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SRI/Surgical Express Inc. Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: November 10, 2010 11:27PM
SRI/Surgical Express Inc. (STRC) filed Quarterly Report for the period ended 2010-09-30. Sri/surgical Express Inc. has a market cap of $25.5 million; its shares were traded at around $3.94 with and P/S ratio of 0.3.
Highlight of Business Operations:
Gross Profit. Gross profit increased $1.6 million and $2.0 million for the three months and nine months ended September 30, 2010, respectively, as compared to the same periods in the prior year. As a percentage of revenues, gross profit increased by 6.0% and 2.2% for the three months and nine months ended September 30, 2010, respectively, as compared to the same periods in the prior year. For the three months ended September 30, 2010, the increase in gross profit percentage was primarily due to higher revenues of approximately $704,000, as well as a reduction in reusable surgical product loss of $1.3 million, reduced instrument usage fees of $209,000 and lower other costs of $131,000, which primarily related to improved labor efficiency in our reprocessing facilities. Partially offsetting these items were higher disposable material costs of $482,000, as well as higher consumable costs of $179,000 as a result of our increased revenues.
For the nine months ended September 30, 2010, the increase in gross profit percentage was primarily due to higher revenues of approximately $1.8 million, lower instrument usage fees of $739,000, and improved labor efficiency of $422,000, as well as lower reusable surgical product loss of $1.2 million (relating to lower levels of product loss, as well as the prior year adjustment for additional product loss that was recorded in the three months ended September 30, 2009, see Note F Third Quarter 2009 Adjustments to our unaudited financial statements accompanying this report). Partially offsetting these items were higher disposable material costs of $1.8 million as a result of the Company purchasing all of its disposable materials from Cardinal as noted above.
Selling and Administrative Expenses. Selling and administrative expenses decreased $238,000, or 6.0%, to $3.8 million for the three months ended September 30, 2010 compared to $4.0 million for the same period in the prior year. Selling and administrative expenses for the nine months ended September 30, 2010 and 2009 were $12.4 million and $12.5 million, respectively. Selling and administrative expenses for the three months ended September 30, 2010 were lower than the prior year primarily due to cost control efforts resulting in a decrease in payroll-related costs of $124,000, a decrease in travel-related costs of $160,000 and a decrease in professional fee costs of $106,000, partially offset by an increase in Group Purchasing Organization (GPO) related marketing and administrative fees of $103,000, due to the growth in our revenues. For the nine months ended September 30, 2010, selling and administrative expenses were $54,000 lower than the prior year primarily as a result of a decrease in payroll-related costs of $214,000, professional fee costs of $89,000 and travel-related costs of $66,000, partially offset by an increase in GPO fees of $171,000 due to the growth in revenues in member hospitals for the year and telephone and software maintenance-related costs of $132,000.
Our principal sources of capital have been cash flows from operations and borrowings under our revolving credit facility. As of September 30, 2010, we had approximately $1.8 million in cash and cash equivalents, compared to approximately $802,000 as of December 31, 2009. In addition, as of September 30, 2010, we had $4.9 million available under our credit facility, after accounting for amounts outstanding under the credit facility, certain letters of credit principally associated with our bonds payable and a general reserve. Net cash from operations for the nine months ended September 30, 2010 was $5.5 million compared to $7.6 million for the nine months ended September 30, 2009. Cash from operations primarily related to depreciation and amortization expense of $7.0 million, the provision for slow moving reusable surgical products and
shrinkage of $1.0 million and stock-based compensation expense of $463,000, which was partially offset by a decrease in employee-related and other accrued expenses of $476,000, an increase in our prepaid expenses and other assets of $299,000, and our net loss of $1.8 million. When compared to cash from operations for the nine months ended September 30, 2009, the decrease is primarily attributable to the decrease in inventories in 2009, as well as the decrease in our provision for slow moving reusable surgical products and shrinkage. The decrease in inventories in 2009 is the result of the Co-Marketing Agreement with Cardinal Health, as we no longer carry the same levels of raw materials and finished goods and we no longer have work in process. The decrease in the provision for slow moving reusable surgical products and shrinkage is the result of lower levels of shrinkage and lost products in 2010 when compared to 2009.
On August 7, 2008, we entered into a three-year $24.3 million credit facility (the Credit Facility). The Credit Facility includes a revolving loan of up to $20 million for working capital, letters of credit, capital expenditures, and other purposes, and a $4.3 million term loan, which replaced a prior mortgage loan on our Tampa headquarters. Actual amounts available under the revolving loan are determined by a defined borrowing base, which primarily relates to outstanding receivables, inventories and reusable surgical products. Under the borrowing base calculation, as of September 30, 2010, we had $14.3 million available for advances, of which we had used $9.4 million of the revolving loan, including $7.3 million of advances, $2.0 million of availability for letters of credit to support our bonds and self-insurance policies, and $0.1 million to maintain a required reserve. As of September 30, 2010, we had $3.8 million outstanding on the term loan, which is classified as a mortgage payable. The term loan amortizes based on a 20-year schedule, with the remaining principal balance due when the Credit Facility expires on August 7, 2011. The Credit Facility is secured by substantially all of our assets.
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