Rochester Medical Corporation (ROCM)

Q2 2012 Earnings Call

April 24, 2012 4:30 pm ET


Anthony J. Conway – Chairman of the Board, Chief Executive Officer and President

David A. Jonas – Director, Chief Financial Officer, Treasurer and Secretary


Tyson Bauer – Kansas City Capital Associates

Elizabeth Lilly – Gabelli Investors

Michael Boulgaris – Boulgaris Investments



Good afternoon, ladies and gentlemen, and welcome to the Second Quarter 2012 Rochester Medical Corporation Earnings Conference Call. My name is Chris and I will be your moderator for today. Presently all participants are in a listen-only mode. Later, we will facilitate a question-and-answer session. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes.

And at this time, I would now like to turn the conference over to your presenter for today, Mr. Jim Conway, President and CEO. Sir, you may proceed.

Anthony J. Conway

Thank you for joining Rochester Medical’s second quarter conference call. I’m Jim Conway, the company’s President and CEO. And with me is David Jonas, Rochester Medical’s Chief Financial Officer. First, I will provide a brief high level review of our second quarter, and Dave will then provide you with more details on our financial results. And then, I will give a quick update on a few items and summarize and then we’ll take your questions.

Before starting, let me remind you that we will be making some forward-looking statements today, and I would refer you to the Safe Harbor statement found in today’s press release and also to the risk factors section in the company’s annual report on Form 10-K for the year ended September the 30, 2011. These statements further clarify the risks and uncertainties that are associated with the forward-looking statements.

Now, I’m pleased to report strong second quarter financial performance with revenues up 19% on a reported basis and up 20% on a constant currency basis to total $15.3 million. We are encouraged by our second quarter results, especially the robust 20% constant currency growth delivered by our global direct sales business. This favorable performance again demonstrates that our strategy to drive top line growth through our global direct sales business is firmly working.

Private label sales also contributed nicely to the quarter’s growth, increasing 24%. As you’d recall, this business fluctuates from quarter-to-quarter spoke with the first half of the year, private label stabled, consistent with our expectations.

Regarding our U.S. and international direct sales business, revenues grew 33% and 15% respectively in constant currency. We have now fully lapped the acquisition of Laprolan, so our direct sales growth rates reflect organic growth. In the second quarter, even as we reported good international performance, we did experience some softness with Laprolan due to a handful of challenges, such as some reimbursements snags that we need to work through. Overall though, our international direct business particularly in the U.K. remains a solid and sustainable growth driver for us. Dave will provide more detail on our revenue performance in just a minute.

I’m also pleased to report that we managed our expense structure quite well as our positive net income performance indicates. We reported GAAP earnings of $603,000 or a $0.05 per share and on a non-GAAP basis excluding certain non-cash expenses we reported net income of $920,000 or $0.08 per share. For the first half of fiscal 2012, total sales were up 23% in constant currency, and we have achieved just a six-month gross margin of 49.5%, a non-GAAP net income of $1.2 million or $0.10 per share.

These results are indicative of a strong start to the year and evidenced that that strategy to drive growth that we implemented over a year ago has begun to take hold. As such, I remain confident in Rochester Medical’s growth trajectory and reaffirm our fiscal 2013 objective to reach $83 million in revenues and $9 million to $10 million in net income. As we have previously stated, we expect new product introductions to help us reach those goals.

And now Dave will give you further details on the quarter.

David A. Jonas

Thanks, Jim. I’m going to spend a few minutes highlighting the results reflected in our just released second quarter 2012 earnings release. For ease of discussion, unless otherwise noted, all sales information will be discussed in constant currency. I’m doing this to exclude the impact of foreign currency exchange in order to show a true reflection of our sales growth. Foreign currency dampened our top line this quarter by approximately $181,000. As most of you have seen, the exchange rates for the pound and the euro have been quite volatile the last few months.

Our foreign exchange risk is limited to our sales into the UK and Holland. Those sales currently make up about 60% of our total company sales and fluctuations in these rates will have an impact on both our top and bottom line results. Our three-year plan and projections for this year used a 1.37 exchange rate for the euro and 1.57 rate for the pound. And while the pound has hovered around that number all year, the euro has fluctuated from 1.27 to 1.38 in just the last 120 days.

As Jim mentioned, total sales rose 20% in the second quarter to $15.3 million versus $12.3 million a year ago. This growth consists of 20% growth in direct sales and 24% increase in private label sales this quarter alone. For the first six months of the year, total sales reached $29.1 million versus $23.6 million, an increase of 23%.

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