Theragenics Corporation CEO Discusses Q1 2012 Results - Earnings Call Transcript

Theragenics Corporation (TGX)

Q1 2012 Earnings Call

May 10, 2012 11:00 am ET

Executives

Christine Jacobs - Chairman and Chief Executive Officer

Frank Tarallo – Chief Financial Officer

Analysts

Joe Munda - Sidoti & Company

Rob Longnecker - Joe Street Capital

Presentation

Operator

Greetings and welcome to the Theragenics' First Quarter 2012 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions].

It is now my pleasure to introduce, Ms. Christine Jacobs, Chairman and CEO of Theragenics. Thank you, Ms. Jacobs. You may begin.

Christine Jacobs

Thank you, Claudia. Good morning and welcome to Theragenics' first quarter 2012 conference call. Those of you that join us regularly for these calls will recognize that this conference call will be in a new format, and a little longer than normal.

We met and talked to several of our shareholders this past quarter, and this new format reflects their feedback. Both Frank and I will provide a fresh approach providing both context and insight to the recently completed quarter.

We will also provide strategic positioning and additional forward-looking comments. We're going to spend less time repeating financial information that we assume that you have read or you are going to read in our earnings release that was issued this morning.

This new format is a work-in-progress, which we expect is going to evolve as we progress into 2012. So with that, let me turn it over to Frank for his comments on the first quarter.

Frank Tarallo

Thank you, Chris. Let me add that I hope as investors, you find our new format more insightful and useful as well. Now, unfortunately, one format change we cannot make is what the lawyers tell us we have to say about forward-looking information. So, here it goes.

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 identify specific factors that may cause actual results or events to differ materially from those described in the forward-looking statements.

Now I'd like to comment on our results. Our consolidated revenue of $21.6 million is our highest quarterly revenue ever, and up 7% over last year's first quarter. Our revenue is best understood by looking at segment results, so let's do that.

Our Surgical Product segment revenue was up 8% over last year, the $15.5 million in revenue is also our highest quarterly surgical products revenue ever. We had strong orders and fresh demand in Q1, driving this growth.

First quarter also benefitted from circumstances that existed in Q4 of last year. Back then, we had customers that delayed ship dates on existing orders. We also had customers that did not order what expected them to order in Q4. We mentioned in our last call that we expected those orders would come in Q1, and they did.

We were also unable to ship some Vascular Access orders in Q4 last year, because of operational issues related to our ERP system. All that said, the takeaway from this is that demand for our surgical products is there.

Chris is going to talk more about this in a few minutes.

Turning to our Brachytherapy business, Q1 revenue was up 6% versus last year. The acquisition of the core customer base in February had the impact we expected it to have. Incremental sales from this acquired customer base was $586,000. We had just 29 business days in first quarter after closing that transaction. So, if you annualize this number, you get a run rate of about $5 million.

Now, this business does not necessarily work on a straight line basis, but it at least gives you an idea of the potential effect of the transaction. We spent most of the first quarter ramping up, visiting new customers and seeing to a smooth transition.

I think it's fair to say that this transaction has at least so far in its early stage lived up to our expectations. The next big step is transitioning these customers to our new iodine based seed called the AgX100. This should lower our production cost. It's currently being supplied by Core under a temporary supply agreement. Once fully transitioned and ramped up, we expect gross profit margins to be in the range of 40% to 45% for this incremental business.

Let's turn to profitability now. First, EPS. Our EPS was $0.03 in the quarter compared to $0.01 last year. We did have special items last year, which reduced EPS by $0.01 in 2011. Those special items are listed in our press release. Nonetheless in Q1, we tripled EPS over last year.

Turning to segment profitability, our Surgical segment reported operating income of $199,000, nearly a $400,000 improvement over the 2011's Q1 operating loss. So, how did we accomplish this improvement? Along with our 8% revenue growth, our gross profit margin on sales was 35% in Q1. This is a slight improvement over last year's 34%.

SG&A in our Surgical segment was 27% of revenue in Q1, which is the same as last year. So that means on an absolute dollar basis, SG&A was up. We had increases in depreciation and other costs related to our IT initiatives, including our new ERP systems.

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