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Advanced Medical Optics Inc. (EYE)
Q3 2008 Earnings Call
October 31, 2008 10:00 am ET
Sheree Aronson - Corporate VP of Corporate Communications and IR
Jim Mazzo - Chairman and CEO
Randy Meier - President and COO
Michael Lambert - CFO
Peter Bye - Jefferies & Co.
Chris Cooley - FTN Midwest
Joanne Wuensch - BMO Capital Markets
Jared Holz - Thomas Weisel Partners
Larry Keusch - Goldman Sachs
Marc Goodman - Credit Suisse
Larry Biegelsen - Wachovia
Matt Miksic - Piper Jaffray
Eric Lo - Merrill Lynch
Steve Willoughby - Cleveland Research
Previous Statements by EYE
» Advanced Medical Optics, Inc. Q2 2008 Earnings Call Transcript
» Advanced Medical Optics, Inc. F1Q08 (Qtr End 03/28/08) Earnings Call Transcript
» Advanced Medical Optics, Inc. Q4 2007 Earnings Call Transcript
I am pleased to introduce Sheree Aronson, Corporate Vice President of Corporate Communications and Investor Relations.
Good morning, everyone. Joining me are Chairman and CEO, Jim Mazzo; President and COO, Randy Meier; and CFO, Michael Lambert. After prepared remarks by Jim and Michael, all three will be available to take your questions.
During the call, certain statements, such as forecasts of financial information, guidance, financial targets and goals, currency effects, cash flow and debt levels, strategies for growth, expected product performance, technology adoption and market share, expectations for markets and procedures, and the impact of the economic downturn, projected regulatory approvals, benefits and launch dates of new products, expectations for markets, share recovery in the multi-purpose solution re-launch, and for initiatives to increase efficiency and reduce costs, and any other statements that refer to AMO's plans or estimated future results are forward-looking statements.
As such, they reflect our current analysis of existing trends and information and represent our judgment only as of the date of this call. Actual results may differ based on various factors affecting our businesses. Review today's press release and our recent SEC filings for more information about these risk factors, specifically the discussion under the heading 'Risk Factors' in our 2007 Form 10-K. You will find these and other documents in the Investors section at www.amo-inc.com, or by calling 714-247-8455.
Let me remind you that, beginning in 2008, we changed the way we breakdown our sales in the global sales table accompanying our earnings releases. For detail, review slide three of the presentation. Please note that our adjusted EPS guidance is provided on a non-GAAP basis and excludes the impact of charges and write-offs related to acquisitions, reorganizations, restructuring and recapitalizations, impairments, unrealized gains or losses on derivative instruments, and other periodic or one-time charges or gains.
Refer to the Investors section of our website under 'Historical Financials' for more information on our use of non-GAAP measures. Unless we identify a number as adjusted in our remarks or in the accompanying slides, you can assume that it is a GAAP number. Remember too that any reference to pro forma growth rate reflect comparisons that include IntraLase performance as if the acquisition had occurred in all periods presented.
With that, I will pass the call to Jim.
Thank you, Sheree, and good morning. As our results reflect, we met very tough challenges in the third quarter, due predominantly to the deteriorating economy. Throughout, we remain disciplined with strict attention to execution of our four key priorities in order to preserve and strengthen the business. This will allow us to be well-positioned when economic conditions improve.
Let me briefly summarize our progress in each area, before I go into the businesses. Number one, leveraging our global refractive leadership and advancing our complete refractive solution business model. Our refractive business is facing serious headwinds, which intensified toward the end of the quarter as sharp declines in consumer discretionary spending slowed not only US excimer procedures, but US femtosecond procedures as well.
Despite this dynamic situation which drove US procedure revenues down, we believe our share of the US excimer and femtosecond procedure markets held steady. We also saw our procedure sales decline in Europe, and our global laser system sales drop substantially, as LASIK providers postponed equipment purchases. However, we continue to post solid gains in Asia Pacific and Japan, so much so that Japan is now our second largest procedure revenue stream, behind the United States.
Overall, our international refractive procedure implant and related sales were up 33%, versus the year-ago quarter, demonstrating continued share gains.
Number 2, achieving on time delivery of critical pipeline products across all three of our businesses. The new products are key to our third quarter cataract sales, which rose nearly 9% on growth in all major product categories. During the quarter, we continued the rollout of our new Tecnis 1-piece intraocular lens, an ELLIPS Transversal phaco feature. We also launched our Healon V viscoelastic in Europe and received FDA approval for the product, allowing for our fourth quarter launch in the US, as planned.
The FDA approval also allows us to debut our new dual combination packs featuring our dispersive and cohesive Healon products. To further support our refractive market leadership, our first iFS upgrade kits, which represent our fifth generation femtosecond technology, will begin shipping to customers in the fourth quarter.
Number 3, drawing our multi-purpose solution market share and returning our eye care business to sustained profitability and growth. We were clearly disappointed in the third quarter top-line performance of the eye care business, as sales declined 13% on a sequential basis. The shortfall was concentrated in Japan, and we've made managerial and operational changes there to improve our performance in future periods.
In the meantime, we've continued to grow our global share, which we estimate to be approximately 11% in the third quarter, representing increases in all major markets. Moreover, the business continued to contribute both favorable cash flows and profits to our consolidated results.
Number 4, increasing operational efficiency and cash flow to facilitate debt reduction. Our progress here was most evident in our SG&A expense. A $118 million, it accentuated the discipline we are applying to control our headcount and discretionary costs.
Cash flow from operations was approximately $29 million in the quarter, which allowed for some debt repayment. Subsequent to the end of the third quarter, we drew down $97 million on our revolver to purchase about $181 million in senior convertible notes, which allowed us to lower our debt levels further. Michael will discuss this in more detail later. We will be aggressive in these and other efforts to maximize our top-line growth while preserving margins, optimizing cash flows, and reducing debt.
Now, let's turn to the performances by each of our businesses. Looking at the refractive business, third quarter refractive sales declined 14% from the prior year. Procedure, implant and related sales declined about 11%, reflecting the market weakness described earlier.
As slide seven shows, for the trailing 12 months ending September 26, our US excimer procedure volumes were down approximately 17%, and down about 35% in the quarter, versus the comparable period one year ago. Now, this trend was very consistent with our prior expectations. We are awaiting the third quarter US market share information from [Market's Goal]. However, based on our internal data, we believe we've maintained our strong share of the US excimer procedure market in the 64% range.