Theragenics Corporation (

TGX

)

Q1 2011 Earnings Call

May 5, 2011 11:00 AM ET

Executives

Christine Jacobs – President and CEO

Frank Tarallo – CFO

Analysts

Jonathan Lewis – Ardent Research

Presentation

Operator

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Greetings, and welcome to the Theragenics first quarter 2011 earnings conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce Christine Jacobs, Chairman and Chief Executive Officer for Theragenics. Thank you, you may begin.

Christine Jacobs

Thank you, Manny, and good morning. Welcome to Theragenics first quarter 2011 conference call. Thank you for joining us this morning. In just a few minutes, I'll provide some comments on the quarter and our outlook for the year ahead. But first, our Chief Financial Officer, Frank Tarallo, is going to provide comments on the financial result. Frank?

Frank Tarallo

Thank you, Chris, and good morning to everybody. This morning we released our consolidated financial results for first quarter of 2011. If you did not receive this new release or if you like to be added to either our fax or e-mail distribution list, please contact Investor Relations at 800-998-8479 or 770-831-5137.

Before I begin my review, please be aware that some comments made during this conference call may contain forward-looking statements involving risks and uncertainties regarding our operations and future results.

Please see our press release issued today and our filings with the Securities and Exchange Commission, including, without limitation, our Form 10-K and Forms 10-Q, which identifies specific factors that may cause actual results or events to differ materially from those described in the forward-looking statements.

Now, onto our results. Consolidated revenue in the first quarter was $20.3 million, which is flat compared to 2010. Earnings per share in the first quarter was $0.01 per share, compared to $0.00 per share last year.

We had special items in the first quarter of each year that affected our EPS. In 2011, we incurred expenses related to an unsolicited offer to acquire the company and charges for amounts due from Core Oncology, for which we believe collection is doubtful. Our 2011 EPS, excluding the special items, was $0.02 per share.

Last year, in 2010, we incurred expenses related to the lawsuit we initiated against the former owner of CP Medical. Our 2010 EPS, excluding the special, item was $0.01 per share. A reconciliation of our GAAP-based EPS and the non-GAAP measure of EPS excluding special items is included in our press release.

Let’s turn to our segments now. Revenue in our surgical products segment was $14.4 million in the first quarter, which is a decline of 1% from last year. We’ve talked in the past about the volatility in the ordering patterns of our larger customers in this business, and we saw this in the first quarter.

Looking at operating results; our surgical segment incurred an operating loss of $191,000 in the first quarter. This includes $220,000 of the special charges I mentioned. In 2010, we incurred an operating loss of $390,000, which included $351,000 of the special charges.

Our gross profit margins on sales increased slightly from 33% last year to 34% this year. We saw improvements in process efficiencies, especially in our new needle facility. However, customer behavior continues to affect our margins. In addition, our gross margins were negatively impacted by winter storms, especially in our Texas facility. Our plant in the Dallas area was closed for four days in the first quarter due to weather.

Returning to our brachytherapy business; revenue was $6 million in the first quarter, an increase of 1% over the last year. This was our third consecutive quarter of year-over-year revenue growth in this business. Given the state of this industry, we believe this is an impressive accomplishment.

Operating income in our brachy business was $1.1 million in the first quarter of this year, this includes $291,000 of the special charges I referred to earlier. Operating income in the first quarter of last year was also $1.1 million, but we incurred no such special charges last year.

Let me now update you on the circumstances with Core Oncology. Recalled at last year, in 2010, sales to Core represented 14% of our brachytherapy segment revenue. Also recall then on February 1, 2011, this year, we provided notice of termination of our supply contract to Core. Let me say upfront that our relationship with Core continues to be very positive. Our objectives at the time of termination were to retain as much TheraSeed unit volume as possible and to obtain repayment of amounts due to us.

Subsequent to termination of the contract, we have continued to sell to Core on a prepaid basis. Sales to Core represented 11% of brachytherapy segment revenue in the first quarter, including sales under our prepayment arrangements. So I am pleased to report that we’ve not seen any material erosion of TheraSeed unit sales during the first quarter as a result of our actions with Core.

Now, there is a nuance I’d like to explain related to the accounting for our circumstances with Core Oncology. At that time, we provided notice of termination to Core – we agreed to honor all orders that were already placed at that time and to honor any orders that were placed within seven days of our termination notice. We did this to ensure that no cancer patients and no doctors were caught in the middle of this issue. These shipments, the ones to honor orders on the books through the seven days subsequent to notice of termination, do not qualify for revenue recognition under U.S. accounting rules. The total value of those shipments, which did not qualify for revenue recognition in our brachy business, was $248,000. If Core is successful in obtaining refinancing and repays these amount due to us, then this revenue will be recognized at that time. Chris is going to talk more about Core Oncology and his remarks in just a couple of minutes.

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