SurModics reports second-quarter GAAP revenue of $18.4 million, up 6% sequentially

SurModics, Inc. (Nasdaq: SRDX), a leading provider of drug delivery and surface modification technologies to the healthcare industry, today reported financial results for the second quarter ended March 31, 2010.

“SurModics has preserved its excellent financial condition through continued generation of strong operating cash flow and by maintaining a healthy balance sheet with zero debt”

Second Quarter Summary:

• GAAP results:
  • Revenue of $18.4 million, up 6% sequentially
  • Restructuring and asset impairment charges of $3.4 million
  • Operating loss of $1.0 million
  • Net loss of $0.4 million
  • Diluted EPS of ($0.02)
• Revenue by market:
  • Therapeutic:
    • Cardiovascular - $9.3 million, down 14% sequentially
    • Ophthalmology - $3.4 million, up 36% sequentially
    • Other Markets - $2.9 million, up 54% sequentially
  • Diagnostic - $2.8 million, up 23% sequentially
• Non-GAAP results (excluding restructuring and asset impairment charges):
  • Adjusted operating income of $2.4 million
  • Adjusted net income of $1.7 million
  • Adjusted diluted EPS of $0.10
• Operating cash flow of $4.1 million
• Cash and investments of $51.8 million; no debt
• 5 new licenses with SurModics customers
• 4 new customer product classes introduced by our customers

"SurModics has worked hard to navigate several revenue transitions - namely the cancellation of our ophthalmology program with Merck, the loss of the Abbott Diagnostics royalty stream due to patent expiration, and the continued decline in our revenue from the CYPHER® Sirolimus-eluting Coronary Stent. Despite these challenges, we are delivering growth in the rest of our business. To be specific, if you exclude revenue from Merck, Abbott and Cypher from our results, SurModics' total revenue is up 6% year-over-year and 14% sequentially," said Bruce Barclay, president and CEO. "In particular, SurModics delivered strong sequential growth in Ophthalmology, Diagnostics, and Other Markets in the second quarter, and total Therapeutic revenue was at its highest level in four quarters. We also delivered strong product sales in the quarter, up 16% sequentially. Finally, we are particularly encouraged by the strong growth of our R&D revenue, which grew 46% sequentially and reached its highest level in four quarters, as the number and quality of our customer projects continue to expand and advance."

Barclay continued, "SurModics' ability to support its future growth will also be enhanced by the organizational and leadership changes instituted in March. These changes will allow us to better meet customer needs and leverage our customer relationships across our entire technology and product portfolios."

Year-over-Year Comparison

On a GAAP basis, revenue for the second quarter of fiscal 2010 was $18.4 million, compared with $20.9 million in the year earlier period. The Company reported an operating loss of $1.0 million, compared with operating income of $6.2 million in the prior-year period; a net loss of $0.4 million, compared with net income of $4.2 million in the same period last year; and diluted loss per share of ($0.02), compared with diluted earnings per share of $0.24 in the second quarter of fiscal 2009.

Results for the second quarter of fiscal 2010 included restructuring charges of $1.3 million in connection with the organizational changes we announced in March, as well as a $2.1 million non-cash asset impairment charge in connection with the consolidation of the Company's facilities in Birmingham, Alabama. Excluding these charges, non-GAAP results for the second quarter were as follows: operating income was $2.4 million; net income was $1.7 million; and diluted earnings per share was $0.10.

Sequential Comparison

On a GAAP basis, revenue for the first quarter of fiscal 2010 was $17.4 million; operating income was $2.8 million; net income was $1.9 million; and diluted earnings per share was $0.11.

Other Highlights

SurModics' pipeline continues to represent significant potential. The Company added five new licenses in the second quarter, for a fiscal year-to-date total of 11 against its goal of signing 18 new licenses in fiscal 2010. SurModics' customers launched four new product classes in the marketplace during the quarter, for a fiscal year-to-date total of five against its goal of 10 launches in fiscal 2010. As of March 31, 2010, SurModics' customers had 102 licensed product classes generating royalty revenue, unchanged from the prior-year period; the total number of licensed product classes not yet launched was 111, up from 106 in the prior-year period; and major non-licensed opportunities totaled 75, compared with 92 a year ago. In total, SurModics now has a portfolio of 186 potential commercial products in development diversified across multiple clinical indications and technology platforms.

Cash and investments at the end of the second quarter totaled $51.8 million. Operating cash flow for the quarter was $4.1 million, compared with negative $0.6 million in the second quarter of fiscal 2009; for the first six months of fiscal year 2010, operating cash flow was $12.4 million, as the Company continues to demonstrate its ability to generate cash. During the second quarter, the Company purchased approximately 103,000 shares of its common stock for $2.0 million.

"SurModics has preserved its excellent financial condition through continued generation of strong operating cash flow and by maintaining a healthy balance sheet with zero debt," said Phil Ankeny, senior vice president and chief financial officer. "Given our optimism in the Company's potential for long-term growth, we will continue to leverage our strong balance sheet and invest in our business. We have maintained our disciplined deployment of capital with a goal of enhancing shareholder value, principally in the areas of facilities-related and corporate development investments, as well as share repurchases."