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PURE Is Poised To Take Off In Fiscal 2012 - Analyst Blog
PURE Reports Better Than Expected Revenue In 1Q2012
Grant Zeng, CFA
On December 15, 2011, PURE Bioscience ( PURE ) reported financial results for its 2012 first quarter ended October 31, 2011.
Revenue for the quarter was $257,000, compared with revenue of $23,000 for the same quarter of the prior year, an increase of 1013%. First quarter revenue also exceeded our estimate of $220,000 for the 1Q12 ended October 31, 2011. As a result, we raise our estimate of total revenue for the fiscal year 2012 from $1.25 million to $1.32 million.
Cost of goods sold was $129,000 and $10,000 for the three months ended October 31, 2011 and 2010, respectively. The increase of $119,000 was attributable to increased net product sales, as well as an inventory charge. The inventory charge represents costs incurred to rework certain finished goods inventory, as well as a write-off of certain packaging inventory.
Gross margin as a percentage of net product sales, or gross margin percentage, was 50% and 57% for the three months ended October 31, 2011 and 2010, respectively. The decrease in gross margin percentage was attributable to the inventory charge noted above. Gross margin percentage, excluding the inventory charge, was 75% and 57% for the three months ended October 31, 2011 and 2010, respectively. This increase in gross margin percentage was primarily attributable to the sale of higher margin formulations and packaging configurations of products during the quarter ended October 31, 2011 as compared to prior year.
Total operating costs and expenses for the 1Q2012 were $2.62 million, compared to $2.05 million for the 1Q2011 due to the increased SG&A.
The net loss for the quarter was $2.4 million, or $0.06 per share, compared with a net loss of $2.0 million, or $0.06 per share, in the first quarter last year.
As of October 31, 2011, the Company had cash and cash equivalents of approximately $1.0 million.
Our key takeaways from the earnings report:
• Sales are picking up steam in recent two quarters. The Company has recovered from sales slump since 1Q2011 due to poor sales performance and material breach of the agreement of its marketing partner Richmont Sciences, LLC.
• If we look at the quarterly sales number in detail for the fiscal year 2011 and the first quarter of 2012, we can see the significant sequential growth of sales for each quarter. Sales were $0.02, $0.07, $0.13 and $0.24, and $0.26 million respectively for Q1, Q2, Q3 and Q4 of 2011 and Q1of 2012. Sales were still down significantly quarter over quarter for the year 2011, but in a diminishing way (-90%, -79%, -77% and -25% respectively for Q1, Q2, Q3 and Q4 of fiscal 2011). But sales for the 1Q2012 increased dramatically from 1Q2011, and even increased 18% compared to sales in 1Q2010.
• The 1Q2012 was the first full quarter of completely and directly controlling the sales and marketing of PURE Hard Surface disinfectant and sanitizer product by the Company itself. We are pleased to see the results of the execution of its business development strategy and marketing activities to date.
• We believe the PURE will do better in fiscal 2012 and onwards due its diligent and focused marketing efforts. The Company recently added James McClenahan to spearhead its initiatives in the janitorial service industry, which is a key element to the Company's aggressive 'push-pull' marketing effort. Sales will accelerate in the coming quarters and years which will be driven by through the janitorial suppliers while also reaching out directly to end-users such as restaurants, hotels, food processing facilities, hospitals, schools and institutions to create awareness and demand.
• On the business development front, the Company has made quite a few progresses. In June 2011, PURE received Health Canada approval of Pure Hard Surface disinfectant for use in food premises, hospitals and health care facilities, domestic locations and institutional and industrial premises. The Company received an expanded EPA registration adding additional pathogens in July 2011. On July 19, 2011, PURE Bioscience introduced PURE Commercial Floor Cleaner at the Sheriffs' Association of Texas' 133rd Annual Training Conference with its latest distributor, AUH2O Holdings.
We are very pleased with the progresses PURE has made in the past quarter and recent weeks. The Company took direct control of SDC-based product sales recently from its marketing partner Richmont Sciences, LLC due to Richmont's poor sales performance and material breach of the agreement. PURE ever since restructured its sales, marketing and distribution strategy and operation. During the quarter the Company made valuable inroads for PURE Hard Surface in key new markets, including the food processing industry, which has been plagued with landmark safety issues this year. Because of its zero toxicity profile and impressive efficacy against so many dangerous pathogens, the application of SDC in this market is truly unique and sales could improve dramatically in the coming quarters in our view.
Balance Sheet Has Been Greatly Beefed Up
During December, 2011, PURE entered into two purchase agreements with Lincoln Park Capital Fund, LLC (LPC), a Chicago-based institutional investor, for the sale of up to a total of $10 million of its common stock.
The first purchase agreement commits LPC to purchase up to $7.5 million of PURE common stock, from time to time, over a 36-month period. The second purchase agreement commits LPC to purchase up to $2.5 million of PURE common stock, from time to time, over a 36-month period, including an initial investment of $500,000.
Under both agreements, there are no upper limits to the price LPC may pay to purchase PURE common stock. LPC has no right to require any sales by PURE, but is obligated to make investments as PURE directs in its sole discretion in accordance with the purchase agreements. The purchase agreements may be terminated by PURE at any time, without cost or penalty. Any time that PURE elects to sell shares to LPC, the pricing of that sale will be fixed pursuant to a formula based upon the market price of PURE common stock immediately preceding the notice to LPC without any fixed discount. Accordingly, PURE will know on the date it elects to sell stock to LPC the price per share that LPC will be required to pay.
We think the terms of the agreements are favorable to PURE. The common stock purchase agreements with LPC provide PURE with immediate capital and the flexibility to raise additional capital as needed at the Company's discretion. With the commitments of $10 million in 36-month period, PURE will have sufficient financial resources to boost its sales over the next few years by leveraging its foundation of proprietary product superiority, regulatory approvals and a growing sales network to penetrate key target markets.
With a boosted balance sheet and focused marketing efforts in place, we believe PURE is ready to accelerate the increase of its sales and deliver shareholder value in fiscal 2012 and beyond.
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