Surmodics Reports Third Quarter Fiscal 2020 Results

August 5, 2020 at 4:05 PM EDT
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EDEN PRAIRIE, Minn.--(BUSINESS WIRE)--Aug. 5, 2020-- 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 2020 third quarter ended June 30, 2020.

Summary of Third Quarter and Recent Highlights

  • Revenue of $26.9 million, an increase of 10% year-over-year
  • GAAP EPS of $0.18, non-GAAP EPS of $0.21
  • CE Mark received for SurVeil™ drug coated balloon (DCB)
  • FDA clearance received for Sublime™ radial-access 0.014” PTA balloon catheter
  • Initiated first-in-human clinical trial for Sundance™ below-the-knee DCB

“We achieved several critical milestones in the third quarter that are important to our long-term growth, highlighted by the attainment of the CE Mark for our SurVeil drug coated balloon,” said Gary Maharaj, President and CEO of Surmodics, Inc. “Despite the impact of the COVID-19 pandemic, I am grateful for the remarkable resilience and tenacity demonstrated by our team as they continue to make excellent progress on our stated strategic objectives.”

Third Quarter Fiscal 2020 Financial Results

Total revenue for the third quarter of fiscal 2020 was $26.9 million, as compared with $24.3 million in the prior-year period. Medical Device revenue was $20.5 million in the third quarter of fiscal 2020, as compared with $18.9 million in the year-ago period, an increase of 8%, and includes $7.6 million from our SurVeil DCB agreement with Abbott, of which $6.7 million was recognized from the $10.8 million milestone associated with the recently attained CE Mark. This compares to $2.0 million in revenue recognized in the prior‐year quarter. Third quarter fiscal 2020 Medical Device revenue was significantly impacted by reductions in procedures as a result of the COVID-19 pandemic, as well as by the previously communicated expiration of the Company’s fourth generation hydrophilic coating patents. In Vitro Diagnostics revenue was $6.4 million for the third quarter of fiscal 2020, as compared with $5.4 million in the same prior-year quarter, an increase of 18%.

Diluted GAAP earnings per share in the third quarter of fiscal 2020 was $0.18, as compared with $0.11 in the year-ago period. On a non-GAAP basis, earnings per share in the third quarter of fiscal 2020 was $0.21, as compared with $0.15 in the same prior-year quarter.

As of June 30, 2020, Surmodics reported cash and short-term investments totaling $60.6 million and no debt. Surmodics generated $11.4 million of cash from operating activities in the third quarter of fiscal 2020. Capital expenditures totaled $0.3 million for the third quarter of fiscal 2020.

Fiscal 2020 Guidance

Due to the continued uncertainty surrounding the duration and magnitude of the COVID-19 pandemic, the Company will not provide financial guidance at this time.

Conference Call Today at 4 p.m. CT (5 p.m. ET)

Surmodics will host a webcast at 4 p.m. CT (5 p.m. ET) today to discuss third quarter results. To access the webcast, go to the investor relations portion of the Company’s website at https://surmodics.gcs-web.com and click on the webcast icon. The webcast will be archived on the Company’s website for 90 days. A replay of the third quarter conference call will be available by dialing 888-203-1112 and entering conference call ID passcode 8319907. The audio replay will be available beginning at 7 p.m. CT on Wednesday, August 5, 2020, until 7 p.m. CT on Wednesday, August 12, 2020.

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) immunoassay tests and microarrays. Surmodics is pursuing highly differentiated medical devices that are designed to address unmet clinical needs and engineered to the most demanding requirements. This key growth strategy leverages the combination of the Company’s expertise in proprietary surface technologies, along with enhanced device design, development and manufacturing capabilities. The Company mission remains to improve the detection and treatment of disease. Surmodics is headquartered in Eden Prairie, Minnesota. For more information, 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 Securities and Exchange Commission (“SEC”).

Safe Harbor for Forward-looking Statements

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Statements that are not historical or current facts, including statements regarding the Company’s strategic objectives, expectations regarding clinical studies, target dates for regulatory clearances, plans for clinical evaluations, plans to deliver growth and profitability over time, statements about future customer demand and revenues, statements about our future financial needs and access to capital, and statements about product development strategies, 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, without limitation: (1) our ability to successfully develop and commercialize our SurVeilTM DCB (including realization of the full potential benefits of our agreement with Abbott), AvessTM DCB, SundanceTM DCB, and other proprietary products; (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) possible adverse market conditions and possible adverse impacts on our cash flows; (4) the impacts, duration, and severity of the global COVID-19 pandemic and the effects of responses to it on healthcare systems, the general economy, our business partners, and our operations; 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, 2019, and updated in our subsequent reports filed with the SEC. These reports are available in the Investors section of our website at https://surmodics.gcs-web.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 U.S. generally accepted accounting principles, or GAAP, Surmodics is reporting non-GAAP financial results including EBITDA and Adjusted EBITDA, non-GAAP operating income, non-GAAP operating income percentage, non-GAAP income before income taxes, non-GAAP net income, and non-GAAP diluted earnings per share, and the non-GAAP effective income 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 payouts 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.

Surmodics, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(in thousands, except per share data)

(Unaudited)

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

June 30,

 

 

June 30,

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Product sales

$

11,987

 

 

$

9,870

 

 

$

33,731

 

 

$

29,508

 

Royalties and license fees

 

12,398

 

 

 

11,624

 

 

 

30,767

 

 

 

31,652

 

Research, development and other

 

2,498

 

 

 

2,850

 

 

 

7,823

 

 

 

8,101

 

Total revenue

 

26,883

 

 

 

24,344

 

 

 

72,321

 

 

 

69,261

 

Operating costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Product costs

 

4,443

 

 

 

3,364

 

 

 

11,415

 

 

 

9,980

 

Research and development

 

13,324

 

 

 

13,321

 

 

 

37,401

 

 

 

38,362

 

Selling, general and administrative

 

7,416

 

 

 

5,939

 

 

 

21,092

 

 

 

16,764

 

Acquired intangible asset amortization

 

536

 

 

 

599

 

 

 

1,671

 

 

 

1,809

 

Contingent consideration expense (gain)

 

—

 

 

 

104

 

 

 

—

 

 

 

(248

)

Total operating costs and expenses

 

25,719

 

 

 

23,327

 

 

 

71,579

 

 

 

66,667

 

Operating income

 

1,164

 

 

 

1,017

 

 

 

742

 

 

 

2,594

 

Other income (expense)

 

47

 

 

 

189

 

 

 

(118

)

 

 

846

 

Income before income taxes

 

1,211

 

 

 

1,206

 

 

 

624

 

 

 

3,440

 

Income tax benefit

 

1,248

 

 

 

260

 

 

 

3,445

 

 

 

598

 

Net income

$

2,459

 

 

$

1,466

 

 

$

4,069

 

 

$

4,038

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic net income per share

$

0.18

 

 

$

0.11

 

 

$

0.30

 

 

$

0.30

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted net income per share

$

0.18

 

 

$

0.11

 

 

$

0.30

 

 

$

0.29

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

13,601

 

 

 

13,394

 

 

 

13,577

 

 

 

13,384

 

Diluted

 

13,786

 

 

 

13,726

 

 

 

13,775

 

 

 

13,776

 

Surmodics, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(in thousands)

 

 

 

June 30,

 

 

September 30,

 

 

 

2020

 

 

2019

 

Assets

 

(Unaudited)

 

 

(See note)

 

Current Assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

36,386

 

 

$

30,361

 

Available-for-sale securities

 

 

24,178

 

 

 

24,931

 

Accounts receivable, net

 

 

8,657

 

 

 

8,993

 

Contract assets - royalties and license fees

 

 

4,248

 

 

 

8,210

 

Inventories, net

 

 

5,872

 

 

 

4,501

 

Prepaids and other

 

 

8,461

 

 

 

4,424

 

Total Current Assets

 

 

87,802

 

 

 

81,420

 

Property and equipment, net

 

 

28,939

 

 

 

29,748

 

Deferred tax assets

 

 

5,585

 

 

 

6,176

 

Intangible assets, net

 

 

12,585

 

 

 

14,226

 

Goodwill

 

 

26,563

 

 

 

26,171

 

Other assets

 

 

5,024

 

 

 

2,124

 

Total Assets

 

$

166,498

 

 

$

159,865

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

Contingent consideration, current portion

 

 

—

 

 

 

3,200

 

Deferred revenue

 

 

5,229

 

 

 

5,553

 

Other current liabilities

 

 

10,398

 

 

 

11,456

 

Total Current Liabilities

 

 

15,627

 

 

 

20,209

 

Deferred revenue

 

 

12,423

 

 

 

11,628

 

Other long-term liabilities

 

 

7,865

 

 

 

5,512

 

Total Liabilities

 

 

35,915

 

 

 

37,349

 

Total Stockholders’ Equity

 

 

130,583

 

 

 

122,516

 

Total Liabilities and Stockholders’ Equity

 

$

166,498

 

 

$

159,865

 

 

 

 

 

 

 

 

 

 

Note: Derived from audited financial statements as of the date indicated.

 

 

 

 

 

 

 

 

 

 

Surmodics, Inc. and Subsidiaries

Supplemental Segment Information

(in thousands)

(Unaudited)

 

 

 

Three Months Ended June 30,

 

 

 

 

 

 

2020

 

 

2019

 

 

 

 

Revenue:

 

 

 

 

 

% of Total

 

 

 

 

 

 

% of Total

 

 

% Change

 

Medical Device

 

$

20,514

 

 

76.3%

 

 

$

18,945

 

 

77.8%

 

 

8.3%

 

In Vitro Diagnostics

 

 

6,369

 

 

23.7%

 

 

 

5,399

 

 

22.2%

 

 

18.0%

 

Total revenue

 

$

26,883

 

 

 

 

 

 

$

24,344

 

 

 

 

 

 

10.4%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended June 30,

 

 

 

 

 

 

2020

 

 

2019

 

 

 

 

Revenue:

 

 

 

 

 

% of Total

 

 

 

 

 

 

% of Total

 

 

% Change

 

Medical Device

 

$

54,222

 

 

75.0%

 

 

$

53,504

 

 

77.2%

 

 

1.3%

 

In Vitro Diagnostics

 

 

18,099

 

 

25.0%

 

 

 

15,757

 

 

22.8%

 

 

14.9%

 

Total revenue

 

$

72,321

 

 

 

 

 

 

$

69,261

 

 

 

 

 

 

4.4%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

 

 

 

June 30,

 

 

June 30,

 

 

 

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

 

 

Operating income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Medical Device

 

$

532

 

 

$

753

 

 

$

(1,344

)

 

$

1,087

 

 

 

 

In Vitro Diagnostics

 

 

3,254

 

 

 

2,475

 

 

 

9,315

 

 

 

7,845

 

 

 

 

Total segment operating income

 

 

3,786

 

 

 

3,228

 

 

 

7,971

 

 

 

8,932

 

 

 

 

Corporate

 

 

(2,622

)

 

 

(2,211

)

 

 

(7,229

)

 

 

(6,338

)

 

 

 

Total operating income

 

$

1,164

 

 

$

1,017

 

 

$

742

 

 

$

2,594

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Surmodics, Inc. and Subsidiaries

Reconciliation of GAAP Measures to Non-GAAP Amounts

Schedule of EBITDA, Adjusted EBITDA and Cash Flows from Operations

(in thousands)

(Unaudited)

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

June 30,

 

 

June 30,

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

EBITDA and Adjusted EBITDA

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

$

2,459

 

 

$

1,466

 

 

$

4,069

 

 

$

4,038

 

Income tax benefit

 

(1,248

)

 

 

(260

)

 

 

(3,445

)

 

 

(598

)

Depreciation and amortization

 

1,790

 

 

 

1,887

 

 

 

5,390

 

 

 

5,462

 

Investment income, net

 

(124

)

 

 

(269

)

 

 

(584

)

 

 

(850

)

Interest expense

 

29

 

 

 

38

 

 

 

99

 

 

 

112

 

EBITDA

 

2,906

 

 

 

2,862

 

 

 

5,529

 

 

 

8,164

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjustments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contingent consideration expense (gain) (1)

 

—

 

 

 

104

 

 

 

—

 

 

 

(248

)

Foreign exchange gain (2)

 

—

 

 

 

—

 

 

 

—

 

 

 

(126

)

Loss (gain) on strategic investments (4)

 

—

 

 

 

—

 

 

 

479

 

 

 

(7

)

Claim settlement (7)

 

—

 

 

 

—

 

 

 

—

 

 

 

(650

)

Adjusted EBITDA

$

2,906

 

 

$

2,966

 

 

$

6,008

 

 

$

7,133

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash Flows from Operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash provided by (used in) operating activities

$

11,439

 

 

$

(543

)

 

$

12,696

 

 

$

(4,482

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Surmodics, Inc., and Subsidiaries

Net Income and Diluted EPS GAAP to Non-GAAP Reconciliation

(in thousands, except per share data)

(Unaudited)

 

 

 

For the Three Months Ended June 30, 2020

 

 

 

Total
Revenue

 

Operating
Income

 

Operating
Income
Percentage

 

Income
Before
Income
Taxes

 

Net
Income (6)

 

Diluted
EPS

 

Effective
tax rate

 

GAAP

 

$

26,883

 

$

1,164

 

4.3 %

 

$

1,211

 

$

2,459

 

$

0.18

 

(103.1)%

 

Adjustments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of acquired intangible assets (3)

 

 

—

 

 

536

 

2.0 %

 

 

536

 

 

503

 

 

0.03

 

 

 

Non-GAAP

 

$

26,883

 

$

1,700

 

6.3 %

 

$

1,747

 

$

2,962

 

$

0.21

 

(69.5)%

 

 

 

For the Three Months Ended June 30, 2019

 

 

 

Total
Revenue

 

Operating
Income

 

Operating
Income
Percentage

 

Income
Before
Income
Taxes

 

Net
Income (6)

 

Diluted
EPS

 

Effective
tax rate

 

GAAP

 

$

24,344

 

$

1,017

 

4.2 %

 

$

1,206

 

$

1,466

 

$

0.11

 

(21.6)%

 

Adjustments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contingent consideration expense (1)

 

 

—

 

 

104

 

0.4 %

 

 

104

 

 

104

 

 

0.01

 

 

 

Amortization of acquired intangible assets (3)

 

 

—

 

 

599

 

2.5 %

 

 

599

 

 

554

 

 

0.04

 

 

 

Non-GAAP

$

24,344

 

$

1,720

 

7.1 %

 

$

1,909

 

$

2,124

 

$

0.15

 

(11.3)%

 

Surmodics, Inc., and Subsidiaries

Net Income and Diluted EPS GAAP to Non-GAAP Reconciliation – Continued

(in thousands, except per share data)

(Unaudited)

 

 

 

For the Nine Months Ended June 30, 2020

 

 

 

 

Total
Revenue

 

 

Operating
Income

 

 

Operating
Income
Percentage

 

 

Income
Before
Income
Taxes

 

 

Net
Income (6)

 

 

Diluted
EPS

 

 

Effective
tax rate

 

 

GAAP

 

$

72,321

 

 

$

742

 

 

1.0

%

 

$

624

 

 

$

4,069

 

 

$

0.30

 

 

(552.1

)%

 

Adjustments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of acquired intangible assets (3)

 

 

—

 

 

 

1,671

 

 

2.3

%

 

 

1,671

 

 

 

1,559

 

 

 

0.11

 

 

 

 

 

Loss on strategic investment (4)

 

 

—

 

 

 

—

 

 

—

 

 

 

479

 

 

 

378

 

 

 

0.03

 

 

 

 

 

Tax impact of CARES Act (5)

 

 

—

 

 

 

—

 

 

—

 

 

 

—

 

 

 

(1,768

)

 

 

(0.13

)

 

 

 

 

Non-GAAP

 

$

72,321

 

 

$

2,413

 

 

3.3

%

 

$

2,774

 

 

$

4,238

 

 

$

0.31

 

 

(52.8

)%

 

 

 

For the Nine Months Ended June 30, 2019

 

 

 

 

Total
Revenue

 

 

Operating
Income

 

 

Operating
Income
Percentage

 

 

Income
Before
Income
Taxes

 

 

Net
Income (6)

 

 

Diluted
EPS

 

 

Effective
tax rate

 

 

GAAP

 

$

69,261

 

 

$

2,594

 

 

3.7

%

 

$

3,440

 

 

$

4,038

 

 

$

0.29

 

 

(17.4

)%

 

Adjustments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contingent consideration gain (1)

 

 

—

 

 

 

(248

)

 

(0.4

)%

 

 

(248

)

 

 

(248

)

 

 

(0.02

)

 

 

 

 

Foreign exchange gain (2)

 

 

—

 

 

 

—

 

 

—

 

 

 

(126

)

 

 

(126

)

 

 

(0.01

)

 

 

 

 

Amortization of acquired intangible assets (3)

 

 

—

 

 

 

1,809

 

 

2.6

%

 

 

1,809

 

 

 

1,675

 

 

 

0.12

 

 

 

 

 

Gain on strategic investment (4)

 

 

—

 

 

 

—

 

 

—

 

 

 

(7

)

 

 

(7

)

 

 

—

 

 

 

 

 

Claim settlement (7)

 

 

—

 

 

 

(650

)

 

(0.9

)%

 

 

(650

)

 

 

(514

)

 

 

(0.04

)

 

 

 

 

Non-GAAP

 

$

69,261

 

 

$

3,505

 

 

5.1

%

 

$

4,218

 

 

$

4,818

 

 

$

0.35

 

 

(14.2

)%

 

(1)

Represents accounting adjustments to state acquisition-related contingent consideration liabilities at their estimated fair value, including accretion for the passage of time as well as adjustments to the liabilities’ fair values related to changes in the timing and/or probability of achieving milestones. These amounts are not taxable or tax deductible.

(2)

Foreign exchange gains and losses are related to marking non-U.S. dollar contingent consideration to period-end or settlement date exchange rates. These gains and losses are not taxable or tax deductible.

(3)

Amortization of acquisition-related intangible assets and associated tax impact. A significant portion of the acquisition-related amortization is not tax deductible.

(4)

In fiscal 2020, represents the loss recognized on the impairment of a strategic investment for which an effective rate of 21% was used to estimate the income tax impact. In fiscal 2019, represents the gain recognized on the sale of a strategic investment which was not tax-effected as it was offset by previously recognized capital losses.

(5)

Represents the income tax benefit recognized from the carryback of net operating losses under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) enacted in March 2020.

(6)

Net income includes the effect of the above adjustments on the income tax benefit, taking into account deferred taxes and non-deductible items. In both fiscal 2020 and fiscal 2019, an effective rate of 21% was used to estimate the income tax impact of the adjustments, except that expenses occurring in Ireland have not been tax-effected as al3l tax benefits are offset by a full valuation allowance.

(7)

Represents a royalty-related customer claim accrued at $1.0 million in the second quarter of fiscal 2018, settled in the second quarter of fiscal 2019 for $0.4 million.

 

Surmodics, Inc.
Tim Arens, 952-500-7000
ir@surmodics.com

Source: Surmodics, Inc.