- GAAP EPS Decreases 10% to $0.26 per
share, Reflecting One-Time Events in Each Quarter
- Pro Forma EPS Increases 17% to $0.21
per share on 5% Pro Forma Revenue Rise in Q1 2014
- Investment in Drug Coated Balloon
Development Continues
- Full Year 2014 EPS Outlook Range
Raised to $0.85 to $0.97 per share as a Result of Strategic
Investment Gain
SurModics, Inc. (Nasdaq:SRDX), a leading provider of surface
modification and in vitro diagnostic technologies to the healthcare
industries, today announced results for its fiscal 2014 first
quarter.
Commenting on the Company’s performance, SurModics’ President
and Chief Executive Officer, Gary Maharaj said, “Our first quarter
financial results reflect solid pro forma revenue and earnings per
share growth even in a challenging market environment. I am
particularly pleased that we delivered strong operating margin
performance even as we accelerated our investment in our drug
coated balloon program.”
First Quarter Revenue and Earnings Summary
GAAP Results
GAAP revenue for the fiscal 2014 first quarter totaled $13.9
million, unchanged from the fiscal 2013 first quarter, which
included a one-time $0.6 million catch up royalty payment.
Excluding this payment, revenue in the first quarter of fiscal 2014
increased 5% from the prior-year period.
Diluted earnings per share from continuing operations totaled
$0.26 compared with $0.29 in the prior-year period. Earnings in the
first quarters of fiscal 2014 and 2013 were positively impacted by
a gain on one of our strategic investments. In particular,
SurModics realized a $0.7 million benefit, or $0.05 per share, in
the first quarter of fiscal 2014 from a clinical earnout milestone
payment as a result of the 2013 sale of Vessix Vascular to Boston
Scientific. In the first quarter of fiscal 2013, the Company
recorded a $1.2 million gain, or $0.08 per share, from the Vessix
sale.
NON-GAAP Earnings per Share
Pro forma earnings per share were $0.21 in the first quarter of
fiscal 2014 compared with $0.18 in the prior-year quarter. Pro
forma earnings per share excludes the above noted one-time catch up
royalty payment in the first quarter of fiscal 2013, as well as the
Vessix Vascular strategic investment gains recorded in the first
quarters for both fiscal 2013 and 2014.
Medical Device Summary
The Medical Device business unit accounted for approximately
three-quarters of the Company’s total first quarter revenue. This
unit, which includes hydrophilic coatings and device drug delivery
technologies, posted revenue of $10.5 million, unchanged from the
year-ago period. The fiscal 2013 first quarter included the
one-time $0.6 million catch up hydrophilic coating royalty
payment noted above. Excluding this payment, Medical Device
revenues in the fiscal 2014 first quarter increased 6% from the
prior-year period. First quarter hydrophilic coating royalty
revenue decreased 3% to $7.1 million from the year-ago period.
After adjusting for the fiscal 2013 one-time payment, first quarter
fiscal 2014 hydrophilic coating royalty revenue increased 5%
compared with the year-ago period.
Medical Device generated $5.3 million of operating income during
the quarter, a 9% decrease from the same quarter in fiscal 2013,
primarily reflecting the planned incremental investment in drug
coated balloon preclinical development.
Additional highlights include:
- For the quarter, 4 medical device
customers launched new products utilizing SurModics hydrophilic
coatings; and
- Coronary sector revenue strengthened in
the quarter, up 3% after two consecutive quarters of declines.
In Vitro Diagnostics Summary
For the first quarter of 2014, revenue for the In Vitro
Diagnostics (IVD) business unit totaled $3.3 million, up
slightly from the first quarter of fiscal 2013. The IVD business
unit generated $0.7 million of operating income in the first
quarter of 2014 compared with $0.8 million in the prior year
quarter. Additional IVD highlights include:
- 13 consecutive quarters of
year-over-year revenue growth
- Addition of 28 new IVD Test
Manufacturers
- Strong revenue from microarray slides,
a targeted growth area in Molecular Diagnostics for this business
unit
Balance Sheet Strength
As of December 31, 2013, the Company had $53.1 million of cash
and investments. SurModics generated cash from operating activities
of $4.3 million in the first quarter of 2014 compared with
$5.4 million in the same prior-year quarter. The Company
repurchased 380,011 common shares of stock for $8.9 million in the
first quarter of fiscal 2014 under the July 2013 $20.0 million
repurchase authorization. As of December 31, 2013, $2.6 million
remained outstanding under this repurchase authorization, which was
then fully utilized in January 2014.
Maharaj said, “Our strong cash position and cash flow enables us
to opportunistically return capital to shareholders, fund internal
growth initiatives, as well as to pursue strategic corporate
development activities.”
Fiscal 2014 Outlook
SurModics reaffirms its previously stated revenue outlook for
fiscal 2014. The Company expects full-year revenue from continuing
operations to be in the range of $58 million to $62 million.
Including an increase in research and development primarily to
support drug coated balloon initiatives, the Company estimates
diluted GAAP earnings to be in the range of $0.85 to $0.97 per
share; this represents a $0.05 per share increase as a result
of the gain on the Vessix strategic investment which occurred in
the first quarter. The previous guidance was for GAAP earnings in
the range of $0.80 to $0.92 per share which did not include impacts
from strategic gains or losses. GAAP cash flow from operating
activities is expected to range between $17.6 million and $18.6
million for fiscal 2014, unchanged from earlier guidance. Capital
expenditures for fiscal 2014 are expected to range from $2.2
million to $2.5 million, which is also unchanged.
Live Webcast
SurModics will host a webcast at 5 p.m. ET (4 p.m. CT) today to
discuss first 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
first quarter conference call will be available by dialing
800-406-7325 and entering conference call ID passcode 4663820. The
audio replay will be available beginning at 7 p.m. CT on Thursday,
January 30, 2014, until 7 p.m. CT on Thursday, February
6, 2014.
About SurModics, Inc.
SurModics’ mission is to exceed our customers’ expectations and
enhance the well-being of patients by providing the world’s
foremost, innovative surface modification technologies and in vitro
diagnostic chemical components. The Company partners with the
world’s leading and emerging medical device, diagnostic and life
science companies to develop and commercialize innovative products
designed to improve patient diagnosis and treatment. Core offerings
include surface modification coating technologies that impart
lubricity, prohealing, and biocompatibility capabilities; and
components for in vitro diagnostic test kits and microarrays.
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 our ability to
achieve sustainable long-term growth and value creation, our
expectations regarding the Company’s performance in the near- and
long-term, including our revenue, earnings and cash flow
expectations for fiscal 2014, 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) 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 may adversely affect our business operations, our
ability to realize the full potential of our pipeline (including
our drug-coated balloon initiatives), and our ability to achieve
our corporate goals; (2) possible adverse market conditions and
possible adverse impacts on our cash flows, and (3) 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, 2013,
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
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 upon our
reported financial results. As such, these non-GAAP measures
presented 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 December 31, 2013
2012 (Unaudited) Revenue Royalties and license fees $
7,465 $ 7,516 Product sales 5,400 5,353 Research and development
1,018 982 Total revenue 13,883
13,851 Operating expenses Product costs
2,005 1,959 Research and development 3,698 3,362 Selling, general
and administrative 3,851 3,653 Total
operating costs and expenses 9,554 8,974
Income from operations 4,329 4,877 Investment income
767 1,248 Income from continuing
operations before income taxes 5,096 6,125 Income tax
provision (1,466 ) (1,877 ) Net income $ 3,630
$ 4,248 Basic net income per share $ 0.26 $
0.29 Diluted net income per share $ 0.26 $
0.29 Weighted average shares outstanding Basic 13,756
14,655 Diluted 14,009 14,863
SurModics,
Inc. and Subsidiaries Condensed Consolidated Balance
Sheets
(in thousands)
December 31, September 30, 2013
2013 (Unaudited) Assets Cash and short term investments $
22,997 $ 25,707 Accounts receivable 5,110 5,332 Inventories 2,832
3,326 Other current assets 895 1,365 Current assets of discontinued
operations 46 46 Total current assets
31,880 35,779 Property and equipment, net 12,486 12,845
Long-term investments 30,149 32,397 Other assets 20,541
20,902 Total assets $ 95,056 $ 101,923
Liabilities and Stockholders’ Equity Current
liabilities $ 4,195 $ 5,837 Current liabilities of discontinued
operations 126 139 Total current
liabilities 4,321 5,976 Other liabilities 1,787 2,130 Total
stockholders’ equity 88,948 93,817
Total liabilities and stockholders’ equity $ 95,056 $
101,923
SurModics, Inc. and
Subsidiaries Condensed Consolidated Statements of Cash
Flows
(In thousands)
Three Months Ended December 31, 2013
2012 (Unaudited) Operating Activities: Net income $
3,630 $ 4,248 Depreciation and amortization 697 722 Stock-based
compensation 813 392 Net other operating activities (976 ) (1,146 )
Change in operating assets and liabilities: Accounts receivable 222
653 Accounts payable and accrued liabilities (1,642 ) (1,499 )
Income taxes 947 1,623 Deferred revenue (11 ) (13 ) Net change in
other operating assets and liabilities 570 427
Net cash provided by operating activities from continuing
operations 4,250 5,407 Investing
Activities: Net purchases of property and equipment (56 ) (857 )
Cash (transferred to) received from discontinued operations (13 )
75 Net other investing activities 610 1,220
Net cash provided by investing activities of continuing
operations 541 438 Financing
Activities: Purchase of common stock to fund employee taxes (1,097
) ― Repurchase of common stock (9,424 ) ― Net other financing
activities 751 80 Net cash (used in)
provided by financing activities of continuing operations
(9,770 ) 80 Net cash (used in) provided by continuing
operations (4,979 ) 5,925 Discontinued
operations: Net cash (used in) provided by operating activities (13
) 75 Net cash provided by (used in) financing activities 13
(75 ) Net cash (used in) provided by discontinued
operations ― ― Net change in cash and cash
equivalents (4,979 ) 5,925 Cash and Cash Equivalents: Beginning of
period 15,495 15,540 End of period $
10,516 $ 21,465
SurModics, Inc. and
Subsidiaries
Supplemental Segment
Information
(in thousands)
(Unaudited)
Three Months Ended December 31, 2013
2012 % Change Revenue
% of Total % of Total Medical Device $ 10,549
76.0 %
$
10,531 76.0 % 0.2 % In Vitro Diagnostics 3,334 24.0
3,320
24.0 0.4 Total revenue $ 13,883 100.0 % $ 13,851
100.0 % 0.2 %
Three Months Ended
December 31,
2013
2012
Operating Income
Medical Device
$
5,328
$
5,840
In Vitro Diagnostics
671
751
Total segment operating income
5,999
6,591
Corporate
(1,670
)
(1,714
)
Total operating income
$
4,329
$
4,877
SurModics, Inc. and
Subsidiaries Supplemental Non-GAAP Information For
the Three Months Ended December 31, 2013
(In thousands, except per share data)
(Unaudited)
As Reported Adjusted GAAP(1)
Adjustments Non-GAAP(2) Revenue
Royalties and license fees $ 7,465 $ 7,465 Product sales 5,400
5,400 Research and development 1,018
1,018 Total revenue 13,883
13,883
Operating income $ 4,329
$ 4,329
Net income $ 3,630 $ (681 ) (3)
$ 2,949
Diluted net income per share(4) $ 0.26
$ 0.21 (1) Reflects operating results
in accordance with U.S. generally accepted accounting principles
(GAAP). (2) Adjusted Non-GAAP amounts consider a reduction in net
investment income of $681 to reflect income recognized in fiscal
2014 associated with a contingent milestone payment related to the
sale of Vessix Vascular shares in fiscal 2013. This gain did not
generate a tax expense as there was an offsetting reversal of a
capital loss valuation reserve. (3) Reflects the after-tax impact
of the investment income adjustment noted in (2) above. The
investment income resulted in a reversal of a capital loss
valuation allowance which resulted in a net zero tax impact. (4)
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 Three Months Ended December 31, 2012
(In thousands, except per share data)
(Unaudited)
As Reported Adjusted GAAP(1)
Adjustments Non-GAAP(2) Revenue
Royalties and license fees $ 7,516 $ (570 ) (3) $ 6,946 Product
sales 5,353 5,353 Research and development 982
982 Total revenue 13,851 (570 )
(3) 13,281
Operating income $ 4,877
(570 ) (3) $ 4,307
Net income $
4,248 $ (1,536 ) (4) $ 2,712
Diluted net
income per share(5) $ 0.29 $ 0.18 (1)
Reflects operating results in accordance with U.S. generally
accepted accounting principles (GAAP). (2) Adjusted Non-GAAP
amounts consider adjustments to reduce royalty revenue associated
with a one-time $570 catch up payment received in the first quarter
of fiscal 2013, a reduction in net investment income of $1,174
associated with the sale of shares of Vessix Vascular and
adjustment to the income tax provision, excluding the net
investment gains which did not generate a tax expense as there was
an offsetting reversal of a capital loss valuation allowance,
utilizing a 36.5% incremental effective tax rate. (3) Reflects the
pre-tax impact of the $570 one-time royalty catch up payment noted
in (2) above. (4) Adjusted to reflect the items 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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