TGX Theragenics Corp.

Theragenics Corporation® (NYSE: TGX), a medical device company serving the surgical products and prostate cancer treatment markets, today announced consolidated financial results for the second quarter ended June 30, 2013.

Consolidated Results

• Revenue
  • $20.3 million in Q2 2013, down 8% from Q2 2012. $40.2 million in the first half of 2013, down 8% from 2012.
• Earnings per share
  • $0.00 in Q2 2013 compared to $0.02 in Q2 2012 and $0.00 in the first half of 2013 compared to $0.05 in 2012.
  • Special items reduced EPS by $0.03 in both Q2 2013 and in the first half of 2013.
• Operating income
  • $131,000 in Q2 2013 compared to $1.3 million in Q2 2012. $148,000 for the first half of 2013, compared to $2.9 million in 2012.
  • Excluding special items, operating income was $1.4 million in Q2 2013 and $1.5 million in the first half of 2013. See Table V.
• Adjusted EBITDA
  • $2.5 million in Q2 2013 compared to $3.7 million in Q2 2012. $4.8 million in the first half of 2013 compared to $7.5 million in 2012.
  • Excluding special items, adjusted EBITDA was $3.7 million in Q2 2013 and $6.1 million in the first half of 2013. See Table IV.
• Capital expenditures were $1.5 million in the first half of 2013.
• The Medical Device Excise Tax, effective January 1, 2013, totaled $212,000 in Q2 and $405,000 in the first half of 2013.
• At June 30, 2013, cash, cash equivalents and marketable securities were $37.2 million and credit facility borrowings were $22.0 million, resulting in a net positive position of $15.2 million.
• In July 2013, we were notified by a customer that it would discontinue purchasing our wound closure products during the second half of this year. The loss of this customer is a result of increased pricing competition. Sales to this customer were $1.8 million in the first half of 2013.
• Restructuring activities related to the closing of our Galt Medical facility in Texas continued, with an estimated completion date of December 2014.
  • The Galt Medical brand represents a growth platform business for us in which we intend to continue to invest and expand product offerings.
  • We incurred restructuring expenses and operational transition expenses related to the restructuring of $300,000 in the second quarter of 2013 and $393,000 in the first half of 2013.
  • We expect to incur incremental expenses totaling $3.7 million to $4.1 million (including expenses incurred through June 30, 2013) through 2014 to complete this restructuring. These incremental costs, expected to be recorded over the restructuring period through December 2014, primarily include severance related expenses and project implementation costs. No significant non-cash charges are expected to be recorded related to this restructuring.
  • Capital expenditures related to restructuring are expected to be $2.5 million to $2.7 million through 2014.
  • Upon completion of the restructuring, net cost reductions are expected to be $3.3 million to $3.6 million annually.

Segment Results

• Surgical products
  • Revenue of $14.7 million in Q2 2013, down 8% from Q2 2012 and $29.2 million in the first half of 2013, down 7% from 2012.
  • Loss from operations of $31,000 in Q2 2013 compared to operating income of $588,000 in Q2 2012. Loss from operations of $366,000 in the first half of 2013 compared to operating income of $787,000 in 2012.
  • Excluding special items, operating income was $473,000 in Q2 2013 and $231,000 in the first half of 2013.

• Brachytherapy
  • Revenue of $6.0 million in Q2 2013, down 5% from Q2 2012 and $11.7 million for the first half of 2013, down 7% from 2012.
    • During the second quarter of 2013, a competitor in the brachytherapy industry voluntarily withdrew their brachytherapy products from the market following receipt of a warning letter from the FDA. We believe we realized incremental sales of approximately $200,000 as a result of this product withdrawal. We cannot predict if or when this competitor may return to the market and, if they do, whether we will be able to retain this incremental revenue.
  • Operating income of $874,000 in Q2 2013 compared to $747,000 in Q2 2012 and $1.3 million in the first half of 2013 compared to $2.1 million in 2012.

Comments

"2013 is shaping up to be a year of disruptions, challenges and potential,” stated M. Christine Jacobs, Chairman and CEO. “Our second quarter operating income, excluding special items, was flat compared to 2012. We had slight improvement in gross margins in our surgical business. Lastly, our brachytherapy business benefited from our 2012 agreements and one of our competitors stumbled with regulatory sanctions that added revenue for us.”

“Restructuring activities related to our off shore outsourcing program and closing of the Galt facility in Texas commenced,” Ms. Jacobs continued. “Once complete, we expect these strategic activities to significantly reduce our costs and assist us in remaining competitive in a dynamic medical device environment. The Galt brand remains integral to our long term surgical products platform. We intend to support and expand our Galt offerings and to continue to support our Galt customers.”

“On August 5, 2013 we announced that we have signed a definitive merger agreement under which a newly formed affiliate of Juniper Investment Company, LLC will acquire all of our outstanding common stock,” stated Ms. Jacobs. “Transaction costs associated with this pending transaction materially affected our results for the quarter.”

Ms. Jacobs concluded, “Continued industry volatility makes for a challenging environment for our small company. While growth in the short term remains a challenge, we are committed to our plans of cost reduction, outsourcing, and brachy market share accumulation. The device sector and our customers are adjusting to new norms under healthcare reform and so are we.”

Tables I and II to this press release contain condensed consolidated statements of operations and balance sheets. Segment information, including revenue and operating results by segment, is summarized in Table III. Table IV includes a reconciliation of GAAP reported net earnings (loss) to earnings before interest, taxes, depreciation, amortization and share-based compensation (Adjusted EBITDA) and Adjusted EBITDA, excluding special items. Table V includes a reconciliation of GAAP reported operating income (loss) to operating income excluding special items.

Theragenics Corporation (NYSE: TGX) operates two business segments: its surgical products business and its brachytherapy seed business. The surgical products business (www.cpmedical.com, www.galtmedical.com, www.needletech.com) manufactures and distributes wound closure, vascular access, and specialty needle products. Wound closure products include sutures, needles and other surgical products. Vascular access includes introducers, guidewires and related products. Specialty needles include coaxial, biopsy, spinal and disposable veress needles, access trocars, implanters, introducer products, and other needle-based products. The surgical products segment serves a number of markets and applications, including, among other areas, interventional cardiology, interventional radiology, vascular surgery, orthopedics, plastic surgery, dental surgery, urology, veterinary medicine, pain management, endoscopy, and spinal surgery. Theragenics’ brachytherapy business manufactures, custom loads, distributes and markets “seeds” used primarily in the minimally invasive treatment of localized prostate cancer. The Company’s brachytherapy product line (www.theragenicsbrachy.com) includes its palladium-103 TheraSeed® and its iodine-125 AgX100® devices. The terms "Company," "we," "us," or "our" mean Theragenics Corporation and all entities included in our consolidated financial statements. For additional information, call our Investor Relations Department at (800) 998-8479 or visit www.theragenics.com.

This press release contains disclosure of non-GAAP financial measures, including: operating income excluding special items, earnings before interest, taxes, depreciation, amortization and share-based compensation (which we refer to as “Adjusted EBITDA”), and Adjusted EBITDA excluding special items. We believe these non-GAAP measures are useful in helping investors understand our results on a comparable basis between periods and in providing additional and meaningful assessment of our ongoing results and performance. Because we have historically reported what we currently refer to as Adjusted EBITDA, we also believe that the inclusion of this non-GAAP measure provides consistency in our financial reporting and facilitates investors' understanding of our historical operating trends by providing an additional basis for comparisons to prior periods. In addition to measures such as net earnings (loss) and operating income as calculated and presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”), we utilize Adjusted EBITDA, among other things, 1) to establish financial and operational goals; 2) to monitor our actual performance in relation to our business plan and operating budgets; 3) to understand key trends; 4) to make operational decisions and allocate resources; and 5) as part of several components we consider in determining incentive compensation. We believe presentation of these non-GAAP measures provides supplemental information that is helpful in understanding the operating results of our businesses and period-to-period comparisons of performance. However, we recognize that the use of non-GAAP measures has limitations, including the fact that they may not be directly comparable with similar non-GAAP financial measures used by other companies. We compensate for these limitations by providing reconciliation to the most directly comparable GAAP financial measure. All non-GAAP financial measures are intended to supplement the applicable GAAP disclosures and should not be considered in isolation from, or as substitute for, financial information prepared in accordance with GAAP. For a reconciliation of non-GAAP measures from GAAP reported amounts, please refer to Tables IV and V to this press release.

This press release contains forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, the accuracy of which is necessarily subject to risks and uncertainties, including, without limitation, statements regarding future growth, opportunities and investments, pipeline, restructuring of our vascular access manufacturing operations, including expected total costs and anticipated savings resulting from the restructuring, and anticipated results in general. From time to time we may make other forward-looking statements relating to other matters, including without limitation, research and development plans, investments in our surgical products and brachytherapy businesses and capital expenditures. Actual results may differ materially due to a variety of factors, including, among other things, uncertainties related to the timing, savings, capital expenditures, expenses and other factors related to the restructuring of our vascular access manufacturing operations, the integration of acquired companies and assets into our organization, the timing and the ability to capitalize on opportunities for investment and growth within our surgical products business, ability to recognize value from areas of shared expertise, risks and uncertainties related to competition within the medical device industry, development and growth of new applications within the markets for wound closure, vascular access, specialty needle, brachytherapy and, more broadly, medical devices, competition from other companies within the wound closure, vascular access, specialty needle, brachytherapy and medical device markets, competition from other methods of treatment, new product development cycles (pipeline), effectiveness and execution of marketing and sales programs, changes in product pricing, changes in costs of materials used in production processes, changes in the ordering patterns of our customers, continued acceptance of and demand for our products by the markets in which we operate, introduction and/or availability of competitive products by others, potential changes in third-party reimbursement, including Medicare reimbursement as administered by the Centers for Medicare and Medicaid Services (CMS), implementation of new legislation by CMS, physician training, third-party distribution agreements, ability to execute acquisition opportunities on favorable terms and successfully integrate any acquisitions, potential changes in applicable tax rates, legislative changes to healthcare markets and industries such as the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act (including provisions such as the medical device tax which took effect January 1, 2013), uncertainties related to the credit and investment markets and other factors set forth from time to time in our filings with the Securities and Exchange Commission.

All forward looking statements and cautionary statements included in this document are made as of the date hereof based on information available to us as of the date hereof, and we assume no obligation to update any forward looking statement or cautionary statement.

Additional Information and Where to Find It

In connection with the proposed transaction, the Company will file a proxy statement with the SEC. INVESTORS ARE STRONGLY ADVISED TO READ THE PROXY STATEMENT AND ANY OTHER RELEVANT DOCUMENTS FILED WITH THE SEC WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ON THE PROPOSED TRANSACTION. Investors may obtain free of charge the proxy statement (when available) and other relevant documents filed with the SEC with respect to the proposed transaction at the SEC’s website at www.sec.gov. In addition, the proxy statement (when available) and such other documents may be obtained free of charge by directing a request to Theragenics Corporation, 5203 Bristol Industrial Way, Buford, Georgia 30518, Attention: Investor Relations Department, (800) 998-8479.

The Company and its directors, executive officers and certain other members of its management and employees may be deemed to be participants in the solicitation of proxies from its stockholders in connection with the proposed merger. Information regarding the interests of such directors and executive officers is included in the Company’s proxy statement for its 2013 Annual Meeting of Stockholders filed with the SEC on April 1, 2013, and information concerning all of the Company’s participants in the solicitation will be included in the proxy statement related to the proposed merger when it becomes available.

TABLE I

THERAGENICS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

(In thousands except per share data)

   

Quarter Ended June 30,

Six Mos. Ended June 30,   2013       2012       2013       2012   Product sales $ 19,625   $ 21,313 $ 38,837   $ 42,292 Licensing & fee income   674       643       1,335       1,247   Total revenue 20,299 21,956 40,172 43,539 Cost of sales   12,530       13,942       25,378       26,916   Gross profit 7,769 8,014 14,794 16,623 Operating expenses: Selling, general & administrative 6,141 5,378 11,819 11,279 Amortization of purchased intangibles 861 1,006 1,722 1,861 Research & development 272 312 552 589 Medical device excise tax 212 - 405 - Restructuring expenses 143 - 143 - Other   9       3       5       3     7,638       6,699       14,646       13,732   Operating income 131 1,315 148 2,891 Non-operating items: Interest income 24 36 51 74 Interest expense (137 ) (155 ) (273 ) (319 ) Other   1       1       1       2     (112 )     (118 )     (221 )     (243 ) Earnings (loss) before income taxes 19 1,197 (73 ) 2,648 Income tax expense (benefit)   34       359       (24 )     876   Net earnings (loss) $ (15 )   $ 838     $ (49 )   $ 1,772   Earnings per share: Basic $ 0.00 $ 0.02 $ 0.00 $ 0.05 Diluted $ 0.00     $ 0.02     $ 0.00     $ 0.05   Weighted average shares: Basic 29,277 33,655 29,172 33,594 Diluted 29,277 34,204 29,172 34,099     TABLE II THERAGENICS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

(In thousands)

    Assets June 30, 2013   December 31, 2012 Cash, cash equivalents & marketable securities $ 37,171 $ 34,908

Trade accounts receivable

10,284 8,946 Inventories, net 14,963 15,382 Deferred income tax asset – current 997 1,008 Refundable income taxes - 290 Prepaid expenses & other current assets   847     1,014 Total current assets 64,262 61,548 Property & equipment, net 31,785 32,370 Intangible assets 9,230 11,020 Deferred income tax asset – non current 1,426 717 Other long-term assets   70     70 Total assets $ 106,773   $ 105,725   Liabilities & Shareholders’ Equity Accounts payable & accrued expenses $ 6,070   $ 5,571 Total current liabilities 6,070 5,571   Long-term debt 22,000 22,000 Other long-term liabilities   1,178     1,227 Total long-term liabilities 23,178 23,227   Shareholders’ equity   77,525     76,927 Total liabilities & shareholders’ equity $ 106,773   $ 105,725     TABLE III THERAGENICS CORPORATION AND SUBSIDIARIES SEGMENT INFORMATION (Unaudited) (In thousands)     Quarter Ended

June 30,

Six Months Ended

June 30,

  2013       2012     2013     2012   Revenue Surgical products $ 14,680 $ 15,922 $ 29,163 $ 31,416 Brachytherapy seed   5,975     6,315     11,694   12,635   20,655 22,237 40,857 44,051 Intersegment eliminations   (356 )   (281 )   (685 ) (512 ) Consolidated $ 20,299   $ 21,956   $ 40,172   $ 43,539     Quarter Ended

June 30,

Six Months Ended

June 30,

  2013     2012     2013       2012   Operating income (loss) Surgical products $ ( 31 ) $ 588 $ (366 ) $ 787 Brachytherapy seed 874 747 1,273 2,127 Transaction expenses1   (716 )   -     (716 )   -   127 1,335 191 2,914 Intersegment eliminations   4     (20 )   (43 )   (23 ) Consolidated $ 131   $ 1,315   $ 148   $ 2,891    

1 Transaction expenses related to the pending transaction with an affiliate of Juniper Investment Company LLC to acquire all of the outstanding common stock of the Company.

TABLE IV THERAGENICS CORPORATION AND SUBSIDIARIES RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (Unaudited)

(In thousands)

 

EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION, AMORTIZATION AND SHARE-BASEDCOMPENSATION (ADJUSTED EBITDA) ANDADJUSTED EBITDA EXCLUDING SPECIAL ITEMS

  Quarter Ended

June 30,

  Six Months Ended

June 30,

  2013     2012     2013       2012   Net earnings (loss), GAAP $ (15 ) $ 838 $ (49 ) $ 1,772 Income tax expense (benefit)

34

359 (24 ) 876 Interest income (24 ) (36 ) (51 ) (74 ) Interest expense 137 155 273 319 Other non-operating income/expense   (1 ) (1 )   (1 )   (2 ) Operating income 131 1,315 148 2,891 Depreciation and amortization 1,974 2,137 3,978 4,120 Share-based compensation   356   243     636     439   Adjusted EBITDA1 $ 2,461 $ 3,695 $ 4,762 $ 7,450   Special items: Restructuring expenses2 $ 143 $ - $ 143 $ - Operational transition expenses3 157 - 250 - Non-restructuring related severance4 204 - 204 - Transaction related expenses5   716   -     716     -   Adjusted EBITA, excluding special items1 $ 3,681   $ 3,695   $ 6,075   $ 7,450    

1 Represents a non-GAAP financial measure. See page 4 of this press release for information on non- GAAP financial measures. We refer to earnings before interest, taxes, depreciation, amortization and share- based compensation as “Adjusted EBITDA.”

2 Restructuring expenses related to the closing of the Galt Medical facility in Garland, Texas.

3 Operating expenses related to the restructuring, such as training and duplicate labor to transition the Galt operations to Latin America and/or our NeedleTech facility in Massachusetts, which do not qualify as “exit or disposal activities” under GAAP.

4 Severance expenses not related to the restructuring.

5 Transaction expenses related to the pending transaction with an affiliate of Juniper Investment Company LLC to acquire all of the outstanding common stock of the Company.

TABLE V

THERAGENICS CORPORATION AND SUBSIDIARIES

OPERATING INCOME EXCLUDING SPECIAL ITEMS (Unaudited)

(In thousands)

  Quarter Ended

June 30,

Six Months Ended

June 30,

  2013       2012     2013       2012   Surgical Products Segment Operating income (loss) as reported $ (31 ) $ 588 $ (366 ) $ 787 Restructuring expenses1 143 - 143 - Operational transition expenses2 157 - 250 - Non-restructuring related severance expense3   204     -     204     -   Operating income excluding special items5 $ 473   $ 588   $ 231   $ 787     Brachytherapy Segment Operating income as reported $ 874   $ 747   $ 1,273   $ 2,127       Intersegment eliminations as reported $ 4   $ (20 ) $ (43 ) $ (23 )   Transaction expenses, as reported $ (716 ) $ - $ (716 ) $ -   Consolidated Operating income as reported $ 131 $ 1,315 $ 148 $ 2,891 Restructuring expenses1 143 - 143 - Operational transition expenses2 157 - 250 - Non-restructuring related severance3 204 - 204 - Transaction related expenses4   716     -     716     -   Operating income excluding special items5 $ 1,351   $ 1,315   $ 1,461   $ 2,891    

1 Restructuring expenses related to the closing of the Galt Medical facility in Garland, Texas.

2 Operating expenses related to the restructuring, such as training and duplicate labor to transition the Galt operations to Latin America and/or our NeedleTech facility in Massachusetts, which do not qualify as “exit or disposal activities” under GAAP.

   

3 Severance expenses not related to the restructuring.

4 Transaction expenses related to the pending transaction with an affiliate of Juniper Investment Company LLC to acquire all of the outstanding common stock of the Company.

 

5 Represents a non-GAAP financial measure. See page 4 of this press release for information on non-GAAP financial measures.