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SurModics, Inc. Reports Fourth Quarter and Fiscal Year 2004 Results; Record Quarterly and Fiscal Year Revenue; Record Quarterly Earnings

EDEN PRAIRIE, Minn.--(BUSINESS WIRE)--Oct. 27, 2004--SurModics, Inc. (Nasdaq:SRDX), a leading provider of surface modification and drug delivery solutions to the medical device industry, today reported financial results for the fourth quarter and fiscal year ended September 30, 2004.

Fourth Quarter and Fiscal Year 2004 Highlights:

  • Record Revenue for Fiscal Year 2004 of $49.7 million and Fourth Quarter of $13.5 million
  • Non-Cordis Revenue Growth for Third Consecutive Quarter
  • Operating Income for Fourth Quarter 2004 of $8.3 million; Operating Margin of 62%
  • Fourth Quarter 2004 Diluted EPS of $.31
  • Fiscal Year 2004 Diluted EPS of $.42; Comparative (excluding asset impairment charge) Diluted EPS a Record $1.00
  • Record Number of New Licenses; Record Number of New Products Launched by Our Customers for the Year
  • R&D Revenue Growth for Third Consecutive Quarter

"SurModics is pleased to report record revenue for both the fourth quarter and the full fiscal year 2004. This achievement marks the sixth consecutive year of revenue growth since our IPO in 1998," said Dale Olseth, Chairman and CEO. "Our continued success is a testament to our ability to provide innovative technologies to our customers in key focus markets."

Fiscal year 2004 revenue was $49.7 million, a 15% increase over fiscal year 2003 revenue of $43.2 million. The company recorded a one-time impairment charge in the third quarter of fiscal year 2004. The non-cash impairment charge totaled $16.5 million and was recorded against the company's contract manufacturing facility in Bloomington, Minnesota. In March, SurModics announced its plans to sell the facility. Including this impairment charge, income from operations was $10.5 million, compared with $20.6 million in the prior-year period. Net income was $7.4 million, or $.42 per diluted share, compared with $13.9 million in fiscal year 2003 net income, or $.78 per diluted share. Excluding the charge, net income and diluted earnings per share for the year would have been $17.8 million and $1.00 per share, respectively.

Revenue for the fourth quarter of fiscal 2004 was a record $13.5 million, an increase of 7% from the $12.6 million recorded in the fourth quarter of fiscal 2003. Operating income grew 21% to a record $8.3 million, from $6.8 million in the prior-year period. Net income increased 22% to $5.4 million, from $4.4 million in the same period last year. Diluted earnings per share was $.31, compared with $.25 in fiscal 2003. Royalties and license fees benefited from an approximate $1.0 million in back royalties paid on several prior quarters of product sales by one of our 69 licensed customers, as well as a $250,000 milestone license fee from GE Healthcare (formerly Amersham Biosciences) for achievement of a technical milestone.

"We continue to make meaningful progress in executing our strategic plan and focusing the company on our customers," said Bruce Barclay, President and COO. "We are working hard to increase the diversification of our business across technologies and customers, and we are pleased with the results to date. In particular, the fact that non-Cordis revenue has grown sequentially for three consecutive quarters demonstrates the growing value of our broad product portfolio." Total revenue from Cordis in the fourth quarter declined modestly from the third quarter and has declined more significantly from the first and second quarters.

"We are also pleased with the growth in research and development revenue this quarter - the third consecutive quarter of sequential growth," Barclay continued. "We believe the strength of R&D revenue underscores the quality and quantity of the growing pipeline of potential future products and our commitment to providing value-added technologies to our customers."

Furthermore, SurModics' pipeline continues to expand. The Company signed a record 7 new licenses in the fourth quarter, bringing the total for the full year to 17, also a record. At September 30, SurModics' customers had 77 coated products generating royalty revenue, compared with 69 in the prior-year period; the total number of licensed products not yet launched rose to 64, from 61 a year ago; and major non-licensed opportunities increased to 73, from 24 a year ago. In total, the Company now has 137 potential commercial products in development with opportunities in each of the company's four focus markets.

SurModics continues to exert fiscal discipline in its operations. Operating expenses for the fourth quarter 2004 declined 13% from the fourth quarter of last year and also declined 10% sequentially from the third quarter of this year, to the lowest level since the fourth quarter of fiscal 2002. Despite the reduction in total operating expenses, investment in R&D remains a priority. R&D expense in the quarter was essentially flat compared with the prior-year period. On an annual basis, R&D expense increased 7% from fiscal year 2003.

"We are in excellent financial condition," said Phil Ankeny, CFO and Vice President of Business Development. "Our balance sheet remains strong, with a cash and investment balance of $63.3 million and no debt."

Live Webcast

SurModics will host a Webcast at 5:00 p.m. ET (4:00 p.m. CT) today to discuss the quarterly results. To access the Webcast, go to the investor relations portion of the company's web site, www.surmodics.com, and click on the fourth quarter webcast icon. If you do not have access to the Internet and want to listen to an audio replay of the fourth quarter conference call, dial 800-405-2236 and enter conference call ID # 11012343. The audio replay will be available beginning at 6:00 p.m. CT on Wednesday, October 27, until 5:00 p.m. CT on Wednesday, November 3.

About SurModics, Inc.

SurModics, Inc., a leading provider of surface modification and drug delivery solutions, licenses its proprietary technologies to medical device, diagnostics, and biotechnology companies around the world. A significant portion of SurModics' revenue is generated through royalties on the sale of coated products. SurModics' Internet address is www.surmodics.com.

Forward-Looking Statements

Certain statements contained in this press release may be deemed to be forward-looking statements under federal securities laws, and SurModics intends that such forward looking statements be subject to the safe harbor created thereby. Factors that may cause actual results to differ from the forward-looking statements include those described in the "Risk Factors" and other sections of SurModics' filings with the Securities and Exchange Commission. SurModics does not undertake an obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

                            SurModics, Inc.
                           Income Statements
                 (In thousands, except per share data)

                                  Year Ended       Three Months Ended
                                 September 30,        September 30,
                             ---------------------  ------------------
                                  2004       2003       2004     2003
                             ---------------------  ------------------
                                                       (Unaudited)

Revenue:
  Royalties and license fees   $34,836    $25,833     $9,758   $8,523
  Product sales                 10,478     11,804      2,268    3,048
  Research & development         4,424      5,595      1,443    1,052
                             ----------  ---------  ---------  -------
     Total revenue              49,738     43,232     13,469   12,623

Operating expenses:
  Product                        3,035      2,649        735      696
  Research & development        12,633     11,790      3,087    3,127
  Sales & marketing              1,683      2,224        283      521
  General & administrative       5,416      5,929      1,069    1,444
  Asset impairment charge       16,497         --         --       --
                             ----------  ---------  ---------  -------
     Total operating expenses   39,264     22,592      5,174    5,789
                             ----------  ---------  ---------  -------
Income from operations          10,474     20,640      8,295    6,834

Investment income                1,372      1,859        353      336
                             ----------  ---------  ---------  -------
Income before income taxes      11,846     22,499      8,648    7,170

Income tax provision            (4,410)    (8,563)    (3,205)  (2,726)

                             ----------  ---------  ---------  -------
Net income                      $7,436    $13,936     $5,443   $4,444
                             ==========  =========  =========  =======

Basic net income per share       $0.42      $0.80      $0.31    $0.25
                             ==========  =========  =========  =======

Diluted net income per share     $0.42      $0.78      $0.31    $0.25
                             ==========  =========  =========  =======

Weighted average shares
 outstanding
  Basic                         17,501     17,363     17,530   17,436
  Diluted                       17,800     17,837     17,836   17,852


                            SurModics, Inc.
                   Comparative Analysis of Earnings
                 (In thousands, except per share data)

                                      Year Ended       Three Months
                                    September 30,           Ended
                                                       September 30,
                                 -------------------- ----------------
                                      2004      2003    2004     2003
                                 -------------------- ----------------
                                     (Unaudited)        (Unaudited)

Income from operations (GAAP)      $10,474   $20,640  $8,295   $6,834

Add: Asset impairment charge       $16,497        --      --       --
Comparative income from
 operations                        $26,971   $20,640  $8,295   $6,834


Diluted net income per share
 (GAAP)                              $0.42     $0.78   $0.31    $0.25

Add: Net impact of asset
 impairment                           $.58        --      --       --
Comparative diluted net income
 per share                           $1.00     $0.78   $0.31    $0.25

Certain information in the attached financial release may be considered non-GAAP Financial Information as contemplated by SEC Regulation G. Accordingly, we are providing the preceding table, which reconciles results to their corresponding GAAP based operating results presented in our Income Statements, in the accompanying press release.

Management believes the presentation of these non-GAAP financial results, in connection with the results of the fiscal quarter and year ended September 30, 2004, provide useful information to investors regarding our results of operations, as these non-GAAP financial measures allow investors to better evaluate ongoing business performance and factors that influenced performance during the period under report. Management also uses these non-GAAP measures internally to monitor performance of the business. These non-GAAP financial measures should be considered in addition to, and not a substitute for, financial measures prepared in accordance with GAAP.

                            SurModics, Inc.
                       Condensed Balance Sheets
                            (in thousands)

                                               September     September
                                                   30,           30,
                                                  2004          2003
                                              -----------   ----------
Assets
------

Current assets:
   Cash & investments                            $19,215       $6,647
   Accounts receivable                             8,130        9,145
   Inventories                                     1,040          863
   Other current assets                            1,184        1,104
                                              -----------   ----------
       Total current assets                       29,569       17,759

Property & equipment, net                         15,738       33,936
Long-term investments                             44,088       39,164
Other assets                                      20,386        6,949

                                              -----------   ----------
   Total assets                                 $109,781      $97,808
                                              ===========   ==========

Liabilities & Stockholders' Equity
----------------------------------

Total current liabilities                        $11,789      $10,027

Other liabilities                                  3,488        1,667

Total stockholders' equity                        94,504       86,114

                                              -----------   ----------
   Total liabilities & stockholders' equity     $109,781      $97,808
                                              ===========   ==========

CONTACT: SurModics, Inc.
Philip D. Ankeny, 952-829-2700

SOURCE: SurModics, Inc.