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).
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(2) Adjusted Non-GAAP amounts consider a reduction in net investment
income of $681 to reflect income recognized in fiscal 2014
associated with a contingent milestone payment related to the sale
of Vessix Vascular shares in fiscal 2013. This gain did not generate
a tax expense as there was an offsetting reversal of a capital loss
valuation reserve.
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(3) Reflects the after-tax impact of the investment income
adjustment noted in (2) above. The investment income resulted in a
reversal of a capital loss valuation allowance which resulted in a
net zero tax impact.
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(4) Diluted net income per share is calculated using the diluted
weighted average shares outstanding for the period presented.
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SurModics, Inc. and Subsidiaries
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Supplemental Non-GAAP Information
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For the Three Months Ended December 31, 2012
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(In thousands, except per share data)
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(Unaudited)
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As Reported
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Adjusted
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GAAP(1)
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Adjustments
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Non-GAAP(2)
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Revenue
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Royalties and license fees
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$
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7,516
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$
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(570
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)
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(3)
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$
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6,946
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Product sales
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5,353
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5,353
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Research and development
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982
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982
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Total revenue
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13,851
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(570
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)
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(3)
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13,281
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Operating income
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$
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4,877
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(570
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)
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(3)
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$
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4,307
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Net income
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$
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4,248
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$
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(1,536
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)
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(4)
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$
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2,712
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Diluted net income per share(5)
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$
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0.29
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$
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0.18
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(1) Reflects operating results in accordance with U.S. generally
accepted accounting principles (GAAP).
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(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.
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(3) Reflects the pre-tax impact of the $570 one-time royalty catch
up payment noted in (2) above.
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(4) Adjusted to reflect the items noted in (2) above.
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(5) Diluted net income per share is calculated using the diluted
weighted average shares outstanding for the period presented.
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Copyright Business Wire 2014