Abaxis, Inc. ( ABAX)

F2Q2011 Earnings Conference Call

October 26, 2010 4:15 PM ET


Joe Dorame – Lytham Partners

Clint Severson – Chairman, President and CEO

Martin Mulroy – VP, Veterinary Sales and Marketing, North America

Brenton Hanlon – VP, North American Medical Sales and Marketing

Al Santa Ines – VP, Finance and CFO

Donald Wood – COO


James Sidoti – Sidoti & Company

Jonathan Block – SunTrust Robinson Humphrey

Ross Taylor – CL King

Scott Gleeson – Stephens

Scott Gleason – Stephens

David Clair – Piper Jaffray

Daniel Owczarski – Avondale Partners



Good afternoon and welcome to the Abaxis reports second quarter fiscal year 2011 financial results event. All participants will be in listen-only mode. (Operator Instructions) After today’s presentation there will be an opportunity to ask questions. (Operator Instructions) Please note this event is being recorded.

I would now like to turn the conference over to Joe Dorame of Lytham Partners.

Joe Dorame

Thank you Amy. Good afternoon and thank all of you for joining us today to review the financial results for Abaxis for the second fiscal quarter of 2011, ended September 30, 2010. Again, my name is Joe Dorame. I am with Lytham Partners and we are the financial relations consulting firm for Abaxis.

With us today, representing the company are Mr. Clint Severson, Chairman and Chief Executive Officer, Mr. Al Santa Ines, Chief Financial Officer, Mr. Donald Wood, Chief Operations Officer, Mr. Martin Mulroy, Vice President, North American Animal Health Sales and Marketing and Mr. Brenton Hanlon, Vice President, North American Medical Sales and Marketing. At the conclusion of today’s prepared remarks, we’ll open the call for Q&A session.

Before we begin, I would like to remind everyone this conference call includes statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including but not limited to statements related to the company’s cash position, financial resources and potential for future growth, market acceptance of new or planned product offerings, process improvements and product manufacturing quality and efficiencies in future production of company’s products.

Abaxis claims protection of the Safe Harbor for forward-looking statements contained in the Reform Act. These forward-looking statements are often characterized by the terms may, believe, projects, expects or anticipates or words of similar import and do not reflect historical facts. Specific forward-looking statements contained in this conference call may be affected by risks and uncertainties, including, but not limited to, those related to the market acceptance of the company’s products and the continuing development of its products, required FDA clearance and other government approvals, risks associated with manufacturing and distributing its products on a commercial scale free of defects, risks related to the introduction of new instruments manufactured by third parties, risks associated with entering the human diagnostic market on a larger scale, risks related to the protection of the company’s intellectual property or claims of infringement of intellectual property asserted by third parties, risks related to the condition of the United States economy, risks involved in carrying of inventory and other risks detailed under Risk Factors in the company’s Annual Report on Form 10-K and other periodic reports filed from time to time with the United States Securities and Exchange Commission.

Forward-looking statements speak only as of the date the statement was made. Abaxis does not undertake and specifically disclaims any obligation to update any forward-looking statements.

With that having been said, I would like to turn the call over to Mr. Clint Severson, Chairman and Chief Executive Officer of Abaxis. Clint?

Clint Severson

Great, thank you Joe, and good afternoon everybody. I will review the accomplishments and the challenges for Q2 2011 and some of the goals for Q3. After my short presentation, I’ll ask Marty Mulroy, our VP of North American Vet Sales and Marketing and Brenton Hanlon, our VP of North American Medical Sales and Marketing to give an update on their respective businesses, and then we’ll take questions.

Q2 was not only another record sales quarter but also a quarter where we have made significant progress in completing some of our manufacturing improvements with the goal of hitting $2 disc cost. Our first and four new automation lines is in production and we’ll now enter the optimization phase in Q3. The end result will be lower disc cost due to improved quality, due to less handling of the discs and some of the key steps we’re fully automating our priming, staking and deep bidding (ph). Once this is completed, we’ll be fully automated which will lead to reduced costs going forward.

We also completed the design for adding a new larger (inaudible) which will allow us to more than double our capacity for bead production to about $150 million beads per quarter. And due to a surge in our shipping of direct orders, we are adding an automated bar code and freight selection system to only the low cost shipper will be selected for a particular order.

While disinvestment in factory improvements and increased shipping cost was a drag on total gross margins, gross margins on instruments we manufacture the VS2 and the Piccolo Xpress finished Q2 at near – at a near record 61% versus 57% last quarter and this gross margins finished at 68.1% up 13 basis points versus Q1. These improvements are a result of both good cost control and an increase in average selling prices. As I mentioned before, we finished Q2 with record total sales of $35.3 million, up 17% year-over-year and up 1% quarter-over-quarter.

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