I apologize for the delay in covering the earnings CCs. Trickle manager's broadband connectivity was not functional since last Thursday, following a long overdue wipe of the hard drive. I've since gotten the broadband problem fixed, and the PC is running like a champ. This means I can again listen to conference calls. For some reason, I can't seem to get through the registration process with WAT's, and I refuse to pay long distance to listen to their CC over the phone. I'll have to keep trying over the web. But I got some of the others.
I will start with Molecular Devices. I throw in some market commentary based on my observations from the CCs I have listened to, as well as some folks I talked to & systems I saw at the Lab Automation show. Such commentary will be sprinkled throughout my coverage of the conference calls, so serious trickle mavens will have to pay attention if they value my insight (big if).
MDCC had its best quarter of a difficult year. Revenues were down 8% versus a year ago, but up 15% sequentially. This helped EPS hit the high end of estimates at 12 cents per shares, up 64% sequentially. Operating margins improved 3% to 10% sequentially. Management believes the cycle has bottomed, but is cautious near term.
Consumables were the fastest growing segment, showing 44% year over year growth and accounting for 13% of revenue this quarter, well over the internal target of 10%. This is not a bad thing, because consumables are high margin.
Indeed, that factor contributed to overall gross margins being above plan a bit at 62%. Guidance is for 60%-61% going forward.
In drug discovery (cell analysis & high throughput screening), which accounted for 48% of revenue, FLIPR systems had their best quarter of the year. This was due in part to the warm reception of the FLIPR III platform with its GPCR screening capabilities. IMAP kinase platform and kits (the latter developed with Upstate Biotech) were launched and several pharma customers signed to the associated "Explorer Purchase Program." The kinases are the second largest target class (presumably behind GPCRs).
In life sciences (detection & liquid handling), which accounted for 52% of revenue, the FlexStations (which are priced under $90K) are the driver. Life sciences revenue was up 3% versus Q401, contrasting with drug discovery being down 17% versus that period. Benchtop FlexStations, a recent launch, are ramping well. Gemini & Analyst programs will see product launches 1H02. I will add that consumables are part of both the life sciences and drug discovery segments, but are also broken out separately, hence the apparent 144% sum.
Geographically, North America was weak but still accounted for 65% of revenue. Europe was sequentially strong at 24%, and the rest of the world came in at 11%. In the latter, Japan was especially strong, growing at over 100%.
R&D was up a bit at 17% of revenue. This is expected to be flat in the first quarter, and up slightly the rest of the year. Long term it is expected to be closer to 15%. The relatively heavy spending of late is largely due to the development of the IonWorks platform (Cytion munch). This will come in high and low throughput flavors, and will need proprietary consumables. The HT version will run up to 2000 tests per day versus the current standard of a dozen or so. This explains the big interest MDCC says they are seeing, and indeed, it is being beta tested (by "under 5" confidential customers) this half, with launch expected in in the second half. The low throughout version (developed with Essen, whoever they are) is called Ionworks PCS. I think this is a benchtop version, and it will run 50 - 100 tests per day. This is to be introduced in the second half. MDCC says 1500 labs are doing manual patch clamping for ion channel work. This automated version has no competition on the horizon, and MDCC reckons the market opportunity at $500 million.
SG&A was up $800K from the prior quarter but was down one percent of revenue due to the better sales in Q4. It is expected to be up in dollar terms in '02 due to sales growth. However the '02 SG&A/revenue goal is 32%. DSOs improved to 84 days from 90, and inventory turns improved to 2.2 from 1.9.
A couple of questions addressed the pharma purchasing cycle. CEO Keegan said that the evidence for a bottom was from feedback from sales reps & customers. It appears consolidation issues are mostly resolved and purchasing programs are getting back on track. He saw a return only to historical growth rates, and saw MDCC's top line growth returning to 15% once the cycle normalizes.
Analyst Paul Kelley said Merril Lynch was forecasting steady state growth in HTS market for biochemical fluorescence because the market seemed saturated. Keegan said that in the long term, new rounds of technology development would supercede that. For example, the move from 384 to 1536 well plates. He saw cell assays among the fastest growing markets, and this what FLIPR and the IonWorks are targeted at.
My sense is that MDCC is in good shape, but will probably putter along at these levels for a few more months. Could be a good buy. One small caveat, which I will expand on in later posts, is due to one of "these new rounds of technology development," as Mr. Keegan put it. The newer liquid handling systems that can dispense in nanoliters with 95% accuracy are starting to hit the market. Few of these are from major players yet. At the Lab Automation show, I saw systems from Cartesian, a subsidiary of bit player/Trickle disaster Genomic Solutions (if these guys could quickly get a partner they could get along with, there's hope for them), and from Tecan, a more important player. Hamilton, a major player, is getting there. I queried a MDCC rep as to whether this capability would be developed for MDCC AquaMax liquid handling equipment. I was told "Maybe, in a year or so."
Why am I harping on this? Two reasons. One was pointed out by ABI (whose call I have listened to, and will summarize later): they noted that their customers were getting more efficient with their 3700s because of improved liquid handling/robotics on the front end. This efficiency was costing ABI reagent sales. The good news, from their point of view, is that these efficiency improvements have limits, and they think we are close to them.
Well, yes and no. Reason two is that dispensing small quantities of sample or reagent has been a bottleneck for the lab-on-a chip companies such as Aclara. The installed base of nanoliter dispensing systems is almost non-existent now, and this is one reason why Aclara hasn't sold much product yet. But these systems are coming, and will make the Aclaras of the world more competitive with the equipment of the ABIs of the world when they do. Note that Caliper's sipper chips finesse this issue, and that may explain why they are selling product and Aclara is not. Customers will buy a benchtop system from CALP (Agilent) rather than replace all their liquid handling systems to accommodate Aclara's chips. Thus CALP is priced about 4x higher than ACLA. But eventually, those liquid handling systems will be replaced, and then I think Aclara may have the advantage (and we'll see about privately held Fluidigm, which may have even better technology). Aclara is dirt cheap now, and is probably a good speculation for the longer haul. Hard to say if they are a good buy right now.
Whew! That's all for now. ABI and QGENF (first half guidance call) are next. WAT if I can through.
Cheers, Tuck |
