Medical equipment maker ThermoGenesis (NASDAQ:KOOL) is due to report its fiscal Q4 and full-year 2006 numbers on Thursday. Will they chill or warm investors' hearts?

What analysts say:

  • Buy, sell, or waffle? Two analysts brave the chill at Thermogenesis. Both say "buy."
  • Revenues. Averaging their predictions, we could be looking at 37% sales growth, to $4.25 million.
  • Earnings. But profits remain elusive. The consensus is for a $0.02-per-share loss -- not good, but better than last year's $0.05-per-share loss.

What management says:
Last quarter, ThermoGenesis nearly doubled its sales year over year, but we're still talking quarterly sales in the single digits (of millions of dollars). COO Kevin Simpson admitted that, at this point in time, the firm remains essentially an R&D house, arguing that the firm's "achievements ... signal our ongoing transition from a research and development company to an organization with marketed products that generate recurring revenues." (Emphasis added.)

What management does:
That said, it must be admitted that ThermoGenesis posted some remarkable numbers last quarter, not least of which was a 15-percentage-point improvement in its quarterly gross margin. The year-to-date improvement was a more modest 5 percentage points, but even so, it marked the second consecutive quarter in which rolling gross margins improved. You can attribute the improvements primarily to the firm's growing licensing and royalty revenues, and the high gross margins they bring. Thanks to the stronger starting point, these higher gross margins also helped ThermoGenesis achieve its highest rolling operating and net margins in a year.

Margins %

12/04

3/05

6/05

9/05

12/05

3/06

Gross

33.5

32

30.3

29.3

30.5

33.9

Op.

(50.1)

(66.5)

(82.8)

(86.6)

(84.1)

(58.9)

Net

(48.9)

(64.7)

(80.8)

(84.4)

(82.1)

(60.8)
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
Another factor boosting ThermoGenesis's margins farther down the income statement is the fact that R&D costs are way down versus last year. With its AXP System (used to harvest stem cells from umbilical cord blood) now online (and generating revenues, to boot), and the costs associated with filing its pre-medical application for CryoSeal Fibrin Sealant (used in liver surgery) now out of the way, operating margins got a big boost last quarter. (On the other hand, much of these savings were counterbalanced by the firm's adoption of stock options expensing, pushing operating margins back down a bit.)

The biggest argument in ThermoGenesis' favor isn't its operational improvements, though -- it's its staying power. Burning through $5 million per annum, even if ThermoGenesis remains as free cash flow-negative as it's been over the last five years, it will take the firm nearly eight years to burn through its $40 million in cash and short-term investments. Even if it takes years for companies in the stem cell storage industry -- like ViaCell (NASDAQ:VIAC) and ThermoGenesis client Cbr, for example -- to take off and begin buying large amounts of equipment, I think ThermoGenesis will likely be around to sell it.

Competitors:

  • Baxter International (NYSE:BAX)
  • Thermo Electron (NYSE:TMO)

Customers:

  • Biomet (NASDAQ:BMET)
  • General Electric (NYSE:GE)
  • Medtronic (NYSE:MDT)

Further reading material on this industry is available in the science lab. Try:

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Fool contributor Rich Smith does not own shares of any company named above.