- GAAP Revenue Growth of 13% to $17.4
Million and GAAP EPS of $0.22
- Non-GAAP Revenue Up 8% and Non-GAAP
EPS of $0.30
- FDA IDE Approval for Early
Feasibility Study of the SurVeil™ Drug-Coated Balloon
- Increase in Share Repurchase
Authorization to $30.0 Million
- Fiscal 2016 Guidance
Outlined
SurModics, Inc. (Nasdaq:SRDX), a leading provider of medical
device and in vitro diagnostic technologies to the healthcare
industry, today announced results for its fiscal 2015 fourth
quarter, ended September 30, 2015.
“The SurModics team had an excellent fiscal 2015,” said Gary
Maharaj, president and chief executive officer. “We focused on
delivering outstanding results from our core businesses while
strengthening the transformation for SurModics to become a provider
of whole-product solutions to our medical device customers. We
continued this momentum into fiscal 2016 as we announced the FDA
approval of an early feasibility first-in-human study for the
SurModics SurVeil™ drug-coated balloon (DCB).”
Fourth Quarter Revenue and Earnings Summary
GAAP revenue for the fiscal 2015 fourth quarter totaled $17.4
million, compared with $15.3 million in the fiscal 2014 fourth
quarter. Fiscal 2015 fourth quarter revenue included $0.8 million
of hydrophilic royalty revenue that was deferred because of
customer-related contingencies that were resolved during the
quarter. These royalties related to the first three quarters of
fiscal 2015. Excluding this item, revenue rose 8% in the fiscal
2015 fourth quarter.
Diluted GAAP earnings per share from continuing operations in
the fourth quarter of fiscal 2015 were $0.22 compared with $0.18 a
year ago. The fourth quarter fiscal 2015 earnings include a $0.04
per share benefit from the contingent royalty revenue items
discussed above, offset by a $0.12 per share reduction from a
customer claim settlement. The prior-year quarter included a $0.08
per share strategic asset impairment charge. On a non-GAAP
comparative basis, earnings per share from continuing operations
were $0.30 in the fourth quarter of fiscal 2015 versus $0.26 last
year.
Medical Device Segment
The Medical Device business unit accounts for approximately
three-quarters of the Company’s revenue. This business, which
includes hydrophilic coatings and device drug delivery
technologies, posted revenue of $13.1 million in the fourth quarter
of fiscal 2015, an increase of 17% compared to the year-ago period
as a result of the contingent royalty revenue items noted above, as
well as increases in non-contingent hydrophilic royalties, reagent
product sales, and research and development contract coating
services. Fiscal fourth quarter 2015 hydrophilic coating royalty
revenue was $8.9 million, an increase of 13% compared to the
year-earlier period, or 4% net of the contingent royalty revenue
items. The Medical Device business unit generated $4.7 million of
operating income during the fourth quarter, a 24% decline from the
year-ago period, with the higher revenue offset by the $2.5 million
pre-tax customer claim settlement in September 2015, as well as
compensation costs.
Drug-Coated Balloon Update
“We are pleased with our recent milestone: obtaining
investigational device exemption (IDE) approval from the FDA to
move forward with our SurVeil DCB clinical trial,” said Maharaj.
“We are currently developing plans for up to three U.S. sites and
expect to enroll our first patient in the second quarter of fiscal
2016.”
In Vitro Diagnostics Segment
The In Vitro Diagnostics (IVD) business unit accounts for
approximately one-quarter of the Company’s revenue. Revenue for the
fourth quarter of fiscal 2015 totaled $4.2 million, an increase of
3% compared to the year-ago period. The IVD business unit generated
$1.3 million of operating income in the fourth quarter of fiscal
2015, which reflects a 7% improvement from a year ago. Operating
income benefited from higher revenue and lower sales, general and
administrative expenses.
Balance Sheet and Cash Flow
As of September 30, 2015, the Company had $55.6 million of cash
and investments and no outstanding debt. SurModics generated cash
from operating activities of $15.1 million in fiscal 2015. Capital
expenditures and share repurchases totaled $1.9 million and $20.0
million, respectively, for fiscal 2015. 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. The accelerated share
repurchase program was finalized in July 2015 with the retirement
of an additional 89,721 common shares. In aggregate, the Company
repurchased 847,864 common shares under this program in fiscal
2015.
Share Repurchase Program
SurModics also announced today that its Board of Directors has
authorized a $20 million increase to its existing share repurchase
program, bringing the total amount currently authorized and
available under the program to an aggregate of $30 million.
Repurchases may be effected through open market purchases,
privately negotiated transactions, block trades, accelerated share
repurchase transactions, tender offers or by any combination of
these methods. The number of shares to be repurchased and the
timing of any repurchases will depend on factors such as our stock
price, economic and market conditions, the relative attractiveness
of corporate development opportunities and other alternative uses
of capital, and corporate and regulatory requirements. The share
repurchase authorization does not have a fixed expiration.
Fiscal 2016 Outlook
“We enter fiscal 2016 with three clear priorities: complete an
acquisition to accelerate our transformation to providing
whole-products solutions to our medical device customers, move
ahead with a drug-coated balloon first-in-human clinical trial, and
continue to deliver differentiated innovation and service in our
medical device and in vitro diagnostics businesses for current and
prospective customers,” said Maharaj.
SurModics estimates GAAP revenue for fiscal 2016 to be in the
range of $56.0 million to $60.0 million. Fiscal 2016 revenue
anticipates the previously disclosed expiration of the U. S. patent
protecting the Company’s third generation hydrophilic coatings.
Management anticipates diluted GAAP earnings to be in the range of
$0.70 to $0.80 per share. The fiscal 2016 earnings per share
guidance includes an increase of approximately 15% to 20% in
research and development investment over fiscal 2015 levels
primarily related to drug coated balloon activities, including
paclitaxel and sirolimus applications of the drug-coated balloon
platform. The Company also expects slightly lower SG&A expenses
as compared to fiscal 2015 levels and a 33.0% to 35.0% income tax
rate. The earnings per share and income tax rate guidance exclude
the impact of any investment gains or losses. Capital expenditures
for fiscal 2016 are projected to range between $3.0 and $3.5
million. The guidance also excludes any shares SurModics may
repurchase under the $30.0 million authorization.
Live Webcast
SurModics will host a webcast at 7:30 a.m. CT (8:30 a.m. ET)
today to discuss fourth 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
fourth quarter conference call will be available by dialing
888-203-1112 and entering conference call ID passcode 944630. The
audio replay will be available beginning at 10:30 a.m. CT on
Tuesday, November 10, 2015, until 10:30 a.m. CT on
Tuesday, November 17, 2015.
About SurModics SurVeil™ Drug-Coated Balloon
The SurVeil drug-coated balloon incorporates SurModics’ decades
of experience as a leading supplier of surface modification
technologies to the medical device industry. It includes a
SurModics-proprietary drug-excipient formulation for the balloon
coating, and a new and proprietary manufacturing process for the
coating applications. It also includes the SurModics Serene™
low-friction, low-particulate hydrophilic coating on the catheter
shaft. The SurVeil DCB is not available for sale in the US and is
for investigational use only. We plan to initiate a first-in-human
clinical trial using SurModics SurVeil drug-coated balloon by the
end of the second quarter of fiscal 2016.
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
performance in the near- and long-term, including our revenue,
earnings and cash flow expectations for fiscal 2016, our fiscal
2016 priorities, and our SurVeil drug-coated balloon, 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, including the timing associated with the
initiation of our first-in-human clinical trial; (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 successfully identify and acquire target companies or
achieve expected benefits from acquisitions that are consummated;
(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,
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
Subsidiaries Condensed Consolidated Statements of Income
(in thousands, except per share data)
Three Months EndedSeptember
30,
Years EndedSeptember 30,
2015 2014 2015 2014
(Unaudited) (Unaudited) Revenue Royalties and license fees $ 9,197
$ 8,098 $ 31,763 $ 30,277 Product sales 6,844 6,166 24,925 22,798
Research and development 1,323 1,072
5,210 4,364 Total revenue 17,364
15,336 61,898 57,439
Operating costs and expenses Product costs 2,588 2,279 8,619
8,016 Research and development 4,326 4,062 16,165 15,550 Selling,
general and administrative 3,684 3,561 15,525 15,297 Claim
settlement 2,500 ― 2,500 ―
Total operating costs and expenses 13,098
9,902 42,809 38,863
Operating income from continuing operations 4,266 5,434 19,089
18,576 Other (loss) income: Investment income 7 44 156 238
Other income ― 8 496 842 Impairment loss on investments ―
(1,184 ) ― (1,184 ) Other (loss) income, net
7 (1,132 ) 652 (104 )
Income from continuing operations before income taxes 4,273 4,302
19,741 18,472 Income tax provision (1,415 )
(1,858 ) (6,294 ) (6,265 ) Income from continuing
operations 2,858 2,444 13,447 12,207 Loss from discontinued
operations, net of taxes ― (100 ) ―
(176 ) Net income $ 2,858 $ 2,344 $ 13,447 $
12,031 Basic income (loss) per share: Continuing
operations $ 0.22 $ 0.18 $ 1.03 $ 0.90 Discontinued operations
(0.00 ) (0.01 ) (0.00 ) (0.01 ) Net income $ 0.22 $ 0.17 $ 1.03 $
0.88 Diluted income (loss) per share: Continuing operations
$ 0.22 $ 0.18 $ 1.01 $ 0.88 Discontinued operations (0.00 ) (0.01 )
(0.00 ) (0.01 ) Net income $ 0.22 $ 0.17 $ 1.01 $ 0.87
Weighted average number of shares outstanding: Basic 12,934 13,593
13,029 13,632 Diluted 13,190 13,829 13,289 13,876
SurModics, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(in thousands)
September 30,2015
September 30,2014
(Unaudited) Assets Cash and short-term investments $ 55,588 $
46,551 Accounts receivable 7,478 4,751 Inventories 2,979 2,817
Other current assets 1,744 1,145 Current assets of discontinued
operations ― 16 Total current assets 67,789 55,280
Property and equipment, net 12,968 13,133 Long-term investments ―
16,823 Other assets 19,453 19,653 Total assets $
100,210 $ 104,889 Liabilities and Stockholders’ Equity
Current liabilities $ 4,700 $ 4,022 Current liabilities of
discontinued operations ― 45 Total current liabilities 4,700
4,067 Other liabilities 2,137 2,071 Total stockholders’
equity 93,373 98,751 Total liabilities and
stockholders’ equity $ 100,210 $ 104,889
SurModics, Inc. and Subsidiaries Condensed
Consolidated Statements of Cash Flows
(in thousands)
Years EndedSeptember 30,
2015 2014 (Unaudited) Operating
Activities: Net income $ 13,447 $ 12,031 Loss from discontinued
operations ― 176 Depreciation and amortization 2,805 2,715
Stock-based compensation 2,381 3,337 Gains on sale of
available-for-sale securities and strategic investments (492 ) (842
) Impairment loss on strategic investment ― 1,184 Net other
operating activities (603 ) (586 ) Change in operating assets and
liabilities: Accounts receivable (2,727 ) 581 Accounts payable and
accrued liabilities 373 (738 ) Income taxes (84 ) 116 Net change in
other operating assets and liabilities (34 ) 563
Net cash provided by operating activities from continuing
operations 15,066 18,537
Investing Activities: Net purchases of property and equipment
(1,877 ) (2,278 ) Cash transferred to discontinued operations (45 )
(354 ) Net other investing activities 18,616
25,019 Net cash provided by investing activities from
continuing operations 16,694 22,387
Financing Activities: Purchase of common stock to fund
employee taxes (825 ) (1,111 ) Repurchase of common stock (20,000 )
(12,545 ) Net other financing activities 1,142
748 Net cash used in financing activities from continuing
operations (19,683 ) (12,908 ) Net cash provided by
continuing operations 12,077 28,016
Discontinued operations: Net cash used in operating
activities (45 ) (354 ) Net cash provided by financing activities
45 354 Net cash provided by
discontinued operations ― ― Net change in cash
and cash equivalents 12,077 28,016 Cash and Cash Equivalents:
Beginning of year 43,511 15,495 End of
year $ 55,588 $ 43,511
SurModics, Inc. and Subsidiaries
Supplemental Segment Information
(in thousands)
(Unaudited)
Three Months Ended September 30, 2015
2014 % Change Revenue % of
Total % of Total Medical Device $ 13,118 75.5 % $
11,216 73.1 % 16.9 % In Vitro Diagnostics 4,246 24.5
4,120 26.9 3.1 Total revenue $ 17,364 100.0 % $
15,336 100.0 % 13.2 %
Years Ended September 30,
2015 2014 % Change Revenue % of
Total % of Total Medical Device $ 45,944 74.2 % $ 43,068
75.0 % 6.7 % In Vitro Diagnostics 15,954 25.8
14,371 25.0 11.0 Total revenue $ 61,898 100.0 % $ 57,439
100.0 % 7.8 %
Three Months EndedSeptember
30,
Years EndedSeptember 30,
2015 2014 2015 2014
Operating Income Medical Device $ 4,687 $ 6,170 $ 21,192 $
22,636 In Vitro Diagnostics 1,264 1,182 4,484 3,459 Corporate
(1,685 ) (1,918 ) (6,587 ) (7,519 )
Total operating income $ 4,266 $ 5,434 $ 19,089
$ 18,576
SurModics, Inc. and Subsidiaries
Supplemental Non-GAAP Information For the Three Months
Ended September 30, 2015
(in thousands, except per share data)
(Unaudited)
As ReportedGAAP(1)
Adjustments
AdjustedNon-GAAP(2)
Revenue Royalties and license fees $ 9,197 $ (763 ) $
8,434 Product sales 6,844 6,844 Research and development
1,323 1,323 Total revenue $ 17,364 $ (763 ) $ 16,601
Operating income $ 4,266 $ 1,737 (3 ) $ 6,003
Net Income $ 2,858 $ 1,124 (4 ) $ 3,982
Diluted earnings per share (5) $ 0.22 $ 0.30 (1)
Reflects operating results in accordance with U.S. generally
accepted accounting principles (GAAP). (2) Adjusted Non-GAAP amount
considers a $763 reduction in revenue related to pre-fourth quarter
fiscal 2015 royalties recognized during the quarter as two
customer-related contingencies were resolved; and a $2,500
adjustment reducing expense, and increase operating income for a
customer claim settlement. These adjustments resulted in a net tax
expense of $613. (3) Adjusted to reflect the pre-tax adjustments
discussed in note (2) above. (4) Adjusted to reflect the after-tax
impact of the adjustments discussed in note (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 Three Months Ended September 30,
2014
(in thousands, except per share data)
(Unaudited)
As ReportedGAAP(1)
Adjustments
AdjustedNon-GAAP(2)
Revenue Royalties and license fees $ 8,098 $ 8,098
Product sales 6,166 6,166 Research and development 1,072
1,072 Total revenue $ 15,336 $ 15,336
Operating
income from continuing operations $ 5,434 $ 5,434
Income from continuing operations $ 2,444 $ 1,184 (3 ) $
3,628
Diluted earnings per share from continuing
operations(4) $ 0.18 $ 0.26 (1) Reflects
operating results in accordance with U.S. generally accepted
accounting principles (GAAP). (2) Adjusted Non-GAAP amounts
consider adjustments to increase net investment income by $1,184
associated with an investment impairment charge associated with the
strategic investment in ThermopeutiX. The adjustment to increase
net investment income did not generate an income tax expense as
there was an offsetting release of a capital loss valuation reserve
allowance. (3) Adjusted to reflect the adjustment discussed in note
(2) above. (4) 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 Year Ended
September 30, 2015
(in thousands, except per share data)
(Unaudited)
As ReportedGAAP(1)
Adjustments
AdjustedNon-GAAP(2)
Revenue Royalties and license fees $ 31,763 $ (560 )
$ 31,203 Product sales 24,925 24,925 Research and development
5,210 5,210 Total revenue $ 61,898 $ (560 ) $
61,338
Operating income $ 19,089 $ 1,940 (3 )
$ 21,029
Net Income $ 13,447 $ 531 (4 ) $
13,978
Diluted net income per share (5) $ 1.01 $ 1.05
(1) Reflects operating results in accordance with
U.S. generally accepted accounting principles (GAAP). (2) Adjusted
to reflect a reduction in revenue by $560 for the portion of a
one-time customer royalty payment related to periods prior to
fiscal 2015, a $523 reduction in net investment income associated
with the sale of Intersect ENT shares and a $2,500 increase to
operating income related to a customer claim settlement. The
adjustments to reduce royalty revenues and increase operating
income related to a claim settlement reflects a net tax expense of
$685. The reduction for net investment income did not generate a
tax benefit as there was an offsetting establishment of a capital
loss valuation reserve. Finally, the income tax provision is
increased to reflect a 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. (3) Adjusted to
reflect the pre-tax impact of the royalty revenue and customer
claim settlement adjustments discussed in note (2) above. (4)
Adjusted to reflect the after-tax impact
of the adjustments discussed in note (2) above.
(5) 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 Year Ended September 30, 2014
(in thousands, except per share data)
(Unaudited)
As ReportedGAAP(1)
Adjustments
AdjustedNon-GAAP(2)
Revenue Royalties and license fees $ 30,277 $ 30,277
Product sales 22,798 22,798 Research and development 4,364
4,364 Total revenue $ 57,439 $ 57,439
Operating
income $ 18,576 $ 914 (3 ) $ 19,490
Income from
continuing operations $ 12,207 $ 1,055 (4 ) $ 13,262
Diluted earnings per share from continuing operations(5) $
0.88 $ 0.96 (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, 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 2014 and a $1,184 increase in net investment income
associated with an investment impairment charge associated with the
strategic investment in ThermopeutiX. The income tax provision
includes a $334 expense associated with the Board of Director
stock-based compensation expense reduction. The adjustments to
increase net investment income did not generate an income tax
expense as there was an offsetting release of a capital loss
valuation reserve allowance. (3) Adjusted to reflect the pre-tax
impact of the operating expense adjustment discussed in note (2)
above. (4) Adjusted to reflect the after-tax impact of the
adjustments discussed in note in (2) above. (5) Diluted earnings
per share from continuing operations is calculated using the
diluted weighted average shares outstanding for the period
presented.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20151110005593/en/
SurModics, Inc.Andy LaFrence, 952-500-7000Vice President of
Finance and Chief Financial Officer
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