- GAAP Revenue Growth of 6% to $14.4
Million and GAAP EPS of $0.23
- IVD Business Unit Revenue up 23%;
Medical Device Revenue up 1%
- Continued Investment in
Transformative Strategy
- Strong Year to Date 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
industry, today announced results for its fiscal 2015 second
quarter, ended March 31, 2015.
According to SurModics’ President and Chief Executive Officer
Gary Maharaj, “With revenue rising 6% over year ago results,
SurModics posted strong performance in the fiscal second quarter,
as we concurrently continued our transformation to a whole products
solution provider. As planned, we increased our investment in the
SurModics SurVeil™ Drug Coated Balloon product as we
continued the GLP (Good Laboratory Practice) pre-clinical study,
and started preparation for our first-in-human clinical trial.”
Second Quarter Revenue and Earnings Summary
GAAP revenue for the fiscal 2015 second quarter totaled $14.4
million, compared with $13.6 million in the fiscal 2014 second
quarter. Even with investments in transformative growth, the
Company’s operating margin was a healthy 27%.
Diluted GAAP earnings per share in the second quarter of fiscal
2015 were $0.23 compared with $0.18 in the prior-year period. The
second quarter fiscal 2015 earnings include $0.04 per share gain
associated with one of our investments. The 2014 second quarter
earnings included a $0.04 per share one-time, non-cash charge
related to amendments to board of directors’ equity compensation.
On a non-GAAP comparative basis, earnings per share decreased 14%
in the second quarter of fiscal 2015 from $0.22 to $0.19 per share.
This decrease was primarily from planned research and development
expenses as well as increased legal and professional services
costs.
Medical Device Segment
The Medical Device business unit accounts for approximately
three-quarters of the Company’s revenue. This unit, which includes
hydrophilic coatings and device drug delivery technologies, posted
revenue of $10.6 million in the second quarter of fiscal 2015,
increasing 1% from the year-ago period. Second quarter 2015
hydrophilic coating royalty revenue was $7.2 million, increasing 2%
with the year-year period. We continued to see diversification of
our hydrophilic portfolio as for the second consecutive quarter
peripheral royalties were the leading royalty segment. Medical
Device generated $4.7 million of operating income during the second
quarter, decreasing 11% from the year-ago period; operating income
was affected by higher planned costs for drug coated balloon
development.
Additionally, two medical device customers launched new products
utilizing SurModics hydrophilic coatings in the 2015 second
quarter.
Drug Coated Balloon Update
As noted above, SurModics continued its SurVeil Drug Coated
Balloon product GLP study during the second quarter of fiscal 2015.
According to Maharaj, “We continue to be on track to begin a
first-in-human clinical trial this fiscal year. We are also
encouraged by the acceptance of drug coated balloons as an
important therapeutic modality to treat peripheral artery disease,
as well as by recent improved reimbursement.”
In Vitro Diagnostics Segment
The In Vitro Diagnostics (IVD) business unit accounts for
approximately one-quarter of the Company’s revenue. Revenue for the
second quarter of fiscal 2015 totaled $3.9 million, increasing
23% from the year-ago period. The prior-year quarter was adversely
impacted by a few customers’ inventory rebalancing. The IVD
business unit generated $0.9 million of operating income in the
second quarter of fiscal 2015, compared with $0.6 million in the
year-ago period. Operating income benefited from increased
revenue.
Said Maharaj, “We are pleased to see the strength in marketplace
demand for our IVD offerings. This represents IVD’s fourth
consecutive quarter of growth – and the 17th out of the last 18
quarters.”
Balance Sheet and Cash Flow
As of March 31, 2015, the Company had $49.1 million of cash and
investments and no outstanding debt. SurModics generated cash from
operating activities of $6.8 million in the first six months of
fiscal 2015, compared with $5.9 million in the prior-year six-month
period. Capital expenditures and share repurchases totaled $0.2
million and $20.0 million, respectively, for the six-month period.
The $20.0 million of share repurchases resulted from the first
quarter fiscal 2015 accelerated share repurchase program that was
announced in SurModics’ fourth quarter fiscal 2014 earnings
release.
Fiscal 2015 Outlook
According to Maharaj, “We look forward to sustained progress in
the second half of fiscal 2015.”
The Company is reaffirming its previously stated revenue,
earnings per share and operating cash flow 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 13.3 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 or
short-term 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.
SurModics is lowering its planned capital expenditures estimate for
fiscal 2015 to a range between $1.7 million and $2.2 million,
compared to previous guidance of $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 second 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
second quarter conference call will be available by dialing
888-203-1112 and entering conference call ID passcode 8699575. The
audio replay will be available beginning at 7 p.m. CT on Thursday,
April 30, 2015, until 7 p.m. CT on Thursday, May 7,
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 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. Our mission is to
be a trusted partner to our customers by providing the most
advanced surface modification technologies and in vitro diagnostic
chemical components that help enhance the well-being of patients.
The company’s core offerings include surface modification coating
technologies that impart lubricity, prohealing, and
biocompatibility characteristics and components for in vitro
diagnostic test kits and microarrays. SurModics’ strategy is to
build on the product and technical leadership within these fields,
and expand the core offerings to generate opportunities for longer
term sustained growth. 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 ability to successfully develop,
obtain regulatory approval for, and commercialize our SurVeil Drug
Coated Balloon product; (2) 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; (3) our ability to
achieve our corporate goals; (4) our ability to successfully
identify and acquire target companies or achieve expected benefits
from acquisitions that are consummated; (5) possible adverse market
conditions and possible adverse impacts on our cash flows, and (6)
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,
non-GAAP diluted net income per share, and EBITDA. 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
SubsidiariesCondensed Consolidated Statements of
Income(in thousands, except per share data)
Three Months EndedMarch 31, Six
Months EndedMarch 31, 2015 2014
2015 2014 (Unaudited) (Unaudited) Revenue:
Royalties and license fees $ 7,383 $ 7,329 $ 14,658 $ 14,794
Product sales 5,651 5,165 11,498 10,565 Research and development
1,381 1,110 2,464
2,128 Total revenue 14,415 13,604
28,620 27,487 Operating costs
and expenses: Product costs 1,955 1,696 3,857 3,700 Research and
development 4,403 4,134 7,979 7,833 Selling, general and
administrative 4,125 4,294 7,818
8,145 Total operating costs and expenses
10,483 10,124 19,654
19,678 Operating income 3,932
3,480 8,966 7,809 Other income:
Investment income, net 56 66 113 152 Other income, net 543
125 536 806 Other
income 599 191 649
958 Income before income taxes 4,531 3,671 9,615 8,767
Income tax provision (1,480 ) (1,212 ) (2,950
) (2,678 ) Net income $ 3,051 $ 2,459 $ 6,665
$ 6,089 Basic net income per share $ 0.24
$ 0.18 $ 0.51 $ 0.45 Diluted net
income per share $ 0.23 $ 0.18 $ 0.50 $ 0.44
Weighted average number of shares outstanding: Basic
12,944 13,538 13,092 13,658 Diluted 13,207 13,824 13,365 13,925
SurModics, Inc. and
SubsidiariesCondensed Consolidated Balance Sheets(in
thousands)
March 31,2015
September 30,2014
(Unaudited) Assets Cash and short-term investments $ 49,134 $
46,551 Accounts receivable 4,927 4,751 Inventories 3,195 2,817
Other current assets 2,508 1,145 Current assets of discontinued
operations ― 16 Total current assets 59,764
55,280 Property and equipment, net 12,419 13,133 Long-term
investments ― 16,823 Other assets 18,509
19,653 Total assets $ 90,692 $ 104,889
Liabilities and Stockholders’ Equity Current liabilities $ 3,554 $
4,022 Current liabilities of discontinued operations ―
45 Total current liabilities 3,554 4,067 Other
liabilities 1,958 2,071 Total stockholders’ equity 85,180
98,751 Total liabilities and stockholders’
equity $ 90,692 $ 104,889
SurModics, Inc. and
SubsidiariesCondensed Consolidated Statements of Cash
Flows(in thousands)
Six Months EndedMarch
31,
2015 2014 (Unaudited) Operating Activities:
Net income $ 6,665 $ 6,089 Depreciation and amortization 1,389
1,380 Stock-based compensation 1,211 2,462 Gains on sales of
available-for-sale securities and strategic investments (515 ) (806
) Net other operating activities 313 (822 ) Change in operating
assets and liabilities: Accounts receivable (176 ) (278 ) Accounts
payable and accrued liabilities (609 ) (1,770 ) Income taxes (825 )
(559 ) Net change in other operating assets and liabilities
(623 ) 240 Net cash provided by operating activities
from continuing operations 6,830 5,936
Investing Activities: Purchases of property and equipment
(163 ) (798 ) Cash transferred to discontinued operations (45 ) (13
) Net other investing activities (167 ) 495
Net cash used in investing activities from continuing operations
(375 ) (316 ) Financing Activities: Repurchase
of common stock (20,000 ) (12,544 ) Purchases of common stock to
pay employee taxes (741 ) (1,114 ) Net other financing activities
790 987 Net cash used in financing
activities from continuing operations (19,951 )
(12,671 ) Net cash used in continuing operations (13,496 )
(7,051 ) 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 (13,496 ) (7,051 ) Cash and Cash Equivalents: Beginning
of period 43,511 15,495 End of period $
30,015 $ 8,444
SurModics, Inc. and
SubsidiariesSupplemental Segment Information(in
thousands)
(Unaudited)
Three Months Ended March 31, 2015
2014 % Change Revenue % of Total
% of Total Medical Device $ 10,562 73.3 % $ 10,482
77.0 % 0.8 % In Vitro Diagnostics 3,853 26.7
3,122 23.0 23.4 Total revenue $ 14,415 100.0 % $ 13,604
100.0 % 6.0 %
Six Months Ended March 31, 2015
2014 % Change Revenue % of Total %
of Total Medical Device $ 21,198 74.1 % $ 21,031 76.5 % 0.8 %
In Vitro Diagnostics 7,422 25.9 6,456 23.5
15.0 Total revenue $ 28,620 100.0 % $ 27,487 100.0 % 4.1 %
Three Months EndedMarch
31,
Six Months EndedMarch
31,
2015 2014 2015 2014
Operating Income Medical Device $ 4,696 $ 5,282 $ 10,212 $
10,610 In Vitro Diagnostics 931 633 2,028 1,303 Corporate
(1,695 ) (2,435 ) (3,274 ) (4,104 ) Total
operating income $ 3,932 $ 3,480 $ 8,966 $
7,809
SurModics, Inc. and
SubsidiariesSupplemental Non-GAAP InformationFor the
Three Months Ended March 31, 2015(In thousands, except per
share data)
(Unaudited)
As ReportedGAAP(1)
Adjustments
AdjustedNon-GAAP(2)
Revenue Royalties and license fees $ 7,383 $ 7,383
Product sales 5,651 5,651 Research and development 1,381
1,381 Total revenue $ 14,415 $ 14,415
Operating income $ 3,932
$ 3,932
Net income $ 3,051 $ (523 ) (3)
$ 2,528
Diluted net income per share(4) $ 0.23
$ 0.19 (1) Reflects operating results in
accordance with U.S. generally accepted accounting principles
(GAAP). (2) Adjusted Non-GAAP considers an adjustment to reflect a
$523 reduction in net investment income associated with the sale of
Intersect ENT shares. 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. (3) Reflects the
impact of the net investment income adjustment noted in (2) above.
(4) Diluted net income per share is calculated using the diluted
weighted average shares outstanding for the period presented.
SurModics, Inc. and
SubsidiariesSupplemental Non-GAAP InformationFor the
Three Months Ended March 31, 2014(In thousands, except per
share data)
(Unaudited)
As ReportedGAAP(1)
Adjustments
AdjustedNon-GAAP(2)
Revenue Royalties and license fees $ 7,329 $ 7,329
Product sales 5,165 5,165 Research and development 1,110
1,110 Total revenue $ 13,604 $ 13,604
Operating income $ 3,480 $ 914
(3)
$ 4,394
Net income $ 2,459 $ 580
(4) $ 3,039
Diluted net income per share(5) $
0.18 $ 0.22 (1) Reflects operating results in
accordance with U.S. generally accepted accounting principles
(GAAP). (2) Adjusted Non-GAAP amounts consider adjustments to
reflect a $914 reduction to operating expenses associated with
acceleration of Board of Director stock-based compensation awards
and adjustment to the income tax provision utilizing a 36.5%
incremental effective tax rate. (3) Reflects the pre-tax impact of
the operating expense adjustment noted in (2) above. (4) Adjusted
to reflect the adjustment noted in (2) above. (5) Diluted net
income per share is calculated using the diluted weighted average
shares outstanding for the period presented.
SurModics, Inc. and
SubsidiariesSupplemental Non-GAAP InformationFor the
Six Months Ended March 31, 2015(In thousands, except per share
data)
(Unaudited)
As ReportedGAAP(1)
Adjustments
AdjustedNon-GAAP(2)
Revenue Royalties and license fees $ 14,658 $ 14,658
Product sales 11,498 11,498 Research and development 2,464
2,464 Total revenue $ 28,620 $ 28,620
Operating income $ 8,966 $ 8,966
Net income $ 6,665 $ (724 ) (3) $ 5,941
Diluted net income per share(4) $ 0.50 $ 0.44
(1) Reflects operating results in accordance with
U.S. generally accepted accounting principles (GAAP). (2) Adjusted
Non-GAAP amount considers adjustments to net investment income and
the income tax provision for a discrete income tax benefit in the
period presented as noted in (3) below. (3) Adjusted to reflect a
$523 reduction in net investment income associated with the sale of
Intersect ENT shares. 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. In addition, the
income tax provision is 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. (4) Diluted
net income per share is calculated using the diluted weighted
average shares outstanding for the period presented.
SurModics, Inc. and
SubsidiariesSupplemental Non-GAAP InformationFor the
Six Months Ended March 31, 2014(In thousands, except per share
data)
(Unaudited)
As ReportedGAAP(1)
Adjustments
AdjustedNon-GAAP(2)
Revenue Royalties and license fees $ 14,794 $ 14,794
Product sales 10,565 10,565 Research and development 2,128
2,128 Total revenue $ 27,487 $ 27,487
Operating income $ 7,809 $ 914
(3) $ 8,723
Net income $ 6,089 $ (101 )
(4) $ 5,988
Diluted net income per share(5) $
0.44 $ 0.43 (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 $681
reduction in net investment income associated with a contingent
milestone payment related to the sale of Vessix Vascular shares 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 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 operating expense adjustment
noted in (2) above. (4) Adjusted to reflect the adjustment noted in
(2) above. (5) 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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