UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 31, 2022 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number: 0-23837 Surmodics, Inc. MINNESOTA 41-1356149 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: | T ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended September 30, 2022 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to ________ Commission File Number 0-23837 Surmodics, Inc. (Exact name of Registrant as specified in its Charter) (State or other jurisdiction of incorpo ...

Financial Data and Key Metrics Changes - In Q4 2022, total revenue reached $26 million, an 8% increase year-over-year, exceeding the high end of revenue guidance [5][24] - Medical device revenue grew by 12% year-over-year, while In Vitro Diagnostics (IVD) revenue decreased by 1% [5][6] - For the full fiscal year 2022, total revenue was $100 million, reflecting a 5% growth year-over-year when normalizing for a prior milestone payment [7] Business Line Data and Key Metrics Changes - Medical Device product revenue increased by 26% year-over-year, driven by strong sales of Pounce and Sublime products [24] - IVD product revenue increased by 8% year-over-year, despite a decline in R&D services revenue [17][24] - R&D services revenue decreased by 19% year-over-year due to the completion of a customer development program [25] Market Data and Key Metrics Changes - The Medical Device business reported an operating loss of $6.2 million in Q4, compared to an $800,000 loss in the prior year [28] - IVD business reported operating income of $2.8 million, or 43% of revenue, down from 51% in the prior year [28] Company Strategy and Development Direction - The company aims to achieve premarket approval for the SurVeil drug-coated balloon and support Abbott's commercialization efforts [8][23] - Focus on building a direct sales force and establishing a customer base for the Sublime and Pounce platforms [12][14] - Plans to drive revenue growth and optimize cash flow from Medical Device coatings and IVD businesses [17][23] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in receiving PMA approval for SurVeil by the end of Q2 fiscal 2023, which would trigger a milestone payment from Abbott [10][44] - The company anticipates revenue growth in fiscal 2023 to range from $103 million to $107 million, representing a 3% to 7% increase compared to the prior year [33][34] Other Important Information - The company entered into a new 5-year credit agreement, providing access to up to $125 million in non-dilutive debt financing [21] - The company expects to see a contraction in product gross margin due to product mix and inflationary pressures [35] Q&A Session Summary Question: Contribution of Pounce and Sublime - Management focused on building customer pipeline and increasing utilization rather than disclosing specific revenue figures at this stage [40][41] Question: Total rep count and associated costs - The company ended the year with 27 territory managers and plans opportunistic hires in the back half of the year [42][43] Question: Confidence in SurVeil approval timeline - Management remains confident in the timeline for PMA approval, citing strong data and thorough submissions [46][44] Question: Impact of drug-coated balloon approval on income statement - Revenue recognition from the milestone payment will primarily impact gross margin and operating income [58][59] Question: Future commercialization partnerships - The company is focused on internal commercialization for Pounce and Sublime but remains open to partnership opportunities [50][56] Question: Cash consumption forecast for fiscal 2023 - Expected cash use in fiscal 2023 is projected to be around $30 million, excluding the SurVeil milestone payment [70]

1 | --- | --- | --- | |----------------------------------------------------------------------|-------|-------| | | | | | | | | | Gary Maharaj President and CEO | | | | Tim Arens Senior Vice President of Finance, IT and CFO November 2022 | | | © 2022 Surmodics, Inc. CONFIDENTIAL All rights reserved. 2 Safe Harbor Some of the statements made during this presentation may be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Statements that are not ...

Financial Performance and Key Metrics - Revenue for Q3 2022 grew 4% to $24.9 million compared to $23.9 million in the prior year quarter, driven by solid performance from both Medical Device and IVD businesses [4][19] - GAAP diluted loss per share was $0.41, while non-GAAP diluted loss per share was $0.34 [4][27] - The company lowered its revenue guidance for the full year but raised EPS guidance based on Q3 performance [4] Business Line Performance - Revenue from the Medical Device business grew 5% year-over-year to $17.5 million, driven by strong product sales [19] - IVD business revenue grew 3% to $7.3 million, with product revenue increasing 15% to $13.9 million [19][20] - Medical Device product revenue grew 23% to $6.7 million, with significant contributions from Pounce and Sublime products [20] Market Data and Key Metrics - The company experienced a greater than 100% increase in the number of hospital value analysis committees considering Sublime and Pounce products [12] - Royalty revenue was flat at $7.8 million, impacted by macro factors affecting procedure volumes and supply chain disruptions [22][23] Company Strategy and Industry Competition - The company is focused on achieving strategic objectives, including supporting Abbott's commercialization efforts for SurVeil and building a commercial pipeline for Pounce and Sublime [5][11] - The partnership with Abbott is seen as crucial for the commercialization of SurVeil, with expectations for a US launch following PMA approval [8][40] Management Commentary on Operating Environment and Future Outlook - Management expressed confidence in lab testing partners for timely completion of SurVeil's PMA submission, emphasizing the importance of quality data [35][36] - The company anticipates continued double-digit growth in the Medical Device business for Q4, despite delays in the commercialization of Pounce Venous [21][30] - Management is assessing financing options to strengthen the balance sheet amid macroeconomic uncertainties [18][29] Other Important Information - The company reported an operating loss of $7.3 million in the Medical Device business, while the IVD business reported operating income of $3.4 million [26] - Cash and investments totaled $22 million as of June 30, 2022, with an anticipated year-end cash balance of approximately $17 million [28] Q&A Session Summary Question: Confidence in lab testing partners for SurVeil - Management expressed high confidence in lab partners, emphasizing the importance of quality over speed in the PMA submission process [35][36] Question: Abbott's inventory ordering timeline - Management indicated that Abbott intends to launch SurVeil following PMA approval, with discussions ongoing about commercialization plans [37][40] Question: Comparison of direct selling model vs. partnership model - Management highlighted the benefits of a direct sales team focused solely on new products, allowing for better feedback and control [41][42] Question: Future R&D spending as revenue grows - Management expects R&D spending as a percentage of revenue to decline as revenue increases, but will depend on ongoing projects [43][44] Question: Inventory increase and supply chain challenges - Management confirmed that inventory growth is primarily due to increased raw materials and work in process to mitigate supply chain risks [47][48] Question: Risk of losing coatings customers due to competition - Management reassured that there have been no indications of customers wanting to terminate agreements, emphasizing established trust [55][57] Question: Revenue expectations from product solutions strategy - Management expects 2023 to show significant revenue growth from the product solutions strategy, with ongoing efforts to build a customer base [59][60]

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2022 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number: 0-23837 Surmodics, Inc. (Exact name of registrant as specified in its charter) Indicate by check mark whether the registrant is a large accelerated filer, an acceler ...

Company Overview & Strategy - Surmodics is focused on high-growth, underpenetrated market opportunities [11] and aims to command the return that fully reflects the value of its innovations [19] - The company's mission is to enable greater access to care by giving physicians the freedom to treat, anytime, anywhere [7] - Surmodics is committed to driving long-term revenue growth and value creation for its shareholders through an innovative product pipeline [50] Product Platforms & Market Opportunities - Surmodics is targeting a $1.5 billion worldwide market opportunity with its SurVeil™ DCB through its commercial partner, Abbott [50] - The company has U S FDA clearances on five unique and differentiated thrombectomy and radial access products addressing market opportunities totaling up to $2.6 billion [50] - The Peripheral Artery Disease (PAD) market has 0.8 million patients per year with a $0.4 billion Total Addressable Market (TAM) and less than 10% penetration [40] - The Peripheral Arterial Occlusion/Deep Vein Thrombosis (PAO/DVT) market has 0.4 million patients per year with a $2.2 billion TAM and approximately 15% penetration [40] - The Peripheral Artery Disease Above-the-knee (PAD ATK) market has 0.5 million patients per year with a $1 billion TAM and approximately 20% penetration [40] Financial Performance & Guidance - The company's technology-enabling Medical Device Coatings and In Vitro Diagnostics offerings generate over $80 million of revenue annually and are expected to grow annually in the mid-single digits [51] - Surmodics' total revenue guidance for 2022 is $98 million to $101 million, including $4.5 million to $5.0 million of SurVeil™ DCB license fee revenue [169] - The company anticipates consistent double-digit revenue growth beginning in fiscal year 2023, driven by the expected commercialization of SurVeil™, Pounce™, and Sublime™ products [171]

Surmodics, Inc. (NASDAQ:SRDX) Q2 2022 Earnings Conference Call April 27, 2022 8:30 AM ET Company Participants Tim Arens - SVP, Finance & CFO Gary Maharaj - President & CEO Conference Call Participants David Saxon - Needham Brooks O'Neil - Lake Street Capital Markets Jim Sidoti - Sidoti & Company Mike Petusky - Barrington Research Operator Good day, and welcome to the Surmodics Second Quarter Fiscal 2022 Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference ...

PART I. FINANCIAL INFORMATION This section presents Surmodics' unaudited condensed consolidated financial statements and management's analysis [Item 1. Unaudited Condensed Consolidated Financial Statements](index=3&type=section&id=Item%201.%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) Surmodics reported a net loss and comprehensive loss, driven by lower Medical Device license fees and increased operating expenses [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The balance sheet shows a decrease in total assets, liabilities, and stockholders' equity, alongside reduced cash and cash equivalents Condensed Consolidated Balance Sheet Highlights (In thousands) | Metric | March 31, 2022 | September 30, 2021 | | :-------------------------------- | :------------- | :----------------- | | Total Assets | $184,187 | $194,592 | | Total Liabilities | $50,924 | $54,507 | | Total Stockholders' Equity | $133,263 | $140,085 | | Cash and cash equivalents | $24,712 | $31,153 | [Condensed Consolidated Statements of Operations](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) The statements reflect a shift from prior-year income to a net loss, driven by decreased total revenue and operating losses Condensed Consolidated Statements of Operations Highlights (In thousands, except per share data) | Metric | Three Months Ended Mar 31, 2022 | Three Months Ended Mar 31, 2021 | Six Months Ended Mar 31, 2022 | Six Months Ended Mar 31, 2021 | | :-------------------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Total revenue | $26,106 | $34,995 | $49,109 | $57,292 | | Operating (loss) income | $(4,900) | $9,483 | $(8,341) | $9,576 | | Net (loss) income | $(4,083) | $8,087 | $(6,895) | $7,813 | | Basic net loss (income) per share | $(0.29) | $0.59 | $(0.50) | $0.57 | | Diluted net loss (income) per share | $(0.29) | $0.58 | $(0.50) | $0.56 | [Condensed Consolidated Statements of Comprehensive (Loss) Income](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20%28Loss%29%20Income) The statements show a shift from comprehensive income to a significant comprehensive loss, driven by net loss and other comprehensive losses Condensed Consolidated Statements of Comprehensive (Loss) Income Highlights (In thousands) | Metric | Three Months Ended Mar 31, 2022 | Three Months Ended Mar 31, 2021 | Six Months Ended Mar 31, 2022 | Six Months Ended Mar 31, 2021 | | :-------------------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Net (loss) income | $(4,083) | $8,087 | $(6,895) | $7,813 | | Other comprehensive (loss) income | $(1,509) | $(1,775) | $(3,161) | $57 | | Comprehensive (loss) income | $(5,592) | $6,312 | $(10,056) | $7,870 | - Foreign currency translation adjustments contributed significantly to other comprehensive loss, with a **$(3,150)K adjustment** for the six months ended March 31, 2022, compared to a $64K gain in the prior-year period[11](index=11&type=chunk) [Condensed Consolidated Statements of Stockholders' Equity](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders%27%20Equity) Stockholders' equity decreased, primarily driven by net loss and other comprehensive loss, partially offset by stock-based compensation Condensed Consolidated Statements of Stockholders' Equity Highlights (In thousands) | Metric | September 30, 2021 | March 31, 2022 | | :-------------------------------- | :----------------- | :------------- | | Total Stockholders' Equity | $140,085 | $133,263 | | Net loss (6 months) | N/A | $(6,895) | | Other comprehensive loss, net of tax (6 months) | N/A | $(3,161) | | Stock-based compensation (6 months) | N/A | $3,399 | - The decrease in total stockholders' equity was primarily driven by the **net loss** and **other comprehensive loss**, partially offset by stock-based compensation and common stock issuances[13](index=13&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Cash flows from operations shifted from positive to negative, leading to a net decrease in cash and cash equivalents for the period Condensed Consolidated Statements of Cash Flows Highlights (Six Months Ended March 31, In thousands) | Activity | 2022 | 2021 | | :-------------------------------- | :----- | :----- | | Operating activities | $(11,226) | $11,745 | | Investing activities | $5,663 | $5,470 | | Financing activities | $(660) | $143 | | Net change in cash and cash equivalents | $(6,441) | $17,374 | - Cash used in operating activities for the first six months of fiscal 2022 was primarily due to the **net loss of $(6.9) million**, cash used in deferred revenue **$(2.5) million**, inventories **$(2.7) million**, and prepaids and other **$(1.9) million**[14](index=14&type=chunk)[106](index=106&type=chunk)[109](index=109&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) These notes provide detailed explanations and disclosures for the condensed consolidated financial statements, including accounting policies and key financial items [1. Basis of Presentation](index=8&type=section&id=1.%20Basis%20of%20Presentation) This section outlines the company's business model as a provider of surface modification technologies and its growth strategy in medical devices - Surmodics is a leading provider of surface modification technologies for intravascular medical devices and chemical components for in vitro diagnostic (IVD) immunoassay tests and microarrays[17](index=17&type=chunk) - The company's key growth strategy involves developing and commercializing highly differentiated medical devices that leverage its expertise in proprietary surface technologies and enhanced device design, development, and manufacturing capabilities[17](index=17&type=chunk) [2. Revenue](index=8&type=section&id=2.%20Revenue) This section disaggregates revenue by segment and type, highlighting a significant decline in Medical Device license fees despite growth in product sales Revenue Disaggregation by Segment and Type (In thousands) | Revenue Type | Three Months Ended Mar 31, 2022 | Three Months Ended Mar 31, 2021 | Six Months Ended Mar 31, 2022 | Six Months Ended Mar 31, 2021 | | :-------------------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | **Medical Device Revenue:** | | | | | | Product sales | $6,441 | $5,410 | $13,229 | $9,971 | | Royalties | $8,358 | $7,474 | $15,244 | $15,383 | | License fees | $1,486 | $12,578 | $2,699 | $14,003 | | R&D and other | $2,168 | $2,445 | $4,189 | $4,746 | | Total Medical Device Revenue | $18,453 | $27,907 | $35,361 | $44,103 | | **In Vitro Diagnostics Revenue:** | | | | | | Product sales | $7,523 | $6,373 | $13,079 | $11,914 | | R&D and other | $130 | $715 | $669 | $1,275 | | Total In Vitro Diagnostics Revenue | $7,653 | $7,088 | $13,748 | $13,189 | | **Total Revenue** | **$26,106** | **$34,995** | **$49,109** | **$57,292** | - Total revenue decreased by **25.4%** for the three months and **14.3%** for the six months ended March 31, 2022, primarily due to an **88% decline in Medical Device license fees**[23](index=23&type=chunk) - Medical Device product sales increased by **32.7%** for the six months ended March 31, 2022, and In Vitro Diagnostics revenue increased by **4.2%** for the same period[23](index=23&type=chunk) [3. Collaborative Arrangement](index=9&type=section&id=3.%20Collaborative%20Arrangement) This section details the exclusive commercialization agreement with Abbott for the SurVeil DCB, including potential milestone payments and deferred revenue - Surmodics has an exclusive worldwide commercialization agreement with Abbott Vascular, Inc. for its SurVeil™ drug-coated balloon (DCB), with a premarket approval (PMA) application under FDA evaluation[25](index=25&type=chunk) - The company may receive an additional contingent milestone payment of up to **$30 million** upon FDA PMA approval of the SurVeil DCB, which was excluded from the contract price due to high uncertainty as of March 31, 2022[27](index=27&type=chunk) Revenue from Abbott Agreement (In thousands) | Period | 2022 | 2021 | | :-------------------------------- | :----- | :----- | | Three Months Ended March 31 | $1,400 | $12,500 | | Six Months Ended March 31 | $2,600 | $13,800 | - Deferred revenue from the Abbott Agreement totaled **$12.3 million** as of March 31, 2022, expected to be recognized over the next four years through fiscal 2025[29](index=29&type=chunk)[30](index=30&type=chunk) [4. Fair Value Measurements](index=10&type=section&id=4.%20Fair%20Value%20Measurements) This section outlines the fair value measurements for assets and liabilities, primarily cash equivalents, available-for-sale securities, and contingent consideration Assets and Liabilities Measured at Fair Value (In thousands) | Metric | March 31, 2022 | September 30, 2021 | | :-------------------------------- | :------------- | :----------------- | | Total assets at fair value | $5,022 | $15,027 | | Total liabilities at fair value (Contingent consideration) | $823 | $817 | - Cash equivalents and available-for-sale securities are measured using **Level 2 inputs**, while contingent consideration liabilities are measured using **Level 3 inputs** (discount rates, probabilities of payment, projected payment dates)[32](index=32&type=chunk)[33](index=33&type=chunk) - Contingent consideration liabilities increased slightly due to interest accretion, associated with the fiscal 2021 acquisition of Vetex Medical Limited[34](index=34&type=chunk) [5. Supplemental Balance Sheet Information](index=11&type=section&id=5.%20Supplemental%20Balance%20Sheet%20Information) This section provides additional details on selected balance sheet items, including available-for-sale securities, inventories, prepaids, intangible assets, and goodwill Selected Balance Sheet Information (In thousands) | Metric | March 31, 2022 | September 30, 2021 | | :-------------------------------- | :------------- | :----------------- | | Available-for-sale securities | $2,007 | $9,719 | | Inventories, net | $9,471 | $6,760 | | Prepaids and other current assets | $7,907 | $6,453 | | Total intangible assets, net | $33,511 | $37,054 | | Goodwill | $44,248 | $45,606 | - Inventories increased by **$2.7 million**, driven by raw materials, work-in-process, and finished products[36](index=36&type=chunk) - Goodwill decreased by **$1.358 million**, primarily due to a currency translation adjustment in the Medical Device segment[40](index=40&type=chunk) - A **$3.577 million CARES Act employee retention credit receivable** was recorded in prepaids and other current assets[37](index=37&type=chunk) [6. Debt](index=14&type=section&id=6.%20Debt) This section details the company's secured revolving credit facility, including its outstanding balance, maturity date, and financial covenants - The company has a secured revolving credit facility of up to **$25 million** with Bridgewater Bank[44](index=44&type=chunk) - The outstanding balance on the Revolving Credit Facility was **$10.0 million** as of both March 31, 2022, and September 30, 2021[44](index=44&type=chunk) - The maturity date was extended to **September 14, 2022**, with an option for one additional 12-month extension, subject to certain conditions[45](index=45&type=chunk) - The facility includes customary financial covenants, such as minimum liquidity, current ratio, quarterly revenue, and tangible net worth[46](index=46&type=chunk) [7. Stock-based Compensation Plans](index=15&type=section&id=7.%20Stock-based%20Compensation%20Plans) This section outlines stock-based compensation expenses and unrecognized costs, along with details on awards granted during the period Stock-based Compensation Expense (In thousands) | Category | Three Months Ended Mar 31, 2022 | Three Months Ended Mar 31, 2021 | Six Months Ended Mar 31, 2022 | Six Months Ended Mar 31, 2021 | | :-------------------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Product costs | $78 | $32 | $108 | $69 | | Research and development | $296 | $305 | $731 | $589 | | Selling, general and administrative | $1,345 | $1,092 | $2,560 | $2,204 | | **Total** | **$1,719** | **$1,429** | **$3,399** | **$2,862** | - Approximately **$12.8 million** of total unrecognized compensation costs related to non-vested awards is expected to be recognized over a weighted average period of approximately **2.5 years**[48](index=48&type=chunk) - The company awarded **283,000 stock options**, **83,000 restricted stock shares**, and **14,000 restricted stock units** during the six months ended March 31, 2022[49](index=49&type=chunk)[50](index=50&type=chunk)[51](index=51&type=chunk) [8. Net (Loss) Income Per Share Data](index=15&type=section&id=8.%20Net%20%28Loss%29%20Income%20Per%20Share%20Data) This section details basic and diluted net loss per share, noting that potentially dilutive shares were anti-dilutive due to the net loss incurred - Basic and diluted net loss per share were the same for the three and six months ended March 31, 2022, because the effect of potentially dilutive common shares was anti-dilutive due to the net loss incurred[53](index=53&type=chunk) Weighted Average Number of Shares Outstanding (In thousands) | Metric | Three Months Ended Mar 31, 2022 | Three Months Ended Mar 31, 2021 | Six Months Ended Mar 31, 2022 | Six Months Ended Mar 31, 2021 | | :-------------------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Basic weighted average shares outstanding | 13,917 | 13,746 | 13,896 | 13,699 | | Diluted weighted average shares outstanding | 13,917 | 13,981 | 13,896 | 13,915 | [9. Income Taxes](index=16&type=section&id=9.%20Income%20Taxes) This section presents the income tax benefit or provision, explaining the effective tax rate's deviation from the statutory rate and unrecognized tax benefits Income Tax Benefit (Provision) (In thousands) | Period | 2022 | 2021 | | :-------------------------------- | :----- | :----- | | Three Months Ended March 31 | $919 | $(1,438) | | Six Months Ended March 31 | $1,625 | $(1,606) | - The effective income tax rate differs from the U.S. federal statutory rate of **21%** primarily due to U.S. federal R&D tax credits, operating results of an Irish subsidiary (offset by valuation allowance), and effects of equity compensation[56](index=56&type=chunk) - Total unrecognized tax benefits, excluding interest and penalties, were **$3.0 million** as of March 31, 2022[57](index=57&type=chunk) [10. Commitments and Contingencies](index=16&type=section&id=10.%20Commitments%20and%20Contingencies) This section outlines the company's contractual obligations, including remaining payments for clinical trials and acquisition-related installments and contingent payments - The company has estimated **$9 million** remaining to be paid on contracts for the TRANSCEND pivotal clinical trial for the SurVeil DCB, with the total cost estimated between **$37 million** and **$40 million** from inception to completion[59](index=59&type=chunk) - Under the Embolitech Transaction, the company is obligated to pay additional installments totaling **$2.0 million** in fiscal 2023 through fiscal 2024, and a contingent **$1.0 million** payment upon achievement of certain regulatory milestones by 2033[61](index=61&type=chunk) [11. Acquisitions](index=17&type=section&id=11.%20Acquisitions) This section details the acquisition of Vetex Medical Limited, including the purchase consideration, allocation of assets, and amortization of intangible assets - On July 2, 2021, Surmodics acquired Vetex Medical Limited for an upfront cash payment of **$39.9 million**, expanding its thrombectomy portfolio[63](index=63&type=chunk)[64](index=64&type=chunk) - The acquisition included additional guaranteed installments of **$3.5 million** (FY2024-2027) and contingent payments of **$3.5 million**, tied to product development and regulatory milestones[64](index=64&type=chunk) Preliminary Allocation of Vetex Purchase Consideration (In thousands) | Asset (Liability) | Amount | | :-------------------------------- | :----- | | Intangible assets | $27,600 | | Goodwill | $19,089 | | Total purchase consideration, net of cash acquired | $43,624 | - The acquired intangible assets (developed technology) are amortized over **12 years**, and the goodwill is not deductible for tax purposes[68](index=68&type=chunk)[69](index=69&type=chunk) [12. Segment Information](index=18&type=section&id=12.%20Segment%20Information) This section disaggregates operating results by segment, highlighting the Medical Device segment's operating loss and the In Vitro Diagnostics segment's sustained operating income Segment Operating (Loss) Income (In thousands) | Segment | Three Months Ended Mar 31, 2022 | Three Months Ended Mar 31, 2021 | Six Months Ended Mar 31, 2022 | Six Months Ended Mar 31, 2021 | | :-------------------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Medical Device | $(5,612) | $8,564 | $(9,404) | $7,971 | | In Vitro Diagnostics | $3,720 | $3,809 | $6,875 | $7,029 | | Corporate | $(3,008) | $(2,890) | $(5,812) | $(5,424) | - The Medical Device segment reported an operating loss for the current periods, a significant decline from prior-year operating income, primarily due to decreased license fee revenue and increased operating expenses[70](index=70&type=chunk)[103](index=103&type=chunk) - The In Vitro Diagnostics segment maintained operating income, though slightly decreased, with product gross margins of **68.4%** for the six months ended March 31, 2022[70](index=70&type=chunk)[104](index=104&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=20&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section discusses Surmodics' business strategy, financial performance, and liquidity, highlighting revenue decline and increased commercialization expenses [Overview](index=20&type=section&id=Overview) This overview describes Surmodics' core business as a provider of surface modification technologies and its strategic focus on developing differentiated medical devices - Surmodics is a leading provider of surface modification technologies for intravascular medical devices and chemical components for in vitro diagnostic (IVD) immunoassay tests and microarrays[75](index=75&type=chunk) - The company's key growth strategy is the development and commercialization of highly differentiated medical devices to address unmet clinical needs and capture more revenue and operating margin[75](index=75&type=chunk)[78](index=78&type=chunk) [Acquisition of Vetex Medical Limited](index=20&type=section&id=Acquisition%20of%20Vetex%20Medical%20Limited) This section details the fiscal 2021 acquisition of Vetex Medical Limited, which expanded the company's thrombectomy portfolio with new FDA-cleared devices - In fiscal 2021, Surmodics acquired Vetex Medical Limited for an upfront cash payment of **$39.9 million**, expanding its thrombectomy portfolio[76](index=76&type=chunk) - The acquisition added the Pounce™ Venous Thrombectomy Catheter, an FDA 510(k)-cleared and CE Mark approved device for venous clot removal[77](index=77&type=chunk) [Vascular Intervention Device Platforms](index=20&type=section&id=Vascular%20Intervention%20Device%20Platforms) This section details the company's vascular intervention device platforms, including Pounce, Sublime, and various DCBs, outlining their regulatory status and commercialization - The Pounce Thrombectomy Platform includes two FDA 510(k) approved mechanical thrombectomy devices; commercial sales for Pounce Arterial began in Q1 FY2022, and clinical evaluation for Pounce Venous is expected in H2 FY2022[80](index=80&type=chunk)[85](index=85&type=chunk) - The Sublime Radial Access Platform consists of FDA 510(k) approved devices for vascular intervention via radial access, with commercial sales for the guide sheath and .014 RX PTA catheter starting in Q4 FY2021, and the .018 RX PTA catheter in Q1 FY2022[82](index=82&type=chunk)[85](index=85&type=chunk) - The SurVeil™ DCB, a paclitaxel-coated DCB for PAD, is awaiting FDA PMA, which could trigger a **$30 million (or $27 million) milestone payment** from Abbott[83](index=83&type=chunk)[84](index=84&type=chunk) - The Sundance™ DCB (sirolimus-coated for below-the-knee PAD) has completed its SWING clinical study, and the Avess™ DCB (paclitaxel-coated for AV fistulae) strategy for further clinical investment will be evaluated in fiscal 2022[84](index=84&type=chunk)[86](index=86&type=chunk) [COVID Pandemic Update](index=22&type=section&id=COVID%20Pandemic%20Update) This section addresses the ongoing impact of the COVID-19 pandemic on the company's revenue, operations, and clinical studies, noting future uncertainties - The COVID-19 pandemic continues to impact the company's revenue, operations, and clinical studies in fiscal 2022[87](index=87&type=chunk) - The extent of future impacts remains highly uncertain, depending on the severity and longevity of COVID variants, economic activity, and public health responses[87](index=87&type=chunk) [Results of Operations](index=22&type=section&id=Results%20of%20Operations) This section analyzes the company's revenue performance and operating costs, highlighting the impact of decreased license fees and increased commercialization expenses Revenue Performance by Segment (In thousands) | Segment | Three Months Ended Mar 31, 2022 | Three Months Ended Mar 31, 2021 | Six Months Ended Mar 31, 2022 | Six Months Ended Mar 31, 2031 | | :-------------------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Medical Device Revenue | $18,453 | $27,907 | $35,361 | $44,103 | | In Vitro Diagnostics Revenue | $7,653 | $7,088 | $13,748 | $13,189 | | **Total Revenue** | **$26,106** | **$34,995** | **$49,109** | **$57,292** | - Total revenue decreased by **25%** for the three months and **14%** for the six months ended March 31, 2022, primarily due to an **88% decline in Medical Device license fees** from the Abbott Agreement, which included a **$10.8 million milestone payment** in Q2 FY2021[90](index=90&type=chunk)[94](index=94&type=chunk) - Medical Device product sales increased **32.7%** for the first six months of fiscal 2022, driven by contract-manufactured balloon catheters, specialty catheters, and recently commercialized Pounce and Sublime products[94](index=94&type=chunk) - IVD product revenue increased **9.8%** for the first six months of fiscal 2022, benefiting from favorable order timing of distributed antigen products and growth in protein stabilization and colorimetric substrate products[95](index=95&type=chunk) Operating Costs and Expenses as % of Total Revenue | Expense Category | Three Months Ended Mar 31, 2022 | Three Months Ended Mar 31, 2021 | Six Months Ended Mar 31, 2022 | Six Months Ended Mar 31, 2021 | | :-------------------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Product costs | 20% | 12% | 20% | 14% | | Research and development | 53% | 37% | 52% | 42% | | Selling, general and administrative | 43% | 23% | 41% | 26% | | Acquired intangible asset amortization | 4% | 2% | 4% | 2% | - R&D expense increased **6.8%** for the first six months of fiscal 2022, with the Vetex acquisition adding **$1.0 million**[97](index=97&type=chunk) - SG&A expense increased **36.0%** for the first six months of fiscal 2022, driven by investments in sales and marketing personnel and infrastructure to support the commercialization of Pounce and Sublime products[98](index=98&type=chunk) [Cash Flow Operating Results](index=26&type=section&id=Cash%20Flow%20Operating%20Results) This section analyzes cash flows, noting a shift to cash used in operating activities due to net loss, increased inventories, and higher prepaids Cash Flow Summary (Six Months Ended March 31, In thousands) | Activity | 2022 | 2021 | | :-------------------------------- | :----- | :----- | | Operating activities | $(11,226) | $11,745 | | Investing activities | $5,663 | $5,470 | | Financing activities | $(660) | $143 | | Net change in cash and cash equivalents | $(6,441) | $17,374 | - Cash used in operating activities for the first six months of fiscal 2022 was primarily due to the **net loss of $(6.9) million**, cash used in deferred revenue **$(2.5) million**, inventories **$(2.7) million**, and prepaids and other **$(1.9) million**[106](index=106&type=chunk)[109](index=109&type=chunk) - Net cash provided by investing activities was **$5.7 million**, mainly from maturities of available-for-sale securities (**$7.6 million**)[107](index=107&type=chunk) - Net cash used in financing activities was **$(0.7) million**, primarily related to payments for taxes associated with net share settlement of equity awards[108](index=108&type=chunk) [Liquidity and Capital Resources](index=27&type=section&id=Liquidity%20and%20Capital%20Resources) This section assesses the company's liquidity, highlighting decreases in working capital and cash, and its dependence on new product adoption and milestone payments Liquidity Metrics (In thousands) | Metric | March 31, 2022 | September 30, 2021 | | :-------------------------------- | :------------- | :----------------- | | Working capital | $36,300 | $40,400 | | Cash and cash equivalents and available-for-sale investments | $26,700 | $40,900 | | Revolving credit facility outstanding balance | $10,000 | $10,000 | - Working capital decreased by **$4.1 million**, and cash and cash equivalents decreased by **$14.2 million**, driven by annual bonus payments and operational expenditures for commercialization of Pounce and Sublime platforms[110](index=110&type=chunk) - The company anticipates an increase in SG&A expenditures of **$13 million to $15 million** and capital expenditures of up to **$3 million** for fiscal 2022 to support commercialization efforts[115](index=115&type=chunk) - Future liquidity is significantly dependent on the timing of market introduction and acceptance of medical device products, including the potential **$30 million (or $27 million) PMA milestone payment** for the SurVeil DCB[111](index=111&type=chunk)[116](index=116&type=chunk) [Customer Concentrations](index=28&type=section&id=Customer%20Concentrations) This section identifies key customer revenue concentrations, specifically highlighting Abbott and Medtronic as significant contributors to consolidated revenue Customer Revenue Concentration | Customer | % of Consolidated Revenue (FY2021) | % of Consolidated Revenue (6 months ended Mar 31, 2022) | | :-------------------------------- | :--------------------------------- | :------------------------------------------------------ | | Abbott | 21% | 10% | | Medtronic | 13% | 12% | - Revenue generated under the SurVeil DCB license agreement with Abbott represented **5%** of total revenue for the six months ended March 31, 2022[118](index=118&type=chunk) [Critical Accounting Policies and Significant Estimates](index=28&type=section&id=Critical%20Accounting%20Policies%20and%20Significant%20Estimates) This section confirms that there were no significant changes in the company's critical accounting policies during the six months ended March 31, 2022 - There were no significant changes in the company's critical accounting policies for the six months ended March 31, 2022[119](index=119&type=chunk) [Forward-looking Statements](index=28&type=section&id=Forward-looking%20Statements) This section outlines forward-looking statements regarding future impacts of the COVID-19 pandemic, growth strategies, financial performance, and associated key risk factors - The report contains forward-looking statements regarding the impacts of the COVID-19 pandemic, growth strategies, clinical and regulatory developments, financial performance, and liquidity[120](index=120&type=chunk) - Key risk factors include reliance on significant customers (Abbott, Medtronic), clinical and regulatory developments for paclitaxel-coated products, general economic conditions, and risks associated with acquisitions[120](index=120&type=chunk)[121](index=121&type=chunk)[124](index=124&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=29&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk is interest rate risk from short-term debt securities, deemed insignificant, and Euro currency risk from Irish operations - The primary market risk is interest rate risk associated with interest-bearing corporate debt securities, which are high credit quality and generally mature within one year[124](index=124&type=chunk) - As of March 31, 2022, the company held **$2.0 million** in available-for-sale debt securities with maturity dates of less than one year, indicating an insignificant impact from interest rate fluctuations[124](index=124&type=chunk) - The company is exposed to increasing Euro currency risk due to its manufacturing operations in Ireland but has not entered into foreign currency forward exchange contracts or other derivative financial instruments to hedge these effects[126](index=126&type=chunk) [Item 4. Controls and Procedures](index=30&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of March 31, 2022, ensuring timely and accurate financial reporting [Evaluation of Disclosure Controls and Procedures](index=30&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) This section confirms that the company's certifying officers concluded the disclosure controls and procedures were effective as of March 31, 2022 - The company's Certifying Officers concluded that disclosure controls and procedures were effective as of March 31, 2022, ensuring timely and accurate reporting of information[127](index=127&type=chunk) [Changes in Internal Controls over Financial Reporting](index=30&type=section&id=Changes%20in%20Internal%20Controls%20over%20Financial%20Reporting) This section states that no material changes in internal control over financial reporting occurred during the three months ended March 31, 2022 - There were no material changes in internal control over financial reporting during the three months ended March 31, 2022[128](index=128&type=chunk) PART II. OTHER INFORMATION This section provides additional information not covered in the financial statements, including legal proceedings, risk factors, equity sales, and exhibits [Item 1. Legal Proceedings](index=31&type=section&id=Item%201.%20Legal%20Proceedings) The company is periodically involved in various legal actions, including intellectual property and employment disputes - The company has been involved in various legal actions involving its operations, products, technologies, intellectual property, and employment disputes[130](index=130&type=chunk) [Item 1A. Risk Factors](index=31&type=section&id=Item%201A.%20Risk%20Factors) The company refers to the comprehensive list of risk factors detailed in its Annual Report on Form 10-K for the fiscal year ended September 30, 2021 - The risks identified in the Annual Report on Form 10-K for the fiscal year ended September 30, 2021, could affect financial performance and cause actual results to differ materially from expectations[131](index=131&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=31&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) During the three months ended March 31, 2022, 1,112 shares were purchased for tax withholding, with **$25.3 million** remaining for repurchases Common Stock Purchases (Three Months Ended March 31, 2022) | Period | Total Number of Shares Purchased | Average Price Paid Per Share | | :-------------------------------- | :----------------------------- | :--------------------------- | | February 1 – 28, 2022 | 1,112 | $41.67 | | Total | 1,112 | $41.67 | - All shares purchased were delivered by employees to satisfy tax withholding obligations related to the vesting of restricted stock[133](index=133&type=chunk) - As of March 31, 2022, **$25.3 million** remained available for future common stock repurchases under existing Board-approved authorizations[134](index=134&type=chunk) [Item 3. Defaults Upon Senior Securities](index=31&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) No defaults upon senior securities were reported - No defaults upon senior securities were reported[135](index=135&type=chunk) [Item 4. Mine Safety Disclosures](index=31&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - This item is not applicable[136](index=136&type=chunk) [Item 5. Other Information](index=31&type=section&id=Item%205.%20Other%20Information) No other information was reported under this item - No other information was reported[137](index=137&type=chunk) [Item 6. Exhibits](index=32&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including various agreements, organizational documents, and certifications - The exhibits include merger agreements, share purchase agreements, restated articles of incorporation and bylaws, a lease agreement, and certifications from the CEO and CFO[139](index=139&type=chunk) [SIGNATURES](index=33&type=section&id=SIGNATURES) The report was officially signed by the Senior Vice President of Finance and Chief Financial Officer on April 27, 2022 - The report was signed on April 27, 2022, by Timothy J. Arens, Senior Vice President of Finance and Chief Financial Officer[142](index=142&type=chunk)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 31, 2021 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number: 0-23837 Surmodics, Inc. (Exact name of registrant as specified in its charter) (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Id ...