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Theragenics Corporation (TGX)

Q2 2009 Earnings Call Transcript

August 6, 2009 11:00 am ET

Executives

Christine Jacobs – Chairman, CEO and President

Frank Tarallo – CFO and Treasurer

Analysts

Brett Reiss – Janney Montgomery Scott

Tony Chiarenza – Key Equity Investors

Presentation

Operator

Good morning. My name is Demetrius, and I will be your conference operator today. At this time, I would like to welcome everyone to the Theragenics second quarter 2009 conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator instructions)

Ms. Christine Jacobs, Chairman and CEO, you may begin your conference.

Christine Jacobs

Thank you, Demetrius. Good morning and welcome to Theragenics second quarter 2009 conference call. Thank you for joining us today. In just a few minutes I'll provide comments on the quarter and our outlook for the last half of the year, but first, Frank Tarallo, our Chief Financial Officer will provide a review of the financial results. Frank?

Frank Tarallo

Thank you, Chris. This morning, we released our consolidated financial results for the second 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, on to our results; first, let me remind you that we acquired NeedleTech Products in July of 2008. So NeedleTech results are included in our consolidated results in the first half of 2009, but not in the first half of 2008. Our consolidated revenue was $20.2 million in the second quarter, and $40.3 million for the first half of the year. These are both records for us. Our revenue is best analyzed on a segment basis and I will talk about segment results in just a minute.

Net income in the second quarter was $1.3 million or $0.04 per share compared to $1.6 million or $0.05 per share in ’08. For the first half of 2009, our net income was $1.9 million or $0.06 per share compared to $3.3 million or $0.10 per share in ’08. The decline in our consolidated net income can be netted out to four items.

First, we invested an R&D program beginning late last year to support product development in our surgical business. Consolidated R&D expenses were $427,000 higher in the second quarter of ’09 and $897,000 higher in the first half of the year as compared to ’08. Looking forward, we expect R&D expenses to continue to run at current levels, maybe a little higher, depending on our opportunities.

Second, our non-operating income, which includes interest income, declined $247,000 in the second quarter and $684,000 in the first half of ’09 as compared to last year. Our interest income declined significantly because of a much lower return on our portfolio this year. If you recall, we had significant investments in auction rate securities last year at this time. While they provided nice returns, they turned out to be illiquid and very risky. That market remains illiquid. We got out of and did not get hurt by our auction securities late last year and earlier this year. But rates overall are generally lower this year, and we are much more conservatively invested today. Going forward, we expect interest income to continue to be significantly lower than in prior periods.

Third, the decline in operating income in our brachytherapy business contributed to lower EPS in ‘09. And lastly, in the 2008 periods we recognized a $142,000 gain from writing up the carrying value of our Oak Ridge building. That write up was based on the actual sale of that building in July 2008, and we had no such gains in 2009.

Before I review our segment results, I want to remind you of a change we made this year with the manner in which we allocate the cost of corporate activities to our business segments. Operating expenses associated with corporate activities are now allocated based on the relative revenue of each business segment. We discussed this in detail on our call last quarter. We believe allocating corporate expenses based on relative revenue more accurately reflects the utilization of those resources. Previously, nearly all of the expenses associated with corporate activities were charged to our brachytherapy segment.

Our 2008 segment results have been restated to reflect this change. Now I want to be clear here that this is simply a change in the way we allocate corporate costs among our businesses. This change had no effect on the consolidated net income we previously reported for the 2008 periods.

Now on to our segment results. Revenue in our surgical products segment was $13.7 million in the second quarter and $26.8 million for the first half of this year. On a pro forma basis, as if NeedleTech results are included in the 2008 periods, this represents organic growth of 6% for the quarter and 9% for the first half of this year.

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