KOOL Update: Improved Quarter - Anticipating a Revenue Rescue in 2010 from Res-Q

11/09/2009

MDB issued a research update today on ThermoGenesis Corp. (KOOL) reiterating its BUY recommendation and $1.00 Price Target.

ThermoGenesis reported financial results for its fiscal first quarter of 2010 (ending September 2009) with revenues totaling $5.2 million. Revenues climbed 29% sequentially and 15% year-over-year; the increase was attributed to higher sales of AXP™ disposables as well as to new product sales of the MarrowExpress™ (MXP) and Res-Q™ 60 BMC (Res-Q) systems. Gross margins increased nearly 2,000 bps versus the previous quarter and 160 bps year-over-year to 30%. Operating expenses of roughly $3.8 million rose nearly 7% sequentially, but declined 7% year-over-year. On the bottom line, the GAAP net loss was somewhat better at $2.2 million ($0.04 per share) compared to a net loss of $3.1 million ($0.05 per share) in Q4 of FY2009 and $2.7 million ($0.05 per share) in the same year-ago period. In line with the guidance from last quarter management continues to anticipate breakeven results by the March 2010 quarter and GAAP profitability in the June 2010 quarter. Other developments include:

• the recently launched Res-Q System is demonstrating positive outcomes in its initial applications, according to the distribution partner, Celling Technologies;
• revenues of roughly $300,000 were generated by MarrowExpress™ and Res-Q products during the quarter;
• ongoing discussions to add new distributors for the AXP, MXP and Res-Q product lines including discussions with GE Healthcare; and
• continuing efforts to improve gross margins, including the Thermoline outsourced manufacturing program, continued focus on quality control throughout the complete manufacturing process, and the expected divestiture of the CryoSeal product line by mid 2010.

ThermoGenesis’ September 2009 quarter financial results were a significant improvement and these results offer a slight flicker of a light at the end of the proverbial tunnel. We were particularly encouraged by the reported growing acceptance of the Res-Q system, which we expect to further drive revenue growth in the coming quarters. We also anticipate continued streamlining on the expense line and meaningful progress in gross margins for the remainder of fiscal 2010. For fiscal 2010 we are anticipating revenues of $27.6 million and non-GAAP cash earnings of $0.02 in the 4th fiscal (June 2010) quarter of 2010. With this outlook, we are reiterating our Buy rating, but lowering our six to nine month target price to $1.00.