Quidel's CEO Discusses Q3 2011 Results - Earnings Call Transcript

Quidel Corporation ( QDEL)

Q3 2011 Earnings Call

October 25, 2011 5:00 p.m. ET

Executives

Douglas Bryant - President and Chief Executive Officer

John Radak - Chief Financial Officer

Randy Steward

Analysts

Steven Crowley - Craig-Hallum

Ashim Anand - Natixis Bleichroeder

Zarak Khurshid - Wedbush

Jeff Frelick - Canaccord Adams

Brad Hoover - Sidoti & Company

Presentation

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Quidel Corporation Third Quarter 2011 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, instructions will be given for the question-and-answer session. (Operator instructions)

I would now like to turn the call over to Mr. John Radak, Chief Financial Officer. Please go ahead.

John Radak

Thank you. This is John Radak. Thank you for participating in today’s call. Joining me today is our President and Chief Executive Officer, Doug Bryant.

Today Quidel released financial results for its three months ended September 30, 2011. If you have not received this news release or if you would like to be added to the company’s distribution list, please call Hooven Argetta at Quidel Corporation at 858-646-8023.

Please note that this conference call will include forward-looking statements within the meaning of federal securities laws. It is possible that actual results and performance could differ materially from these stated expectations. For a discussion of risk factors, please review Quidel’s Annual Report on Form 10-K, registration statements and subsequent quarterly reports on Form 10-Q as filed with the SEC.

Furthermore, this conference call contains time-sensitive information that is accurate only as of the date of the live broadcast, October 25, 2011. Quidel undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this conference call except as required by law.

For today's call I will report the financial results for the quarter and Doug will describe the status of our new products as well as our more recent commercial developments. We will then open the call for your questions.

For the third quarter of 2011, total revenues were $33.1 million compared to $28.2 million in the third quarter of 2010, an increase of 17%. The infectious disease product lines comprised the majority of the revenue increase driven by the timing of orders for influenza sales and growth in Strep A and RSV. Inventories at distribution have not materially changed from the second quarter. This would suggest that Q3 revenues are reflective of end-user demand.

International sales as a category grew by 41% in the third quarter of 2011 over the same time period last year. Global sales of infectious disease products totaled $22 million in the third quarter of 2011 compared to the sales of $16.2 million in the third quarter of the prior year. The main contributors to this increase were strong sales from our influenza product line combined with continued growth in our RSV and Strep A products. In the third quarter our Strep A product line saw a 10% growth over the same period last year. In Q3 of 2011 RSV sales more than doubled from the third quarter of 2010 to just under $0.5 million.

Revenues in the women’s health category declined 7% to $8.1 million as double digit percentage growth in Thyretain was offset by softness in our bone health product line along with a 7% decrease in pregnancy sales due primarily to distributor ordering patterns. Our gastrointestinal product category revenues were 3% to $1.7 million on greater sales of IFOB and H Pylori relative to the third quarter of 2010.

Gross margin in the third quarter of 2011 was flat to the third quarter of the prior year at 55% but was unfavorably impacted by a couple of unusual item. First, included in cost to sales for the quarter was $0.8 million of higher lateral flow intangible amortization related to the royalty buyout transaction versus what we would have recorded at 8.5% of lateral flow revenue. Most of the $0.8 million was a onetime charge driven by an accounting requirement to expense a portion of the $29.5 million in total buyout payments at signing.

We will by amortizing the remaining cost of the buyout over the time period from July 2011 to February 2015. This will amount to approximately $8 million per year and will be allocated between quarters based upon their estimated revenues relative to the estimated full year. Therefore, we will recognize $4 million of amortization in the second half of 2011. Secondly, we took an unusual $0.6 million charge to write-off component parts associated with a new product development effort. Excluding these items our gross margin in the third quarter would have been approximately 59%, a 400 basis point improvement over the prior year driven by volume and the manufacturing efficiencies we have achieved over the last year.

Operating expenses were $19.4 million in the third quarter of 2011 compared to $18.8 million for the third quarter in the prior year. Research and development cost in the third quarter of 2011 were flat to the third quarter of 2010 at $6.1 million. Sales and marketing costs increased to $6.5 million in the third quarter of 2011 due to higher variable compensation associated with sales commissions. General and administrative expenses increased slightly in the third quarter of this year relative to the same period in 2010 due to stock comp expense. Stock compensation expense in total was $1.5 million for the third quarter of this year versus $1.3 million for the same period in 2010. We expect stock compensation to total about $6.4 million for the full year.

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