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 2019 third quarter
ended June 30, 2019, and updated its financial outlook for fiscal
2019.
Summary of Third Quarter and Recent Highlights
- Revenue of $24.3 million, an increase of 9.5%
year-over-year
- GAAP EPS of $0.11, non-GAAP EPS of $0.15
- TRANSCEND clinical trial enrollment more than 90% complete
“Our third quarter results, which demonstrated strong commercial
and operational execution, marked our sixth consecutive quarter of
year-over-year revenue growth,” said Gary Maharaj, President and
CEO of Surmodics, Inc. “This consistent progress demonstrates our
ability to simultaneously produce organic revenue growth while
continuing to execute on our key strategic goals. Importantly, we
are making progress in our TRANSCEND clinical trial and are
currently over 90% enrolled and remain confident that we will
complete enrollment by the end of calendar 2019.”
Third Quarter Fiscal 2019 Financial Results
Total revenue for the third quarter of fiscal 2019 was $24.3
million, as compared with $22.2 million in the prior-year period.
Medical Device revenue was $18.9 million in the third quarter of
fiscal 2019, as compared with $16.7 million in the year-ago period,
an increase of 13%, and includes $2.0 million from our SurVeil™
agreement with Abbott, as compared with $1.7 million in the
prior-year quarter. In Vitro Diagnostics revenue was $5.4 million
for the third quarter of fiscal 2019 as compared with $5.5 million
in the same prior-year quarter, a decrease of 2%.
Diluted GAAP earnings per share in the third quarter of fiscal
2019 was $0.11 as compared with a loss per share of $(0.20) in the
year-ago period. On a non-GAAP basis, earnings per share were $0.15
in the third quarter of fiscal 2019, as compared with $0.27 in the
year-ago period.
As of June 30, 2019, cash and investments were $45.0 million.
Surmodics used $0.5 million of cash from operating activities in
the third quarter of fiscal 2019. Capital expenditures totaled $1.0
million for the third quarter of fiscal 2019.
Fiscal 2019 Guidance Revised
As a result of our operating performance in the first nine
months of fiscal 2019, we are raising our full-year revenue and
earnings guidance for fiscal 2019. We are increasing our fiscal
2019 revenue expectations to a range of $92.0 million to $94.0
million, from our previous revenue range of $88.5 million to $91.5
million. We are increasing our fiscal 2019 diluted GAAP EPS to a
range of $0.24 to $0.32 per share, compared with our previous
expectations of $0.14 to $0.24 per share. Diluted non-GAAP EPS is
now expected to be in the range of $0.41 to $0.49 per share,
compared with previous expectations of $0.26 to $0.36 per
share.
Conference Call
Surmodics will host a webcast at 4 p.m. CT (5 p.m. ET) today to
discuss third quarter results. To access the webcast, go to the
investor relations portion of the Company’s website at
https://surmodics.gcs-web.com and click on the webcast icon. The
webcast will be archived on the Company’s website for 90 days. A
replay of the third quarter conference call will be available by
dialing 888-203-1112 and entering conference call ID passcode
6653187. The audio replay will be available beginning at 7 p.m. CT
on Wednesday, July 31, 2019, until 7 p.m. CT on Wednesday, August
7, 2019.
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)
immunoassay tests and microarrays. Surmodics is pursuing highly
differentiated whole-product solutions that are designed to address
unmet clinical needs for its medical device customers and
engineered to the most demanding requirements. This key growth
strategy leverages the combination of the Company’s expertise in
proprietary surface technologies, along with enhanced device
design, development and manufacturing capabilities. The Company
mission remains to improve the detection and treatment of disease.
Surmodics is headquartered in Eden Prairie, Minnesota. For more
information, 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 and
earnings expectations for fiscal 2019, our SurVeil DCB and other
proprietary products, and the TRANSCEND clinical trial 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, timely complete
clinical trials for, obtain regulatory approval for, and, if
approved, commercialize our SurVeil DCB (including realization of
the full potential benefits of our agreement with Abbott), and
other proprietary products; (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) possible adverse
market conditions and possible adverse impacts on our cash flows,
and (4) 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, 2018, and updated in our subsequent reports filed
with the SEC. These reports are available in the Investors section
of our website at https://surmodics.gcs-web.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
U.S. generally accepted accounting principles, or GAAP, Surmodics
is reporting non-GAAP financial results including EBITDA and
Adjusted EBITDA, non-GAAP operating income, non-GAAP income before
income taxes, non-GAAP net income, and non-GAAP diluted earnings
per share, and the non-GAAP effective income 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 Operations
(in thousands, except per share
data)
(Unaudited)
Three Months Ended
Nine Months Ended
June 30,
June 30,
2019
2018
2019
2018
(Unaudited)
(Unaudited)
Revenue:
Product sales
$
9,870
$
10,475
$
29,508
$
27,249
Royalties and license fees
11,624
9,597
31,652
25,101
Research, development and other
2,850
2,155
8,101
5,948
Total revenue
24,344
22,227
69,261
58,298
Operating costs and expenses:
Product costs
3,364
4,104
9,980
9,908
Research and development
13,321
9,778
38,362
28,383
Selling, general and administrative
5,939
5,977
16,764
17,606
Acquired in-process research and
development
—
7,888
—
7,888
Acquired intangible asset amortization
599
624
1,809
1,878
Contingent consideration expense
(gain)
104
106
(248
)
(1,006
)
Total operating costs and expenses
23,327
28,477
66,667
64,657
Operating income (loss)
1,017
(6,250
)
2,594
(6,359
)
Other income, net
189
955
846
856
Income (loss) before income taxes
1,206
(5,295
)
3,440
(5,503
)
Income tax benefit
260
2,613
598
2,799
Net income (loss)
$
1,466
$
(2,682
)
$
4,038
$
(2,704
)
Basic income (loss) per share:
$
0.11
$
(0.20
)
$
0.30
$
(0.21
)
Diluted income (loss) per share:
$
0.11
$
(0.20
)
$
0.29
$
(0.21
)
Weighted average number of shares
outstanding:
Basic
13,394
13,203
13,384
13,117
Diluted
13,726
13,203
13,776
13,117
Surmodics, Inc. and
Subsidiaries
Condensed Consolidated Balance
Sheets
(in thousands)
(Unaudited)
June 30,
September 30,
2019
2018
Assets
(Unaudited)
Current Assets:
Cash and cash equivalents
$
28,916
$
23,318
Restricted cash
—
350
Available-for-sale securities
16,070
41,352
Accounts receivable, net
8,381
8,877
Contract assets - royalties and license
fees
8,235
—
Inventories, net
4,151
4,016
Prepaids and other
3,785
3,614
Total Current Assets
69,538
81,527
Property and equipment, net
29,559
30,143
Deferred tax assets
6,067
6,304
Intangible assets, net
15,480
17,683
Goodwill
26,737
27,032
Other assets
2,960
1,446
Total Assets
$
150,341
$
164,135
Liabilities and Stockholders’ Equity
Current Liabilities:
Contingent consideration, current
portion
3,113
11,041
Deferred revenue
5,126
9,646
Other current liabilities
8,988
14,446
Total Current Liabilities
17,227
35,133
Contingent consideration, less current
portion
—
3,425
Deferred revenue, less current portion
9,727
11,247
Other long-term liabilities
4,755
5,720
Total Liabilities
31,709
55,525
Total Stockholders’ Equity
118,632
108,610
Total Liabilities and Stockholders’
Equity
$
150,341
$
164,135
Surmodics, Inc. and
Subsidiaries
Supplemental Segment
Information
(in thousands)
(Unaudited)
Three Months Ended June
30,
2019
2018
Revenue:
% of Total
% of Total
% Change
Medical Device
$
18,945
77.8%
$
16,701
75.1%
13.4%
In Vitro Diagnostics
5,399
22.2%
5,526
24.9%
(2.3%)
Total revenue
$
24,344
$
22,227
9.5%
Nine Months Ended June
30,
2019
2018
Revenue:
% of Total
% of Total
% Change
Medical Device
$
53,504
77.2%
$
43,527
74.7%
22.9%
In Vitro Diagnostics
15,757
22.8%
14,771
25.3%
6.7%
Total revenue
$
69,261
$
58,298
18.8%
Three Months Ended
Nine Months Ended
June 30,
June 30,
2019
2018
2019
2018
Operating income (loss):
Medical Device
$
753
$
(6,193
)
$
1,087
$
(6,351
)
In Vitro Diagnostics
2,475
2,176
7,845
6,269
Total segment operating income
3,228
(4,017
)
8,932
(82
)
Corporate
(2,211
)
(2,233
)
(6,338
)
(6,277
)
Total operating income (loss)
$
1,017
$
(6,250
)
$
2,594
$
(6,359
)
Surmodics, Inc. and
Subsidiaries
Reconciliation of GAAP
Measures to Non-GAAP Amounts
Schedule of EBITDA, Adjusted
EBITDA and Cash Flows from Operations
(in thousands)
(Unaudited)
Three Months Ended
Nine Months Ended
June 30,
June 30,
2019
2018
2019
2018
Net income (loss)
$
1,466
$
(2,682
)
$
4,038
$
(2,704
)
Income tax benefit
(260
)
(2,613
)
(598
)
(2,799
)
Depreciation and amortization
1,887
1,605
5,462
4,711
Investment income, net
(269
)
(303
)
(850
)
(566
)
Interest expense
38
—
112
—
EBITDA
2,862
(3,993
)
8,164
(1,358
)
Adjustments:
Contingent consideration expense (gain)
(1)
104
106
(248
)
(1,006
)
Foreign exchange loss (gain) (2)
—
(592
)
(126
)
(74)
Gain on strategic investment (4)
—
—
(7
)
(177
)
Claim settlement (6)
—
—
(650
)
1,000
Acquired in-process research and
development (7)
—
7,888
—
7,888
Adjusted EBITDA
$
2,966
$
3,409
$
7,133
$
6,273
Net Cash (Used In) Provided by Operating
Activities
$
(543
)
$
1,791
$
(4,482
)
$
29,222
Estimated Non-GAAP Net
Earnings per Common Share Guidance Reconciliation
For the Fiscal Year Ended
September 30, 2019
(Unaudited)
Full Fiscal Year
Estimate
Low
High
GAAP results
$
0.24
$
0.32
Contingent consideration adjustments
(1)
0.01
0.01
Foreign exchange gain on contingent
consideration (2)
(0.01
)
(0.01
)
Amortization of acquired intangibles
(3)
0.16
0.16
Claim settlement (6)
(0.04
)
(0.04
)
Acquired in-process research and
development (7)
0.05
0.05
Non-GAAP results
$
0.41
$
0.49
Surmodics, Inc., and
Subsidiaries
Net Income (Loss) and Diluted
EPS GAAP to Non-GAAP Reconciliation
(in thousands, except per share
data)
(Unaudited)
For the Three Months Ended
June 30, 2019
Total Revenue
Operating Income
Operating
Income
Percentage
Income Before Income
Taxes
Net
Income (6)
Diluted EPS
Effective tax rate
GAAP
$
24,344
$
1,017
4.2
%
$
1,206
$
1,466
$
0.11
(21.6
%)
Adjustments:
Contingent consideration expense (1)
―
104
0.4
104
104
0.01
Amortization of acquired intangible assets
(3)
―
599
2.5
599
554
0.04
Non-GAAP
$
24,344
$
1,720
7.1
%
$
1,909
$
2,124
$
0.15
(11.3
%)
For the Three Months Ended
June 30, 2018
Total Revenue
Operating Income
(Loss)
Operating
Income
Percentage
Income Before Income
Taxes
Net
Income(6)
Diluted EPS
Effective tax rate
GAAP
$
22,227
$
(6,250
)
(28.1
%)
$
(5,295
)
$
(2,682
)
$
(0.20
)
49.3
%
Adjustments:
Contingent consideration expense (1)
―
106
0.5
106
106
0.01
Foreign exchange gain on contingent
consideration (2)
―
—
—
(592
)
(592
)
(0.04
)
Amortization of acquired intangible assets
(3)
―
624
2.8
624
584
0.04
Acquired in-process research and
development (7)
―
7,888
35.5
7,888
6,232
0.47
Dilutive effect of outstanding stock
awards (8)
―
―
―
―
―
(0.01
)
Non-GAAP
$
22,227
$
2,368
10.7
%
$
2,731
$
3,648
$
0.27
(33.6
%)
Surmodics, Inc., and
Subsidiaries
Net Income (Loss) and Diluted
EPS GAAP to Non-GAAP Reconciliation - Continued
(in thousands, except per share
data)
(Unaudited)
For the Nine Months Ended June
30, 2019
Total Revenue
Operating Income
Operating
Income Percentage
Income Before Income
Taxes
Net
Income (9)
Diluted EPS
Effective tax rate
GAAP
$
69,261
$
2,594
3.7
%
$
3,440
$
4,038
$
0.29
(17.4
%)
Adjustments:
Contingent consideration gain (1)
―
(248
)
(0.4
)
(248
)
(248
)
(0.02
)
Foreign exchange gain on contingent
consideration (2)
―
—
—
(126
)
(126
)
(0.01
)
Amortization of acquired intangible assets
(3)
―
1,809
2.6
1,809
1,675
0.12
Gain on strategic investment (4)
―
—
—
(7
)
(7
)
(0.00
)
Claim settlement (6)
―
(650
)
(0.9
)
(650
)
(514
)
(0.04
)
Non-GAAP
$
69,261
$
3,505
5.1
%
$
4,218
$
4,818
$
0.35
(14.2
%)
For the Nine Months Ended June
30, 2018
Total Revenue
Operating (Loss)
Income
Operating (Loss) Income
Percentage
(Loss) Income Before Income
Taxes
Net (Loss)
Income (9)
Diluted
EPS
Effective tax rate
GAAP
$
58,298
$
(6,359
)
(10.9
%)
$
(5,503
)
$
(2,704
)
$
(0.21
)
50.9
%
Adjustments:
Contingent consideration gain (1)
―
(1,006
)
(1.7
)
(1,006
)
(1,006
)
(0.08
)
Foreign exchange gain on contingent
consideration (2)
―
―
—
(74
)
(74
)
(0.01
)
Amortization of acquired intangible assets
(3)
―
1,878
3.2
1,878
1,721
0.13
Gain on strategic investment (4)
―
—
—
(177
)
(177
)
(0.01
)
Tax reform impact (5)
―
—
—
—
1,246
0.09
Claim settlement accrual (6)
―
1,000
1.7
1,000
755
0.06
Acquired in-process research and
development (7)
―
7,888
13.5
7,888
6,232
0.47
Dilutive effect of outstanding stock
awards (8)
―
―
―
―
―
(0.01
)
Non-GAAP
$
58,298
$
3,401
5.8
%
$
4,006
$
5,993
$
0.44
(49.6
%)
- Represents accounting adjustments to state acquisition-related
contingent consideration liabilities at their estimated fair value,
including accretion for the passage of time as well as adjustments
to the liabilities’ fair values related to changes in the timing
and/or probability of achieving milestones. The tables include
contingent consideration liability adjustments in each respective
historical period and do not include in future-period fair value
changes, other than estimated accretion expense as determined at
the end of the current quarter. These amounts are not taxable or
tax deductible.
- Foreign exchange gains and losses are related to marking
non-U.S. dollar contingent consideration to period-end or
settlement date exchange rates. The tables include foreign currency
exchange loss or gain recorded in each respective historical period
and do not include forecasted currency fluctuations in future
periods. These gains and losses are not taxable or tax
deductible.
- Amortization of acquisition-related intangible assets and
associated tax impact. A significant portion of the
acquisition-related amortization is not tax deductible.
- Represents the gain recognized on the sale of a strategic
investment which was not tax-affected as it was offset by
previously recognized capital losses.
- Income tax expense from the re-measurement of net deferred tax
assets recognized after the enactment of the Tax Cuts and Jobs Act
in December 2017.
- Represents a royalty-related customer claim accrued at $1.0
million in the second quarter of fiscal 2018, settled in the second
quarter of 2019 for $0.4 million.
- Represents the acquisition of in-process research and
development assets during the third quarter of fiscal 2018 and the
fourth quarter of fiscal 2019, net of the associated tax
impact.
- Options to purchase common stock as well as unvested restricted
stock and performance stock units are considered to be potentially
dilutive common shares but have been excluded from the calculation
of GAAP net loss per share as their effect is anti-dilutive for the
three and nine months ended June 30, 2018 as a result of the net
loss for these periods on a GAAP basis. However, as the Non-GAAP
adjustments result in Non-GAAP net income for both periods, the
dilutive effect of these options and other outstanding stock awards
have been included in the calculation of Non-GAAP earnings per
share. Accordingly, Diluted Non-GAAP EPS includes these
adjustments.
- Net income (loss) includes the effect of the above adjustments
on the income tax provision, taking into account deferred taxes and
non-deductible items. Effective rates of 21% (fiscal 2019) and
24.5% (fiscal 2018) were used to estimate the income tax impact of
the adjustments, except that expenses occurring in Ireland have not
been tax-affected as all tax benefits are offset by a full
valuation allowance.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20190731005957/en/
Surmodics, Inc. Tim Arens, 952-500-7000 ir@surmodics.com
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