RE:RE:MD&A Key quotes and reflections on new information:
- On installed base: "There are currently 50 sterilizers delivered to end-user locations.All but a few of them have been installed"
Positive:
- Transparency into the installation base.
- 40 units more than the short report which estimated 8-10 installed base
- Should alleviate some shorting and any stock depression due to lack of transparency
Negative:
- Less than what some analysts may have expected. I think some were hopeful/estimating that there was ~70-80 installed base. Still attainable by year end and targeted by TSO3
- On sterilizer claims to include duodenscopes: "This work is well underway and at the time of this letter, continues to be on pace to enable us to respond to the agency by the end of November"
Positive:
- On pace to resond by deadline end of November to the FDA regarding their concerns
- Signals that testing is almost complete and satisfactory in response to FDA, which is good signs for the VP4 technology
- On 80L technology: "Company has decided first to incorporate the advancements identified in the 80L Sterilizer into our VP4 Sterilizer...deliver this enhanced product direct from our factories in the second half of 2018."
Positive
- Feature improvements will make current VP4 installations faster and easier
- The changes are retrofittable with current version of the sterilizer
Negative
- Likely means a delay in the release of the 80L sterilizer technology untill VP4 improvements are first incorporated
- On Getinge: "We established with Getinge that productivity increases with the support of TSO3. Thus, TSO3 shall resource additional sales, clinical and technical support personnel immediately to assist in driving Getinge performance beyond the current levels"
Positive
- With TSO3's sales/tec support, this should drive the installation base and put ownership to reach ~70 VP4 placement target by year-end
Negative
- This is really code word for that Getinge hasn't performed up to standards on its end to deliver sales of the product. While the relationship is advantegous in some aspects, in sales, it has been demonstrable poor and this is TSO3's way of controlling their destiny in light of the garnered legitimacy from the medical community (read AAMI, Canadian Journal, etc.).
- On Consumables: "Consumables related revenues grew 26% in the third quarter of 2017 relative to the second quarter of 2017" and "This increase in gross margin contribution in 2017 resulted from growth of higher gross margin consumables sales and production cost reductions of STERIZONE® VP4 Sterilizers"
Positive
- Consumables are higher margin and the higher installation base has contributed positively to the GM%
- Increased transparency on consumable revenue growth w. QoQ 26% growth
Negative
- Would still like to see a breakdown of sales into VP4 versus consumables
Overall, I come out from this MD&A net positive but with higher expectations of end-user placement of 70 VP4's and duodenscope claim granted in Q1/Q2 of FY2018.
GLTA,
MarginofSafety