$HRT Arrhythmia Research Technology Inc - Management Call Overview Quick Notes

Good afternoon. I am sharing my overview notes after speaking with the management team of HRT, a $21.5M microcap company focused on the medical devices market. The story is hard to discern from the outside, so I am sharing my notes from my call with management.


May 2013: Sal became president and CEO, former CEO fired, company was losing money. Sal was brought on a year prior to implement a lean manufacturing process. Sal streamlined the company's manufacturing process.

Company engineers products so that they can be manufactured. For example, one of the company's military customers is Raytheon, "The Optical Scope Ring" for a grenade launcher. Very specialized manufacturing, for small or large companies.

Sensor product line and capability (they are only small silver coated sensors with applications with electrode measurements for the heart), no current push to enter the 3D manufacturing or sensor market for devices. These deal with heart measuring.

Core product line has become a cash generator (EKG) is a 30M market. Precision injecting molding is another segment, orthopedic implants is a growing product line for the company since the company has clean rooms.

Recently entered into a 5-year exclusive manufacturing agreement with New Era Orthopedics for knee, hip and spine system implants. Within this agreement for example, New engineers a knee and HRT manufactures it. Management believes cost of orthopedics has to come down as the demand goes up - more people designing more knees faster and more customized. The hospitals do not want inventory, but needs a high-speed manufacturer, HRT does that. Personalized Knees use 3D scanning of existing knee.

Third product they do is the blunt impact projectile for a customer. Securities devices international (They engineer, but HRT helped re-engineer, so it can be manufactured cost effectively). Known as a less lethal weapon, for riots, for example. It won't penetrate someone.

Principal accounting officer came in over a year ago, big part of the process in making the company more predictable - to make the story clearer while cutting costs for investors.

Earnings can be lumpy, depends on order flow, but customers are sticky since the HRT owns the manufacturing molds for example. Growth has been within expanding customer base with scale, and this should help cease the lumpiness.

The company's strong financials for a microcap are what drew me to the company originally.

•Net sales in the quarter were $6.0 million, up $1.3 million, driven by growth in all product lines

•Achieved gross margin in quarter of 19.2%, a 7.6 point expansion

•Year-to-date net sales increased 20.2%; gross margin expanded to 19.7%

•Generated cash from operations of $0.6 million in the quarter and $1.5 million year to date

Currently, I do not have a position in HRT but will be keeping a close eye on the company. I find it hard to gain visibility into the company's potential future earnings due to the complex nature of its various product offerings and its dependency on other companies to supply work orders.

Posted to SecretCaps on Jan 05, 2015 — 1:01 PM
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