SRDX - Surmodics Reports Fourth Quarter and Fiscal Year 2022 Financial Results; Introduces Fiscal Year 2023 Financial Guidance

Surmodics, Inc. (Nasdaq: SRDX), a leading provider of medical device and in vitro diagnostic technologies to the healthcare industry, today reported financial results for its fourth quarter and fiscal year ended September 30, 2022, and introduced its financial outlook for the fiscal year ending September 30, 2023.

Fourth Quarter 2022 Financial Summary

• Total Revenue of $26.0 million, an increase of 8% year-over-year
• GAAP Diluted EPS of $(1.06), including $(0.73) deferred tax valuation reserve, compared to $(0.02) in the prior-year period
• Non-GAAP Diluted EPS of $(0.26), compared to $(0.10) in the prior-year period

Fiscal Year 2022 Financial Summary

• Total Revenue of $100.0 million, a decrease of 5% year-over-year
• GAAP Diluted EPS of $(1.96), including $(0.73) deferred tax valuation reserve, compared to $0.30 in the prior-year period
• Non-GAAP Diluted EPS of $(0.95), compared to $0.37 in the prior-year period

Business Highlights

• On October 11, 2022, Surmodics announced that six-month data from its SWING first-in-human study of the Company’s Sundance™ Sirolimus drug-coated balloon was presented at the Amputation Prevention Symposium (AMP) in Lugano, Switzerland, with Sundance demonstrating an excellent safety profile and the lowest binary restenosis at six months, compared to relevant below-the-knee trials.
• On October 13, 2022, Surmodics submitted a complete response to FDA comments on its application for premarket approval of the SurVeil™ drug-coated balloon.
• On October 17, 2022, Surmodics announced that it has entered into a new, five-year credit agreement with MidCap Financial, consisting of up to $100 million in term loans and a $25 million revolving credit facility.
• On November 2, 2022, Surmodics announced that 24-month data from its TRANSCEND clinical trial of the Company’s SurVeil™ drug-coated balloon was presented at the Vascular InterVentional Advances (VIVA) annual conference in Las Vegas, Nevada, with SurVeil demonstrating sustained durability of safety and efficacy endpoints.

“We are pleased to bring fiscal 2022 to a strong conclusion, delivering revenue performance that exceeded our expectations for the fourth quarter, while continuing to invest in our business and make progress on our strategic objectives,” said Gary Maharaj, President and CEO of Surmodics, Inc. “Our fourth quarter revenue performance was exclusively driven by Medical Device revenue, which increased 12% year-over-year, with stronger-than-anticipated product sales – including sales of our Pounce™ and Sublime™ products – and licensing fee revenue. From an operational standpoint, our regulatory team worked diligently to prepare a complete response to FDA comments on the PMA application for our SurVeil drug-coated balloon, which we are pleased to announce was submitted to the Agency on October 13 ^th . We also made important progress with respect to the initial commercialization of our Pounce arterial thrombectomy and Sublime radial platforms, onboarding and training our recently hired territory managers, building our customer base, and generating early commercial traction.”

Mr. Maharaj continued, “With an established direct sales team, recent progress with respect to our SurVeil , Pounce and Sublime products, and an enhanced balance sheet to support our operations and growth initiatives, we are excited about our future prospects as we enter fiscal 2023. Looking ahead, we aim to build upon the momentum gained this past year by remaining focused on driving continued execution with respect to our strategic objectives. In doing so, we will position Surmodics to achieve strong, sustainable, long-term growth and generate enhanced future value for our shareholders.”

Fourth Quarter Fiscal 2022 Financial Results

Total revenue increased $2.0 million, or 8%, to $26.0 million, compared to $24.0 million in the fourth quarter of fiscal 2021.

Medical Device revenue increased $2.1 million, or 12%, to $19.5 million, compared to $17.4 million in the fourth quarter of fiscal 2021, driven by device product sales, as well as higher license fee revenue. Medical Device revenue in the fourth quarter of fiscal 2022 included $2.1 million from the Company’s Development and Distribution Agreement with Abbott Vascular, Inc. (“Abbott”) for the SurVeil drug-coated balloon (“DCB”), compared to $1.2 million in the prior-year period. In Vitro Diagnostics revenue decreased $0.1 million, or 1%, to $6.5 million, compared to $6.6 million in the fourth quarter of fiscal 2021, driven primarily by strong product sales offset by unfavorable order timing for distributed antigen products.

Product gross profit (defined as product sales less product costs) increased $0.4 million, or 5%, to $8.8 million, compared to $8.4 million in the fourth quarter of fiscal 2021. Product gross margin (defined as product gross profit as a percentage of product sales) was 61.1%, compared to 66.8% in the fourth quarter of fiscal 2021. Product gross margin in the fourth quarter of fiscal 2021 included a $0.5 million benefit associated with the employee retention credit under the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”). Product gross margin in the fourth quarter of fiscal 2022 was adversely impacted relative to the prior year by a higher mix of recent product introductions, which have lower product gross margins due to low production volumes.

Operating costs and expenses, excluding product costs, increased $6.7 million, or 33%, to $27.0 million, compared to $20.3 million in the fourth quarter of fiscal 2021. The increase was driven primarily by higher selling, general and administrative expenses associated with the expansion of the Company’s direct medical device salesforce. Operating costs and expenses in the fourth quarter of fiscal 2021 included a $3.1 million benefit associated with the employee retention credit under the CARES Act.

GAAP net loss was $(14.7) million, or $(1.06) per diluted share, compared to $(0.3) million, or $(0.02) per diluted share in the fourth quarter of fiscal 2021. GAAP net loss in the quarter included a non-cash tax expense of $(10.2) million, or $(0.73) per diluted share, from a full valuation reserve against the Company’s U.S. deferred tax assets. The availability of the deferred tax assets to offset future U.S. tax liabilities was unaffected by the reserve. Non-GAAP net loss was $(3.7) million, or $(0.26) per diluted share, compared to $(1.3) million, or $(0.10) per diluted share in the fourth quarter of fiscal 2021.

Adjusted EBITDA loss was $(2.5) million, compared to Adjusted EBITDA of $0.5 million in the fourth quarter of fiscal 2021.

Fiscal Year 2022 Financial Results

Total revenue decreased $5.2 million, or 5%, to $100.0 million, compared to $105.1 million in fiscal 2021.

Medical Device revenue decreased $5.9 million, or 7%, to $72.4 million, compared to $78.3 million in fiscal 2021, driven primarily by lower license fee revenue, partly offset by broad-based product sales growth. Medical Device license fee revenue in fiscal 2022 included $5.7 million from the Company’s Development and Distribution Agreement with Abbott for the SurVeil DCB, compared to $16.0 million in the prior year. In Vitro Diagnostics revenue increased $0.7 million, or 3%, to $27.6 million, compared to $26.9 million in fiscal 2021, driven by broad-based product sales growth.

GAAP net loss was $(27.3) million, or $(1.96) per diluted share, compared to GAAP net income of $4.2 million, or $0.30 per diluted share in fiscal 2021. GAAP net loss in fiscal 2022 included a non-cash tax expense of $(10.2) million, or $(0.73) per diluted share, from a full valuation reserve against the Company’s U.S. deferred tax assets. Non-GAAP net loss was $(13.2) million, or $(0.95) per diluted share, compared to Non-GAAP net income of $5.2 million, or $0.37 per diluted share in fiscal 2021.

Adjusted EBITDA loss was $(5.8) million, compared to Adjusted EBITDA of $17.9 million in fiscal 2021.

Balance Sheet Summary

As of September 30, 2022, Surmodics reported cash and investments totaling $19.0 million and $10 million in outstanding borrowings on its $25 million line of credit. Surmodics reported $2.5 million of cash used in operating activities and $0.6 million in capital expenditures in the fourth quarter of fiscal 2022.

On October 17, 2022, Surmodics entered into a new, five-year credit agreement with MidCap Financial (“MidCap”), comprised of up to $100 million in term loans and a $25 million revolving credit facility. The Company drew $25 million on the term loan and $5 million on the revolving credit facility at close. These proceeds were partially used to retire the Company’s existing $25 million revolving credit facility with Bridgewater Bank, of which $10 million was outstanding. Upon closing, the Company’s cash balance increased by $19.5 million.

Fiscal Year 2023 Financial Guidance

Surmodics expects fiscal year 2023 total revenue to range from $103 million to $107 million, representing an increase of 3% to 7% compared to the prior year.

The Company expects fiscal 2023 GAAP diluted loss per share to range from $(2.80) to $(2.40). Non-GAAP diluted loss per share in fiscal 2023 is expected to range from $(2.54) to $(2.14), which reflects continued investment to support the commercialization of the Company’s Pounce thrombectomy and Sublime radial access products.

Surmodics has the potential to receive up to a $30 million milestone payment during fiscal 2023 pursuant to the Abbott Development and Distribution Agreement related to premarket approval (“PMA”) by the U.S. Food and Drug Administration (“FDA”) of the SurVeil DCB. The milestone payment is reduced to $27 million if PMA is received after December 31, 2022, but before June 30, 2023, and to $24 million if PMA is received on or after June 30, 2023. The Company does not expect to receive the PMA prior to January 1, 2023. The potential revenue during fiscal 2023 associated with the $30 million, $27 million or $24 million milestone payment would be approximately $27 million, $25 million or $22 million, respectively. As has been the Company’s practice with past guidance, revenue from regulatory-related milestones is not included in guidance until after they are achieved.

Conference Call Today at 7:00 a.m. CT (8:00 a.m. ET)

Surmodics is hosting a live webcast at 7:00 a.m. CT (8:00 a.m. ET) today to discuss the fourth quarter and fiscal 2022 financial results and accomplishments and host a question-and-answer session. To access the webcast, navigate to upcoming events under the ‘events and presentations’ tab within the investor relations portion of the Company’s website at https://surmodics.gcs-web.com/events-and-presentations . To listen to the live teleconference, dial 888-428-7458 (international callers may dial 862-298-0702) and provide access ID: 13733806.

An audio replay of the conference call will be available beginning at 11:00 a.m. CT on Wednesday, November 9 ^th until 11:00 a.m. CT on Wednesday, November 23 ^rd and can be accessed by dialing 877-660-6853 (international callers may dial 201-612-7415) and entering access ID: 13733806. In addition, the webcast and transcript will be archived on the Company’s website following the call.

About Surmodics, Inc.

Surmodics is a leading provider of surface modification technologies for intravascular medical devices and chemical components for in vitro diagnostic immunoassay tests and microarrays. Surmodics is pursuing development and commercialization of 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, and disclosures related to it, contain 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 our future prospects; statements regarding position Surmodics to achieve strong, sustainable long-term growth and generate enhanced future value for our shareholders; our revenue, expense and loss expectations for fiscal 2023 and beyond, including our fiscal 2023 financial guidance and related assumptions; our fiscal 2023 strategic objectives; the potential for receiving FDA approval of the PMA for our SurVeil DCB and the potential timing of that approval; the potential receipt of a PMA milestone payment from Abbott and the amount of revenue that would be recognized in fiscal 2023 on such a milestone payment; expectations regarding Abbott’s commercialization plans, and the U.S. commercialization prospect, for the SurVeil DCB; expectation regarding the conduct, and anticipated benefits of, limited evaluations for the Pounce venous thrombectomy platform, as well as plans to complete process and manufacturing validation efforts to support broader commercialization efforts for the product; expectations regarding our Medical Device coating offerings and our IVD business continuing to generate meaningful operating income and support our growth initiatives in fiscal 2023; the ability of our credit facility with MidCap Financial to ensure we have the financial flexibility to support our long-term growth strategy, 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 SurVeil DCB (including realization of the full potential benefits of our agreement with Abbott), Avess™ DCB, Sundance DCB, and other proprietary products; (2) whether and when the FDA grants PMA to the SurVeil DCB; (3) 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; (4) possible adverse market conditions and possible adverse impacts on our cash flows; (5) our ability to successfully and profitably commercialize the Pounce arterial thrombectomy system; (6) current and future supply chain constraints; (7) whether our increased operating expenses are effective in generating profitable revenues; and (8) 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, 2021 and subsequent SEC filings. 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 (loss) income, non-GAAP operating (loss) income percentage, non-GAAP (loss) income before income taxes, non-GAAP net (loss) income, and non-GAAP diluted (loss) earnings per diluted share. 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 also are providing guidance on a range of non-GAAP diluted loss per diluted share for fiscal 2023. 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.

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Surmodics Investor Inquiries
Jack Powell, Investor Relations
ir@surmodics.com