• GAAP Revenue of $15.3 Million and GAAP EPS of $0.18, with non-GAAP EPS of $0.26 from Continuing Operations
• Design Freeze on Paclitaxel Drug Coated Balloon Development
• Strong Cash Flow from Operations
• $30 Million Share Repurchase Program Authorized
• Fiscal 2015 Revenue, EPS and Cash Flow Guidance Outlined

EDEN PRAIRIE, Minn.--(BUSINESS WIRE)--Nov. 6, 2014-- 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 fourth quarter.

Commenting on the Company’s performance, SurModics’ President and Chief Executive Officer Gary Maharaj said, “Our Medical Device segment performed very well with a 9% increase in revenue including a 7% gain in hydrophilic coating royalty revenue, as the coronary category returned to growth. We are pleased with this segment’s performance in our fourth quarter given the industry headwinds. We also achieved a significant milestone in the fourth quarter as our team froze the design of our paclitaxel drug coated balloon, leading us to proceed with plans for a first-in-human clinical study, which we anticipate will occur in fiscal 2015. Further, as we expected, SurModics’ In Vitro Diagnostics segment continued to grow in the fourth quarter.”

Maharaj continued, “A primary goal of ours in fiscal 2014 was to grow our existing business while concurrently advancing our drug-coated balloon platform for future success. We are pleased with our progress in both areas. Revenue rose 3% excluding a special item that benefited fiscal 2013’s results. Operating margin for the full 2014 fiscal year was a strong 32% despite significant R&D investments. Non-GAAP earnings per share from continuing operations rose 13% in fiscal 2014.”

Fourth Quarter Revenue and Earnings Summary

GAAP revenue for the fiscal 2014 fourth quarter totaled $15.3 million, up 7% from $14.3 million in the fiscal 2013 fourth quarter.

Diluted earnings per share from continuing operations in the fourth quarter of fiscal 2014 were $0.18 compared with $0.26 in the prior-year period. The fiscal 2014 quarter included an $0.08 per share strategic investment other-than-temporary impairment charge. The prior-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 $0.02 per diluted share, restructuring charge. Non-GAAP earnings per share from continuing operations increased 8% to $0.26 per share in fourth quarter of fiscal 2014.

Medical Device Summary

The Medical Device business unit accounts for approximately three-quarters of SurModics’ total revenue. This unit, which includes hydrophilic coatings and device drug delivery technologies, posted revenue of $11.2 million in the fourth quarter of fiscal 2014, increasing 9% from the year-ago period. Fourth quarter 2014 hydrophilic coating royalty revenue was $7.9 million, up 7% from the prior-year period. Revenue growth in the fourth quarter exceeded the 5% increase for Medical Device in fiscal 2014. This segment generated $6.2 million of operating income during the fourth quarter, a 16% increase from the year-ago period, primarily reflecting revenue gains and the timing of drug coated balloon R&D investments.

Additional fourth quarter highlights include:

• Three medical device customers launched new products utilizing SurModics hydrophilic coatings;
• Coronary hydrophilic coatings royalty revenue returned to growth with a 2% increase; and
• We froze the design on our paclitaxel drug coated balloon program.

In Vitro Diagnostics Summary

The In Vitro Diagnostics (IVD) business unit accounts for approximately one-quarter of SurModics’ total revenue. Revenue for the fourth quarter of fiscal 2014 totaled $4.1 million, up 3% from the year-ago period. The IVD business unit generated $1.2 million of operating income in the fourth quarter of fiscal 2014, compared with $1.3 million in the year-ago period.

Corporate

The fourth quarter of fiscal 2014 included a $1.2 million, or $0.08 per share, other-than-temporary impairment of the full carrying value of our strategic investment in ThermopeutiX, Inc.

Balance Sheet and Cash Flow

As of September 30, 2014, we had $63.4 million of cash and investments and no outstanding debt. SurModics generated cash from operating activities of $18.5 million in fiscal 2014, compared with $17.8 million in the prior year. Capital expenditures and share repurchases totaled $2.3 million and $12.5 million, respectively, for the year ended September 30, 2014.

Stock Repurchase Program

SurModics also announced today that its Board of Directors has authorized the repurchase of up to $30 million of its outstanding common stock. Repurchases may be effected through open market purchases, privately negotiated transactions, block trades, accelerated share repurchase transactions, tender offers or by any combination of these methods. The number of shares to be repurchased and the timing of any repurchases will depend on factors such as our stock price, economic and market conditions, the relative attractiveness of corporate development opportunities and other alternative uses of capital, and corporate and regulatory requirements. The share repurchase authorization does not have a fixed expiration date.

“We continue to generate strong cash flow from operations which, combined with our current cash and investment balances, a $20 million line of credit and $175 million shelf registration, gives us appropriate capacity to support corporate strategic growth initiatives,” said Maharaj. “The $30 million share repurchase authorization demonstrates our confidence in our strong cash generation capabilities and our ongoing commitment to return excess capital to our shareholders while enhancing value. It also provides further financial flexibility for us to opportunistically buy back shares.”

Fiscal 2015 Outlook

Maharaj concluded, “Based on the foundation we’ve set the past couple of years, we enter fiscal 2015 with two clear priorities: move ahead with a drug coated balloon clinical trial and continue to promote our medical device and in vitro diagnostics businesses to current and prospective customers. We bring considerable strengths and experiences to both endeavors.”

We estimate GAAP revenue for fiscal 2015 to be in the range of $57.0 to $60.0 million, essentially flat to up 4% over fiscal 2014. While SurModics’ fourth quarter 2014 revenue growth was more robust at 7%, we do not expect that kind of increase for fiscal 2015. SurModics anticipates diluted GAAP earnings to be in the range of $0.85 to $0.95 per share. The fiscal 2015 earnings per share guidance includes an increase of approximately 5% to 7% in research and development investment over fiscal 2014 levels primarily related to drug coated balloon activities, similar SG&A expenses to fiscal 2014 levels and a 33.0% to 35.0% income tax rate. Our earnings per share and income tax rate guidance exclude the impact of any investment gains or losses. GAAP cash flow from operating activities is expected to range between $16.5 and $18.0 million for fiscal 2015. Capital expenditures for fiscal 2015 are projected to range between $2.2 and $2.5 million. While dependent on market conditions and business development initiatives, we may repurchase common shares under the $30.0 million announced repurchase authorization.

Live Webcast

SurModics will host a webcast at 4 p.m. CT (5 p.m. ET) today to discuss fourth quarter results. To access the webcast, go to the investor relations portion of our 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 5965883. The audio replay will be available beginning at 7 p.m. CT on Thursday November 6, 2014, until 7 p.m. CT on Thursday, November 13, 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. We partner with the world’s leading and emerging medical device, diagnostic and life science companies to develop and commercialize innovative products designed to improve lives by enabling the detection and treatment of disease. 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 SurModics, visit www.surmodics.com. The content of SurModics’ website is not part of this press release or part of any filings that we make 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 drug coated balloon program, our ability to repurchase shares on terms and in circumstances we believe to be appropriate, our cash generation capabilities, our commitment to return excess capital to our shareholders while enhancing value, our capital needs and performance in the near- and long-term, including our revenue, earnings per share and cash flow expectations for fiscal 2015, 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 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; (2) our ability to realize the full potential of our pipeline (including our drug coated balloon initiatives); (3) our ability to achieve our corporate goals; (4) possible adverse market conditions and possible adverse impacts on our cash flows, (5) the manner, timing and other terms of share repurchases, if any, that we may complete, and (6) 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 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.

Source: SurModics, Inc.

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