- GAAP Revenue of $14.2 Million and
GAAP EPS of $0.27, non-GAAP EPS of $0.25
- SurModics SurVeil™ Drug
Coated Balloon GLP Study Underway
- Strong Cash Flow from
Operations
- Reaffirms Fiscal 2015 Revenue, EPS
and Cash Flow Guidance
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 2015 first
quarter ended December 31, 2014.
According to SurModics’ President and Chief Executive Officer
Gary Maharaj, “We are pleased both with our financial results for
the first quarter and the progress we made executing on our
strategic plan to go beyond coating devices to providing a complete
solution for our customers. Specifically, we advanced the
development of SurModics SurVeil™ Drug Coated Balloon product by
starting the GLP (Good Laboratory Practice) pre-clinical study, as
planned. We are also excited that two competitor products have now
been approved in the US and are looking forward to drug-coated
balloons developing into an important therapeutic modality for the
treatment of peripheral artery disease. The successful completion
of the GLP preclinical study will be a significant milestone which
should allow us to proceed with a first-in-human clinical trial
later this fiscal year.”
Maharaj continued, “From a financial performance perspective,
non-GAAP earnings per share increased 19%. In our Medical Device
segment, our focus on diversifying SurModics non-coronary
hydrophilic royalties overcame a decline in coronary revenue. As
expected, our In Vitro Diagnostics business continued to strengthen
in the first quarter, posting 7% revenue growth. The Company’s
operating margin was a strong 35%. To support our drug coated
balloon platform, we plan to accelerate R&D spending in the
remainder of fiscal 2015, which is reflected in our annual
guidance.”
First Quarter Revenue and Earnings Summary
GAAP revenue for the fiscal 2015 first quarter totaled $14.2
million, compared with $13.9 million in the fiscal 2014 first
quarter.
Diluted GAAP earnings per share in the first quarter of fiscal
2015 were $0.27 compared with $0.26 in the prior-year period. The
first quarter fiscal 2015 earnings include $0.02 per share of
income tax benefits from retroactively reinstated federal R&D
income tax credits. The fiscal 2014 quarter included a $0.05 per
share strategic investment gain from a clinical earnout milestone
payment as a result of the 2013 sale of Vessix Vascular to Boston
Scientific. Non-GAAP earnings per share increased 19% from $0.21 to
$0.25 per share in the first quarter of fiscal 2015.
Medical Device Segment
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 $10.6 million in the first quarter
of fiscal 2015, increasing 1% from the year-ago period. First
quarter 2015 hydrophilic coating royalty revenue was $7.1 million,
flat with the prior-year period. Medical Device generated $5.5
million of operating income during the first quarter, up 4% from a
year ago.
Additionally, three medical device customers launched new
products utilizing SurModics hydrophilic coatings in the 2015 first
quarter. Reflecting our market diversification strategy, strength
in non-coronary hydrophilic coatings royalty revenue offset
decreases in average selling prices and procedure volumes in the
Japanese market, lower-than-expected royalty revenue attributable
to the accuracy of and reporting of customer royalty obligations as
well as industry headwinds in the coronary sector.
SurModics SurVeil Drug Coated Balloon Update
As noted above, SurModics started its GLP study involving
SurModics SurVeil Drug Coated Balloon during the first quarter of
fiscal 2015. According to Maharaj, “Our execution on this
strategically important initiative is on track, thanks to the hard
work and dedication of our team. This is an exciting time for us as
we move towards our goal of initiating a first-in-human trial.”
In Vitro Diagnostics Segment
The In Vitro Diagnostics (IVD) business unit accounts for
approximately one-quarter of the Company’s total revenue. Revenue
for the first quarter of fiscal 2015 totaled $3.6 million, up
7% from the year-ago period. The IVD business unit generated $1.1
million of operating income in the first quarter of fiscal 2015,
compared with $0.7 million in the year-ago period.
Balance Sheet and Cash Flow
As of December 31, 2014, the Company had $47.6 million of cash
and investments and no outstanding debt. SurModics generated cash
from operating activities of $5.5 million in the first quarter of
fiscal 2015, compared with $4.3 million in the prior-year period.
Capital expenditures totaled less than $0.1 million and share
repurchases aggregated $20.0 million for the period. The $20.0
million of share repurchases resulted from the accelerated share
repurchase program that was announced in SurModics’ fourth quarter
fiscal 2014 earnings release.
Said Maharaj, “Our strong balance sheet and cash flow, combined
with SurModics’ $175 million shelf registration statement and $20
million line of credit, position us to support organic and
corporate development initiatives that have the potential to
enhance shareholder value.”
Fiscal 2015 Outlook
The Company is reaffirming its previously stated guidance for
fiscal 2015. SurModics expects full-year revenue to be in the range
of $57.0 to $60.0 million, and diluted GAAP earnings to be in the
range of $0.85 per share to $0.95 per share. The fiscal 2015
earnings per share guidance includes an increase of approximately
5% to 7% in research and development investment over fiscal 2014
levels, primarily related to the drug coated balloon program; an
assumed 13.2 million diluted shares outstanding; and a 33.0% to
35.0% income tax rate. The Company’s earnings per share and income
tax rate guidance exclude the impact of any strategic investment
gains and losses. GAAP cash flow from operating activities is
expected to range between $16.5 million and $18.0 million for
fiscal 2015, unchanged from prior guidance. Capital expenditures
for fiscal 2015 are projected to range between $2.2 million and
$2.5 million, which is also unchanged.
Live Webcast
SurModics will host a webcast at 4 p.m. CT (5 p.m. ET) today to
discuss first 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
first quarter conference call will be available by dialing
888-203-1112 and entering conference call ID passcode 5713376. The
audio replay will be available beginning at 7 p.m. CT on Thursday,
January 29, 2015, until 7 p.m. CT on Thursday, February
5, 2015.
About SurModics SurVeil™ Drug Coated Balloon
SurModics SurVeil Drug Coated Balloon is a product designed to
treat peripheral arterial disease. SurModics SurVeil Drug Coated
Balloon is a development stage product and is currently not
approved for sale in any country. Following completion of the GLP
pre-clinical study, we plan to seek regulatory approval to initiate
a first-in-human trial using SurModics SurVeil Drug Coated Balloon
in late fiscal 2015.
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 2015, 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) the challenges
and uncertainties inherent in product development, including the
uncertainties of the GLP pre-clinical study and the timeline for
receiving regulatory approval that would allow us to initiate a
first-in-human trial for SurModics SurVeil Drug Coated Balloon; (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, 2014, 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 on our
reported financial results. As such, these non-GAAP measures 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 December 31, 2014
2013 (Unaudited) Revenue Royalties and license fees $
7,275 $ 7,465 Product sales 5,847 5,400 Research and development
1,083 1,018 Total revenue 14,205
13,883 Operating expenses Product costs
1,902
2,004
Research and development 3,576
3,699
Selling, general and administrative 3,693
3,851 Total operating costs and expenses 9,171
9,554 Income from operations 5,034 4,329
Investment income 50 767 Income before
income taxes 5,084 5,096 Income tax provision (1,470
) (1,466 ) Net income $ 3,614 $ 3,630
Basic net income per share $ 0.27 $ 0.26
Diluted net income per share $ 0.27 $ 0.26
Weighted average shares outstanding Basic 13,225 13,756 Diluted
13,423 14,009
SurModics, Inc. and
Subsidiaries
Condensed Consolidated Balance
Sheets
(in thousands)
December 31, September 30, 2014
2014 (Unaudited) Assets Cash and short term investments $
30,685 $ 46,551 Accounts receivable 4,442 4,751 Inventories 2,829
2,817 Other current assets 1,072 1,145 Current assets of
discontinued operations ― 16 Total current assets 39,028
55,280 Property and equipment, net 12,674 13,133 Long-term
investments 16,933 16,823 Other assets 18,490 19,653
Total assets $ 87,125 $ 104,889 Liabilities and
Stockholders’ Equity Current liabilities $ 3,539 $ 4,022 Current
liabilities of discontinued operations ― 45 Total current
liabilities 3,539 4,067 Other liabilities 1,935 2,071 Total
stockholders’ equity 81,651 98,751 Total liabilities
and stockholders’ equity $ 87,125 $ 104,889
SurModics, Inc. and
Subsidiaries
Condensed Consolidated Statements of
Cash Flows
(in thousands)
Three Months Ended December 31, 2014
2013 (Unaudited) Operating Activities: Net income $
3,614 $ 3,630 Depreciation and amortization 683 697 Stock-based
compensation 525 813 Net other operating activities 540 (976 )
Change in operating assets and liabilities: Accounts receivable 309
222 Accounts payable and accrued liabilities (508 ) (1,641 ) Income
taxes 413 947 Deferred revenue (13 ) (13 ) Net change in other
operating assets and liabilities (33 ) 571 Net
cash provided by operating activities from continuing operations
5,530 4,250 Investing
Activities: Purchases of property and equipment (41 ) (56 ) Cash
transferred to discontinued operations (45 ) (13 ) Net other
investing activities (2,238 ) 610 Net cash
(used in) provided by investing activities of continuing operations
(2,324 ) 541 Financing Activities:
Purchase of common stock to fund employee taxes (725 ) (1,097 )
Repurchase of common stock (20,000 ) (9,424 ) Net other financing
activities 568 751 Net cash used in
financing activities of continuing operations (20,157 )
(9,770 ) Net cash used in continuing operations
(16,951 ) (4,979 ) Discontinued operations: Net cash
used in operating activities (45 ) (13 ) Net cash provided by
financing activities 45 13 Net cash
used in discontinued operations ― ― Net change
in cash and cash equivalents (16,951 ) (4,979 ) Cash and Cash
Equivalents: Beginning of period 43,511 15,495
End of period $ 26,560 $ 10,516
SurModics, Inc. and
Subsidiaries
Supplemental Segment
Information
(in thousands)
(Unaudited)
Three Months Ended December 31, 2014
2013 % Change Revenue % of Total
% of Total Medical Device $ 10,635 74.9 % $ 10,549
76.0 % 0.8 % In Vitro Diagnostics 3,570 25.1
3,334 24.0 7.1 Total revenue $ 14,205 100.0 % $ 13,883 100.0
% 2.3 %
Three Months Ended
December 31, 2014 2013 %
Change Operating Income Medical Device $ 5,515 $ 5,328
3.5 % In Vitro Diagnostics 1,098 671 63.6 Corporate (1,579 )
(1,670 ) (5.4 ) Total operating income $ 5,034 $
4,329 16.3 %
SurModics, Inc. and
Subsidiaries
Supplemental Non-GAAP
Information
For the Three Months Ended December 31,
2014
(in thousands, except per share data)
(Unaudited)
As Reported Adjusted GAAP(1)
Adjustments Non-GAAP(2) Revenue
Royalties and license fees $ 7,275 $ 7,275 Product sales 5,847
5,847 Research and development 1,083 1,083
Total revenue 14,205 14,205
Operating income $ 5,034 $ 5,034
Net
income $ 3,614 $ (201 ) (3) $ 3,413
Diluted net
income per share(4) $ 0.27 $ 0.25 (1) Reflects
operating results in accordance with U.S. generally accepted
accounting principles (GAAP). (2) Adjusted Non-GAAP amounts
consider an adjustment to the income tax provision for discrete
income tax benefits recognized in the period presented as noted in
(3) below. (3) Adjusted to reflect discrete income tax benefits of
$201 associated with the December 2014 signing of the Tax Increase
Prevention Act of 2014 which retroactively reinstated federal
R&D income tax credits for calendar 2014. The Adjusted Non-GAAP
effective tax rate, after adjustment for the discrete income tax
benefits, is 32.9% for the period presented. (4) Diluted net income
per share is calculated using the diluted weighted average shares
outstanding for the period presented.
SurModics, Inc. and
Subsidiaries
Supplemental Non-GAAP
Information
For the Three Months Ended December 31,
2013
(in thousands, except per share data)
(Unaudited)
As Reported Adjusted GAAP(1)
Adjustments Non-GAAP(2) Revenue
Royalties and license fees $ 7,465 $ 7,465 Product sales 5,400
5,400 Research and development 1,018 1,018
Total revenue 13,883 13,883
Operating income $ 4,329 $ 4,329
Net
income $ 3,630 $ (681 ) (3 ) $ 2,949
Diluted net
income per share(4) $ 0.26 $ 0.21 (1) Reflects
operating results in accordance with U.S. generally accepted
accounting principles (GAAP). (2) Adjusted Non-GAAP amounts
consider a reduction in net investment income of $681 to reflect
income recognized in fiscal 2014 associated with a contingent
milestone payment related to the sale of Vessix Vascular shares in
fiscal 2013. The adjustment to decrease net income did not generate
an income tax benefit as there was an offsetting establishment of a
capital loss valuation allowance. (3) Reflects the after-tax impact
of the investment income adjustment noted in (2) above. The
investment income resulted in a reversal of a capital loss
valuation allowance which resulted in a net zero tax impact. (4)
Diluted net income per share 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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