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The Spectranetics Corporation (

SPNC

)

Q3 2010 Earnings Call

October 27, 2010 11:00 am ET

Executives

Don Markley - SVP, Lippert/Heilshorn & Associates Inc.

Guy Childs - VP & CFO

Shahriar Matin - SVP, Operations, Product Development and International

Jason Hein - SVP, Sales and Marketing

Analysts

Jason Mills - Canaccord Genuity

Amit Bhalla - Citi

TheStreet Recommends

Suraj Kalia - Rodman & Renshaw

Joshua Jennings - Jefferies & Company

Thomas Kouchoukos - Stifel Nicolaus

Bud Leedom - Global Hunter Securities

Presentation

Operator

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» The Spectranetics Corporation Q1 2009 Earnings Call Transcript

Welcome to the Spectranetics Third Quarter Results Conference Call. At this time, all participants are in a listen-only mode. Following management’s prepared remarks, we’ll hold a Q&A session. (Operator Instructions) As a reminder, this conference is being recorded, October 27, 2010.

I would now like to turn the conference over to Don Markley. Please go ahead, sir.

Don Markley

Thank you. This is Don Markley with Lippert/Heilshorn & Associates. Thank you for participating in today’s call. Joining me from Spectranetics are Chief Financial Officer, Guy Childs; Senior Vice President for Sales and Marketing, Jason Hein; and Senior Vice President for Operations, Product Development and International, Shar Matin.

Earlier today, Spectranetics released financial results for the three and nine months ended September 30, 2010. If you have not received this news release or if you’d like to be added to the company’s distribution list, please call Lippert/Heilshorn in Los Angeles at 310-691-7100, and ask for Noreen.

Before we begin, I’d like to remind you that management will make statements during this call that include forward-looking statements within the meaning of federal securities laws. These statements involve material risks and uncertainties that could cause actual results or events to be materially different from those anticipated. For a list and description of those risks and uncertainties, please see the company’s filings with the Securities and Exchange Commission.

Spectranetics disclaims any intention or obligation to update or revise any financial projections or forward-looking statements, whether as a result of new information, future events or otherwise. Furthermore, this conference call contains time-sensitive information and is accurate only as of the date of the live broadcast, October 27, 2010.

I’ll now turn the call over to Guy Childs. Guy?

Guy Childs

Thank you, and good morning, everyone. During this morning’s call, I will make some introductory remarks, review our financial results, and provide an update on the status of our planned randomized trial for the treatment of in-stent restenosis. I will then close with our outlook for the rest of 2010.

As previously announced, Emile Geisenheimer will retire from his position as Chairman, President, and Chief Executive Officer effective November 1st, and will remain on our Board of Directors.

During this transition, the Board of Directors has appointed Jason Hein, Shar Matin, and me as an Executive Counsel to run the day-to-day operations of the company. We report directly to an executive committee of the Board of Directors that will lead the search for a new CEO as well as overseeing the activities of the Executive Counsel.

I’d like to begin my thanking Emile for his leadership over his many years with the company and his steady hand as we navigated through a significant set of challenges over the last couple of years.

We have emerged from these challenges a stronger company. As mentioned in the press release, we have undertaken significant steps to streamline the operations of the company and improve the productivity within our sales organization.

We have substantially completed work associated with the site consolidation and enhanced our compliance systems to comply with the provisions of our corporate integrity agreement. These activities have taken a significant amount of internal resources that are now focused on new product development, initiation of a randomized trial to treat in-stent restenosis and attaining operating efficiencies.

Undoubtedly, challenges remain, but I know I speak for Jason, Shar and all of our dedicated employees when I say that we are up to the task and we’re excited about out plan to move the company forward.

I’ll begin with a summary of our financial performance starting with revenue. Revenue for the third quarter ended September 30, 2010, was $29.6 million, an increase of 3% from last year. Lead Management revenue once again lead our growth. This was partially offset by weakness in our Vascular Intervention revenue, which reflects the challenging economic and competitive environment.

Finally, distraction associated with the realignment of certain Vascular Intervention sales territories was unavoidable, but necessary in order to consolidate smaller territories. Despite the temporary disruption associated with these actions, the business generated adjusted pre-tax income, excluding special items, of $1.6 million during the third quarter, which represents 5% of revenue, and is the highest level of profitability the company’s ever achieved. This is a significant improvement over $600,000 of adjusted pre-tax income, excluding special items during last year’s third quarter.

As noted in our press release, adjusted pre-tax income is a non-GAAP measure and is reconciled to GAAP results in the tables attached to the release. The special items during the quarter were significant, and I’ll review each of them in detail later in the quarter.

We ended the quarter with cash and investment securities of $26.4 million, an increase of 4.5 million from 21.9 million at June 30, 2010. This increase includes proceeds from the sale of an auction rate security position of $2.3 million. Excluding this transaction, the increase in cash and investment securities during the quarter was $2.2 million.

Cash flow from operating activities was nearly $3 million, which is another strong indicator of the underlying health of our business.

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