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Conceptus, Inc. (CPTS)

Q3 2008 Earnings Call Transcript

October 29, 2008 4:30 pm ET

Executives

Kim Golodetz – IR, Lippert/Heilshorn & Associates

Mark Sieczkarek – President and CEO

Greg Lichtwardt – CFO, EVP and Treasurer

Analysts

Shawn Fitz – Stephens

Jonathan Block – SunTrust Robinson Humphrey

Eric Snyder – UBS

Angela Woodall – Oppenheimer

John Putnam – Dawson James Securities

Jayson Bedford – Raymond James

Klaus Von Stutterheim – Deutsche Bank

Greg Simpson – Stifel Nicolaus

Vivian Wohl – Federated Kaufmann

Mark Regan – Watchfire Capital

Presentation

Operator

Welcome to the Conceptus Incorporated third quarter 2008 financial results conference call. At this time, all participants are in a listen-only mode. Following management's prepared remarks, we will hold a Q&A session. (Operator instructions) As a reminder, this conference is being recorded today, October 29, 2008.

I would now like to turn the conference over to Ms. Kim Golodetz. Please go ahead, ma'am.

Kim Golodetz

Thank you. This is Kim Golodetz with Lippert/Heilshorn and Associates. Thank you all for participating in today's call. Joining me this afternoon from Conceptus are Mark Sieczkarek, President and Chief Executive Officer, and Greg Lichtwardt, Chief Financial Officer.

This call will follow the usual format, beginning with prepared remarks by management, and then we'll open the call up to your questions. In order to accommodate as many of you as possible, we ask that you limit your questions to one, plus one follow-up before rejoining the queue.

Earlier today, Conceptus issued financial results for the third quarter of 2008. If you have not received this news release or if you would like to be added to the Company's distribution list, please call Lippert/Heilshorn in New York at 212-838-3777 and speak with Cheryl Palazzo.

Before we begin, I would like to caution that comments made during this conference call by management will contain forward-looking statements regarding the operations and future results of Conceptus that involve risks and uncertainties. I encourage you to review the Company's filings with the Securities and Exchange Commission, including without limitation the Company's Form 10-K and Forms 10 Q, which identify specific factors that may cause actual results or events to differ materially from those described in the forward-looking statements.

These factors include strategic planning decisions by management, reallocation of internal resources, decisions by public and private sector payers, scientific advances by third parties, an introduction of competitive products, among others. Importantly, the content of this conference call contains time sensitive information that is accurate only as of the date of the live call, today, October 29, 2008. The Company undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this conference call.

With that said, I would like to turn the call over to Mark Sieczkarek. Mark?

Mark Sieczkarek

Thank you, Kim, and good afternoon everyone. Thanks for joining us. In our prepared remarks today, Greg and I will discuss the financial performance of Conceptus for the third quarter, guidance for the remainder of the year, and then I will update you on the progress we're making in our direct to consumer program and other goals for 2008. After that, of course, we'll take your questions.

We are speaking with you today from Las Vegas where the American Association of Gynecological Laparoscopy, one of our primary customer groups is holding their annual meeting. I should point out that there are 24 presentations on the Essure Procedure scheduled at this five-day conference, as our story continues to gain enthusiasm and acceptance as the ultimate gold standard for permanent birth control.

Let me start today's discussion with our third quarter financial results before I turn the call over to Greg. They certainly speak to a healthy and growing business. Third quarter net sales increased 62% year-over-year and exceeded our guidance.

Now while this result reflects the impact of our acquisition of Conceptus SAS, it also represents solid domestic sales growth of 38% and international unit growth of 48% on a comparable direct sales basis. Our international results have exceeded our expectations, and the domestic business continues to turn in a very strong physician metrics and reflects strong execution in driving the percentage of sales coming from the office channel, an important initiative for us. For the third quarter, 55% of our domestic sales came from the office channel, up from 51% in the previous quarter.

As we discussed on the first and second quarter conference calls, it's our belief that domestic sales have thus far been relatively unaffected by the economy. Now, this is understandable because of several factors.

First, our product is not a classical elective procedure, but rather a non-urgent care procedure. The difference being that cue most adults view birth control as a necessity and most forms, temporary and permanent are covered by insurance and therefore do not represent a burdensome out of pocket expense.

Secondly, with a significant portion of our sales coming from the office channel, this means that for most patients, the Essure procedure will be their lowest cost birth control option, with just a $10 or $20 co-pay in many cases, certainly less than for tubal ligation and also an IUD implant or prescription for an oral contraceptive.

Now having said these things let me reiterate what I said in the press release. The impact of the significantly worsening economic downturn on near term Essure procedure is unknown because we are venturing into a situation where we have no prior experience. Now, although we are heartened that we have not seen an impact on our results to-date, if the economy continues to deteriorate, it is possible at some point Essure growth could be impacted. We believe that our guidance reflects the appropriate amount of conservatism.

Now in addition to the strong sales performance during the third quarter, Conceptus achieved the critically important milestone of positive net income, not to mention beating our net income guidance we provided you during last quarter's conference call. This resulted from strong top line sales growth and continuing improvement in operating leverage.

In addition, for the second quarter in a row, the Company generated nearly $4.5 million of positive operating cash flow. This has been without a doubt the most successful quarterly financial performance in our history and we are working hard to consistently deliver this type of incremental improvement or profitable revenue growth in the future.

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