Kensey Nash Corporation (
F1Q2011 (Qtr End 09/30/10) Earnings Conference Call
October 21, 2010 9 AM ET
Joe Kaufmann – President and CEO
Mike Celano – CFO
Matthew Wysong [ph] – Jefferies & Company
James Sidoti – Sidoti & Company
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Ladies and gentlemen, thank you for standing by and welcome to the first quarter earnings release. (Operator Instructions). And I would now like to turn the conference over to your host, President and CEO, Mr. Joe Kaufmann. Please go ahead, sir.
Thank you. Good morning. Welcome to the Kensey Nash fiscal 2011 first quarter conference call. Joining me today are Doug Evans, our Chief Operating Officer; and Mike Celano, our CFO. Mike will start.
Thank you Joe. The statements made by Kensey Nash and its representatives in this conference call will contain certain forward-looking statements, including financial forecasts that are based on the current beliefs of management as well as assumptions made by and information currently available to management. Wherever possible, we will try to identify these forward-looking statements by using words such as belief, expect, anticipate, forecast, and similar expressions. Please note these words are not the exclusive means for identifying such statements.
Please see today’s press release and Kensey Nash’s SEC filings, including our Annual Report on Form 10-K for the year ended June 30, 2010, particularly the information under the caption "Risk Factors" for a discussion of risks, uncertainties and other factors that could cause our actual results in the remainder of fiscal year ‘11 and beyond to differ materially from those expressed in or implied by our forward-looking statements. Thank you.
Today we reported our financial results for the first fiscal quarter. Total revenue was $17 million, and EPS of $0.41, both were at the low end of our previous guidance. Royalties of $6.1 million were slightly below our guidance of $6.2 million to $6.3 million. And net sales of $10.9 million were at the mid-point of our guidance of $10.8 million to $11 million.
We did expect that our first quarter results would be weak relative to the prior year and also on a sequential basis. Both spine and cardiology sales were in line with our expectations but sports medicine was a little weaker than expected. Our general surgery products which primarily consisted of our ECM products sold by Synthes were on target for the quarter, and I would like to point out that what we were seeing in the field with Synthes and the uptick in the sales throughout the last couple of months, we think that Synthes is doing an excellent job in the sales and marketing arena with these products and we think as the year progresses, we will be able to give you more details and more insight into what is happening in the marketplace and the uptick on these particular products.
The products also will be launched in the EU later on this calendar year. And as the year moves further on, for fiscal year 2011, we are very confident that this is going to be a nice driver for Kensey Nash, not only for our product sales but also starting to generate some royalties for Kensey Nash on an ongoing basis.
Our Angio-Seal royalties were 5% below prior year and our Orthovita royalties were flat year-over year. And – so the decline or the slightly lower than expectations for the quarter were driven by the slightly lower than what we expected on Angio-Seal, but we do expect that in the next quarter, we will see an increase – sequential increase for both Orthovita and also Angio-Seal royalties.
Now, as stated in our press release, certainly the overall economic climate coupled with high unemployment and reduced procedures, particularly in spine and sports medicine, is having a negative impact on our order flow to date. This is what’s causing us to now reduce our second quarter expectations. Initially we felt that we would see somewhat of a rebound or an improvement starting in the second quarter with our customers, but quite frankly we haven’t seen that yet. So, we think that with the higher unemployment rate, people dropping off of COBRA, all the other economic pressures that are out there globally, certainly is affecting Kensey Nash and affecting our partners as we’ve been following the earnings releases of many other companies, and it has impacted us.
So, for us, we think it’s prudent to reduce our expectations for the second quarter, and our full-year guidance. We are reducing our estimates for net sales by approximately 6% to 7% or $4.5 million to $6 million for the fiscal year from our previous guidance. This includes a reduction in two areas. First, in sports medicine, where we believe we are taking the guidance down by about $2.7 million to $3.2 million. And again, this is due to what we feel is ongoing issue with the overall economic climate and some reduction in inventory that is taking place and that we don’t expect to see a rebound in sports medicine until the early part of calendar year 2011.
We are also taking down the spine products. The spine products we are taking down for the full year about $1 million to $1.5 million. Again, reflecting the pressure that is at – that we are all seeing in the spine market and the reduction in procedures, more conservative treatment of patients. We also believe that this is going to be temporary and that there will be a rebound in procedures as treatment methods change and treatment methods are adjusted for these particular patients, but at this time, with the situation the way it is, we think it’s prudent to take these numbers down.