Sharps Compliance Corp (SMED, Financial) filed Quarterly Report for the period ended 2010-09-30.
Sharps Compliance Corp has a market cap of $62.8 million; its shares were traded at around $4.08 with a P/E ratio of 6.5 and P/S ratio of 1.6. SMED is in the portfolios of Jim Simons of Renaissance Technologies LLC.
Selling, general and administrative (“S, G & A”) expenses for the three months ended September 30, 2010 of $2.4 million, increased by $0.6 million, from S, G & A expenses for the three months ended September 30, 2009. The increase in S, G & A is primarily due to higher (i) compensation and benefit expense including payroll tax of $312 thousand (primarily due to increased number of employees year-over-year headcount of 21 of which 16 are focused on sales and marketing-related activities), (ii) professional expenses of $75 thousand (primarily due to legal fees, audit and related fees, and consulting fees), (iii) office rent and utilities expenses of $35 thousand (primarily related to increased common area maintenance and property expenses), (iv) marketing and sales expenses of $30 thousand (primarily due to increased advertising and public relations costs), (v) computer and systems-related expenses of $25 thousand (primarily related to internet and offsite hosting and recovery costs), and (vi) research and development expenses of $18 thousand (primarily related to on-going research related to the Company s patent pending new product called PELLA-DRX™).
During the first quarter of fiscal year 2011, the Company recorded a special charge of $570 thousand, or $0.02 per diluted loss per share, which represents expenses incurred with the retirement of the Company s former Chief Executive Officer, Dr. Burton Kunik. The special charge consists of (i) severance-related items totaling $491 thousand, (ii) non-cash stock-based compensation expense of $73 (resulting from accelerated vesting of stock option awards), and (iii) legal fees related to the separation agreement of $6 thousand. The Company paid Dr. Kunik $68 thousand on September 30, 2010 and will pay Dr. Kunik approximately $409 thousand in April 2011 related to the expenses noted above.
Disease Control (the “CDC”) and the EPA estimate that there are over three billion used syringes disposed of annually outside of the hospital setting in the United States. The Company estimates that it would require 30 to 50 million Sharps® Recovery System™ (formerly Sharps Disposal by Mail System®) products to properly dispose of all such syringes, which would equate to a market opportunity of $1 billion. Based upon the current level of sales, the Company estimates that it has penetrated approximately 1% of this $1 billion market opportunity. Additionally, an estimated 40% of the four billion dispensed medication prescriptions go unused every year in the United States generating an estimated 200 million pounds of unused medication waste. The Company estimated the market opportunity for the proper recovery and management of the unused medications to be at least $1 billion per year.
The Company is actively marketing its Sharps®MWMS™ to federal, state and local agencies as well as to large corporations. On February 2, 2009, the Company announced a $40 million contract (the “U.S. Government Contract”) award to provide its Sharps®MWMS™ to a major U.S. government agency. The total contract is expected to be executed over a five year period (one year plus four option years). On February 1, 2009, the Company received a purchase order for $28.5 million ($6.0 million of which was recognized in fiscal year 2009, $22.5 million was recognized in the first half of fiscal year 2010). In January 2010, Sharps was awarded the first option year (ending January 31, 2011) valued at approximately $1.6 million and is expected to be recognized from February 1, 2010 through January 31, 2011. There is expected to be approximately $1.6 million in revenue in calendar year 2010 for the maintenance component of the contract including the $0.8 million in the second half of calendar year 2010, and $0.4 million recognized in the first quarter of fiscal year 2011. The remaining three option years are expected to be approximately $3.0 million per contract year. Although, the Company believes the amounts above to be reasonable based upon the underlying contract and its current project plan, it makes no assurances regarding the actual recognition of revenue by fiscal year, which could vary significantly from that noted above.
The Company serves multiple markets including, but not limited to, Government, Health Care, Retail, Professional, Hospitality, Pharmaceutical, and Other markets. As shown in the results for the quarter ended September 30, 2010, the Company experienced a decrease in its overall business, primarily related to the Government market which had an expected decrease in billings associated with the U.S. government contract from $11.0 million from the product build-out phase for the quarter ended September 30, 2009 to $0.4 million for maintenance for the quarter ended September 30, 2010. The $28.5 million build-out phase of the major government contract occurred throughout calendar year 2009. There is expected to be approximately $1.6 million in revenue in calendar year 2010 for the maintenance component including the $0.8 million which was recognized in the second half of fiscal year 2010, and $0.4 million recognized in the first quarter of fiscal year 2011. In addition, the maintenance component of the contract includes approximately $3.0 million in years 2011, 2012, and 2013. This decrease was partially offset by increases in the Health Care (improved sales by home healthcare related distributors addressing the growing trend of patent volumes in the home healthcare industry), Retail (flu shot season and the impact of the initial order of the Company s TakeAway Recovery System™ by one of the country s largest retail pharmacy chains for its Safe Medication Disposal Program) and Professional (targeted telemarketing efforts) markets. The Company is most encouraged by opportunities in the Retail market and Government market through offerings to major retail pharmacies and expansion of the VA Pilot Program and the existing MWMS™ Program to address unused medications as well as the opportunity for telemarketing efforts in the Professional markets.
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Sharps Compliance Corp has a market cap of $62.8 million; its shares were traded at around $4.08 with a P/E ratio of 6.5 and P/S ratio of 1.6. SMED is in the portfolios of Jim Simons of Renaissance Technologies LLC.
Highlight of Business Operations:
The decrease in revenues is primarily attributable to decreased billings in the Government ($10.4 million) and Pharmaceutical ($189 thousand) markets. These decreases in billings were partially offset by increased billings in the Health Care ($0.4 million), Retail ($0.3 million), and Professional ($50 thousand) markets. Government billings in the current year and prior year included $380 thousand and $11.0 million, respectively, associated with the Company s contract with a major U.S. government agency announced in February 2009. The current year billings were for maintenance and the prior year billings were for the sale of the Company s Sharps MWMS to this major U.S. government agency and resulted in a decrease in billings under this contract of $10.6 million. The decrease in the Government billings was offset by increases in core government billings of $180 thousand as a result of pharmacy programs with the states of Iowa and North Dakota, other community programs and an expanded Veterans Administration pilot program. The decrease in the Pharmaceutical market billings is a result of timing of customer orders and the discontinuation of one of the Company s six patient support programs. The increase in billings in the Health Care market is a result of increased sales to home healthcare related distributors addressing the growing trend of patient volumes in the home healthcare industry. The increase in billings in the Retail market is a result of the flu shot season and the increasing quantity of flu shots that are being administered in the alternate site setting. The Retail market growth also includes $550,000 in billings related to the initial order of the Company s TakeAway System™ being used by one of the country s largest retail pharmacy chains as part of their Safe Medication Disposal Program. The increase in the Professional market was a direct result of the Company s targeted telemarketing activities to educate doctors, dentists and veterinarians on the significant cost advantage and the convenience of the Sharps Recovery System™ over the traditional pick-up service. Increases due to telemarketing activities mostly offset declines in distributor network sales to the professional market which were down based on ordering patterns.Selling, general and administrative (“S, G & A”) expenses for the three months ended September 30, 2010 of $2.4 million, increased by $0.6 million, from S, G & A expenses for the three months ended September 30, 2009. The increase in S, G & A is primarily due to higher (i) compensation and benefit expense including payroll tax of $312 thousand (primarily due to increased number of employees year-over-year headcount of 21 of which 16 are focused on sales and marketing-related activities), (ii) professional expenses of $75 thousand (primarily due to legal fees, audit and related fees, and consulting fees), (iii) office rent and utilities expenses of $35 thousand (primarily related to increased common area maintenance and property expenses), (iv) marketing and sales expenses of $30 thousand (primarily due to increased advertising and public relations costs), (v) computer and systems-related expenses of $25 thousand (primarily related to internet and offsite hosting and recovery costs), and (vi) research and development expenses of $18 thousand (primarily related to on-going research related to the Company s patent pending new product called PELLA-DRX™).
During the first quarter of fiscal year 2011, the Company recorded a special charge of $570 thousand, or $0.02 per diluted loss per share, which represents expenses incurred with the retirement of the Company s former Chief Executive Officer, Dr. Burton Kunik. The special charge consists of (i) severance-related items totaling $491 thousand, (ii) non-cash stock-based compensation expense of $73 (resulting from accelerated vesting of stock option awards), and (iii) legal fees related to the separation agreement of $6 thousand. The Company paid Dr. Kunik $68 thousand on September 30, 2010 and will pay Dr. Kunik approximately $409 thousand in April 2011 related to the expenses noted above.
Disease Control (the “CDC”) and the EPA estimate that there are over three billion used syringes disposed of annually outside of the hospital setting in the United States. The Company estimates that it would require 30 to 50 million Sharps® Recovery System™ (formerly Sharps Disposal by Mail System®) products to properly dispose of all such syringes, which would equate to a market opportunity of $1 billion. Based upon the current level of sales, the Company estimates that it has penetrated approximately 1% of this $1 billion market opportunity. Additionally, an estimated 40% of the four billion dispensed medication prescriptions go unused every year in the United States generating an estimated 200 million pounds of unused medication waste. The Company estimated the market opportunity for the proper recovery and management of the unused medications to be at least $1 billion per year.
The Company is actively marketing its Sharps®MWMS™ to federal, state and local agencies as well as to large corporations. On February 2, 2009, the Company announced a $40 million contract (the “U.S. Government Contract”) award to provide its Sharps®MWMS™ to a major U.S. government agency. The total contract is expected to be executed over a five year period (one year plus four option years). On February 1, 2009, the Company received a purchase order for $28.5 million ($6.0 million of which was recognized in fiscal year 2009, $22.5 million was recognized in the first half of fiscal year 2010). In January 2010, Sharps was awarded the first option year (ending January 31, 2011) valued at approximately $1.6 million and is expected to be recognized from February 1, 2010 through January 31, 2011. There is expected to be approximately $1.6 million in revenue in calendar year 2010 for the maintenance component of the contract including the $0.8 million in the second half of calendar year 2010, and $0.4 million recognized in the first quarter of fiscal year 2011. The remaining three option years are expected to be approximately $3.0 million per contract year. Although, the Company believes the amounts above to be reasonable based upon the underlying contract and its current project plan, it makes no assurances regarding the actual recognition of revenue by fiscal year, which could vary significantly from that noted above.
The Company serves multiple markets including, but not limited to, Government, Health Care, Retail, Professional, Hospitality, Pharmaceutical, and Other markets. As shown in the results for the quarter ended September 30, 2010, the Company experienced a decrease in its overall business, primarily related to the Government market which had an expected decrease in billings associated with the U.S. government contract from $11.0 million from the product build-out phase for the quarter ended September 30, 2009 to $0.4 million for maintenance for the quarter ended September 30, 2010. The $28.5 million build-out phase of the major government contract occurred throughout calendar year 2009. There is expected to be approximately $1.6 million in revenue in calendar year 2010 for the maintenance component including the $0.8 million which was recognized in the second half of fiscal year 2010, and $0.4 million recognized in the first quarter of fiscal year 2011. In addition, the maintenance component of the contract includes approximately $3.0 million in years 2011, 2012, and 2013. This decrease was partially offset by increases in the Health Care (improved sales by home healthcare related distributors addressing the growing trend of patent volumes in the home healthcare industry), Retail (flu shot season and the impact of the initial order of the Company s TakeAway Recovery System™ by one of the country s largest retail pharmacy chains for its Safe Medication Disposal Program) and Professional (targeted telemarketing efforts) markets. The Company is most encouraged by opportunities in the Retail market and Government market through offerings to major retail pharmacies and expansion of the VA Pilot Program and the existing MWMS™ Program to address unused medications as well as the opportunity for telemarketing efforts in the Professional markets.
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