By Brian Marckx, CFA
PLC Systems (OTC Markets:PLCSF) reported financial results for the third quarter ending September 30, 2012 on November 14th. Revenue was about twice what we had estimated with all of the difference coming from console sales (with disposables revenue in-line with our number). As indicated in our Initiation report (11/5/2012) on PLC, we forecast revenue to climb from here on out although there likely will continue to be some quarterly gyrations due in large part to stocking orders from new customers/distributors as PLC expands into new markets and territories. This can make forecasting short-term revenue somewhat challenging. Meanwhile, aside from non-cash expense related to valuation of convertible notes and derivatives (which fluctuate with changes in the underlying equity value), bottom-line results were largely in-line with our estimates, with operating loss coming in dead-on with our $1.09 million number.
On the operational front, PLC continues to make progress with patient enrollment for their pivotal U.S. RenalGuard trial, expanding their international presence including entry into new territories (which should be a catalyst to growing revenue prior to entry into the U.S. market ~2015), and building greater awareness of RenalGuard and Contrast-Induced Nephropathy (CIN) through attendance/presentations at key industry conferences throughout the world.
We have made no material changes to our model or outlook following Q3 results and are maintaining our Outperform rating and $0.50/share price target.
Q3 revenue of $212k was up from $27k (+685% yoy) in Q3 2011, down from $363k (-42% sequentially) in Q2 2012 and more than twice our $105k estimate. Again, the sequentially decrease and big beat relative to our number in total revenue is indicative of the expected short-term variability. Total revenue consisted of $169k from consoles and $43k from consumables - compared to our $53k estimate for both - the revenue mix is also susceptible to fluctuations during the early growth in sales. As we explained in our initiation, we project revenue from consoles to be roughly equal to that from consumables through the end of 2013 but then sales from consumables, which should be feeding an ever larger installed base, to begin to outpace that of consoles beginning in 2014.
GM / Operating Expenses / EPS
Gross margin was relatively very strong at 60.4%, compared to our 40% estimate. GM also jumps around and is largely driven by sales volumes - we continue to model GM at about 50% for the full year in 2013 and to expand to about 60% in 2015, commensurate with an increase in production volume and revenue.
Excluding $1.9 million in non-cash expense related to aforementioned change in value of convertibles and derivatives, operating expenses were $200k.
Net income and EPS were ($3.2) million and ($0.10). Excluding the notes/warrants revaluation expense net income and EPS were ($1.3) million and ($0.04) compared to our ($1.2) million and ($0.04) estimates.
PLC sold $1 million of convertible notes in July under a securities purchase agreement with GCP IV LLC. Another $1 million remains available (per certain terms being met). PLC exited Q3 with $723k in cash and equivalents. Cash used in operating activities was $1.1 million ($984k ex-changes in working capital) in Q3 and $2.7 million ($2.9 million ex-changes in working capital) through the first nine months of the year, both very much in-line with our expectations. The cash balance and pro forma for the additional $1 million under the GCP agreement represents about 5 months worth of operating capital.
As we noted in our initiation report, revenue and related cash generation will likely be modest in the near-term. We estimate core operations (ex-clinical studies) cash burn of approximately $2.5 million per year and, coupled with our projection that the U.S. clinical trial will require between $5 million and $10 million more (depending on total enrollment and ballparking ~$15k per patient) to fully fund, we think PLC will need to raise significantly more capital ($6 million - $10 million, again dependent on total enrollment) through roughly 2015 to finance operations and complete the U.S. study.
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