CryoLife Inc. ( CRY)

Q3 2010 Earnings Call

November 04, 2010 10:00 am ET

Executives

Steve Anderson - President and CEO

Ashley Lee - EVP, COO & CFO

Analysts

Joe Munda - Sidoti

Tim Lee - Piper Jaffray

Matt Palmer - Roth Capital Partners

Raymond Myers - The Benchmark Company

Presentation

Operator

Greetings, and welcome to the CryoLife’s third quarter 2010 financial conference call. Now at this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instruction). As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host Steve Anderson, President and CEO for CryoLife. Thank you. You may begin.

Steve Anderson

Good morning everyone. This is Steve Anderson, CryoLife’s President and CEO, and I would like to welcome you to CryoLife’s third quarter 2010 conference call. With me today is Ashley Lee, Executive Vice President, COO and CFO.

The agenda for today’s call is as follows. Actually we will review today’s press release and we’ll comment on the company’s revenues by product line. We will also bring you up to date on the litigation and dispute with Medafor. I will discuss the recent Starch Medical transaction, the rollout of BioFoam in Europe, the status of the BioFoam clinical trials of the US and the recent approval of BioGlue in Japan.

After my comments, Ashley will return with financial guidance for the rest of 2010 and our initial forecast for 2011. After Ashley’s forecast comments are completed we will open the call for questions. At this time Ashley will discuss this morning’s press release and the company’s performance for Q3.

Ashley Lee

Thanks Steve. To comply with the Safe Harbor requirements of the Private Securities Litigation Reform Act of 1995 I would like to make a following statement. Comments made in this call which look forward in time, involve risk and uncertainties and are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The forward-looking statements include statements made as to the company’s or management’s intentions, hopes, beliefs, expectations or predictions of the future.

Additional information concerning risk and uncertainties that may impact these forward-looking statements is contained from time-to-time in the company's SEC filings, including the risk factor section of our previously followed Form 10-K for the year ended December 31, 2009, our previously filed Form 10-Qs for the quarters ended March 31 and June 30, and for the quarter ended September 30, 2010, which we expect to file shortly and in the press release that went out this morning.

On the call today I will discuss certain non-GAAP financial measures. You can also find the comparable GAAP measures and the reconciliation of these non-GAAP measures to the applicable GAAP measures as scheduled to the press release that went out this morning, a copy of which is contained on the Investor Relations portion of our website. This morning we reported our results for the third quarter and the first nine months of 2010.

We set all time third quarter and first nine month revenue records of 28.4 and 87.4 million for the period ended September 30, 2010. As of September 30, 2010, we had 36.3 million in cash, cash equivalents and restricted securities which includes 1.8 million received from the DOD and 5.3 million in restricted securities.

The 36.3 million reflects the 6.7 million paid in September 2010 in connection the Starch Medical transaction. 4.3 million paid during 2010 was a repurchase of shares of CryoLife common stock and 2.1 million paid earlier this year to invest in Medafor common stock.

We generated cash flow from operations of 3.8 million in the quarter and 13.8 million for the nine months ended September 30. We expect to continue to generate significant cash flow from operations going forward which will allow us to continue our efforts on the business development front.

Net income before items for the third quarter of 2010 was 2.6 million or $0.09 per basic and fully diluted common share, including pre-tax charges of 3.7 million for acquired in-process R&D related the Starch Medical transaction. 3.6 million for the impairment of our investment in Medafor common stock and 1.6 million related to the write-down of HemoStase inventory.

GAAP net loss for the third quarter of 2010 was 3 million or $0.11 per fully diluted share. We also recorded pre-tax charges in the third quarter of 2010 of approximately 283,000 and cost associated with our litigation with Medafor and recorded a $143,000 gain on valuation of the derivative related to the investment in Medafor common stock. Net income before items for the first nine months of 2010 was $7.5 million or $0.27 per basic and $0.26 for fully diluted common share including charges of $3.7 million for acquired-in-process R&D related to the Starch Medical transaction, $3.6 million for the impairment of our investment in Medafor common stock and $1.6 million related to the write-down of HemoStase inventory, GAAP net income for the first nine months of 2010 was $1.8 million or $0.06 per fully diluted share. We recorded pre-tax charges in the first nine month of 2010 of 729,000 in connection with a write off of capitalized legal expenses associated with our BioGlue intellectual property rights in Germany.

And approximately $1.1 million in costs associated with our litigation with Medafor. Additionally, we recorded a $1.3 million gain on valuation of the derivative related to the investment in Medafor common stock. Cardiac revenues for the third quarter of 2010 decreased 2% compared to the corresponding period of 2009 and increased 8% for the first nine months of 2010 compared to the corresponding period in 2009.

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