Meara Murphy - Director, IR & Corporate Communications Mary Anne Heino - President & CEO Jack Crowley - CFO.

Erin Wilson - Credit Suisse.

Good afternoon, ladies and gentlemen. I would like to welcome everyone to the Lantheus Holdings' Third Quarter 2016 Earnings Conference Call. This is your operator for today's 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 the conclusion of the live call through November 15. I would now like to turn the call over to your host for today, Ms. Meara Murphy, Director of Investor Relations and Corporate Communications. Ms. Murphy, you may begin..

Good afternoon, everyone. Welcome to the Lantheus Holdings' third quarter 2016 earnings conference call. We appreciate you joining us. With me on the call today are Mary Anne Heino, President and Chief Executive Officer; and Jack Crowley, Chief Financial Officer.

Please note that earlier this afternoon, we issued a press release reporting third quarter 2016 results. We've also filed with the SEC our Form 10-Q for the quarter ended September 30, 2016 later today. You will be able to find both of these documents in the Investor section of our website at lantheus.com.

Remarks that we make about future expectations, plans and prospects for the company constitute forward-looking statements for purposes of the Safe Harbor provision and the Private Securities Litigation Reform Act of 1995.

Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors. The factors are discussed in the risk factor section of our Form 10-K for the year-ended December 31, 2015 as well as our subsequent SEC filings.

In addition, any forward-looking statements represents our views as of today and should not be relied upon as representing our views as of any subsequent date. So we might update forward-looking statements at some point in the future. We specifically disclaim any obligation to do so.

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 financial and operational decision-making and as a means to evaluate our performance.

The definitions of EBITDA, adjusted EBITDA, operating income as adjusted and net income as adjusted along with reconciliations to GAAP metrics are set forth in our earnings release which was filed today on Form 8-K and is available on our website. I would now like to turn the call over to Mary Anne Heino.

Mary Anne?.

Thank you, Meara. And welcome to everyone joining us today on our conference call. I'll begin our discussion today with a high level summary of our third quarter 2016 results and financial activities before handing the call over to Jack for a more detailed review of our performance and guidance.

Then I'll return to provide an update of progress against our three corporate priorities for 2016. So let me start with a review of our third quarter financial results. We posted third quarter revenue of $73.1 million, exceeding our third quarter guidance of $68 million to $70 million. Net income for the third quarter totaled $4.2 million.

We exceeded third quarter adjusted EBITDA guidance with $18.7 million versus guidance of $14 million to $16 million. We are pleased to report during the third quarter we consummated a successful follow-on primary stock offering raising approximately $40 million in net proceeds.

We use this cash along with cash more balance sheet to pay down $55 million of our outstanding debt. Continued deleveraging has been an important goal since our IPO and this pay down is a further step towards that goal.

Even with this pay down, we maintain a healthy amount of cash on our balance sheet which totaled approximately $53 million as of September 30.

Overall, we are very pleased with our third quarter and year-to-date financial results and activities which reflect the solid performance of our flagship product vicinity, continued execution of our nuclear product contracting strategy and our consistent focus on optimizing our capital structure.

I would stand further when I update you on our focused priorities later in the call. Now, let me turn over the call to Jack for a detailed review of our third quarter 2016 financial results, and an update on our financial guidance.

Jack?.

Thanks, Mary Anne, and good afternoon everyone. The tables included in today's press release as previously noted include reconciliation of our GAAP results to the as adjusted non-GAAP performance I will be covering with you today.

On a particular note, those tables include the reconciliation of our GAAP net income to adjusted EBITDA which is a metric we consider to be particularly relevant at this time due to the variability of our technology transfer activities and related costs. In total, third quarter 2016 delivered $73.1 million in revenue.

As Mary Anne stated, we feel that our continued attention to driving DEFINITY revenue in a continued successful execution of our nuclear products contracting strategy are the key drivers of this performance.

Looking at our revenue results on a product line basis, DEFINITY delivered posting revenue of $32.6 million in the third quarter, an increase of 13% as compared to the prior year. Our TechneLite business posted worldwide revenue of $24.5 million for the third quarter increasing by 42% as compared to the year ago quarter.

The improvement versus prior year was the result of our nuclear products contracting strategy. Xenon revenues totaled $6.7 million, a decrease of 48% versus the prior year.

As shared on previous calls, our nuclear contracting strategy is a portfolio approach for our nuclear products based on volume commitment for certain products in exchange for reduced pricing including Xenon.

Our other product category which represent approximately 13% of our revenue totaled $9.2 million during the third quarter decreasing by 40% as compared to the prior year quarter. This decrease was primarily driven by the divestiture of our Canadian and Australian radio pharmacy businesses in the first and third quarters of 2016 respectively.

Moving below the revenue line, our third quarter 2016 gross margin excluding technology transfer activates which we refer to in our reconciliation as new manufacturing costs totaled 47.2%, a 44 basis point improvement versus the third quarter of 2015.

This improvement was driven primarily by the strong performance of our higher margin products and our continued focus on efficiencies along with the new distribution models in Canada and Australia.

Moving now to operating expenses as adjusted, third quarter 2016 operating expenses totaled $21.6 million representing an increase of 6.6% over the prior year. These results primarily reflect the impact of increased employee-related expenses, business development activities, and depreciation related to investment and technology.

Operating income as adjusted was $12 million for the third quarter of 2016, a decrease of 10% as compared to the prior year. This decrease was driven by the revenue, gross profit, and expense dynamics I previously described.

Moving below operating income, third quarter interest expense totaled $6.8 million, an improvement of $0.3 million or approximately 4% in comparison with the third quarter of 2015. We expect our go-forward quarterly interest expense to decrease by approximately $900,000 following our $55 million repayment on the principle on our term facility.

Pre-tax earnings for the quarter totaled $4.2 million, a decrease of $1.9 million in comparison to the pre-tax earnings of $6.1 million in the third quarter of 2016. The key driver of this decrease recorded in the quarter was a write-off of $1.4 million in debt retirement cost. As previously noted, U.S.

pre-tax earnings are currently being offset both for GAAP and cash tax purposes by the utilization our significant federal net operating loss carry forwards. Moving on to our balance sheet, cash flow and liquidity, as of September 30, 2016 we had cash and cash equivalents totaling $53.2 million.

Our ABL facility with outstanding loan balance to zero and an outstanding letter of credit totaling $8.8 million provided us with net availability of $31.5 million as of September 30.

Our total liquidity which includes cash on-hand and availability under our revolving credit facility was $84.7 million as of September 30 providing substantial liquidity to support our operating needs. Our third quarter 2016 operating cash flow totaled $15.4 million as compared to $5.4 million in the third quarter of 2015.

As for the other key components of our cash flow, capital expenditures during the third quarter of 2016 were $2.6 million compared to $2.3 million in the third quarter of 2015. Within financing activities during the third quarter of 2016 we raised approximately $40 million from our follow-on offering.

We used these proceeds along with cash from our balance sheet to repay $55 million of our term facility which has substantially improved our leverage ratio. Now I'll turn to discuss our 2016 guidance.

As stated in today's press release as a result of over archiving our Q3 revenue guidance, we are again increasing our guidance for revenue for the full year 2016 to the range of $296 million to $299 million from our prior guidance of $291 million to $295 million.

We believe that our ability to increase our full year revenue guidance demonstrates the overall strength of our portfolio of products. Also as stated in today's press release we have increased our guidance for adjusted EBITDA for full year 2016 to the range of $73 million to $75 million from our prior guidance of $70 million to $73 million.

We are very pleased with our Q3 performance and we will continue to focus on driving strong financial results as we close out 2016. With that I'll turn the call back over to Mary Anne..

Thank you, Jack. I'd like to now share an update on our progress against our 2016 corporate priorities which are; one, grow revenue and unit volume of our commercial portfolio; two, advance our pipeline asset and business development opportunities; and three, create efficiencies in operations and optimize our capital structure.

First with respect to growing revenue and unifying of our commercial portfolio DEFINITY continue to perform strongly during the third quarter delivering a 13% increase in sales for the year-over-year quarter. DEFINITY continued to maintain its strong leadership position in the U.S. market and contrast penetration rate continues to trend up.

To ensure continued supply for our increasing demand, we have expanded our manufacturing and supply agreement with Jubilant [ph] for the manufacture of DEFINITY through January 2022. Our nuclear product portfolio continues to deliver increased revenue and unit volume consistent with the contracting strategy we have discussed previously.

TechneLite sales are up 42% year-over-year and the product continues to perform at higher than contract permitted volumes. Xenon remains an important contributor to our nuclear portfolio. We've ensured continued Xenon supply to meet our contracted commitment with the successful sourcing transition to IRE.

We remain a leading supplier of this critical agent to the U.S. medical marketplace. We are pleased to announce a new multi-year agreement with the UPPI covering TechneLite, Xenon, and our other nuclear products through December 2019. Previously our UPPI agreement was set to expire in December 2016.

UPPI is a major provider of unit dose radio pharmaceuticals in the U.S. market and we look forward to continuing our long-standing relationship with this important customer. Internationally, we are permitted to continually expanding our DEFINITY footprint throughout Europe and Asia.

We are excited to report that we've already had sales of DEFINITY in Germany, UK, Netherlands, and Austria through our distribution partners CSI diagnostics and [indiscernible]. Now let me update you on our second priority of advancing our pipeline access and business development opportunities.

In August, we announced the divestiture of our radio pharmacy servicing operation in Australia and the simultaneous signing of a long-term supply and distribution agreement with the Bayer Global Medical Solution or GMS.

The transactions simplifies our service and distribution model in Australia and expand the international reach of our products while improving operational efficiency.

Through our long-term supply and distribution agreement with GMS, we will continue to provide nuclear medicine product and DEFINITY to healthcare providers and their patients in Australia, as well as a number of other Asia Pacific markets served by GMS.

We continue our active negotiations with potential strategic partners to assist with the further development, manufacturer, and commercialization of flurpiridaz F-18. We are making good progress and will continue to keep you apprised of our negotiations.

In addition, we continue to actively evaluate new tuck-in acquisition opportunities to broaden and enrich our current portfolio, and to position the company for future profitable growth. Our third and final priority is relentless attention to creating efficiencies in our operation an optimizing our capital structure.

As noted, we recently paid down $55 million of the outstanding principle balance under our term facility reducing our leverage ratio while at the same time maintain a healthy $53 million of cash on our balance sheet as of quarter-end.

The sale of our radio pharmacy business in Australia combined with the Canadian divesture earlier in the year and the simultaneous commencement of long-term supply and distribution agreement allow us to more efficiently serve these international markets with the potential to reach additional customers end markets.

In summary, we are very pleased with our performance; also with the outlook for the remainder of the year and the state our business as we look forward to 2017. I look forward to updating you on our continued progress and our financial projections for 2017. With that I'll conclude my comments and open the call for question..

Thank you. [Operator Instructions] And our first question comes from Erin Wilson from Credit Suisse. Your line is open..

Great, thanks for taking my question. I believe you can hear me. I guess can you give us an update on the competitive environment across your core product lines particularity DEFINITY? And then also if you could comment on international trends within that segment, that would be helpful. Thanks so much..

You're very welcome, this is Mary Anne and I'll take that question. The competitive environment in the U.S. marketplace is unchanged as of this quarter versus what we've shared with you throughout the year. In our DEFINITY market or the Eco-contrast phase, we have two primary competitors and an offering by GE and offering by Draco.

As I mentioned in my comments, I am pleased to share that we've retain and maintain a strong leadership position in market share in that phase. I'll speak internationally for DEFINITY before I turn to nuclear products.

As I shared also in this call, we had announced an earlier calls in the year that we signed distribution partnerships with both BB Lampro [ph] and CS Diagnostics; the updates that I'm offering in this call is that we've actually seen first sale into those markets, and we'll continue to monitor not only the markets that we're in, which are the four countries that I mentioned but also the opportunity to enter additional European and Asian market.

We do have a very active development program underway in Asia getting glued both, South Korea and Taiwan, as well as a very exiting partnership that we have in China that is under development so those are all markets that we're actively engaged in, and we continue our presence in Australia through our relationship with GMS, Global Medical Solutions.

On the nuclear products front that is also for purpose for this quarter, an unchanged competitive dynamic. We announced earlier this year that a new competitor for our Xenon product had entered the market commencing in the second quarter.

We monitored our [indiscernible] and everything Jack shared on last call and we're happy to speak to again this call, we've seen very stable maintenance of our revenue in that market.

The decrease that Jack mentioned year-over-year in Xenon's performance really reflects more of price concessions that were given as part of our nuclear contract strategy.

Did that answer your question?.

Yes, that was very helpful. Thank so much..

[Operator Instructions] Our next call comes from Raj Denhoy of Jefferies. Mr. Denhoy, your line is open..

Good afternoon, this is actually Christian on for Raj. I hope you guys are well. Just maybe a first question on DEFINITY, obviously another good quarter at 13% growth, we were modeling at more for 17%.

And just wondering if there is any update on -- I know you mentioned that you're not losing any market share but I think the last update on market share and new SCG market was around 78%. Do you have an update to that number? And then maybe just the dynamics with the deceleration we're seeing through this year and just a lower quarter versus 2Q.

Thank you..

This is Mary and I'll speak to there is several dynamics that you mentioned we continue to see strong high-teens growth year-on-year. As I mentioned, for this particular quarter it's 13% over the prior year quarter.

When we look at market share, there is actually four leverage that we look at in that market, there is the overall size of the echo market, how many procedures are done then there is the subset of those that are done with contrast -- we call that contrast pen rate; and there is market share and there is price.

It's a combination of those four that really define and calculate our performance in the market.

Q3 is an interesting period when it comes to the overall echo market because it is mainly contained vacation month or summer month, we typical see a deceleration in the total number of echoes that are done in that period versus the prior period, not versus the prior year quarter but versus the prior sequential quarter and we did see that this year.

And in fact, so look at the numbers and again, I'll ask you to take whatever I'm going to say with a grain of skepticism because it is survey data and that's why we don't share exact numbers with you. But this data, we did see a decrease in the total echo market of echo procedures done of 2.6% in Q3 of 2016 versus Q2 of 2016.

In the same period, we saw a decrease of only 2.1% for DEFINITY.

So DEFINITY outperformed what was a softening of the market, and this is something that we expect to see every year that there is a period in high summer month, we just do the intersection of self, patients and physician vacation -- there tends to be somewhat a rescheduling or putting off no-urgent echo procedures until late summer early fall which is period we're in now.

You mentioned market shares, we -- market share -- again, because those are survey data we have stopped sharing exact numbers, but I am happy to confirm that versus of number that you said to me which was 78%, I am happy to report that you that it's going to be courage surveyed market share higher than that. .

Great, thank you very helpful with all the detail there, and then maybe just a quick question on TechneLite; it came in much stronger than we were expecting in the quarter, and if you could talk about some of the excess ordered for your team, and whether that getting any easier to forecast into the future and how we should think about modeling that product going forward?.

I think their question you see -- the sales that Jack and I have taken consistently this year, we have shared frequently and consistently with yourself and your peers that it's our intent not to attempt forecast, but our staffs are both committed contract volumes, for TechneLite, again where we're happy to repeat those extra orders and fell them if we can, you see that again happening in Q3, and while we didn't report to you what the sequential sales to quarter-over-quarter, what you will know if you go back you will see that essentially the amount of over opportunistic sales in Q2 headlight, was actually higher than the amount of opportunistic sales in Q3, still present, but this not the same expense.

For those reasons and many other as we look for value for the rest of the year, and as we look at 2017 will continue to take our stand that we will not, what they give to our forecast any assumption for opportunistic sales, although we gladly accept them whenever they come our way. .

The question I think that is the jacket - it just went some the guidance in perspective, so as Mary Anne noted our over performance divinity verses overall market, actually led that some of our over performance verses our guidance, as well as some of the TechneLite over performance. .

Okay, thank you, that's all. Just to mention, one last question on AP [ph] team, just wondering if there's any update I think we're expecting to hear by the firm partnership by year end, if that's in the pipeline if you are still expecting to make that announcement by the end of the fiscal year, and then let others to have questions, thank you. .

Thank you, what I will say about 18 is that there are conflicts negotiations and my stand as CEO of the company and I am applied to determine to bring the best deals to our company, not only in the moment but future value.

I can't confirm that that will happen by year end, what I will absolutely commit to; is that it is a high priority for us, gets a lot of our attention and we feel we have the right skills and we'll be happy to announce that not only to our analyst put to the public as well. .

Okay, thank you very much. .

And our next question comes from Larry Biegelsen from Wells Fargo. Your line is open..

Hi, it's Lay [ph] calling in for Larry. And thanks for taking my question. I'm going to start with just a couple questions on the numbers. So on the two calls you had mentioned that there'd be fewer selling days in second half the year verse first half. Can you provide any color on what they're selling difference was in Q3 verses Q2.

And if you can quantify any of the impact. .

Yes, hi Lay [ph] its Jack. To the second half of the year does have less on shipping days than the first half a year, but those really occur in Q4 so Q3 shipping days is consistent with Q2 which is consistent with Q1 for 2016. We will see a couple days' decreases in Q4.

And in terms of the quantification of that I want offer the quantification, we don't want to get sales by day but we don't think it's going to be that significant but it is a data point for us, that we look at, especially if it falls upon high volume days for us with our products. .

Okay, that's helpful thanks. And then the second question is so if I look at your updated guidance. And back to Q4 range for sales and adjusted EBITDA it looks like that midpoint of sales range for Q4 goes up a little bit verse what it was based on last quarter's guidance, they would like adjusted EBITDA margin is actually lower for Q4.

Based on your current guidance versus the previous guidance. I just wanted to make sure my math is correct and if it's correct what is accounting for that. .

Yes, I guess the way that I would look at it as we got and what Barry and I and I have talked about it we will never forecasters some of these opportunistic TechneLite sales, but when we do enjoy them which we do, they are at a very high margin because what ends up happening is we don't have that much incremental cost the sale in order to supply those markets, so those committed very high margins for us are.

In case we don't work out for those who end up updating guidance, the dynamic and view that they're following quarters and the quarters that you fill in the numbers and up showing a little bit less EBITDA margin.

And so it's really -- that's really just the map of it, there's nothing from our perspective that will cause a decrease and gross margin, actually as I look at it I think about as we fully transition our Xenon supply from IRE to our own manufacturing we will see some apples-to-apples improvement gross margin Q4 verses Q3. .

Okay.

So does that mean your contract of volume was pulled forward in Q3 -- maybe there is there is a little bit less in Q4?.

So what ends up happening is we will forecast you our contracted volume, but then when we actually report results if there is incremental sales of what we've been calling opportunistic sales, those come in at a much higher margin, so we do end up seeing higher results in quarter that we report..

Even more strongly that impact revenue that the margins are on this is higher when we're talking about unused products.

I want to respond to something that you said because it I think -- I think you said that when you count your math and I'm not just using the midpoint of the ranges, that hit you that we are seeking Q4 EBITDA down verses earlier guidance, that is not our intention and I wouldn't agree that is inherent in our numbers.

It is really point of view of what part of guidance you use I guess and what you had in your models before this..

Okay. I guess I'll go back as using the range of your guidance for the full year. And for 3Q from last quarter, verses your full year guidance verses your quarter results this quarter, I'll check my math and may not follow up with you guys off line on that one.

And one other question to sign on Divinity on the competition, so a few weeks ago GE announced that the FDA agreed to change the sale label moving some of things from contra indications to warning a precaution, I believe we have used it during the favorite Divinity, can you just confirm that, can talk about it that's a big deal. .

So again [indiscernible] language from contra indications into just a warning section..

Exactly kind of Xenon and intra-arterial injection [ph]?.

So I can confirm to you that we have a similar conversation underway with FDA with some of the request for application, you are I -- I won't find it on whether it's a big deal, I think any time that you can update your legal with information that speeches to the safety of your product, only the positive thing for perception of your product.

I think that will be true here. What I would also share that with from experience, there is staff experience with Divinity in the U. S.

marketplace, we've been available for 15 years just based on the volume up in the market share we held, our Infiniti had vastly more experienced than me tentative product in the U.S marketplace and we feel that experience enough self in the tracking that goes along with it, seeks volumes of the safety of the product. .

Great, and just lastly, can you give an update on your Molly supply the Nordian [ph] agreement I believe that just expired. So, can you comment on kind of the supply from other -- your other sources. .

Sure. But still Nordian [ph] is not our agreement that expired but Nordian has closed up in commercial and Xenon to the U.S. medical marketplace.

This event has been long incoming, well anticipated and very well planned for as I noticed during my comment we had already successfully transitioned our Xenon supply fully to IRE from the Nordian before Nordian final day of operation and the same is true of all of our Molly means.

We had been anticipating this years, we've been adjusting our contracts and our shipping to allow freight, always assuming that it would happen, and it has. And so we are fully prepared and we already ready for that change in marketplace..

Great, thanks very much..

You're welcome..

Thank you ladies and gentlemen, this concludes today's conference. Thank you for participating. You may now disconnect..