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Conceptus Inc. (CPTS)

Q2 2008 Earnings Conference Call

Jul. 23, 2008 4:30 pm ET.

Executives

Kim Golodetz - Lippert/Heilshorn & Associates

Mark Sieczkarek -President and CEO

Greg Lichtwardt- CFO

Analysts

Eli Kammerman - Cowen

Michael Tieu - Oppenheimer

Jonathan Block - SunTrust Robinson

Daniel Mallin - WBB Securities

John Putnam - Dawson James Securities

Jason Bedford - Raymond James

Shawn Fitz - Stephens Incorporated

Thomas Kouchoukos - Northland Securities

Presentation

Operator

Good afternoon and welcome to the Conceptus Incorporated second quarter conference call. (Operator Instructions)

As a reminder this conference is being recorded July 23, 2008.

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

Kim Golodetz

Thank you, this is Kim Golodetz with Lippert/Heilshorn & Associates. Thank you all for participating in today's call. Joining me this afternoon from Conceptus are Mark Sieczkarek, the 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 second 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 Pillotso.

Before we begin, I would like to caution that comments made during this conference call by management will contain forward-looking statements involving 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, and 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, July 23, 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

Thanks, 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 second quarter, guidance for the remainder of the year, and then I'm going to update you on the progress we are making in our direct-to-consumer program and some other goals for 2008. And after that, we'll of course take your questions.

So let me start with the discussion about our second quarter financial results, and steal some of the thunder before turning the call over to Greg. Our second quarter net sales increased 64% year-over-year, up sharply from the 53% growth that we reported in the first quarter. Now, while this result includes the higher growth rates resulting from our acquisition of Conceptus SAS, it also represents solid domestic growth of 43%, which is certainly a notable uptake from the first quarter growth of 31%.

Now this improvement, as expected, validated what we expected to be true, and that is, that the first quarter Essure product sales were most impacted by the one-time resetting of medical insurance deductibles, and the resulting consumer deferral non-urgent care procedures like Essure, rather than the overall downturn of the economy.

Now, as was the case with the downturn in the first quarter, the recovery in the second was very broad-based across all consumer channels, and also included an increase in utilization rates to more historical levels. Now the strength in the U.S. business was highlighted by a particularly strong position metrics and the continued strong execution of driving the percentage of sales coming from the office channel which is now over 50%.

And that gives us the confidence in both, the short and long-term direction of our business. In particular, we are reaffirming our ability to break the $100 million mark this year in sales and also profitability in the third and fourth quarter, which represents a significant milestone for our business.

In addition to strong sales performance, we also achieved dramatic reduction in our net loss for the second quarter as a combined result of growth in the sales and a strong gross profit margin. As we reported, the company generated over $3 million of positive cash flow, despite a healthy investment in our direct-to-consumer program.

Additionally, if you include the non-cash 123R expense, Conceptus had positive operating income for the second quarter, and with gross margins now sustainable at 80%, coupled with continued sales growth, we will move the business to after-tax profitability in the third quarter, again, another major milestone.

With that I'm going to ask Greg to comment in more detail on the financial results for second quarter. Greg?

Greg Lichtwardt

Thank you, Mark. Good afternoon, everyone. As I customarily do, I am going to take a few minutes to provide some additional commentary to our financial results for the second quarter, and our financial guidance for the third quarter and full-year as reported in today's press release.

With respect to second quarter net sales, we experienced strong growth in both our domestic and international sales channels, with domestic sales increasing 43% and international sales increasing 232% over the second quarter of last year. Overall, sales of $25.7 million for the quarter, was at the upper end of our guidance range of $25 million to $26 million we gave last quarter. Total sales for the second quarter also represents quarter-to-quarter worldwide net sales growth of approximately 22%.

International net sales, as reported, benefited from the impact of our capture of direct sales, as the result of our acquisition of Conceptus SAS in the first quarter of this year. Comparing international net sales for the second quarter of 2008 to the prior year second quarter based on direct or end-user sales, the actual net sales growth is 48%, which compares favorably with the first quarter year-over-year growth I reported to you of 42%. We remain confident that this channel will finish the year well above our original expectations communicated at the beginning of the year.

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