EX-99.1 2 c06854exv99w1.htm PRESS RELEASE exv99w1
 

Exhibit 99.1
SurModics Reports Third Quarter 2006 Results
Record Revenue and Earnings
EDEN PRAIRIE, Minnesota — July 19, 2006 — SurModics, Inc. (Nasdaq: SRDX), a leading provider of surface modification and drug delivery technologies to the healthcare industry, today reported financial results for the third fiscal quarter ended June 30, 2006.
Third Quarter Highlights:
•   Record revenue of $18.1 million, up 10% year-over-year
 
•   Record revenue in all three operating segments
 
•   Record non-Cordis revenue
 
•   GAAP results:
  •   Record operating income of $9.5 million
 
  •   Record net income of $6.4 million
 
  •   Record diluted EPS of $0.34
•   Non-GAAP results (excluding non-cash equity compensation expense):
  •   Record operating income of $11.1 million (61% operating margin)
 
  •   Record net income of $7.4 million
 
  •   Record diluted EPS of $0.39
•   Five new licenses signed with SurModics customers, representing four of SurModics’ six business units
•   Six new product classes launched by our customers
•   8th consecutive quarter of record non-GAAP net income
•   9th consecutive quarter with non-Cordis revenue exceeding Cordis revenue
“SurModics is pleased to report strong financial and operating results for the third quarter of fiscal year 2006, achieving record revenue and earnings,” said Bruce Barclay, President and CEO. “We delivered broad-based revenue growth, setting new records in each of our three operating segments — Drug Delivery, Hydrophilic and Other, and Diagnostics and Drug Discovery. In addition to strong CYPHER sales, we also delivered record non-Cordis revenue in the quarter.”
“Our exceptional team of SurModics employees once again attained several significant operating milestones during the quarter,” continued Barclay. “Working in concert with the

 

 

Donaldson Company, we completed a significant agreement with Corning Life Sciences to market and distribute jointly developed synthetic extracellular matrix cell culture products. Our ophthalmology division signed its first license agreement, granting Bausch & Lomb access to our Genistein technology. Moreover, we announced additional customers using our hydrophilic coating technology on their DES delivery systems. In addition, we signed an agreement to jointly develop a drug-eluting prostatic stent with AbbeyMoor Medical.”
Revenue in the Hydrophilic and Other segment achieved the highest year-over-year growth rate of the company’s three operating segments. “We are pleased with the results we have achieved,” commented Barclay. “Our strong competitive position in the hydrophilic marketplace has allowed us to build a broad and growing base of customers currently using our advanced lubricity coating technologies to enhance their medical devices. Further, the trend toward minimally invasive procedures has increased demand for hydrophilic coatings in the marketplace, favorably positioning us for sustained success.”
Revenue for the third quarter of fiscal 2006 was $18.1 million, an increase of 10% from $16.5 million in the year earlier period. On a GAAP basis, operating income was a record $9.5 million; net income was a record $6.4 million; and diluted earnings per share was a record $0.34. Results include expensing of stock options, as required by SFAS No. 123(R).
On a non-GAAP basis, operating income grew 19% to a record $11.1 million, from $9.3 million in the prior-year period. The operating margin for the quarter was 61%. Net income increased 20% to a record $7.4 million, from $6.2 million in the same period last year. Diluted earnings per share was a record $0.39, an 18% increase from $0.33 in the third quarter of fiscal 2005. Non-GAAP results exclude non-cash compensation charges. Please see our financial tables and the footnotes for a detailed explanation and reconciliation of GAAP and non-GAAP figures.
For the first nine months of fiscal year 2006, revenue was a record $52.3 million, an increase of 13% from $46.3 million in the year earlier period. On a GAAP basis, operating income was $27.0 million; net income was $14.0 million; and diluted earnings

 

 

per share was $0.75; these figures were all records. On a non-GAAP basis, operating income grew 15% to a record $31.4 million, from $27.3 million in the prior-year period. Net income increased 21% to a record $21.2 million, from $17.5 million in the same period last year. Diluted earnings per share was a record $1.12, an 18% increase compared with $0.95 for the first nine months of fiscal 2005. Non-GAAP results exclude non-cash compensation charges, the non-cash IPR&D charge in connection with the Company’s acquisition of InnoRx, Inc. in January 2005, and a non-cash impairment loss on our investment in Novocell. Please see our financial tables and the footnotes for a detailed explanation and reconciliation of GAAP and non-GAAP figures.
SurModics continues to expand its portfolio of pipeline projects. The company signed five new licenses in the third quarter, for a total of 16 to date in fiscal year 2006, already exceeding its goal of 15 for the fiscal year. As further evidence of the broad-based strength of our business, we signed licenses in four of our six business units. Additionally, during the quarter our customers launched 6 new product classes containing SurModics’ technologies. The company has 158 potential commercial products in development, up from 118 in the prior year period, representing each of the company’s four focus markets — Cardiovascular, Neurology, Ophthalmology and Orthopedics, with potential for both near-term and longer-term revenue growth.
“SurModics remains in excellent financial condition,” said Phil Ankeny, Senior Vice President and Chief Financial Officer. “Our balance sheet remains strong, with a cash and investment balance of $96.7 million and no debt as of June 30, 2006. Operating cash flow for the third quarter was $8.9 million. We continue to evaluate opportunities to put our strong balance sheet to work.”
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 webcast icon. A replay of the third quarter conference call will be available by dialing 800-405-2236 and entering conference call ID 11064452. The audio replay will be available beginning at 6:00 p.m. CT on Wednesday, July 19, until 6:00 p.m. CT on Wednesday, July 26.

 

 

About SurModics, Inc.
SurModics, Inc. is a leading provider of surface modification technologies in the areas of biocompatibility, site specific drug delivery, biological cell encapsulation, and medical diagnostics. SurModics partners with the world’s foremost medical device, pharmaceutical and life science companies to bring innovation together for better patient outcomes. Recent collaborative efforts include the implementation of SurModics’ Bravo™ drug delivery polymer matrix as a key component of the first-to-market drug-eluting coronary stent. SurModics is also active in the ophthalmology market with a sustained drug delivery system that is currently in human trials for treatment of retinal disease. A significant portion of SurModics’ revenue is generated by royalties earned from the sale of our customers’ commercial products. SurModics is headquartered in Eden Prairie, MN. More information about the company can be found at www.surmodics.com. The content of SurModics’ web site is not part of this release or part of any filings the company makes with the SEC.
Safe Harbor for 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. 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.
Contact
Phil Ankeny, Senior Vice President and Chief Financial Officer
(952) 829-2700

 

 

SurModics, Inc.
Statements of Income
Reconciliation of GAAP to Non-GAAP Amounts
(In thousands, except per share data)
(Unaudited)
                         
    Three Months Ended  
    June 30, 2006  
    GAAP (1)     Adjustments     Non-GAAP (2)  
Revenue:
                        
Royalties and license fees
   $ 13,948             $ 13,948  
Product sales
     2,659               2,659  
Research & development
     1,532               1,532  
 
                    
Total revenue
     18,139               18,139  
 
                        
Operating expenses:
                        
Product
     891       (29 )     862  
Research & development
     5,281       (714 )     4,567  
Sales & marketing
     348       (55 )     293  
General & administrative
     2,156       (808 )     1,348  
 
                    
Total operating expenses
     8,676       (1,606 )     7,070  
 
                    
Income from operations
     9,463       1,606       11,069  
 
                        
Investment income
     1,102               1,102  
 
                    
Income before income taxes
     10,565       1,606       12,171  
 
                        
Income tax provision
     (4,207 )     (532 )     (4,739 )
 
                    
Net income
   $ 6,358             $ 7,432  
 
                    
 
                        
Basic net income per share
   $ 0.34             $ 0.40  
 
                    
 
                        
Diluted net income per share
   $ 0.34             $ 0.39  
 
                    
 
                        
Weighted average shares outstanding
                        
Basic
     18,570               18,570  
Diluted
     18,725               19,013  
 
(1)   Reflects operating results in accordance with U.S. generally accepted accounting principles (or GAAP).
 
(2)   Non-GAAP figures exclude non-cash compensation charges, including expensing of stock options as required by SFAS No. 123(R), and related tax effect.

 

 

SurModics, Inc.
Statements of Income
Reconciliation of GAAP to Non-GAAP Amounts
(In thousands, except per share data)
(Unaudited)
                         
    Three Months Ended  
    June 30, 2005  
    GAAP (1)     Adjustments     Non-GAAP (2)  
Revenue:
                        
Royalties and license fees
   $ 12,694             $ 12,694  
Product sales
     2,663               2,663  
Research & development
     1,161               1,161  
 
                    
Total revenue
     16,518               16,518  
 
                        
Operating expenses:
                        
Product
     743               743  
Research & development
     4,494               4,494  
Sales & marketing
     341               341  
General & administrative
     1,792       (161 )     1,631  
 
                    
Total operating expenses
     7,370       (161 )     7,209  
 
                    
Income from operations
     9,148       (161 )     9,309  
 
                        
Investment income
     469               469  
 
                    
Income before income taxes
     9,617               9,778  
 
                        
Income tax provision
     (3,522 )     (59 )     (3,581 )
 
                    
Net income
   $ 6,095             $ 6,197  
 
                    
 
                        
Basic net income per share
   $ .33             $ 0.34  
 
                    
 
                        
Diluted net income per share
   $ .32             $ 0.33  
 
                    
 
                        
Weighted average shares outstanding
                        
Basic
     18,322               18,322  
Diluted
     18,928               18,928  
 
(1)   Reflects operating results in accordance with U.S. generally accepted accounting principles (or GAAP).
 
(2)   Non-GAAP figures exclude non-cash compensation charges and related tax effect.

 

 

SurModics, Inc.
Statements of Income
Reconciliation of GAAP to Non-GAAP Amounts
(In thousands, except per share data)
(Unaudited)
                                 
    Nine Months Ended  
    June 30, 2006  
    GAAP (1)     Adjustments       Non-GAAP (2)  
Revenue:
                                
Royalties and license fees
   $ 39,514                     $ 39,514  
Product sales
     7,913                       7,913  
Research & development
     4,884                       4,884  
 
                            
Total revenue
     52,311                       52,311  
 
                                
Operating expenses:
                                
Product
     2,441       (80 )  (3)         2,361  
Research & development
     14,935       (1,938 )  (3)         12,997  
Sales & marketing
     1,052       (133 )  (3)         919  
General & administrative
     6,887       (2,207 )  (3)         4,680  
 
                            
Total operating expenses
     25,315       (4,358 )             20,957  
 
                            
Income from operations
     26,996       4,358               31,354  
 
                                
Investment income
     2,782                       2,782  
Impairment loss on investment
     (4,651 )     4,651    (4)         -  
 
                            
Income before income taxes
     25,127       9,009               34,136  
 
                                
Income tax provision
     (11,087 )     (1,860 )  (5)         (12,947 )
 
                            
Net income
   $ 14,040                     $ 21,189  
 
                            
 
                                
Basic net income per share
   $ 0.76                     $ 1.15  
 
                            
 
                                
Diluted net income per share
   $ 0.75                     $ 1.12  
 
                            
 
                                
Weighted average shares outstanding
                                
Basic
     18,494                       18,494  
Diluted
     18,681                       18,940  
 
(1)   Reflects operating results in accordance with U.S. generally accepted accounting principles (or GAAP).
 
(2)   Non-GAAP figures exclude non-cash compensation charges (including expensing of stock options as required by SFAS No. 123(R)), the non-cash impairment loss detailed in Note (4), and the tax items detailed in Note (5).
 
(3)   Reflects non-cash compensation charges, including expensing of stock options as required by SFAS No. 123(R).
 
(4)   Reflects non-cash impairment loss on the Company’s investment in Novocell, Inc.
 
(5)   Non-GAAP results exclude a $465,000 benefit related to the reversal of a tax accrual resulting from settlement during the first quarter of a state’s prior year tax returns. In addition, no tax benefit has been recorded for the $4.7 million non-cash impairment loss.

 

 

SurModics, Inc.
Statements of Operations
Reconciliation of GAAP to Non-GAAP Amounts
(In thousands, except per share data)
(Unaudited)
                         
    Nine Months Ended  
    June 30, 2005  
    GAAP (1)     Adjustments   Non-GAAP (2)  
Revenue:
                        
Royalties and license fees
   $ 35,052             $ 35,052  
Product sales
     6,984               6,984  
Research & development
     4,255               4,255  
 
                    
Total revenue
     46,291               46,291  
 
                        
Operating expenses:
                        
Product
     2,092               2,092  
Research & development
     11,739               11,739  
Sales & marketing
     909               909  
General & administrative
     4,635       (405 )  (3)     4,230  
Purchased in-process R&D
     30,277       (30,277 )  (4)     -  
 
                    
Total operating expenses
     49,652       (30,682 )     18,970  
 
                    
Income (loss) from operations
     (3,361 )     30,682       27,321  
 
                        
Investment income
     756               756  
 
                    
Income (loss) before income taxes
     (2,605 )     30,682       28,077  
 
                        
Income tax provision
     (10,433 )     (153 )     (10,586 )
 
                    
Net income (loss)
     ($13,038 )           $ 17,491  
 
                    
 
                        
Basic net income (loss) per share
     ($.72 )           $ 0.97  
 
                    
 
                        
Diluted net income (loss) per share
     ($.72 )           $ 0.95  
 
                    
 
                        
Weighted average shares outstanding
                        
Basic
     18,008               18,008  
Diluted
     18,008               18,461  
 
(1)   Reflects operating results in accordance with U.S. generally accepted accounting principles (or GAAP).
 
(2)   Non-GAAP figures exclude non-cash compensation charges and the non-cash IPR&D charge detailed in Note (4).
 
(3)   Reflects non-cash compensation charges.
 
(4)   Reflects non-cash IPR&D charge in connection with the Company’s acquisition of InnoRx, Inc. in January 2005.

 

 

SurModics, Inc.
Condensed Balance Sheets
(In thousands)
                 
    June 30,     September 30,  
    2006     2005  
    (Unaudited)          
Assets
                
 
                
Current assets:
                
Cash & investments
   $ 50,596     $ 24,445  
Accounts receivable
     11,863       10,996  
Inventories
     1,115       1,091  
Other current assets
     2,079       5,072  
 
            
Total current assets
     65,653       41,604  
 
                
Property & equipment, net
     11,776       14,832  
Long-term investments
     46,095       48,874  
Other assets
     20,877       18,915  
 
            
Total assets
   $ 144,401     $ 124,225  
 
            
 
                
Liabilities & Stockholders’ Equity
                
 
                
Total current liabilities
   $ 5,613     $ 5,123  
 
                
Other liabilities
     2,582       3,521  
 
                
Total stockholders’ equity
     136,206       115,581  
 
            
 
                
Total liabilities & stockholders’ equity
   $ 144,401     $ 124,225  
 
            
Certain information in this financial release may be considered non-GAAP Financial Information as contemplated by SEC Regulation G. Accordingly, we are providing the preceding tables, which reconcile results to their corresponding GAAP based operating results presented under our Statements of Income and Statements of Operations.
Management believes the presentation of these non-GAAP financial results, in connection with the results of the fiscal quarter ended June 30, 2006, 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, including when comparing against prior periods. 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.
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