Strong 2013 Guidance. Moving Price Target Up To $0.60/share
Brian Marckx, CFA
Q4 2012 Financial Results
Corgenix Medical ((CONX)) reported financial results for the fiscal fourth quarter ending June30, 2012 on September 27th. As a reminder, in July the company pre-announced that fiscal Q4 revenue was expected to be approximately $2.3MM, or about $170k (8%) higher than previously anticipated. Q4 revenue came in at $2.33 million, down about 1% from 2011. For the full year, 2012 revenue was $9.29 million, up 17% from 2011 and an all-time annual record.
The relative strength in revenue growth in 2012 did not translate into a commensurate increase in net income or EPS due to contraction in the gross margin and meaningful increases in SG&A and R&D expense. Management expects this to turn around in fiscal 2013, however, and believes mid-to-high teens revenue growth, stabilizing gross margins and leverage from the SG&A and R&D investments made during fiscal 2012 will push the company to profitability and positive cash flow.
Management noted on the earnings conference call that fiscal 2013 is already off to a promising start and we think CONX may show some strong revenue numbers beginning as early as Q1 (we model +20% in Q1 and +18% for the full year). Revenue growth in 2013 is expected to mostly come from domestic sales and areas that fueled growth in 2012, namely AspirinWorks and contract manufacturing, the latter benefitting from the recently consummated diaDexus manufacturing agreement as well as anticipated increased demand from other existing customers like BG Medicine. Meanwhile, revenue growth in the international business has clearly not materialized as quickly as management had expected with international sales down 19% in 2012. Delay in regulatory approvals and product launches as well as global economic weakness and a slow start from the recently launched automated HA test in Europe have all likely contributed to the disappointing sales overseas. Management believes that the international business will finally turn a corner in 2013, however, and looks for certain regulatory hang-ups to clear and new product launches, including the automated AspirinWorks test, Lassa virus kits and at least one or more products from the ELITech joint development agreement, to materialize throughout 2013.
Q4 revenue of $2.33 million consisted of $2.04 million (+25%) in sales from North America and $289k (-5%) internationally, both in-line with our $2.05 million and $280k estimates. We continue to model international sales to return to growth in fiscal 2013, fueled by new product launches. We continue to believe that the automated version of AspirinWorks as well as other new product introductions, including those coming out of the ELITech joint product development agreement represent potentially significant growth opportunities for Corgenix's international business over the long-term.
The domestic business continues to benefit from very strong growth in AspirinWorks sales, which were up 154% in Q4 to $341k. Management indicated on the call that ongoing physician adoption of the test is expected to continue to be very robust in fiscal 2013 and guided towards AspirinWorks sales again doubling. As an illustration of the steep ramp in AspirinWorks sales, the product generated $202k of revenue in 2010, which doubled to $406k in 2011, which then more than doubled to $905k in 2012. We currently model AspirinWorks to generate $1.8 million (implied growth of 95%) in 2013 - which could potentially end up being conservative.
Contract manufacturing was the other major catalyst to revenue growth in 2012 (+185% to $1.0 million) which is expected to be a recurring theme in 2013. The recent deal with diaDexus whereby Corgenix will manufacture and supply the cardiovascular PLAC test, along with an anticipated uptick in business from other existing customers, will be the catalysts to driving contract manufacturing revenue which we model to grow 67% in 2013 to $1.7 million. However, as we've noted in the past, key to stable, long-term revenue growth in the domestic business is new product introductions as revenue from contract manufacturing and contract R&D, which accounted for approximately 65% of the revenue growth in 2012 (and which we estimate will account for ~32% of our modeled total revenue growth in 2013), can be highly variable.
Net Income / EPS
Q4 net income and EPS came in at ($288k) and ($0.01), compared to our ($40k) and ($0.00) estimates. Higher than modeled operating expenses ($1.2MM A vs $1.0MM E) along with a narrower GM (40.2% A vs 43.1% E) both contributed to the miss on the bottom line. As noted earlier, expected stabilization of GM and leverage in operating expenses, coupled with double-digit top-line growth are expected (per management's guidance) to result in profitability and internally generated cash flow in fiscal 2013.
Corgenix exited Q4 with $1.3 million in cash and equivalents, up from $1.0 million at the end of Q3 (3/31/2012). The sequential increase in cash came from $216k inflow from operations (which benefitted from a $285k reduction in inventories), $53k used in investing activities, and $70k net inflow from financing activities. Debt remained relatively insignificant at quarter end.
Maintaining Outlook / Price Target
We have made only small net adjustments to our model following Q4 results. We continue to value CONX based on our comp valuation methodology (see link below to our full report which includes our valuation methodology) which values the shares at approximately $0.60/share. We are moving our price target from $0.50/share up to $0.60/share and are maintaining our Outperform rating on the stock.
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