Novadaq Technologies Inc (NVDQ)

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Novadaq Technologies Inc. (NVDQ)

Q3 2013 Earnings Call

October 22, 2013, 8:30 AM ET


David Martin - Vice President Corporate Development and Investor Relations

Arun Menawat - President and Chief Executive Officer

Stephen Purcell - Chief Financial Officer


Matt Miksic - Piper Jaffray

Jason Mills - Canaccord Genuity

Matt Blackman - Stifel

Steven Crowley - Craig-Hallum

Doug Miehm - RBC



Greetings and welcome to the Novadaq's third quarter 2013 earnings conference call. (Operator Instructions) It is now my pleasure to introduce your host David Martin, Vice President, Business Development and Investor Relations. Thank you, sir. You may begin.

David Martin

Good morning, everyone. Thank you for joining us today to review Novadaq Technologies financial results for the third quarter 2013. On the call today representing Novadaq are Arun Menawat, President and Chief Executive Officer; Stephen Purcell, Chief Financial Officer; and myself, David Martin, Vice President, Investor Relations.

Before I start, I want to remind you that certain statements made in this conference call may be considered forward-looking. Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements to be materially different from those implied by such statements, and therefore these statements should not be read as guarantees of future performance or results.

All forward-looking statements are based on Novadaq's current beliefs as well as assumptions made by and information currently available to Novadaq and relate to, among other things, results of future clinical tests of the SPY, FIREFLY, PINPOINT and LUNA Imaging Systems, anticipated financial results, our business prospects, strategies, regulatory developments, market acceptance and future commitments.

Listeners are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of the press release. Due to risks and uncertainties, including the risks and uncertainties identified by Novadaq in its public securities filings; actual events may differ materially from current expectations. Novadaq disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

With that said, I'll now turn the call over to Dr. Arun Menawat.

Arun Menawat

Thank you, Dave. Good morning, and welcome everyone. The agenda for today as usual is for Steve to highlight our third quarter financial results. After that, I will discuss Novadaq's Q3 2013 achievements as well as outlook and strategic initiatives going forward. We will then have Dave provide an overview of the latest clinical publications. After that, we will open the call to questions.

Steve, please proceed.

Stephen Purcell

Thank you, Arun, and good morning. Q3 '13 revenues of $8.9 million exceeded Q3 '12 revenues by $2.9 million, a 49% increase. SPY product sales increased by $3.1 million, while TMR product sales and service decreased $200,000 due to lower capital laser sales.

Q3 '13 recurring revenue for Novadaq SPY business were $3.5 million, representing an increase of 23% year-over-year, while SPY kit shipments to hospitals increased by 39%. Recurring revenue growth was lower than kit shipment growth due primarily to increased kits sales of SPY Elite, LUNA and PINPOINT capital and rental customers, who pay a lower per patient cost and inventory adjustments by our partners.

Royalty revenue increased in the amount of $15,000, in comparison to say during last year due to increased unit sales by our partner. In comparison to Q2 '13, revenues increased in the amount of $798,000 mainly due to increased SPY product sales.

Gross profit of $5.7 million in Q3 '13 increased from $3.9 million for the same period last year, due to increased sales from alliances for their own partners as well as direct sales of PINPOINT and LUNA products. In comparison to Q2 '13, gross profit is higher by $687,000 mainly due to increased SPY product sales.

Operating expenses of $6.8 million exceeded previous year Q3 expenses by $1.8 million. Selling expenses increased by $2 million due to the direct sales personnel being hired to support our PINPOINT and LUNA sales program along with increased promotional expenditures.

Research and development expenses increased by $400,000 to support expanded operations, higher non-cash depreciation expense on equipments utilized in clinical trials, higher patent expenses for new and existing patent, higher product development cost and higher non-cash amortization expenses related to Digirad's Trapper and the TauTona asset purchased.

Administrative expenses were lower than Q3 '12 by $600,000 due to lower professional fees and lower amortization expense, as the PLC manufacturing rights were fully amortized.

Q3 '13 non-cash warrant revaluation expense of $5.9 million was lower than Q3 '12 warrant revaluation expense of $8.1 million, as the share price increase for Q3 '13 was $3.12 compared to previous year quarterly increase of $3.54. In comparison to Q2 '13, warrant revaluation expense decreased by $1.6 million, as the Q3 share price increase was lower than the previous quarter.

Net loss of $6.9 million in Q3 '13 was $2.4 million, lower than the net loss of $9.3 million in Q2 '13, due to lower non-cash warrant revaluation expense of $2.2 million; higher gross profits by $1.8 million, offset by higher operating expense by $1.8 million. Lower interest and imputed interest expense offset by lower gains in investments and higher taxes combined for a net improvement of $200,000.

Cash contributed from operating activities was $1.4 million, which included working capital contribution of $800,000 and cash contribution of $600,000 from operations.

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