- GAAP Revenue of $18.2 Million, up
5%
- GAAP EPS of $0.20, Non-GAAP EPS of
$0.26
- Core Business Performs Well as Key
Strategic Growth Priorities Advance
- Fiscal 2017 Revenue and EPS 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 2016 fourth
quarter, ended September 30, 2016.
“The fourth quarter marked the continuation of the outstanding
execution by the Surmodics team in fiscal 2016. I am proud of our
accomplishments as we surpassed our fiscal 2016 financial goals and
successfully integrated the Creagh Medical and NorMedix teams with
Surmodics. We have also made significant progress on all key
strategic growth priorities,” said Gary Maharaj, president and
chief executive officer. “Most notably, we have frozen the design
of our first 510(k) product and completed an interim look at the
data from the investigational device exemption (IDE) study of our
SurVeil® drug-coated balloon platform.”
Fourth Quarter Revenue and Earnings Summary
GAAP revenue for the fiscal 2016 fourth quarter totaled $18.2
million, compared with $17.4 million a year earlier. Fourth quarter
fiscal 2016 revenue included $1.3 million from Surmodics’ fiscal
2016 acquisitions.
Diluted GAAP earnings per share in the fourth quarter of fiscal
2016 were $0.20 compared with $0.10 a year ago. GAAP earnings per
share were impacted by increased research and development
investments, accretion and amortization from acquisitions, and
included a $0.04 per share tax benefit related to the adoption of a
new accounting standard related to accounting for income taxes
associated with stock-based compensation. On a non-GAAP basis,
earnings per share were $0.26 in the fourth quarter of fiscal 2016
versus $0.34 last year.
Medical Device Segment
This segment, which includes hydrophilic coatings, device drug
delivery technologies and balloon catheter products, posted revenue
of $13.7 million in the fourth quarter of fiscal 2016, an increase
of 5% compared to the year-ago period. The gain stems from higher
reagent product sales and revenue from our fiscal 2016
acquisitions. Fiscal fourth quarter 2016 hydrophilic coating
royalty and license fee revenue totaled $8.0 million, a
decrease of 13% percent compared to the year-earlier period,
reflecting the impact of the November 2015 expiration of U.S.
patents covering Surmodics’ third-generation hydrophilic coatings.
The Medical Device business unit generated $4.2 million of
operating income in the fourth quarter compared to $4.7 million in
the prior-year quarter. Planned increases in research and
development expense, as well as acquisition-related amortization
and accretion expenses partly offset by higher revenue, accounted
for the change in operating income.
Update on SurVeil Drug-Coated Balloon
Surmodics has completed an interim look at the data from its
early feasibility study of the SurVeil drug-coated balloon. This
study is part of the Company’s strategy to move its medical device
business from being solely a provider of coatings to offering
differentiated whole-product solutions to leading medical device
customers. "The SurVeil drug-coated balloon is performing well in
the early feasibility study,” said Kenneth Rosenfield, M.D.,
M.H.C.D.S., at Massachusetts General Hospital in Boston, Mass. and
Chairman of the Surmodics Clinical Advisory Board, “I look forward
to the next steps as Surmodics advances this important technology
on behalf of patients."
In Vitro Diagnostics Segment
Revenue for the fourth quarter of fiscal 2016 grew 5% to $4.5
million compared to the year-ago period. The IVD business unit
operating income increased to $1.8 million versus $1.3 million
in the prior-year quarter. Operating income benefited from improved
operating leverage due to higher revenue and lower expenses.
Balance Sheet, Cash Flow, EBITDA and Capital
Allocation
As of September 30, 2016, the Company had $46.9 million of cash
and investments. Cash flows from operating activities aggregated
$25.2 million in fiscal 2016. Earnings before interest, taxes,
depreciation and amortization (EBITDA), adjusted for certain
discrete or non-operations items, totaled $26.5 million for fiscal
2016, an increase of 4.0% from fiscal 2015. Capital expenditures
totaled $8.2 million for fiscal 2016. In addition, the Company used
$25.9 million of net cash to acquire Creagh Medical and NorMedix in
fiscal 2016.
Fiscal 2017 Outlook
“In fiscal 2016 we completed our three priorities: complete an
acquisition to accelerate our transformation to providing
whole-product 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
core medical device and in vitro diagnostics businesses for current
and prospective customers,” said Maharaj. “We are very excited
about the current status of our whole-product solutions strategy
and will build on this foundation in fiscal 2017 to make Surmodics
a more valuable and relevant partner to our customers, thereby
delivering long-term shareholder value. Our capital allocation in
fiscal 2017 to invest in research and development is a
well-thought-through execution of our whole-product solutions
strategy.”
The Company estimates GAAP revenue for fiscal 2017 to be in the
range of $63.0 million to $67.0 million. Surmodics anticipates
diluted GAAP earnings (loss) to be in the range of ($0.15) to
$0.05 per share. The Non-GAAP earnings range is expected
to be from $0.15 to $0.35 per share. The Company’s earnings
per share guidance includes an increase of approximately 50% in
research and development investment over fiscal 2016 levels,
primarily to accelerate whole-product solutions development
initiatives. This investment in growth will likely be more
heavily weighted to the second half of fiscal 2017 and reflects the
expected continued funding of the SurVeil drug-coated balloon
technology for above-the-knee clinical studies.
Surmodics’ GAAP earnings per share guidance excludes the impact
of gains and losses from strategic investment and foreign currency
translation adjustments related to the Company’s Euro denominated
contingent consideration associated with the fiscal 2016 Creagh
Medical acquisition. Capital expenditures for fiscal 2017 are
projected to range between $7.0 million and $8.0 million versus
$8.2 million in fiscal 2016. The outlook assumes 13.5 million
diluted shares outstanding and income tax expense of $2.0 million
to $3.0 million. While dependent on market conditions and corporate
development initiatives, the Company may buy back common shares
under its $30.0 million repurchase authorization; the guidance
excludes any shares Surmodics may repurchase.
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 8067923. The
audio replay will be available beginning at 10:30 a.m. CT today
until 10:30 a.m. CT on Wednesday, November 23, 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 drug-coated balloon is not available for sale in
the US and is for investigational use only. We completed an interim
look at the data from the first-in-human clinical trial using
Surmodics SurVeil drug-coated balloon in the quarter ended
September 30, 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
by using its technology to provide solutions to difficult medical
device and diagnostic challenges. 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 2017, our fiscal
2017 priorities, our strategy to become a provider of whole-product
solutions, such as those relating to our SurVeil drug-coated
balloon and other proprietary products being developed, 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 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 adjusted EBITDA,
non-GAAP operating income, non-GAAP income before income taxes,
non-GAAP net income, and non-GAAP diluted net income per share, and
the non-GAAP effective tax rate. We believe that these non-GAAP
measures, when read in conjunction with the Company’s GAAP
financial statements, 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 Years
Ended September 30, September 30, 2016
2015 2016 2015
(Unaudited) Revenue: Product sales $ 8,133 $ 6,844 $ 30,999
$ 24,925 Royalties and license fees 7,996 9,197 33,203 31,763
Research, development and other 2,025 1,323
7,164 5,210 Total revenue 18,154
17,364 71,366 61,898 Operating costs
and expenses: Product costs 2,839 2,588 10,908 8,619 Research and
development 5,303 4,326 18,498 16,165 Selling, general and
administrative 5,011 3,519 18,000 14,906 Acquisition transaction,
integration and other costs ― ― 3,187 — Acquired intangible asset
amortization 482 165 2,422 619 Contingent consideration accretion
expense 436 ― 1,492 — Claim settlement ― 2,500
— 2,500 Total operating costs and expenses
14,071 13,098 54,507 42,809
Operating income 4,083 4,266 16,859 19,089 Other income
(loss), net 17 (1,493 ) 89 (848 )
Income from operations before income taxes 4,100 2,773 16,948
18,241 Income tax provision (1,456 ) (1,415 )
(6,963 ) (6,294 ) Net income $ 2,644 $ 1,358 $ 9,985
$ 11,947 Basic income per share: $ 0.20 $ 0.10 $ 0.77
$ 0.92 Diluted income per share: $ 0.20 $ 0.10 $ 0.76 $ 0.90
Weighted average number of shares outstanding: Basic 13,088
12,934 12,998 13,029 Diluted 13,408 13,190 13,219 13,289
Surmodics, Inc. and Subsidiaries Condensed
Consolidated Balance Sheets
(in thousands)
September 30, 2016
2015 Assets
(Unaudited) Current Assets: Cash and cash
equivalents $ 24,987 $ 55,588 Available-for-sale securities 21,954
— Accounts receivable, net 6,869 7,478 Inventories 3,579 2,979
Prepaids and other 1,169 1,744 Total Current Assets
58,558 67,789 Property and equipment, net 19,601 12,968 Deferred
tax assets 5,027 6,704 Intangible assets, net 22,525 2,760 Goodwill
26,555 8,010 Other assets 628 479 Total Assets $
132,894 $ 98,710 Liabilities and Stockholders’ Equity Current
Liabilities 10,135 4,700 Contingent consideration, less current
portion 13,592 — Other long-term liabilities 2,334
2,137 Total Liabilities 26,061 6,837 Total Stockholders’ Equity
106,833 91,873 Total Liabilities and Stockholders’
Equity $ 132,894 $ 98,710
Surmodics, Inc. and
Subsidiaries Supplemental Segment Information
(in thousands)
(Unaudited)
Three Months Ended September 30, 2016
2015
%
Revenue:
% of Total % of Total
Change
Medical Device $ 13,702 75.5 % $ 13,118 75.5 % 4.5 % In Vitro
Diagnostics 4,452 24.5 % 4,246 24.5 % 4.9 %
Total revenue $ 18,154 $ 17,364 4.6 %
Twelve
Months Ended September 30, 2016 2015
%
Revenue:
% of Total % of Total
Change
Medical Device $ 53,202 74.5 % $ 45,944 74.2 % 15.8 % In Vitro
Diagnostics 18,164 25.5 % 15,954 25.8 % 13.9 %
Total revenue $ 71,366 $ 61,898 15.3 %
Three
Months Ended Years Ended September 30,
September 30, 2016 2015 2016
2015 Operating income: Medical Device $ 4,150 $ 4,687 $
16,975 $ 21,192 In Vitro Diagnostics 1,817 1,264
7,115 4,484 Total segment
operating income 5,967 5,951 24,090 25,676 Corporate (1,884
) (1,685 ) (7,231 ) (6,587 ) Total income from
operations $ 4,083 $ 4,266 $ 16,859 $ 19,089
Surmodics, Inc. and Subsidiaries
Reconciliation of GAAP Measures to Non-GAAP Amounts
Schedule of Adjusted EBITDA
(in thousands)
Three Months Ended Years
Ended September 30, September 30, 2016
2015 2016 2015
(Unaudited) (Unaudited) Net Income $ 2,644 $ 1,358 $
9,985 $ 11,947 Income tax provision 1,456 1,415 6,963 6,294
Depreciation and Amortization 1,170 723
4,875 2,805 EBITDA 5,270
3,496 21,823 21,046 Adjustments:
Acquisition transaction, integration and other costs (1) — ― 3,187
― Contingent consideration expense (2) 436 ― 1,492 ― Foreign
exchange loss (3) 146 ― 481 ― Impairment charge (4) ― 1,500 ― 1,500
Claim settlement (5) ― 2,500 ― 2,500 Gain on strategic investments
(6) (136 ) ― (497 ) (523 ) Adjusted EBITDA $
5,716 $ 7,496 $ 26,486 $ 25,523
Net Cash Provided by Operating
Activities
$
6,671
$
2,990
$
25,166
$
15,066
Reconciliation of Estimated GAAP to
Non-GAAP Net Income (Loss) per Common Share
Fiscal 2017 Guidance
Year ending September 30, 2017
Estimated Diluted EPS Low High
GAAP results $ (0.15 ) $ 0.05 Contingent
consideration expense (2) 0.15 0.15 Amortization of acquired
intangibles (7) 0.15 0.15
Non-GAAP
results $ 0.15 $ 0.35 (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) Contingent consideration expense
represents accounting adjustments to state acquisition related
contingent consideration liabilities at their estimated fair value.
There is no impact for taxes in the net income (loss) per share
reconciliation as this expense is not deductible for income tax
purposes. (3) Foreign exchange loss related to marking non-U.S.
dollar contingent consideration to period end exchange rates. (4)
To exclude an impairment charge associated with a strategic
investment in CeloNova BioSciences, Inc. (5) To exclude the
settlement of a customer claim. (6) Represents the gain recognized
on the sale of a strategic investment. (7) Amortization of
acquisition-related intangible assets, net of applicable tax.
Surmodics, Inc., and
Subsidiaries
Net Income and Diluted EPS GAAP to
Non-GAAP Reconciliation
(in thousands, except per share data) (unaudited)
For the Three Months Ended September 30,
2016
Income
Operating
Before
Total
Operating
Income
Income
Net
Diluted
Effective
Revenue
Income
Percentage
Taxes
Income (7)
EPS
tax rate
GAAP $ 18,154 $ 4,083 22.5 % $ 4,100 $ 2,644 $
0.20
35.5 % Adjustments: Contingent consideration accretion expense (1)
― 436 2.4 436 436 0.03 (3.4 ) Foreign exchange loss (2) ― ― ― 146
146 0.01 (1.0 ) Amortization of acquired intangible assets (3) ―
482 2.7 482 392 0.03 (1.2 ) Gain on strategic investments (4) ― ― ―
(136 ) (136 ) (0.01 ) 0.8
Non-GAAP $ 18,154 $ 5,001 27.6 % $ 5,028 $ 3,482
$ 0.26 30.7 %
For the Three Months Ended
September 30, 2015
Income
Operating
Before
Total
Operating
Income
Income
Net
Diluted
Effective
Revenue
Income
Percentage
Taxes
Income (7)
EPS
tax rate
GAAP $ 17,364 $ 4,266 24.6 % $ 2,773 $ 1,358 $
0.10
51.0
% Adjustments: Amortization of acquired intangible assets (3) ― 165
0.9 165 107 0.01 (1.3 ) Impairment loss on strategic investment (5)
― — — 1,500 1,500 0.11 (16.5 ) Claim settlement (6) ― 2,500
14.4 2,500 1,617 0.12
0.8
Non-GAAP $ 17,364 $ 6,931 39.9 % $ 6,938
$ 4,582 $ 0.34
34.0
%
(1) Represents accounting adjustments to state
acquisition-related contingent consideration liabilities at their
estimated fair value. No income tax deductions were generated from
these expenses as they are considered a part of purchase price for
income tax purposes. (2) Foreign exchange loss related to marking
non-U.S. dollar contingent consideration liabilities to period-end
exchange rates. These losses are not deductible for income tax
purposes. (3) Amortization of acquisition-related intangible assets
and associated tax impact. No income tax deductions were generated
from a significant portion of fiscal 2016 amortization expense as
it was offset by a net operating loss carryforward valuation
allowance. (4) Represents the gain recognized on the sale of
strategic investments. The strategic investment gains did not
generate an income tax expense as there was an offsetting release
of a capital loss valuation allowance. (5) Represents an impairment
charge associated with a strategic investment in CeloNova
BioSciences, Inc. This loss was not deductible for income tax
purposes as the Company is in a capital loss carryforwards
position. (6) Represents a customer claim settlement. (7) Net
income includes the effect of the above adjustments on the income
tax provision, taking into account deferred taxes and
non-deductible items. An effective rate between 34-35% was used to
estimate the income tax impact of the adjustments.
Surmodics, Inc., and Subsidiaries Net Income and Diluted
EPS GAAP to Non-GAAP Reconciliation
(in thousands, except per share data)
(unaudited)
For the Year Ended September 30, 2016
Income
Operating
Before
Net
Total Operating
Income
Income
Income
Diluted
Effective
Revenue Income Percentage
Taxes
(10)
EPS
tax rate
GAAP $ 71,366 $ 16,859 23.6 % $ 16,948 $ 9,985 $ 0.76 41.1 %
Adjustments: Acquisition transaction, integration and other costs
(1) ― 3,187 4.5 3,187 2,860 0.22 (4.9 ) Contingent consideration
expense (2) ― 1,492 2.1 1,492 1,492 0.11 (2.5 ) Foreign exchange
loss (3) ― ― — 481 481 0.03 (0.7 ) Research and development tax
credit (4) ― — — — (222 ) (0.02 ) 1.0 Amortization of acquired
intangible assets (5) ― 2,422 3.4 2,422 2,047 0.15 (1.9 ) Gain on
strategic investment (6) ― — — (497 )
(497 ) (0.04 ) 0.7
Non-GAAP $ 71,366 $ 23,960
33.6 % $ 24,033 $ 16,146 $ 1.21 32.8 %
For the Year Ended September 30, 2015
Income
Operating
Before
Net
Total Operating
Income
Income
Income
Diluted
Effective
Revenue Income
Percentage
Taxes
(10)
EPS
tax rate
GAAP $ 61,898 $ 19,089 30.8 % $ 18,241 $ 11,947 $ 0.90 34.5
% Adjustments: Amortization of acquired intangible assets (5) ― 619
1.1 619 401 0.02 (0.0 ) Gain on strategic investment (6) ― ― ― (523
) (523
)
(0.04
)
1.0 Impairment loss on strategic investment (7) ― ― ― 1,500 1,500
0.11 (2.7 ) Claim settlement (8) ― 2,500 4.0 2,500 1,617 0.12 0.3
Research and development tax credit (9) ― ― ― ―
(201
)
(0.02
)
0.9
Non-GAAP $ 61,898 $ 22,208 35.9 % $ 22,337
$ 14,741 $ 1.09 34.0 % (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) Represents accounting adjustments to state
acquisition-related contingent consideration liabilities at their
estimated fair value. No income tax deductions were generated from
these expenses as they are considered a part of purchase price for
income tax purposes. (3) Foreign exchange loss related to marking
non-U.S. dollar contingent consideration to period end exchange
rates. These losses are not deductible for income tax purposes. (4)
Represents a 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. (5) Amortization of
acquisition-related intangible assets and associated tax impact. No
income tax deductions were generated from a significant portion of
fiscal 2016 amortization expense as it was offset by a net
operating loss carryforward valuation allowance. (6) Represents the
gain recognized on the sale and contingent consideration received
from strategic investments. The strategic investment gains did not
generate an income tax expense as there was an offsetting release
of a capital loss valuation allowance. (7) Represents a
fourth-quarter impairment charge associated with a strategic
investment in CeloNova BioSciences, Inc. This loss was not
deductible for income tax purposes as the Company is in a capital
loss carryforwards position. (8) Represents a fourth-quarter
customer claim settlement. (9) 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. (10) Net
income includes the effect of the above adjustments on the income
tax provision, taking into account deferred taxes and
non-deductible items. An effective rate between 34-35% was used to
estimate the income tax impact of the adjustments.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20161116005504/en/
Surmodics, Inc.Andy LaFrence, 952-500-7000Vice President of
Financeand Information Systems andChief Financial Officer
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