Urologix, Inc. (ULGX)

F4Q2010 Earnings Call Transcript

August 24, 2010 5:00 pm ET

Executives

Stryker Warren – CEO

Brian Smrdel – CFO

Greg Fluet – EVP & COO

Analysts

Ernest Andberg – Feltl and Company

Presentation

Operator

Good day, ladies and gentlemen. Welcome to the Urologix Incorporated Fiscal Year 2010 and Fourth Quarter Conference Call. My name is Keith, and I will be your coordinator for today. At this time, all participants and in a listen-only mode. We will be facilitating a question-and-answer session towards the end of this conference. As a reminder, this conference is being recorded for replay purposes.

Statements made at this presentation may contain forward-looking statements that are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those projected in any forward-looking statements due to risks and uncertainties. A detailed discussion of risks and uncertainties maybe found in Urologix's recent Annual Report on Form 10-K for the year ended June 30th, 2009, and other documents filed with the Securities and Exchange Commission.

At this time, I will turn the call over to Mr. Stryker Warren, Jr., Chief Executive Officer. Please proceed, sir.

Stryker Warren

Good afternoon. This is Stryker Warren. As Chief Executive Officer of Urologix, I welcome you to this earnings call. Joining me are Brian Smrdel, Urologix's Chief Financial Officer; and Greg Fluet, Urologix's Executive Vice President and Chief Operating Officer.

Before I share my perspective on the fourth quarter and full year of fiscal 2010, I will ask Brian to review the financial results.

Brian Smrdel

Thank you, Stryker. Revenue for the fourth quarter was $3.3 million or 9% less than the $3.6 million reported in the third quarter of this fiscal year and 5% less than the $3.4 million reported in the same period of fiscal 2009. The decrease in revenue compared to the 2010 third quarter and the prior-year fourth quarter is a result of a temporary backorder for our Prostaprobe product utilized by our third-party mobiles and physician uncertainty surrounding Medicare reimbursement due to the disruption of Medicare payments in portions of April and June of 2010.

To further break down the sources of Urologix's revenue on a sequential basis, revenue from catheter sales to direct accounts contributed 39% percent of overall revenue in the fourth quarter of fiscal 2010 compared to 36% percent in the previous quarter. Urologix mobile service treatment revenue contributed 49% of overall revenue and third-party mobile operations contributed 10% of overall revenue in the fourth quarter of fiscal 2010 compared to 46% and 15%, respectively, for the third quarter of this year.

The net loss for the fiscal 2010 fourth quarter was $622,000 or $0.04 per diluted share. This represents a 4% increase in net loss compared to the $597,000 loss or $0.04 per diluted share in the third quarter of this fiscal year, but a 29% reduction compared to the net loss of $875,000 or $0.06 per diluted share in the fourth quarter of fiscal 2009.

Cash and cash equivalents were $5.7 million at June 30th of 2010 compared to $5.8 million at March 31st of 2010 and $7 million at June 30th of 2009. Cash utilization decreased $185,000 from the prior quarter and $541,000 from the fourth quarter of fiscal 2009, as we continue to focus on expense and working capital management.

Our day sales outstanding at the end of the fourth quarter was 38 days, an improvement compared to the 46 days at the end of the third quarter of fiscal 2010 and 39 days at June 30th of 2009.

As mentioned in today's press release, based on our fiscal year 2011 planning process, management believes that the $5.7 million cash balance at June 30th of 2010 will be sufficient to fund our working capital needs beyond fiscal year 2011. This evaluation includes the expected increase in cash utilization in the first quarter of fiscal 2011 associated with annual expenses that occur in the first quarter of each fiscal year, including annual insurance premiums, independent auditor fees, and payment of other accruals associated with the end of our prior fiscal year.

Gross profit for the fourth quarter of fiscal 2010 was $1.8 million or 54% of revenue, a 1 percentage point decrease when compared to the prior quarter. However, gross profit as a percentage of revenue increased by 2 percentage points when compared to the prior-year fourth quarter. The 1 percentage point decrease in gross margin compared to the prior quarter of this fiscal year is a result of higher manufacturing expense per unit due to lower production volumes. The increase in the gross profit rate over the same period for fiscal 2009 is due to a reduction in unabsorbed manufacturing expense as a result of increased unit production.

Reported fourth quarter operating expense totaled $2.5 million, a decrease of $123,000 or 5% when compared to the $2.6 million reported in the third quarter of fiscal 2010 and a decrease of $268,000 or 10% when compared to the $2.7 million reported in the fourth quarter of fiscal 2009.

The decrease in operating expense when compared to the third quarter is a result of a $174,000 decrease in general and administrative expense, partially offset by a $52,000 increase in research and development expense as the company increased its investment in product and clinical research efforts. The decrease in operating expense when compared to the fourth quarter of the prior fiscal year is primarily the result of a reduction of $246,000 in sales and marketing expense.

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