- Total GAAP Revenue of $14.6 Million
and GAAP EPS of $0.27
- Operating Income Increased
26%
- Continued Progress on Paclitaxel
Drug Coated Balloon Development
- Generated Strong Cash from
Operations
- Raises Low End of EPS
Guidance
- Filed $175 Million Universal Shelf
Registration Statement
SurModics, Inc. (Nasdaq: SRDX), a leading provider of surface
modification and in vitro diagnostic technologies to the healthcare
industries, today announced results for its fiscal 2014 third
quarter.
Commenting on the Company’s performance, SurModics’ President
and Chief Executive Officer Gary Maharaj said, “Despite headwinds
faced by our Medical Device customers, we were able to generate
revenue from non-coronary markets and post solid growth in that
segment in our third quarter. Importantly, our team made
significant progress advancing our drug coated balloon platform,
positioning SurModics attractively for the future. Further, as we
expected, SurModics’ In Vitro Diagnostics segment returned to
growth.”
Third Quarter Revenue and Earnings Summary
GAAP revenue for the fiscal 2014 third quarter totaled $14.6
million, compared with $14.3 million in the fiscal 2013 third
quarter.
Diluted earnings per share from continuing operations in the
third quarter of fiscal 2014 increased to $0.27, from $0.22 in the
prior-year period. Maharaj stated, “The increase in earnings per
share was driven both by continued SG&A expense management and
the shifting of drug coated balloon expenditures due to the timing
of preparation work for a first in human trial. We expect R&D
spending growth for this initiative in the fourth quarter of fiscal
2014.”
Medical Device Summary
The Medical Device business unit accounts for approximately
three-quarters of the Company’s total revenue. This unit, which
includes hydrophilic coatings and device drug delivery
technologies, posted revenue of $10.8 million in the third quarter
of fiscal 2014, increasing 2% from the year-ago period. The third
quarter of fiscal 2013 included a $500,000 non-recurring license
milestone payment. Without this payment, Medical Device revenue
grew 7% in the current year quarter. Third quarter 2014 hydrophilic
coating royalty revenue was $7.2 million which is comparable with
the prior-year period. Medical Device generated $5.9 million of
operating income during the third quarter, a 12% increase from a
year ago, primarily reflecting revenue gains and the timing of drug
coated balloon R&D investments.
Additional highlights include:
- One medical device customer launched
new products utilizing SurModics hydrophilic coatings;
- Strength in non-coronary hydrophilic
coatings royalty revenue offset a 7% decline in the coronary
sector, reflecting our market diversification strategy; and
- Progress continued on development of
the paclitaxel drug coated balloon program.
In Vitro Diagnostics Summary
The In Vitro Diagnostics (IVD) business unit accounts for
approximately one-quarter of the Company’s total revenue. Revenue
for the third quarter of fiscal 2014 totaled $3.8 million, up
3% from the year-ago period. The IVD business unit generated $1.0
million of operating income in the third quarter of fiscal 2014,
compared with $0.9 million in the year-ago period.
Balance Sheet and Cash Flow
As of June 30, 2014, the Company had $57.1 million of cash and
investments. SurModics generated cash from operating activities of
$12.5 million in the first nine months of 2014, compared with $11.9
million in the same prior-year period.
The Company earlier today filed a $175 million universal shelf
registration statement on Form S-3 with the United States
Securities and Exchange Commission (SEC). The shelf registration
statement cannot be used to offer or sell securities until it is
declared effective by the SEC. The specifics of any potential
future offering, along with the prices and terms of any such
securities offered by the Company will be determined at the time of
any such offering and will be described in detail in a prospectus
supplement filed in connection with such offering. This press
release shall not constitute an offer to sell or the solicitation
of an offer to buy any securities.
“Although we currently do not plan to raise additional capital,
the filing of this shelf registration statement is a prudent move
to ensure we have efficient access to the capital markets to meet
the objectives of our strategic plan,” said Maharaj. “It also
provides the financial flexibility to leverage market conditions
and support our future growth.”
Fiscal 2014 Outlook
SurModics updated its previously stated earnings per share
outlook for fiscal 2014. The Company now estimates diluted GAAP
earnings from continuing operations to be in the range of $0.90 to
$0.97 per share, an increase from previous guidance of $0.85 to
$0.97 per share. SurModics is reaffirming its full-year revenue
guidance to be in the range of $56.0 million to
$58.5 million. The Company also indicated that fiscal 2014
cash flow from operating activities should be at least $19.0
million, and capital expenditures are expected to range from $2.2
million to $2.5 million.
Live Webcast
SurModics will host a webcast at 4 p.m. CT (5 p.m. ET) today to
discuss third quarter results. To access the webcast, go to the
investor relations portion of the Company’s website at
www.surmodics.com and click on the webcast icon. A replay of the
third quarter conference call will be available by dialing
888-203-1112 and entering conference call ID passcode 7858616. The
audio replay will be available beginning at 7 p.m. CT on Thursday,
July 31, 2014, until 7 p.m. CT on Thursday, August 7,
2014.
About SurModics, Inc.
SurModics’ mission is to exceed our customers’ expectations and
enhance the well-being of patients by providing the world’s
foremost, innovative surface modification technologies and in vitro
diagnostic chemical components. The Company partners with the
world’s leading and emerging medical device, diagnostic and life
science companies to develop and commercialize innovative products
designed to improve lives by enabling the detection and treatment
of disease. Core offerings include surface modification coating
technologies that impart lubricity, prohealing, and
biocompatibility capabilities; and components for in vitro
diagnostic test kits and microarrays. SurModics is headquartered in
Eden Prairie, Minnesota. For more information about the Company,
visit www.surmodics.com. The content of SurModics’ website is not
part of this press release or part of any filings that the Company
makes with the SEC.
Safe Harbor for Forward-Looking Statements
This press release contains forward-looking statements.
Statements that are not historical or current facts, including
statements about beliefs and expectations regarding the Company’s
capital needs and its performance in the near- and long-term,
including our revenue, earnings and cash flow expectations for
fiscal 2014, are forward-looking statements. Forward-looking
statements involve inherent risks and uncertainties, and important
factors could cause actual results to differ materially from those
anticipated, including (1) our reliance on third parties
(including our customers and licensees) and their failure to
successfully develop, obtain regulatory approval for, market and
sell products incorporating our technologies; (2) our ability to
realize the full potential of our pipeline (including our drug
coated balloon initiatives); (3) our ability to achieve our
corporate goals; (4) possible adverse market conditions and
possible adverse impacts on our cash flows, and (5) the factors
identified under “Risk Factors” in Part I, Item 1A of our Annual
Report on Form 10-K for the fiscal year ended September 30, 2013,
and updated in our subsequent reports filed with the SEC. These
reports are available in the Investors section of our website at
www.surmodics.com and at the SEC website at www.sec.gov.
Forward-looking statements speak only as of the date they are made,
and we undertake no obligation to update them in light of new
information or future events.
Use of Non-GAAP Financial Information
In addition to reporting financial results in accordance with
generally accepted accounting principles, or GAAP, SurModics is
reporting non-GAAP financial results including non-GAAP net income
and non-GAAP diluted net income per share. We believe that these
non-GAAP measures provide meaningful insight into our operating
performance excluding certain event-specific matters, and provide
an alternative perspective of our results of operations. We use
non-GAAP measures, including those set forth in this release, to
assess our operating performance and to determine payout under our
executive compensation programs. We believe that presentation of
certain non-GAAP measures allows investors to review our results of
operations from the same perspective as management and our board of
directors and facilitates comparisons of our current results of
operations. The method we use to produce non-GAAP results is not in
accordance with GAAP and may differ from the methods used by other
companies. Non-GAAP results should not be regarded as a substitute
for corresponding GAAP measures but instead should be utilized as a
supplemental measure of operating performance in evaluating our
business. Non-GAAP measures do have limitations in that they do not
reflect certain items that may have a material impact upon our
reported financial results. As such, these non-GAAP measures
presented should be viewed in conjunction with both our financial
statements prepared in accordance with GAAP and the reconciliation
of the supplemental non-GAAP financial measures to the comparable
GAAP results provided for the specific periods presented, which are
attached to this release.
SurModics, Inc. and Subsidiaries Condensed
Consolidated Statements of Income
(in thousands, except per share data)
Three Months Ended
Nine Months Ended June 30, June 30,
2014 2013 2014
2013 (Unaudited) (Unaudited) Revenue Royalties and license
fees $ 7,385 $ 7,827 $ 22,179 $ 22,294 Product sales 6,067 5,577
16,632 16,688 Research and development 1,164
885 3,292 2,853 Total revenue
14,616 14,289 42,103
41,835 Operating costs and expenses Product costs
2,037 1,990 5,737 5,894 Research and development 3,655 4,009 11,488
11,145 Selling, general and administrative 3,591
4,052 11,736 11,552 Total
operating costs and expenses 9,283 10,051
28,961 28,591 Operating income
from continuing operations 5,333 4,238 13,142 13,244 Other
income: Investment income 42 60 194 187 Other income 28 2 834 1,460
Impairment loss on investments
―
―
―
(129 ) Other income, net 70 62
1,028 1,518 Income from continuing
operations before income taxes 5,403 4,300 14,170 14,762
Income tax provision (1,729 ) (1,122 ) (4,407
) (3,916 ) Income from continuing operations 3,674 3,178
9,763 10,846 (Loss) income from discontinued operations, net of
taxes (76 ) (47 ) (76 ) 635 Net
income $ 3,598 $ 3,131 $ 9,687 $ 11,481
Basic income (loss) per share: Continuing operations $ 0.27
$ 0.22 $ 0.72 $ 0.74 Discontinued operations (0.01 ) 0.00 (0.01 )
0.04 Net income $ 0.26 $ 0.22 $ 0.71 $ 0.79 Diluted income
(loss) per share: Continuing operations $ 0.27 $ 0.22 $ 0.70 $ 0.73
Discontinued operations (0.01 ) 0.00 (0.01 ) 0.04 Net income $ 0.26
$ 0.21 $ 0.70 $ 0.77 Weighted average number of shares
outstanding: Basic 13,585 14,413 13,639 14,563 Diluted 13,813
14,739 13,891 14,823
SurModics, Inc. and
Subsidiaries Condensed Consolidated Balance Sheets
(in thousands)
June 30,
September 30, 2014 2013
(Unaudited) Assets Cash and short-term investments $ 40,611 $
25,707 Accounts receivable 5,176 5,332 Inventories 2,900 3,328
Other current assets 2,039 1,366 Current assets of discontinued
operations 85 46 Total current assets 50,811 35,779
Property and equipment, net 12,710 12,845 Long-term
investments 16,497 32,397 Other assets 20,699 20,902
Total assets $ 100,717 $ 101,923 Liabilities and
Stockholders’ Equity Current liabilities $ 4,043 $ 5,837 Current
liabilities of discontinued operations 75 139 Total
current liabilities 4,118 5,976 Other liabilities 1,928
2,130 Total stockholders’ equity 94,671 93,817 Total
liabilities and stockholders’ equity $ 100,717 $ 101,923
SurModics, Inc. and Subsidiaries Condensed
Consolidated Statements of Cash Flows
(in thousands)
Nine Months Ended June 30,
2014 2013 (Unaudited) Operating
Activities: Net income $ 9,687 $ 11,481 Loss (income) from
discontinued operations 76 (635 ) Depreciation and amortization
2,054 2,174 Stock-based compensation 3,043 1,983 Gain on sale of
available-for-sale securities and strategic investments (835 )
(1,460 ) Net other operating activities (550 ) 415 Change in
operating assets and liabilities: Accounts receivable 156 333
Accounts payable and accrued liabilities (919 ) (876 ) Income taxes
(560 ) (1,520 ) Net change in other operating assets and
liabilities 314 9 Net cash provided by
operating activities from continuing operations 12,466
11,904 Investing Activities: Net
purchases of property and equipment (1,165 ) (1,448 ) Cash
(transferred to) received from discontinued operations (239 ) (118
) Net other investing activities 26,030 2,174
Net cash provided by investing activities from continuing
operations 24,626 608 Financing
Activities: Purchase of common stock to fund employee taxes (1,114
) (39 ) Repurchase of common stock (12,544 ) (10,323 ) Net other
financing activities 800 21 Net cash
used in financing activities from continuing operations
(12,858 ) (10,341 ) Net cash provided by continuing
operations 24,234 2,171
Discontinued operations: Net cash used in operating activities (239
) (118 ) Net cash provided by financing activities 239
118 Net cash provided by discontinued
operations
―
―
Net change in cash and cash equivalents 24,234 2,171 Cash
and Cash Equivalents: Beginning of period 15,495
15,540 End of period $ 39,729 $ 17,711
SurModics, Inc. and Subsidiaries
Supplemental Segment Information
(in thousands)
(Unaudited)
Three Months Ended June 30,
2014 2013 % Change
Revenue % of Total %
of Total Medical Device $ 10,821 74.0 % $ 10,591 74.1 % 2.2 %
In Vitro Diagnostics 3,795 26.0 3,698
25.9 2.6 Total revenue $ 14,616 100.0 %
$ 14,289 100.0 % 2.3 %
Nine Months Ended
June 30, 2014 2013 % Change Revenue
% of Total % of Total Medical Device $ 31,852 75.7 %
$ 30,857 73.8 % 3.2 % In Vitro Diagnostics 10,251
24.3 10,978 26.2 (6.6 ) Total
revenue $ 42,103 100.0 % $ 41,835 100.0 % 0.6
%
Three Months EndedJune
30,
Nine Months EndedJune
30,
2014 2013 2014 2013 Operating
Income Medical Device $ 5,855 $ 5,223 $ 16,466 $ 15,848 In
Vitro Diagnostics 974 915 2,277 2,933 Corporate (1,496 )
(1,900 ) (5,601 ) (5,537 ) Total operating
income $ 5,333 $ 4,238 $ 13,142 $ 13,244
SurModics, Inc. and Subsidiaries
Supplemental Non-GAAP Information For the Nine Months
Ended June 30, 2014
(In thousands, except per share data)
(Unaudited)
As Reported
Adjusted
GAAP(1) Adjustments
Non-GAAP(2)
Revenue Royalties and license fees $ 22,179 $ 22,179
Product sales 16,632 16,632 Research and development 3,292
3,292 Total revenue $ 42,103 $ 42,103
Operating
income $ 13,142 $ 914 (3) $ 14,056
Income from
continuing operations $ 9,763 $ (129 ) (4) $ 9,634
Diluted earnings per share from continuing operations(5) $
0.70 $ 0.69 (1) Reflects operating results in
accordance with U.S. generally accepted accounting principles
(GAAP). (2) Adjusted Non-GAAP amounts consider adjustments to
reduce operating expenses by $914 associated with acceleration of
Board of Director stock-based compensation awards and a $709
reduction in net investment income associated with contingent
milestone payments related to the sale of Vessix Vascular shares
which were sold in fiscal 2013. The income tax provision includes
an adjustment associated with the stock-based compensation awards
utilizing a 36.5% incremental effective tax rate. The adjustment to
reduce net investment income did not generate a tax benefit as
there was an offsetting establishment of a capital loss valuation
reserve allowance. (3) Reflects the pre-tax impact of the operating
expense adjustment noted in (2) above. (4) Adjusted to reflect the
adjustments noted in (2) above. (5) Diluted earnings per share from
continuing operations is calculated using the diluted weighted
average shares outstanding for the period presented.
SurModics, Inc. and Subsidiaries Supplemental Non-GAAP
Information For the Nine Months Ended June 30, 2013
(In thousands, except per share data)
(Unaudited)
As Reported
Adjusted GAAP(1) Adjustments
Non-GAAP(2) Revenue Royalties and license fees
$ 22,294 $ (570 ) (3) $ 21,724 Product sales 16,688 16,688 Research
and development 2,853 2,853 Total revenue $
41,835 $ (570 ) (3) $ 41,265
Operating income $
13,244 $ (570 ) (3) $ 12,674 $ (362 ) (4) $ (1,164 ) (5)
Income from continuing operations $ 10,846 $ (412 ) (6) $
8,908
Diluted earnings per share from continuing
operations(6) $ 0.73 $ 0.60 (1) Reflects
operating results in accordance with U.S. generally accepted
accounting principles (GAAP). (2) Adjusted Non-GAAP amounts
consider adjustments to reduce royalty revenue associated with a
one-time $570 catch up payment received in the first quarter of
fiscal 2013, a reduction in net investment income of $1,164
associated with the sale of Vessix Vascular and OctoPlus shares
offset by an impairment loss on the Company’s investment in
ViaCyte, a $412 reduction in the income tax provision for discrete
income tax benefits recognized as noted in detail in note (4) below
and adjustment to the income tax provision for the one-time royalty
revenue utilizing a 36.5% incremental effective tax rate. The
adjustment associated with the net investment income adjustment did
not generate a tax benefit as there was an offsetting establishment
of a capital loss valuation reserve. (3) Reflects the pre-tax
impact of the $570 one-time royalty catch up payment noted in (2)
above. (4) Reflects the after tax impact of the $570 one-time
royalty catch up payment noted in (2) above utilizing a 36.5%
incremental effective tax rate. (5) Reflects the pre-tax impact of
the net investment income adjustments noted in (2) above. (6)
Adjusted to reflect discrete income tax benefits of $261 associated
with the realization of capital loss carrybacks and $151 from the
January 2013 signing of the American Taxpayer Relief Act of 2012
which retroactively reinstated federal R&D tax credits for
calendar 2012. (7) Diluted earnings per share from continuing
operations is calculated using the diluted weighted average shares
outstanding for the period presented.
SurModics, Inc.Andy LaFrence, 952-500-7000Vice President
of Finance and Chief Financial Officer
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