Alere's CEO Discusses Q2 2012 Results - Earnings Call Transcript

Alere Inc. (ALR)

Q2 2012 Earnings Call

August 8, 2012 8:30 AM ET

Executives

Doug Guarino – Director, Corporate Relation

Ron Zwanziger – Chairman and CEO

Dave Teitel – CFO

Analysts

Dan Leonard – Leerink Swann

Jon Groberg – Macquarie Capital

John Putnam – Capstone Investments

Zarak Khurshid – Wedbush Securities

Isaac Ro – Goldman Sachs

Nicholas Jansen – Raymond James & Associates

Greg Simpson – Wunderlich Securities

Peter Lawson – Mizuho Securities

Presentation

Operator

Good morning and welcome to the Alere Inc. Conference Call to discuss Second Quarter 2012 Results Conference Call. All participants will be in a listen-only mode. (Operator Instructions) Please note this event is being recorded.

And I would now like to turn the conference over to Doug Guarino, Director of Corporate Relations. Please go ahead.

Doug Guarino

Thank you, Emily, and good morning and welcome to the Alere conference call to discuss our results for the quarter ended June 30, 2012. We are joined today by Ron Zwanziger, Chairman and CEO, and Dave Teitel, CFO.

Before we get to that discussion though, I would first like to draw your attention to the fact that certain matters discussed in this conference call will constitute forward-looking statements within the meaning of the U.S. Securities Laws. These statements reflect our current views with respect to future events or financial performance and are based on management’s current assumptions and information currently available.

Actual results and the timing of certain events could differ materially from those projected or contemplated by the forward-looking statements due to numerous factors, including without limitation, our ability to successfully acquire and integrate our acquisitions and to recognize the expected benefits of restructuring and new business activities; our exposure to changes in interest rates and foreign currency exchange rates; our ability to successfully develop and commercialize products and services; the market acceptance of our products and services; continued acceptance of health management services by payers, providers and patients.

Our ability to develop enhanced health management programs through the integrated use of innovative diagnostic and monitoring devices and to recognize the expected benefits of this strategy; the impact of healthcare reform legislation, as well as future reform initiatives; the content and timing of regulatory decisions and actions, including the results and consequences of FDA inspections, as well as the impact of changes in reimbursement policy and budgetary constraints, both in the United States and abroad; the effect of pending and future legal proceedings on our financial performance and the risks and uncertainties described in our periodic reports filed with the Securities and Exchange Commission, including our Form 10-K for the year ended December 31, 2011, as well as in our Quarterly Reports on Form 10-Q. Our company undertakes no obligation to update forward-looking statements.

Additionally, please note that during this call we may discuss non-GAAP financial measures. For each non-GAAP financial measure discussed, a presentation of the most directly comparable GAAP financial measure and a reconciliation of the differences between the non-GAAP financial measure discussed and the most directly comparable GAAP financial measure is available on the company’s website at www.alere.com.

With that, let me turn the call over to Alere Chairman and CEO, Ron Zwanziger. Ron?

Ron Zwanziger

Thanks, Doug, and good morning everyone. Our second quarter results were impacted by the regulatory issue with our Triage product. Despite this setback, as well as the effect of ongoing weakness in Europe, all our major commercial units around the world including Health Management performed well and came close to compensating for the regulatory matter in Europe.

Our results were also negatively impacted by an unusually high effective tax rate related to a combination of higher profits in the U.S. and lower profits in Europe.

As the issues in San Diego have been covered several times over the past few months in public presentations and via 8-K filings, I’ll limit my prepared comments today to a general update, with Dave providing further details later in the call.

During the second quarter, we continued to work with the FDA to establish a plan around revised release specifications for the Triage products manufactured in San Diego. During the quarter, we began tightening our release specifications in accordance with the plan agreed to with the FDA and, while the adjustments are still generating supply issues, we continue to be increasingly confident that once our manufacturing processes are optimized we will be able to cost-effectively meet market demand in the U.S. for our Triage panels.

Nonetheless, despite having more than doubled our production capacity, with further increases planned, we do expect supply issues mainly in the U.S. with certain tests, primarily the Cardiology panels. This situation is likely to persist through the remainder of the third quarter and into the fourth quarter, as we continue to work through our manufacturing process changes.

An additional challenge for us in the second quarter was Europe. On nearly every quarterly call for the last several years we’ve highlighted macroeconomic risks in Europe, and have occasionally experienced difficult quarters in the region. While Europe performed relatively well in the first quarter, revenues were low in the second quarter, down approximately $10 million from Q1.

In addition, margin pressures which have persisted for more than a year continued to reduce profits in Europe. With the continuation of budgetary problems in many countries, we expect difficulties in Europe to continue through the remainder of this year, with the actual impact on any given quarter difficult to predict.

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