• Continuing Operations GAAP EPS Increases 53% to $0.26 on Revenue of $14.3 million in Q4; EPS Increases 71% for the Fiscal Year
• Strong Cash Generation in Q4 and Full Year
• $20 Million Line of Credit Signed
• Fiscal 2014 Revenue, EPS and Cash Flow Guidance Outlined

EDEN PRAIRIE, Minn.--(BUSINESS WIRE)--Nov. 5, 2013-- 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 2013 fourth quarter and full year 2013.

Revenue and Earnings Summary

Revenue for the fiscal 2013 fourth quarter totaled $14.3 million, a 3% increase from $13.8 million reported in the fiscal 2012 fourth quarter. Diluted earnings per share from continuing operations totaled $0.26 compared with $0.17 in the prior-year period. The current year quarter benefited from a $1.0 million, or $0.04 per diluted share, recovery of legal fees associated with the SRI litigation, partially offset by a $0.5 million, or $.02 per diluted share, restructuring charge. Commenting on the results, SurModics’ President and Chief Executive Officer Gary Maharaj said, “The fourth quarter was marked by continued strong earnings as our team executed well in all aspects of our business. We achieved strong earnings growth despite our second consecutive quarter of coronary market headwinds.”

For the year ended September 30, 2013, revenue totaled $56.1 million, an increase of 8% from $51.9 million in the previous year. Diluted earnings per share from continuing operations were $0.99 increasing from $0.58 for fiscal 2012.

Medical Device Summary

Revenue for the 2013 fourth quarter in the Medical Device business unit, which includes hydrophilic coatings and device drug delivery technologies, was $10.3 million, a 3% increase from $10.0 million in the fiscal fourth quarter of last year. Fourth quarter hydrophilic coating royalty revenue rose 1% to $7.4 million compared with the year-ago period. Medical Device generated $5.3 million of operating income during the quarter, a 2% increase from the same quarter in fiscal 2012. Said Maharaj, “As noted above, the coronary market has been challenging in the last half of fiscal 2013. While we cannot control industry dynamics, we are continuing our efforts to broaden the application of our technologies on customer products in higher growth market segments. I’m pleased with our efforts in this regard as we realized in fiscal 2013 a favorable 150 basis point mix change to non-coronary hydrophilic coating royalty revenue.”

For the fiscal year, revenue in the Medical Device business unit was $41.2 million in 2013 compared to $37.9 million in the prior year. Hydrophilic coating royalty revenue increased 9% to $28.8 million from the prior-year period. Excluding a one-time catch up payment received in fiscal 2013, hydrophilic coating royalty revenue increased 7% from fiscal 2012. Medical Device generated $21.2 million of operating income during the year, a 15% increase from fiscal 2012. Operating income was impacted by higher planned research and development expenditures to support SurModics’ R&D drug coated balloon program.

Additional highlights include:

• For the quarter, three medical device customers launched new products utilizing SurModics hydrophilic coatings;
• Coronary sector revenue declined 1%, reflecting continued sluggishness faced by the Company’s customer base; and
• SurModics completed its internal pre-clinical evaluation on development of a drug coated balloon device technology platform.

In Vitro Diagnostics Summary

For the fourth quarter of 2013, revenue for the In Vitro Diagnostics (IVD) business unit totaled $4.0 million, increasing 4% compared with the fourth quarter of fiscal 2012. The IVD business unit generated $1.3 million of operating income in the fourth quarter of 2013, consistent with the prior year quarter.

For the fiscal year 2013, revenue for the IVD business unit totaled $15.0 million, an increase of 7% compared with fiscal 2012. The IVD business unit generated $4.2 million of operating income compared with $4.5 million in the prior year as a result of higher operating expenses from increased allocation of corporate expenses, as well as additional investment in market research to support growth initiatives.

Additional highlights include:

• 12 consecutive quarters of year-over-year revenue growth; and
• The addition of 27 new IVD test manufacturers for the quarter.

Corporate

As previously announced, in the fourth quarter of fiscal 2013 SurModics recorded a $1.0 million benefit from the reimbursement of legal fees associated with the SRI litigation (included in S,G&A) and a restructuring charge of $0.5 million.

Balance Sheet

As of September 30, 2013, the Company had $58.1 million of cash and investments. The Company had no outstanding debt as of September 30, 2013.

Cash Flow

SurModics generated cash from continuing operations of $5.9 million in the fourth quarter of 2013 compared with $5.6 million in the prior-year quarter. For the fiscal year 2013, the Company generated $17.8 million of cash from continuing operations compared with $17.6 million in fiscal 2012. SurModics repurchased 390,853 common shares for $8.5 million in the fourth quarter of fiscal 2013 under a previously announced share repurchase authorization. For fiscal year 2013, the Company repurchased a total of 795,643 common shares, for an aggregate of $18.8 million. As of September 30, 2013SurModics had $11.5 million outstanding under the current authorization for future share repurchases. For the fiscal year the Company realized $2.3 million of cash from the sale of strategic investments and invested $1.9 million in property, plant and equipment.

Fiscal 2014 Revenue, Earnings and Cash Flow Outlook

The Company estimates GAAP revenue for fiscal 2014 to be in the range of $58.0 to $62.0 million, reflecting 3% to 10% year-over-year revenue growth. SurModics anticipates diluted GAAP earnings to be in the range of $0.80 to $0.92 per share. The fiscal 2014 earnings per share guidance includes an increase of approximately 20% in research and development investment over fiscal 2013 levels primarily related to drug coated balloon activities. The fiscal 2014 earnings per share outlook reflects 14.4 million diluted shares outstanding and a 31.0% to 33.0% income tax rate. The Company’s earnings per share and income tax rate guidance exclude the impact of any strategic investment gains and losses. GAAP cash flow from operating activities is expected to range between $17.6 and $18.6 million for fiscal 2014. Capital expenditures for fiscal 2014 are projected to range between $2.2 and $2.5 million. While dependent on market conditions and business development initiatives, the Company expects to continue to repurchase common shares under the $11.5 million remaining on the previously announced repurchase authorization.

Maharaj concluded, “Going forward, we continue to focus on building SurModics’ core business and expanding from that, including a stepped-up R&D initiative in fiscal 2014.”

Line of Credit

On November 4, 2013, SurModics entered into a $20.0 million line of credit agreement with Wells Fargo. This three-year arrangement takes advantage of current favorable lending conditions and provides capital and flexibility for general corporate purposes.

Correction of Carrying Value of Strategic Investment in Prior Period

As previously disclosed in the Company’s second quarter 2013 earnings release, the accompanying financial tables reflect a $1.2 million adjustment to increase the carrying value of strategic investments, recorded within other assets, and stockholders’ equity in the prior period balance sheet. This adjustment corrects and reduces an other than temporary impairment charge as of September 30, 2010, which was previously recorded during the fiscal fourth quarter ended September 30, 2010. The original other than temporary impairment charge did not sufficiently evaluate the impact of the proposed sale of a strategic investment subsidiary to an unrelated third party, in evaluating the value of the strategic investment. This transaction was consummated on February 1, 2011. The impact of this adjustment was not deemed to be material to the results of operations, total assets or stockholders’ equity for the previously reported periods. Further details of this adjustment will be included in SurModics’ Annual Report on Form 10-K for the period ended September 30, 2013.

Live Webcast

SurModics will host a webcast at 5 p.m. ET (4 p.m. CT) 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 800-406-7325 and entering conference call ID passcode 4647280. The audio replay will be available beginning at 8 p.m. ET on Tuesday, November 5, 2013, until 8 p.m. ET on Tuesday, November 12, 2013.

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 broaden the application of our technologies into higher growth market segments, 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, 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, 2012, 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 income from continuing operations and non-GAAP diluted earnings per share from continuing operations. 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.

Source: SurModics, Inc.

SurModics, Inc.
Andy LaFrence, 952-500-7000
Vice President of Finance and Chief Financial Officer