Theragenics Corporation (TGX)
Q1 2009 Earnings Call Transcript
May 7, 2009 11:00 am ET
M. Christine Jacobs – Chairman, CEO and President
Frank Tarallo – CFO and Treasurer
Brett Reiss – Janney Montgomery Scott
William Johns – Smith Barney
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I would now like to turn the call over to Ms. Christine Jacobs, Chairman and CEO of Theragenics.
M. Christine Jacobs
Thank you, Tamara. Good morning and welcome to Theragenics first quarter 2009 conference call. In just a few minutes I'll provide my comments on the quarter and our outlook for the rest of the year, but first I'd like to turn the call over to Frank Tarallo, our Chief Financial Officer, who is going to review the financial results. Frank?
Thank you, Chris. This morning, we released our consolidated financial results for the first quarter of 2009. If you did not receive this news release or if you would like to be added to either our fax or e-mail distribution list, please contact our 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 the company’s 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, our results. First, I want to remind you that we acquired NeedleTech Products in July 2008. So NeedleTech results are included in our consolidated results in the first quarter of this year, but not in the first quarter of last year. Our consolidated revenue for the first quarter was $20.1 million, a new record quarter for us. This is a 32% increase over last year. On a pro forma basis, as if NeedleTech results were included in our first quarter of ’08, consolidated revenue would have increased 2%.
Net income in the first quarter was $607,000 or $0.02 per share compared to $1.6 million or $0.05 per share in ’08. The reduction in net income this year reflects the planned investments we made in our strategic initiatives. We invested in the R&D program launched late last year and overall R&D is up $470,000. We also invested in a project to standardize our IT systems across all businesses and locations. We expect our R&D and IT related cost to continue to run at a higher rate this year, though some of our IT related expenses will be capital in nature.
Professional fees were up in 2009 because of the goodwill impairment issues we were dealing with during our annual audit, which was taking place in the first quarter. And finally, our income tax rate was higher than we normally experience because of the tax effect of certain share-based compensation items. I would now like to review our segment results.
First, let me explain a change we made in the first quarter this year with the manner in which we allocate the cost of corporate activities to our business segments. Operating expenses associated with our corporate activities are now allocated based on the relative revenue of each business segment. We have evolved and changed the way we manage the overall business, a number of recent events have caused us change, the acquisition of NeedleTech, the continued integration of all our acquired companies, the implementation of the R&D program in our surgical products segment, and our program to standardize our IT systems just to name a few.
We believe allocating corporate expenses based on relative revenue more accurately reflects the utilization of those resources. This is also the method we now utilize internally to review results and allocate resources. Previously, the largest portion of expenses associated with corporate activities was charged to the brachytherapy segment. Our 2008 segment results have been restated to reflect this change. Now I want to be clear, this is simply a change in the way we allocate corporate cost to our businesses. This change had no effect on the consolidated net income we previously reported in 2008.
Revenue in our surgical products segment was $13.1 million in 2009. This represents 12% organic growth on a pro forma basis over last year. You’ve heard us talk about variability in our surgical products results before, but we think 12% growth in this environment is impressive. Operating income declined from $575,000 in ’08 to $79,000 in ’09. This decline is because of the planned investments we made in R&D and IT. It also reflects the increased professional fees I referred to earlier.
We expect to continue to invest on our surgical products business to position ourselves for sustainable long-term growth. Brachytherapy revenue was $7 million in 2009, a 12% decline from last year. Sales to our main distributor continue to decline, down 25% in the first quarter. Our direct sales were down only 5%. Despite the overall decline in revenue, our brachy business remains profitable. Operating income was $1.1 million in 2009 compared to 1.7 million last year. The decline in revenue has a significant effect on profitability because of the fixed nature of many of our manufacturing costs.