Surmodics(SRDX) - 2025 Q2 - Quarterly Results

Financial Performance Overview Surmodics reported a 12% revenue decrease and a GAAP net loss in Q2 FY2025, while advancing product launches and facing an FTC challenge to its pending acquisition Second Quarter Fiscal 2025 Financial & Business Highlights Surmodics reported a 12% revenue decrease to $28.1 million in Q2 FY2025, resulting in a $5.2 million GAAP net loss, amidst a pending acquisition challenge from the FTC Financial Highlights | Financial Metric | Q2 FY2025 | Q2 FY2024 | | :--- | :--- | :--- | | Total Revenue | $28.1 million | $32.0 million | | GAAP Net (Loss) Income | $(5.2) million | $0.2 million | | Adjusted EBITDA | $1.9 million | $4.8 million | - The company announced the successful early clinical use and subsequent commercial release of the Pounce™ XL Thrombectomy System for removing clots in larger peripheral arteries[4] - The U.S. Federal Trade Commission (FTC) issued an administrative complaint to block the pending acquisition of Surmodics by an affiliate of GTCR LLC[4] - The TRANSCEND clinical trial results were published, demonstrating the SurVeil™ drug-coated balloon (DCB) is non-inferior for safety and efficacy compared to the IN.PACT™ Admiral™ DCB[4] Management Commentary Management attributed the anticipated Q2 revenue decline to specific factors, while highlighting strong growth in the Pounce Thrombectomy Platform and ongoing efforts to manage expenses and address the FTC acquisition challenge - The year-over-year revenue performance was challenged by two anticipated factors: $3.3 million lower revenue from the SurVeil DCB and $1.4 million in performance coating royalty and license fee catch-up payments received in the prior-year period[3] - The Pounce Thrombectomy Platform sales grew almost 25% year-over-year, and the company launched the Pounce XL to expand the platform[3] - Operating expenses, excluding product costs, remained flat year-over-year, even with the inclusion of $2.5 million in merger-related expenses[3] - Management remains confident in the long-term prospects of its business segments, citing the commercial scale and profitability of its performance coating and IVD products, combined with its differentiated medical device portfolio[6] Detailed Financial Results Q2 FY2025 saw a 12% total revenue decline driven by the Medical Device segment, a significant product gross margin contraction, and a GAAP net loss, influenced by lower sales and merger-related charges Second Quarter Fiscal 2025 Financial Results For Q2 FY2025, total revenue fell 12% to $28.1 million, driven by a 17% decline in the Medical Device segment, leading to a GAAP net loss of $5.2 million Revenue Analysis Total revenue declined 12% due to a 17% decrease in the Medical Device segment, primarily from lower SurVeil DCB sales and license fees, partially offset by 3% growth in In Vitro Diagnostics Revenue by Segment | Revenue by Segment | Q2 2025 (in thousands) | Q2 2024 (in thousands) | % Change | | :--- | :--- | :--- | :--- | | Medical Device | $20,709 | $24,826 | (17)% | | In Vitro Diagnostics | $7,376 | $7,132 | 3% | | Total Revenue | $28,085 | $31,958 | (12)% | - The decrease in total revenue was primarily driven by lower SurVeil DCB license fee revenue ($0.8 million decrease) and lower SurVeil DCB product sales revenue ($2.4 million decrease)[7] - Medical Device product sales decreased by 31% to $7.7 million, mainly due to the decline in SurVeil DCB product sales and, to a lesser extent, lower sales of performance coating reagents[9] - In Vitro Diagnostics (IVD) revenue increased by 3% to $7.4 million, driven by favorable order timing for distributed antigen and colorimetric substrate products[11] Profitability Analysis Product gross margin significantly declined to 47.8% due to SurVeil DCB production issues, leading to a GAAP net loss and a substantial decrease in Adjusted EBITDA, despite flat operating expenses inclusive of merger charges - Product gross margin decreased to 47.8% from 60.8% in Q2 2024, primarily driven by a $2.8 million decline in SurVeil DCB product gross profit due to under-absorption, production inefficiencies, and raw material inventory expirations[12] - Operating costs and expenses (excluding product costs) increased by only $0.1 million, but this figure includes $2.5 million of merger-related charges associated with the pending GTCR acquisition[14] Profitability Metric | Profitability Metric | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | GAAP Net (Loss) Income | $(5.2) million | $0.2 million | | GAAP Diluted (Loss) EPS | $(0.36) | $0.02 | | Non-GAAP Net (Loss) Income | $(1.9) million | $1.1 million | | Non-GAAP Diluted (Loss) EPS | $(0.13) | $0.07 | - Adjusted EBITDA for the quarter was $1.9 million, a significant decrease from $4.8 million in the second quarter of fiscal 2024[16] Balance Sheet and Cash Flow As of March 31, 2025, Surmodics maintained $31.1 million in cash and investments, with $30.0 million in total debt, and generated $0.9 million in cash from operating activities during the quarter - As of March 31, 2025, the company reported $31.1 million in cash and investments[17] - Total debt outstanding includes $5.0 million on its revolving credit facility and $25.0 million on its term loan facility[17] - In the second quarter of fiscal 2025, Surmodics reported $0.9 million in cash provided by operating activities and $0.3 million in capital expenditures[18] Fiscal Year 2025 Financial Guidance Surmodics projects FY2025 total revenue between $114 million and $117 million, a 7% to 10% decrease primarily due to lower SurVeil DCB revenue, anticipating a GAAP net loss per share of $(1.60) to $(1.40), including significant merger-related charges FY 2025 Guidance | FY 2025 Guidance | Low Estimate | High Estimate | % Change vs FY24 | | :--- | :--- | :--- | :--- | | Total Revenue | $114.0 M | $117.0 M | (10)% to (7)% | | Total Revenue (ex-SurVeil) | $112.5 M | $115.5 M | (7)% to (5)% | - The company expects SurVeil DCB license fee revenue to decrease by $3.6 million and product revenue to decrease by approximately $7.0 million in fiscal 2025[20] FY 2025 EPS Guidance | FY 2025 EPS Guidance | Low Estimate | High Estimate | | :--- | :--- | :--- | | GAAP Net Loss per Share | $(1.60) | $(1.40) | | Non-GAAP Net Loss per Share | $(0.62) | $(0.42) | - The fiscal 2025 EPS guidance assumes approximately $10.8 million of merger-related charges[21] Corporate Developments and Other Information This section covers the pending acquisition of Surmodics by GTCR and the company's disclosures regarding forward-looking statements and non-GAAP financial measures Pending Acquisition by GTCR Surmodics' definitive agreement to be acquired by GTCR for $43.00 per share, valuing the company at $627 million, faces a significant challenge from an administrative complaint issued by the U.S. Federal Trade Commission (FTC) - Surmodics entered a definitive agreement to be acquired by GTCR for $43.00 per share in cash, for a total equity valuation of approximately $627 million[25] - The merger was approved by Surmodics' shareholders at a special meeting on August 13, 2024[26] - On March 6, 2025, the FTC voted to issue an administrative complaint to block the merger, and the transaction's closing is subject to the successful resolution of this litigation[26] Safe Harbor and Non-GAAP Measures The company provides a safe harbor statement detailing risks, particularly those related to the pending GTCR merger, and explains its use of non-GAAP financial measures for assessing operating performance by excluding specific items - The press release contains forward-looking statements with inherent risks, including significant risks related to the consummation of the proposed merger with GTCR, such as failure to secure regulatory approval and potential termination of the agreement[28] - The company reports non-GAAP financial results, including Adjusted EBITDA and non-GAAP net income, which it believes provide meaningful insight into operating performance by excluding event-specific matters like merger costs[31] Financial Statements and Reconciliations This section presents the company's condensed consolidated financial statements, including statements of operations, balance sheets, cash flows, and reconciliations of GAAP to non-GAAP measures Condensed Consolidated Statements of Operations For Q2 2025, Surmodics reported $28.1 million in total revenue, an operating loss of $4.0 million, and a net loss of $5.2 million, a decline from the prior year's positive results | (in thousands, except per share data) | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Total revenue | $28,085 | $31,958 | | Total operating costs and expenses | $32,095 | $31,299 | | Operating (loss) income | $(4,010) | $659 | | Net (loss) income | $(5,209) | $247 | | Diluted net (loss) income per share | $(0.36) | $0.02 | Condensed Consolidated Balance Sheets As of March 31, 2025, the balance sheet shows total assets of $163.2 million, total liabilities of $53.0 million, and total stockholders' equity of $110.2 million, reflecting a decrease in assets from September 2024 | (in thousands) | March 31, 2025 | September 30, 2024 | | :--- | :--- | :--- | | Total Current Assets | $71,747 | $81,304 | | Total Assets | $163,214 | $178,562 | | Total Current Liabilities | $13,950 | $20,543 | | Total Liabilities | $52,968 | $59,665 | | Total Stockholders' Equity | $110,246 | $118,897 | Condensed Consolidated Statements of Cash Flows For the six months ended March 31, 2025, net cash used in operating activities was $6.9 million, with $1.4 million provided by investing activities, resulting in $29.2 million in cash and cash equivalents at period end | (in thousands) | Six Months Ended March 31, 2025 | Six Months Ended March 31, 2024 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(6,945) | $(1,377) | | Net cash (used in) provided by investing activities | $1,418 | $(5,673) | | Net cash (used in) provided by financing activities | $(1,155) | $(1,454) | | Net change in cash and cash equivalents | $(6,932) | $(8,389) | | Cash and Cash Equivalents, End of period | $29,183 | $33,030 | Supplemental Revenue and Segment Information Supplemental data details Q2 2025 segment performance, showing the Medical Device segment with $20.7 million in revenue and an operating loss of $1.9 million, while In Vitro Diagnostics generated $7.4 million in revenue and $3.3 million in operating income Q2 2025 vs Q2 2024 Revenue Breakdown (in thousands) | Revenue Line | Q2 2025 | Q2 2024 | % Change | | :--- | :--- | :--- | :--- | | Medical Device | $20,709 | $24,826 | (17)% | | - Product sales | $7,714 | $11,100 | (31)% | | - License fees – SurVeil DCB | $265 | $1,088 | (76)% | | In Vitro Diagnostics | $7,376 | $7,132 | 3% | Q2 2025 vs Q2 2024 Operating Income (Loss) by Segment (in thousands) | Segment | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | Medical Device | $(1,865) | $302 | | In Vitro Diagnostics | $3,337 | $3,356 | | Corporate | $(5,482) | $(2,999) | | Total Operating (Loss) Income | $(4,010) | $659 | GAAP to Non-GAAP Reconciliations Reconciliation tables bridge GAAP to non-GAAP results for Q2 2025, adjusting the GAAP net loss of $5.2 million to an Adjusted EBITDA of $1.9 million, and also reconcile the FY2025 guidance to reflect non-GAAP adjustments Q2 2025 GAAP to Adjusted EBITDA Reconciliation (in thousands) | Line Item | Amount | | :--- | :--- | | Net loss (GAAP) | $(5,209) | | Adjustments (Taxes, D&A, Interest) | $3,268 | | EBITDA | $(1,941) | | Stock-based compensation expense | $1,364 | | Merger-related charges | $2,512 | | Adjusted EBITDA | $1,935 | Q2 2025 GAAP to Non-GAAP Net Loss & EPS Reconciliation | Metric | GAAP | Adjustments | Non-GAAP | | :--- | :--- | :--- | :--- | | Net Loss (in thousands) | $(5,209) | $3,301 | $(1,908) | | Diluted EPS | $(0.36) | $0.23 | $(0.13) | FY 2025 Guidance Reconciliation: Non-GAAP Diluted EPS | Metric | Low Estimate | High Estimate | | :--- | :--- | :--- | | GAAP Diluted EPS | $(1.60) | $(1.40) | | Amortization of acquired intangibles | $0.22 | $0.22 | | Merger related charges | $0.76 | $0.76 | | Non-GAAP Diluted EPS | $(0.62) | $(0.42) |