Theragenics Corporation (



Q4 2010 Earnings Conference Call

February 15, 2011, 11:00 am ET


Christine Jacobs - President and CEO

Frank Tarallo - CFO


Brett Reiss - Janney Montgomery Scott

Joseph Munda - Sidoti & Company

Ryan Hummer - Encore Advisors

Constantine Davides - JMP Securities



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Greetings, and welcome to the Theragenics fourth quarter and year-end 2010 earnings 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; Christine Jacobs, Chairman and CEO. Thank you Ms Jacob, you may begin.

Christine Jacobs

Thank you, Joey, and good morning. Welcome to our Theragenics fourth and year-end 2010 conference call. We appreciate the fact that you dialed in today. In just a few minutes, I'll provide some comments on this past quarter 2010 and outlook for 11. But first, I am going to turn the call over to Frank Tarallo; our Chief Financial Officer. Frank.

Frank Tarallo

Thank you, Chris. This morning, we released our fourth quarter and annual results for 2010. If you do not receive this new release or if you like to be added to either our fax or our e-mail 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 limitations, the company's 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; our consolidated revenue in the fourth quarter was $20.7 million an increase of 11% over 2009.

Both segments contributed to revenue growth in the fourth quarter, this is the second consecutive quarter we have been able to say that. For the year, consolidated revenue was $82.2 million, our highest annual revenue ever and an increase of 5% over 2009.

Earnings per share were $0.01 in the fourth quarter and $0.06 for the year. We had three special items that had a significant impact on our 2010 earnings. First; charges from amounts due from Core Oncology, for which we believe collection is doubtful. These charges affected both of our business segments; we will talk more about Core in a few minutes.

Second; we had expenses related to the legal actions we took against the former owner of CP Medical, those actions were settled in the fourth quarter. And third; we incurred moving related expenses in 2010 in connection with the move to our new needle facility. These three items had the effect of decreasing our earnings per share by $0.02 in the fourth quarter and $0.06 for the year.

Let me move now to our segment results. Revenue in our surgical products segment increased 12% in the fourth quarter and 10% for the year over 2009. This is our second consecutive year of 10% organic growth - revenue growth in this business. Operating income in our surgical business was $63,000 in the quarter and $215,000 for the year.

The special items I mentioned earlier all impacted our profitability in this segment. The charge for receivables from Core, the expenses related to our legal actions against the former owner of CP Medical, and the moving related expenses together reduced our operating income in this segment by $305,000 in the fourth quarter and $1.6 million for the year.

In addition to these special items, our 2010 gross margins ran lower than they did in the 09 periods, changes in customer behavior along with increased costs related to our new larger needle facility has contributed to the decline in gross margins.

Moving now to our brachytherapy segment, brachy revenue grew 8% in the fourth quarter over 09. This was our second consecutive quarter of year-over-year product revenue growth in this business after 19 consecutive quarters of year-over-year declines. The distribution agreement we entered into with Core Oncology in 2010 was the primary factor in our product revenue gains during the third and fourth quarters of last year.

For the full year, revenue was down 5% compared to 09 again Core had a significant impact reducing what the rate of decline would have otherwise been. Operating income in our brachy business was $439,000 in the fourth quarter and $3.7 million for the year. These charges related to the Core Oncology receivables had a significant impact on profitability. Those charges reduced our brachy operating income by $840,000 in Q4 and $1.6 million for the year.

So, let me address Core Oncology for a minute. We began 2010 with Core as our new TheraSeed distributor. Core was expected to bring us incremental unit volume which they did. Sales to Core represented 14% of our brachy segment revenue. As we have discussed before, manufacturing costs in our brachy business are relatively fixed. Incremental TheraSeed volume is highly profitable for us as incremental costs to produce are minimal. I should note that Core is also a customer to our surgical products segment, though sales to Core were less than 1% of surgical revenue in 2010.

We had a very positive relationship with Core from the start and in fact we continue to have a positive relationship with them today. During 2010 Core represented to us that they were tempting to obtain refinancing; they ran into some difficulties in that process. During this period of time, we were in constant communication with the senior management at Core. They fell behind in their payment terms with us. In an effort to support Core and the TheraSeed unit volume, we established alternative terms of payment on a temporary basis.

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