- GAAP Revenue of $20.0 Million, up
25%
- GAAP EPS of $0.30, Non-GAAP EPS of
$0.37
- Core Business Performs Well as Key
Strategic Growth Priorities Advance
- Raises Fiscal 2016 Revenue and EPS
Guidance
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 2016 third
quarter, ended June 30, 2016.
“Surmodics continued to advance all key strategic growth
priorities while delivering against our fiscal 2016 financial
commitments,” said Gary Maharaj, president and chief executive
officer. “We are pleased to say that the integration of the Creagh
Medical and NorMedix acquisitions are on track. We have earned
revenue from our first customer with fully integrated Surmodics
coatings and Creagh Medical balloon technologies. We also continue
to make excellent progress in enrollment for our investigational
device exemption (IDE) study of our SurVeil™ drug-coated balloon
platform with nine patients enrolled in the study.”
Third Quarter Revenue and Earnings Summary
GAAP revenue for the fiscal 2016 third quarter totaled $20.0
million, compared with $15.9 million a year earlier. Third quarter
fiscal 2016 revenue included $1.2 million from Surmodics’ fiscal
2016 acquisitions as well as a previously disclosed $2.9 million,
or $0.14 per share, hydrophilic royalty catch-up payment, of which
$2.6 million related to periods prior to fiscal 2016.
Diluted GAAP earnings per share from continuing operations in
the third quarter of fiscal 2016 were $0.30, same as a year ago. On
a non-GAAP basis, earnings per share increased 19% to $0.37 in the
third quarter of fiscal 2016 versus $0.31 last year. Fiscal 2016
third quarter non-GAAP earnings exclude $0.07 per share from
acquisition-related transaction costs, including integration,
contingent consideration accretion, amortization, foreign currency
transaction and other expenses.
Medical Device Segment
This segment, which includes hydrophilic coatings, device drug
delivery technologies and balloon catheter products, posted revenue
of $15.7 million in the third quarter of fiscal 2016, an increase
of 35 percent compared to the year-ago period. The gain stems from
higher hydrophilic coating royalties, reagent product sales and
acquisition revenue. Fiscal third quarter 2016 hydrophilic coating
royalty and license fee revenue included the $2.9 million catch-up
payment and aggregated $10.5 million, an increase of 34
percent compared to the year-earlier period. The Medical Device
business unit generated $6.7 million of operating income in
the third quarter compared to $6.3 million in the prior-year
quarter. Increased revenue offset by increased research and
development expense as well as acquisition-related expenses
accounted for the change in operating income.
In Vitro Diagnostics Segment
Revenue for the third quarter of fiscal 2016 grew one percent to
$4.3 million, as compared to an exceptionally strong year-ago
period. The IVD business unit operating income in the third quarter
of fiscal 2016 increased to $1.7 million versus $1.2 million
in the prior-year quarter. Operating income benefited from lower
legal costs.
Update on SurVeil Drug-Coated Balloon
As previously disclosed, Surmodics has enrolled the ninth
patient in its IDE study of the SurVeil drug-coated balloon. This
study is part of the Company’s strategy of providing highly
differentiated intravascular whole product solutions. Up to
15 patients can be enrolled. Surmodics plans to complete
enrollment in this clinical study during the fourth quarter of
fiscal 2016. “There is an opportunity with the next wave of DCB
technology to continue to improve patient outcomes as the
technology is advanced,” said D. Christopher Metzger, M.D., at
Wellmont Holston Valley Medical Center in Kingsport, Tennessee and
National Principal Investigator for the PreVeil Study. “I am
pleased to be part of Surmodics’ U.S. early feasibility trial as we
continue to evaluate this promising, next-generation
technology available with the SurVeil DCB."
Balance Sheet and Cash Flow
As of June 30, 2016, the Company had $44.2 million of cash and
investments. Surmodics generated cash from operating activities of
$18.5 million in the first nine-months of fiscal 2016. Capital
expenditures totaled $4.9 million for the first nine-months of
fiscal 2016. In addition, the Company used $25.1 million of net
cash to acquire Creagh Medical and NorMedix in the first
nine-months of fiscal 2016.
Fiscal 2016 Outlook
According to Maharaj, “Through the first three quarters of
fiscal 2016, our revenue increased 19 percent. As a result, we are
raising our revenue and earnings guidance for fiscal 2016.”
Surmodics is increasing full-year revenue guidance to be in the
range of $68.0 million to $70.0 million as well as diluted GAAP
earnings per share in the range of $0.52 to $0.59. Surmodics also
is increasing non-GAAP earnings per share to a range of $0.98 to
$1.08, up from a range of $0.75 to $0.85. Surmodics is reaffirming
its anticipated capital expenditures in the range of $8.0 million
to $9.0 million.
Live Webcast
Surmodics will host a webcast at 7:30 a.m. CT (8:30 a.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 8648070. The
audio replay will be available beginning at 10:30 a.m. CT today
until 10:30 a.m. CT on Thursday, August 4, 2016. In
addition, the conference call audio and transcript will be archived
on the Company’s website following the call.
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 initiated a first-in-human
clinical trial using Surmodics SurVeil drug-coated balloon on April
5, 2016.
About Surmodics, Inc.
Surmodics is the global leader in surface modification
technologies for intravascular medical devices and a leading
provider of chemical components for in vitro diagnostic (IVD) tests
and microarrays. Following two recent acquisitions of Creagh
Medical and NorMedix, the Company is executing a key growth
strategy for its medical device business by expanding to offer
total intravascular product solutions to its medical device
customers. The combination of proprietary surface technologies,
along with enhanced device design, development and manufacturing
capabilities, enables Surmodics to significantly increase the value
it offers with highly differentiated intravascular solutions
designed and engineered to meet the most demanding requirements.
With this focus on offering total product solutions, Surmodics’
mission remains to improve the detection and treatment of disease.
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 progress in our IDE study; (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, acquire,
and integrate target companies, and 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, 2015, 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 operating
income, non-GAAP income before income taxes, 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 Nine
Months Ended June 30, June 30, 2016
2015 2016 2015
(Unaudited) (Unaudited) Revenue: Royalties and license fees $
10,556 $ 7,908 $ 25,207 $ 22,566 Product sales 7,512 6,583 22,866
18,082 Research and development 1,904 1,423
5,139 3,887 Total revenue
19,972 15,914 53,212
44,535 Operating costs and expenses: Product costs 2,777
2,174 8,069 6,031 Research and development 4,693 3,860 13,195
11,839 Selling, general and administrative 4,483 3,872 12,984
11,387 Acquisition transaction, integration and other costs 61 ―
3,192 ― Intangible asset amortization 806 151 1,940 454 Contingent
consideration accretion expense 555 ―
1,056 ― Total operating costs and expenses
13,375 10,057 40,436
29,711 Operating income 6,597 5,857
12,776 14,824 Other income
(loss), net 263 (4 ) 72
645 Income before income taxes 6,860 5,853 12,848 15,469
Income tax provision (2,857 ) (1,929 ) (5,507
) (4,879 ) Net income $ 4,003 $ 3,924 $ 7,341
$ 10,590 Basic net income per share $ 0.31
$ 0.30 $ 0.57 $ 0.81 Diluted net
income per share $ 0.30 $ 0.30 $ 0.56 $ 0.79
Weighted average number of shares outstanding: Basic
12,995 13,002 12,969 13,057 Diluted 13,284 13,279 13,203 13,324
Surmodics, Inc. and Subsidiaries Condensed
Consolidated Balance Sheets
(in thousands)
June 30, September 30,
2016 2015 (Unaudited) Assets Cash and short-term
investments $ 34,656 $ 55,588 Available-for-sale securities 9,523 ―
Accounts receivable 5,859 7,478 Inventories 3,345 2,979 Other
current assets 686 1,744 Total current assets 54,069
67,789 Property and equipment, net 17,183 12,968 Intangible
assets, net 22,889 2,760 Goodwill 26,544 8,010 Other assets
6,229 7,183 Total assets $ 126,914 $ 98,710
Liabilities and Stockholders’ Equity Current liabilities
8,069 4,700 Total current liabilities 8,069 4,700
Contingent consideration 13,950 ― Other liabilities 2,089 2,137
Total stockholders’ equity 102,806 91,873 Total
liabilities and stockholders’ equity $ 126,914 $ 98,710
Surmodics, Inc. and Subsidiaries Condensed
Consolidated Statements of Cash Flows
(in thousands)
Nine Months Ended June 30, 2016
2015 (Unaudited) Operating Activities: Net
income $ 7,341 $ 10,590 Depreciation and amortization 3,703 2,083
Stock-based compensation 2,729 1,841 Contingent consideration
accretion and foreign currency transaction loss expenses 1,369 ―
Deferred taxes 2 450 Gain on sales of available-for-sale securities
and strategic investments (377 ) (496 ) Net other operating
activities (82 ) (478 ) Change in operating assets and liabilities:
Accounts receivable 1,999 (1,244 ) Accounts payable and accrued
liabilities 746 132 Income taxes 1,137 (221 ) Net change in other
operating assets and liabilities (67 ) (581 ) Net
cash provided by operating activities from continuing operations
18,500 12,076 Investing
Activities: Payments for acquisitions, net of cash acquired (25,054
) ― Net purchases of property and equipment (4,854 ) (354 ) Cash
received from sale of strategic assets 377 21 Cash transferred to
discontinued operations ― (45 ) Net other investing activities
(9,562 ) 18,822 Net cash (used in) provided by
investing activities from continuing operations (39,093 )
18,444 Financing Activities: Purchase of
common stock to fund employee taxes (371 ) (810 ) Repurchase of
common stock ― (20,000 ) Net other financing activities 46
887 Net cash used in financing activities from
continuing operations (325 ) (19,923 ) Net cash (used
in) provided by continuing operations (20,918 )
10,597 Discontinued operations: Net cash used in
operating activities ― (45 ) Net cash provided by financing
activities ― 45 Net cash provided by
discontinued operations ― ― Effect of exchange
rate changes on cash (14 ) ― Net change in cash and cash
equivalents (20,932 ) 10,597 Cash and Cash Equivalents: Beginning
of period 55,588 43,511 End of period $
34,656 $ 54,108
Surmodics, Inc. and
Subsidiaries Supplemental Segment Information
(in thousands)
(Unaudited)
Three Months Ended June 30,
2016 2015 % Change
Revenue % of Total %
of Total Medical Device $ 15,654 78.4 % $ 11,629 73.1 % 34.6 %
In Vitro Diagnostics 4,318 21.6
4,285 26.9 0.8 Total revenue $ 19,972
100.0 % $ 15,914 100.0 % 25.5 %
Nine
Months Ended June 30, 2016 2015 % Change
Revenue % of Total % of Total Medical Device $
39,500 74.2 % $ 32,827 73.7 % 20.3 % In Vitro Diagnostics
13,712 25.8 11,708 26.3
17.1 Total revenue $ 53,212 100.0 % $ 44,535
100.0 % 19.5 %
Three Months Ended June
30, Nine Months Ended June 30, 2016 2015
2016 2015 Operating Income Medical Device $
6,673 $ 6,295 $ 12,825 $ 16,507 In Vitro Diagnostics 1,673 1,191
5,298 3,220 Corporate (1,749 ) (1,629 ) (5,347
) (4,903 ) Total operating income $ 6,597 $ 5,857
$ 12,776 $ 14,824
Surmodics,
Inc., and Subsidiaries Net Income and Diluted EPS GAAP to
Non-GAAP Reconciliation For the Three Months Ended June 30,
2016
(in thousands, except per share data)
(Unaudited)
Income Operating Before
Total Operating Income Income
Net
Revenue Income Percentage Taxes
Income
Diluted EPS GAAP $ 19,972 $ 6,597 33.0 % $ 6,860 $
4,003 $ 0.30 Adjustments: Contingent consideration expense (1) ―
555 2.8 555 555 0.04 Foreign exchange gain (2) ― ― ― (250 )
(250 ) (0.02 ) Amortization of intangible assets (3) ―
806 4.0 806 688
0.05
Non-GAAP $ 19,972 $ 7,958 39.8 % $ 7,971
$ 4,996 $ 0.37 (1) The
contingent consideration adjustment represents accounting
adjustments to state contingent consideration liabilities at their
estimated fair value. (2) Foreign exchange gain related to marking
contingent consideration to market. (3) To exclude amortization of
acquisition related intangible assets and associated tax impact.
The above table is a summary of the pro forma adjustments to
GAAP earnings and EPS, columns may not foot due to rounding.
Surmodics, Inc., and Subsidiaries Net Income and
Diluted EPS GAAP to Non-GAAP Reconciliation For the Three
Months Ended June 30, 2015
(in thousands, except per share data)
(Unaudited)
Income Operating Before
Total
Operating Income Income
Net
Diluted
Revenue
Income Percentage Taxes
Income
EPS
GAAP $ 15,914 $ 5,857 36.8 % $ 5,853 $ 3,924 $ 0.30
Adjustments: Amortization of intangible assets (1) ― 151 0.9
151 100 0.01
Non-GAAP $
15,914 $ 6,008 37.8 % $ 6,004 $ 4,024 $ 0.31 (1)
To exclude amortization of acquisition related intangible
assets and associated tax impact. The above table is a
summary of the pro forma adjustments to GAAP earnings and EPS;
columns may not foot due to rounding.
Surmodics,
Inc., and Subsidiaries Net Income and Diluted EPS GAAP to
Non-GAAP Reconciliation For the Nine Months Ended June 30,
2016
(in thousands, except per share data)
(Unaudited)
Operating Total Operating
Income Income Before Revenue Income
Percentage Income Taxes Net Income Diluted
EPS GAAP $ 53,212 $ 12,776 24.0 % $ 12,848 $ 7,341 $
0.56 Adjustments: Acquisition transaction, integration and
other costs (1)
―
3,192 6.0 3,192 2,865 0.22 Contingent consideration expense (2) ―
1,056 2.0 1,056 1,056 0.08 Foreign exchange loss (3) ― ― ― 316 316
0.02 Research and development tax credit (4)
―
― ―
―
(222 ) (0.02 ) Amortization of intangible assets (5) ― 1,940 3.6
1,940 1,655 0.13 Gain on strategic investment (6) ― ― ―
(361 ) (361 ) (0.03 )
Non-GAAP $
53,212 $ 18,964 35.6 % $ 18,991 $ 12,650 $ 0.96
(1) Represents acquisition related
costs, including due diligence and integration expenses. Due
diligence and other fees include legal, tax, investment banker and
other expenses associated with acquisitions that can be highly
variable and not representative of on-going operations. (2) The
contingent consideration adjustment represents accounting
adjustments to state contingent consideration liabilities at their
estimated fair value. (3) Foreign exchange loss related to marking
contingent consideration to market. (4) Represents the estimated
discrete income tax benefit associated with the December 2015
signing of the Protecting Americans from Tax Hikes Act of 2015—
which retroactively reinstated federal R&D income tax credits
for calendar 2015 and the discrete fiscal 2015 provision to tax
return true-up. (5) To exclude amortization of acquisition related
intangible assets and associated tax impact. (6) Represents the
gain recognized on the sale of a strategic investment. The
above table is a summary of the pro forma adjustments to GAAP
earnings and EPS, columns may not foot due to rounding.
Surmodics, Inc., and Subsidiaries Net Income and
Diluted EPS GAAP to Non-GAAP Reconciliation For the Nine
Months Ended June 30, 2015
(in thousands, except per share data)
(Unaudited)
Income Operating Before
Total Operating Income Income
Net
Revenue Income Percentage Taxes
Income
Diluted EPS GAAP $ 44,535 $ 14,824 33.3 % $ 15,469 $
10,590 $ 0.79 Adjustments: Research and development tax
credit (1) ― ― ― ― (201 ) (0.01 ) Gain on strategic
investment (2) ― ― ― (523 ) (523 ) (0.04 ) Amortization of
intangible assets (3) ― 454 1.0 454
300 0.02
Non-GAAP $
44,535 $ 15,278 34.3 % $ 15,400 $ 10,166 $ 0.76
(1) Represents a discrete income tax
benefit 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. (2)
Represents the gain recognized on the sale of a strategic
investment. (3) To exclude amortization of acquisition related
intangible assets and associated tax impact. The above table
is a summary of the pro forma adjustments to GAAP earnings and EPS,
columns may not foot due to rounding.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20160728005396/en/
Surmodics, Inc.Andy LaFrence, 952-500-7000Vice President of
Finance and Chief Financial Officer
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