Surmodics Reports Fourth Quarter Fiscal 2016 Results

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.