience some problems with the relationship, but believe that the problems have been ironed out. PSS doesn't have any inventory--SONO ships directly to the end user, so they get a good handle on actual sales there. They have less of a handle on international sales (60% of last Q), but said that international distributors have no interest in carrying inventory, so they only keep 3-4 weeks of machines on hand at any given time. This is important, as it will help them avoid a build-up of unsold equipment and self deception about how sales are actually going.
They said that there is broad interest in the machines, selling to ObGyn, internal medicine, emergency med, and radiologists.
40% of sales went to NA, 25% each to Asia and Europe, and 10% the rest of the world.
GM not surprisingly increased from 32 to 37%, and they believe it will increase again as more units get built. ATL could make 100 plus systems per week by the end of Dec.
SonoHeart looks exciting, a lot of interest in it. They have spoken extensively with physicians about possible uses for it and they have come up with at least 10 or 11 uses so far, with discussions continuing.
They have developed a high frequency transducer that allows SonoHeart to be used in surgerical procedures to check the heart (or whatever organ they are working with) before closing, thus improving surgical efficiency. (Let's see a full sized unit do that.) This was something that they thought wouldn't be available for a few years, and they will offer it later this year.
They met their revenue expectations of the beginning of the quarter, but back then, they believed that they would get good sales from Japan whereas in fact they got none, so sales in other areas were stronger than expected. The one other negative that maybe could be taken from the CC was that they admitted that some distributors had bought some units for demo purposes; they declined to say how many, but implied that it was more than one or two. However, back to Japan--they expect regulatory approval there to come in this quarter, with some sales toward the end of the Q, and much more in Q2, with Sonoheart approval coming over the summer. They are pleased with Olympus (their Japanese distributor), and think that they will "hit the ground running", as sales people like to say.
The sales people they hired were 27 out more than 500 applicants. They will be stationed in major metro areas in the US (I think just the US). They will focus on hospitals, will have a minimum of "windshield time". I think that this is a great idea. If the institutions get these things, individual docs can't be far behind. That is the right place to put a direct sales force. They will also be a valuable source of feedback on how the machines are being received, how they are used, and what people wish they could do that they might not be able to do. There are also more add on possibilities with institutions, and potentially higher margins.
Kevin G. said their biggest issue right now isn't to find new things to do, it is "How much do we go after how fast?" That is in its own way a difficult place to be in, since especially as a new company with a new machine he doesn't want to stretch the company too thin and yet doesn't want to lose market opportunities unnecessary. But it is also a good place to be in.
All of the analysts on the call congratulated them on a good quarter. So do I, and so should all SONO shareholders. This sell off makes no sense unless the machines they have sold are getting dusty on some shelves somewhere, and I don't believe they are.
Sam |
