Theragenics Corporation (

TGX

)

Q3 2010 Earnings Call

November 9, 2010 11:00 AM EST

Executives

Christine Jacobs – Chairman and CEO

Frank Tarallo – CFO

Analysts

Joe Munda – Sidoti

Constantine Davides – JMP Securities

Brett Rice – Janney Montgomery Scott

Presentation

Operator

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» Theragenics Corporation Q2 2010 Earnings Call Transcript
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» Theragenics Corporation Q3 2009 Earnings Call Transcript

Greetings, and welcome to the Theragenics Corporation third quarter 2010 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 your host Ms. Christine Jacobs, Chairman and Chief Executive Officer for Theragenics Corporation. Thank you.

Ms. Jacobs, you may begin.

Christine Jacobs

Thank you, Manny. Good morning and welcome to Theragenics third quarter 2010 conference call. We appreciate you joining us today. In just a few minutes, I'll provide some comments on the quarter and overall outlook for the remainder of the year. But first Frank Tarallo, our Chief Financial Officer, will provide a review of our financial results.

Frank.

Frank Tarallo

Thank you, Chris. This morning, we released our consolidated financial results for third quarter of 2010. If you did not receive this news release or if you would like to be added to either our fax or email distribution list, please contact Investor Relations at 800-998-8479 or 770-271-0233.

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 was $20.4 million in the third quarter of 2010, increase of 6% over last year. Both segments contributed to product revenue growth for the first time since 2005. For the nine-month period, consolidated revenue was $61.5 million, an increase of 3% over 2009. Our year-to-date revenue is the highest nine-month period we have ever recorded.

EPS in the third quarter was $0.02 per share, the same as third quarter of 2009. For the nine-month period, EPS was $0.05 per share, compared to $0.08 last year.

Our results are best understood on a segment basis. I’ll start with our surgical products business.

Revenue in this business increased 8% in the third quarter and increased 9% in the first nine months of 2010, compared with last year. Our interventional radiology and wound closure platforms have performed particularly well this year.

Operating income in our surgical business was $154,000 in the quarter compared to $623,000 in ‘09. For the nine-month period, operating income was $152,000 compared to $1.5 million last year. The decline in profitability in the 2010 periods was primarily due to three items.

First, we had lower gross profit margins on sales in 2010. This was especially true in the first quarter of this year. You will remember we incurred cost to reduce back orders and address spikes in demand early in the year. Our profit margins have recovered since the first quarter, but continue to run at levels lower than 2009. Customer behavior is changed and is difficult to predict. And our OEM sales, comprises somewhat larger portion of overall revenue this year. OEM sales typically carry a lower margin compared to our other channels.

Second, we incurred litigation expenses related to the lawsuit that we initiated earlier this year. Litigation related expenses were $37,000 in the third quarter and $609,000 in the year-to-date period. This action was settled in October. Other than mutual releases provided by all parties, no other consideration is required from us. We will incur additional legal expenses in the fourth quarter in finalizing this settlement.

Third, we completed the move to our new specialty needle manufacturing facility. Moving related expenses totaled $433,000 in the third quarter and $570,000 in the year-to-date period. This move was completed in the third quarter. We do no expect to incur additional moving related expenses of any significance related to this new facility.

Moving to our brachytherapy segment, revenue increased 2% in the quarter compared to ’09. Product sales were $7,000 higher and license fees increased by $91,000. As investors note, we’ve experienced declines in brachy product sales on a year-over-year basis for five years. So while a $7,000 in product sales doesn’t seem like much, it’s something we haven’t seen in quite a while. This is a result of the new distributors we added in 2010, Core Oncology and, more recently, Oncura.

On a year-to-date basis, brachy product revenue was down 10% from 2009. This year-to-date decline is more characteristic of brachy performance for the last several years. The addition of Core and to a lesser extent Oncura has partially offset the rate of decline in the year-to-date period.

Operating income in our brachytherapy business was $1.1 million in the third quarter of 2010, compared to $972,000 last year. For the nine-month period, operating income was $3.2 million compared to $3.4 million last year. Our manufacturing costs are relatively fixed in nature you know that.

Operating income was up slightly in the third quarter because of the revenue growth. And the decline in revenue in the year-to-date period had a negative effect on our profitability. I mentioned the increase in license fees, this adds the profitability, as there are minimal costs associated with this revenue stream.

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