Meara Murphy - Head, Corporate Communications Jeff Bailey - President and CEO John Bakewell - CFO.
Good afternoon, ladies and gentlemen. I would like to welcome everyone to the Lantheus Medical Imaging First Quarter 2015 Earnings Conference Call. Please note that all lines have been placed on mute to prevent any background noise. This call is being recorded for replay purposes.
A replay of this call will be available approximately three hours after conclusion of the live call through May 19th. I would now turn the call over to your host for today, Ms. Meara Murphy..
Thank you and good afternoon, everyone. Welcome to Lantheus Medical Imaging’s first quarter 2015 earnings conference call. We appreciate you joining us. I am Meara Murphy, Head of Corporate Communications for Lantheus Medical Imaging.
With me on the call today are Jeff Bailey, President and Chief Executive Officer and John Bakewell, Chief Financial Officer. Please note that earlier this afternoon we issued a Press Release reporting first quarter 2015 results. We also filed with the SEC our Form 10-Q for the quarter ended March 31, 2015.
You can find both of these documents in the Investor Relations section of Lantheus’ Web site at lantheus.com. Please note that consistent with last quarter's call, we are refraining from our traditional practice of conducting a question-and-answer session due to the fact that our parent company, Lantheus Holdings, Inc.
remains in registration for a possible public offering of its equity securities. Today's remarks have been prepared in order to anticipate the topics that may otherwise have been on your list of questions.
Before we begin, I would like to remind you that remarks during this call may include some forward-looking statements including statements related to our products and supply arrangements and expectations for future periods. Matters addressed in these statements are subject to risks and uncertainties.
Words such as believes, expects, anticipates, hopes, plans, may and similar expressions are intended to identify such statements. Actual results may differ materially from our expectations.
Please refer to the cautionary statements and risk factors contained in our SEC filings, including our Annual Report on Form 10-K filed with the SEC today March 04, 2015 and our quarterly report on Form 10-Q filed with the SEC on May 05, 2015. A copy may be obtained at sec.gov and on our Web site at lantheus.com.
Except to the extent required by law, we do not undertake any obligation to update any forward-looking statements and we caution you against relying on any forward-looking statements. On today’s call, we will also discuss certain non-GAAP financial measures with respect to our performance.
We use these non-GAAP indicators for our financial and operational decision-making and as a means to evaluate our performance.
The definitions of EBITDA, adjusted EBITDA and net income as adjusted along with their reconciliations to GAAP net income are set forth in our earnings release, which was filed with the SEC as of May 05, 2015 as a current report on Form 8-K. Copies may be obtained at sec.gov and on the Company's Web site at lantheus.com.
Please note that unless indicated otherwise, all of our commentary on today’s call will make reference to as adjusted results. With that introduction, it is now my pleasure to turn the call over to our CEO, Jeff Bailey.
Jeff?.
Thank you, Meara. And welcome to everyone joining us today on our first quarter 2015 earnings call.
I'll begin our discussion today with some opening commentary before handing the call over to John for his review of the first quarter 2015 financial results after which I'll return to provide a business and strategic update before concluding with some additional closing remarks.
Yesterday's Press Release indicates we had a very good start to the year. Our first quarter 2015 performance reflects our continued focus on execution and operational excellence. First quarter 2015 revenue totaled $74.8 million increasing year-over-year by 2% as reported and 4% on a constant currency basis.
This growth was led by the continued commercial success of DEFINITY posting a 15% year-over-year increase in Q1 growing sequentially for its 11th consecutive quarter. All together we posted positive GAAP net income for the third consecutive quarter totaling $700,000 for the first as compared to a $1.3 million GAAP net loss in the year ago quarter.
On an adjusted basis first quarter net income totaled $4.3 million, an improvement of $5.6 million, compared to a net loss as adjusted of $1.3 million for the year ago quarter.
Our first quarter adjusted EBITDA totaled $20.6 million, increasing 29% from $16 million in the same quarter of last year, of note, first quarter adjusted EBITDA expanded sequentially by $1.2 million compared to the fourth quarter of 2014, our increasing earnings in Q1 reflects continued growth of our high margin DEFINITY echocardiography contrast agent it also had a favorable net result of a lower sales volumes but increased selling pricing and margins for a number of our nuclear medicine products driven in large part by our previously announced change in contractual status with Cardinal Health that become effective January 1, 2015 all I am going to is change to a little contract status with Cardinal.
Our sales volumes again to transition from previous historical levels to new lower levels but providing a revenue and margin benefit in Q1, some of the volume that we previously sold to Cardinal has shifted to sales to other of our radiopharmacy customers, but we fully anticipate the benefit of this change contractual status to moderate the future quarters we're nonetheless pleased with our strong start to 2015.
You'll hear more about how all this is affecting our revenue and gross margins later into this call. At this time, I'll hand the call over to John for a detailed review of our first quarter financial results after which I'll be back to take you through the rest of our agenda. So with that, John it's all yours..
Thanks, Jeff, good afternoon everyone. As Jeff, noted we are quite pleased with our start to 2015. I’m happy to be taking you through the details.
As we get started let me reiterate that unless otherwise stated all of today's discussions regarding our sales growth rates referred to our constant currency growth rates and our results of operations refer to our as adjusted results as described by our operator during the instruction to our call.
Also as was noted during the introduction, today's Press Release provides you with our P&L results in accordance to GAAP requirement and also includes tables which provide reconciliations of certain of our P&L components from an as reported GAAP basis to an as adjusted basis to exclude the impact of certain special charges and credit.
We recognize that most of you evaluate our performance on one or more of these bases that exclude certain non-cash expenses as well as other special items and we have provided you with all the information necessary for you to model our results accordingly. As Jeff noted our first quarter revenue growth totaled 4% on a constant currency basis.
Looking at those results in detail on a product line basis, DEFINTY continued its strong performance during the first quarter with revenue totaling $25.7 million increasing by $3.3 million or 15% over the first quarter of 2014.
Sales growth was once again driven by the continued adoption of contrast in echocardiography procedures evidenced by the U.S. market contrast penetration rate which has been increasing steady since 2010. DEFINITY now represents 34% of our worldwide revenue growing from 30% in the first quarter of 2014.
Our TechneLite business posted worldwide revenue of $20.9 million for the first quarter of 2015, decreasing by 8% on a constant currency basis compared to the year ago quarter.
The year-over-year decline was attributable primarily to the recent change in customer contractual status as Jeff just noted in this opening remarks the net effect of which was higher per unit billing prices crisis for the entirety of Q1 in combination with volumes that remained at historical rates for a portion of Q1 or adjusting downward the new lower levels that we believe will carry forward in the future period.
Looking ahead in comparison to Q1 revenue levels, we expect our TechneLite revenue to be lower in future quarters as those future quarters will not have the benefit of initial higher volumes as did Q1.
Xenon revenues, which represented 18% of our total sales during the first quarter of 2015, totaled $13.2 million growing 36% versus the year ago quarter primarily reflecting increased per unit selling prices attributable to the recent change in customer contractual status.
Going forward while we anticipate continued year-over-year growth in Xenon revenue through the remainder of 2015.
We do anticipate lower levels of reported Xenon revenue and lower growth rate than what we achieved in Q1 as Xenon volume continues to shift among customers within our radiopharmacy channel resulting in a net increase in our blended average selling price.
Our other product category which represents 20% of our total revenue includes a number smaller product lines and revenue generating activities totaled $15.1 million decreasing by 12% in constant currency as compared to the first quarter of 2014.
Decrease is attributable to certain licensing revenues that ended in December 2014 and lower levels of revenue in our international radiopharmacy.
Moving below the revenue line, our first quarter 2015 gross margin totaled 47.9% as adjusted, 690 basis point improvement over gross margin of 41% as adjusted for our first quarter of 2014, while approximately 150 basis points of the increase is due to lower levels of technology transfer costs year-over-year.
The main driver of this significant improvement is the net combination of lower volumes and increased per unit selling prices associated with the change in customer contractual status with disaffecting particularly pronounced in Q1 due to the historic TechneLite volumes that carried into the early part of the quarter.
Going forward we anticipate seeing the overall gross margins exclusive of technology transfer cost that are improved versus prior years though not to the degree we experienced in Q1. Additionally as we move through the remainder of 2015, we expect to see some variability in our reported gross margins from quarter-to-quarter.
The result of changes we're experiencing in our nuclear product volumes, customer mix and blended average selling prices.
As for those technology transfer costs which are the period expenses associated with our various contract manufacturing initiatives, we're expecting considerably heightened level from the remaining quarters of 2015 versus the $900,000 incurred in Q1 as our CMO-related activities intensify.
All those increased costs will dampen our reported gross profit and gross margin results, please note that they do not impact adjusted EBITDA since they're included as add backs to that calculation.
In summary quite pleased with our Q1 gross margin performance and more specifically with the underlying dynamics that have driven and will drive our margin performance through the remainder of this year.
Moving now to operating expenses, our combined operating expense ratio as adjusted totaled 27.5% for the first quarter of 2015, 210 basis point improvement compared with 29.4% in the first quarter of 2014.
First quarter 2015 operating expenses were $1 million lower in aggregate than those of the year ago quarter reflecting our continued focus on efficiency and cost management.
All together on an adjusted basis, our business delivered operating income of $15.3 million and an operating margin of 20.4% for our first quarter of 2015 just dramatically improved in comparison while in first quarter 2014 operating income of $8.5 million and operating margin of 11.6% and is sequentially improved by $2.3 million over the fourth quarter of 2014.
A similar outcome is reflected in our net earnings and adjusted EBITDA performances with achievement of positive GAAP net income for the third consecutive quarter with net income as adjusted totaling $4.3 million for the quarter and with our adjusted EBITDA expanding 1.2 million sequentially.
Before I wrap up let me cover our cash flow balance sheet and liquidity considerations, beginning with cash flow. We generated positive operating cash flow of $15.2 million during the first quarter of 2015 as compared to a negative cash flow from operations of $15,000 during the first quarter of 2014.
Cash flow from operations for the fourth quarter of 2014 totaled a negative $3.9 million. Of note, fourth quarter operating cash flow included $19.5 million semiannual payment of our bond interest.
Within our components of working capital, accounts receivable as of March 31, 2015, totaled $38.4 million compared to $41.5 million at December 31, 2014, representing approximately a $3.1 million towards cash.
We had days sales outstanding of 45 representing a two-day improvement from December 31, 2014, attributable to both improved collection efforts and the sequencing of sales through the quarter. Inventory on-hand totaled $16.2 million as of March 31, 2015, which represents approximately 40 days of inventory on-hand in aggregate.
Capital expenditures during the first quarter of 2015 were $3.5 million compared with $1.5 million in the first quarter of 2014 and $2.8 million in the fourth quarter of 2014.
It is important to note that CapEx does not include the costs associated with our historic or ongoing technology transfer activities with various contract manufacturing organizations, which as I noted in my gross margin commentary are expensed as incurred within the cost of sales, but added back within our calculation of adjusted EBITDA.
In the first quarter of 2015 we invested $900,000 into our tech transfer activities versus $2 million in the year ago quarter and $800,000 for fourth quarter of 2015. Cash and cash equivalents at March 31, 2015 totaled $28.8 million, compared with $17.8 million at December 31, 2014.
As of March 31, 2015 with an outstanding $8.8 million unfunded standby letter of credit and an $8 million loan balance outstanding, our resulting net availability as of that date was approximately $28.9 million and our total liquidity including cash on-hand was $57.7 million, which provides ample liquidity to support our operating needs including upcoming debt service requirements.
With that, I’ll conclude our first quarter 2015 financial review and I’ll now turn the call back over to Jeff..
Thank you, John. I'll start my business update today with a focus on our flagship product DEFINITY, as noted previously DEFINITY continued to perform strongly during the first quarter. All in at third FDA approved echocardiography agent has recently entered the U.S. market.
Our strategy remains focused on growing overall appropriate use of contrast imaging in echocardiography and in educating healthcare providers on how the appropriate use of DEFINITY in improved clinical factors. As many of you know we track contrast penetration rate which is the percentage of all U.S.
echocardiography studies performed within imaging agent of any kind, we continue to see steady contrast penetration growth as more physicians and sonographers recognize the value the appropriate use of contrast in fact the exited the first quarter for the three month average U.S.
contrast penetration rate of 4.4% marking an all time high contrast penetration rate since launch of DEFINITY in 2001. Our next topic is a supply related update. Throughout the past several years Molybdenum-99 or moly supply diversification advanced has been a key priority at Lantheus.
This has positioned us to successfully prepare for the annual planned shutdown of NRU reactor for its routine pump on inspection and maintenance as required by Canadian regulators. This year before we shut down period for the NRU reactors started back on April 13th, the reactor is expected to come back on line on May 13th.
Therefore extensively NCP South Africa and so in Australia and IRE in Belgium to a range alternative of moly supplies during the NRU outage, now as a result of these efforts, we expect to be believe to source all our standing quarter customer demand for technetium generators during the NRU outage period our global supply chain.
Presently we also received Xenon to the pipeline of moly production process through Nordion and the NRU reactor in Canada. As a result of the NRU before we shutdown the interest paid even outage of approximately 10 days this months, which should minimize the impact of the NRU shutdown on Xenon customers.
As this is the case this year the NRU shutdown by the second quarter unit volumes of Xenon slight lower than the first quarter. As mentioned on the last quarter's call January 2015, we entered into an agreement with IRE for suture to supply of Xenon.
With this agreement with IRE, we plan to have continued supply with Xenon in 2016 and beyond as the NRU reactor was expected to cease production we're seeing production of medical radioisotopes in October 2016. Now I would like to take a moment to provide a brief update on the status of our discussions with Cardinal.
As I shared during the last quarter's call I would extend the discussion throughout 2014 we enter 2015 without written supply agreements with Cardinal. At this time our discussions with Cardinal have not yet resolved in written supply agreements. We're currently expecting a facility pipe work from Cardinal on at our non-contract prices.
We continue to have dialogue with Cardinal and consistently communicate our desire to least mutually acceptable agreements for the benefit of both our companies the nuclear medicine industry and most importantly the patients we both serve.
In the first quarter, we saw a shift in volume amongst our radiopharmacy customers that has resulted in a more balanced customer base also I am pleased to announce that we continue to be recognized by some of our major customers including recently with the formal recognition by GE as well as UPTI our strong performance as a reliable business partner.
Our team is very proud of this recognition. Flurpiridaz F 18 this past Sunday, May the 3rd, Dr.
Maddahi of UCLA presented data from our first stage III study at the International Conference on Nuclear Cardiology in Cardiac CT in Madrid, Spain, the data provided additional evidence that Flurpiridaz F 18 is a obviously new agent that diagnosed in coronary artery disease in a well controlled setting myocardial perfusion imaging or MPI using Flurpiridaz F 18 consistent to show outperformance identifying disease sensitivity and really out disease which is sensitivity and really our disease which is specificity when compared to coronary angiography which is the true standard.
Flurpiridaz F 18 also substantially outperformed NPI using a single photon emission computed tomography or SPECT in sensitivity from the study’s primary endpoints; however Flurpiridaz F 18 did not meet the study's other primary end point which is non-inferiority and specificity as compared to stack.
The subgroup analysis the risk benefit profile Flurpiridaz F 18 appears to be favorable in women, obese patients in patients with multi-vascular disease importantly radiation exposure also associated with Flurpiridaz F 18 was reduced to approximately 50% SPECT a significantly higher percentage of images rated as excellent, good with Flurpiridaz F 18 as compared to SPECT leading to a greater diagnostic certainty to interpretation.
In addition no drug related series adverse events were observed. Based on these results we have redesigned protocol for a second Phase III trial within different primary endpoints. On March 13, 2015, FDA granted us a special protocol assessment for SPA with connection with the new trial.
We're now and active special for number of prospective partners for further development and commercialization of this promising agent. We'll keep your apprised of further developments. Finally let me provide you with a brief update of Zurich litigation.
As you know last July 14, 2014, Zurich filed a summary judgment motion in United States District Court at the Southern District of New York which was opposed on August 25, 2014. On March 25, 2015, the court granted for promotion with summary judgment [indiscernible].
We're disappointed with the discussion is believe that the business interruption [indiscernible] recover us for losses with property connection with NRU outage in 2009 and 2010. We continue to evaluate all of our options at stage we will continue to update you on any material through development. With that I'll end my remarks for this quarter.
All together we're pleased with our strong start to the year and the progress we're making a number of strategy initiatives that further strengthen our business. And we use the momentum we created coupled with a focus execution to continue to advance our operational excellence drive financial results long-term growth and success.
As I wrap up it's interesting to note the overall positive transformation we're seeing at Lantheus over the past couple of years. We've made great progress on many fronts evidenced by our dramatic expansion gross margin, reporting earnings and adjusted EBITDA since the beginning of the 2014.
These improvements are result of our consistent by quality, efficiency and customer service at the forefront of all that we do. I believe we are now on position of strength and are well prepared to maximize value for patients, healthcare providers and investors.
We appreciate your continued interest and support and I look forward to updating you again in our next earnings call. With that we will conclude today's call..
Thank you, ladies and gentlemen this concludes today's conference. Thank you for participating. You may now disconnect..
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