Surmodics(SRDX) - 2025 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Unaudited Condensed Consolidated Financial Statements Unaudited financial statements for Q3 2025 show decreased assets, increased net loss to $14.2 million, and higher cash usage Condensed Consolidated Balance Sheets Total assets decreased to $169.8 million by June 30, 2025, driven by lower cash and equity Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2025 (Unaudited) | September 30, 2024 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $26,281 | $36,115 | | Total Current Assets | $75,994 | $81,304 | | Total Assets | $169,822 | $178,562 | | Liabilities & Equity | | | | Total Current Liabilities | $19,441 | $20,543 | | Long-term debt, net | $29,666 | $29,554 | | Total Liabilities | $58,513 | $59,665 | | Total Stockholders' Equity | $111,309 | $118,897 | Condensed Consolidated Statements of Operations Q3 revenue slightly decreased to $29.6 million, with a $5.3 million net loss; nine-month net loss widened to $14.2 million Statement of Operations Summary (in thousands, except per share data) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Nine Months Ended June 30, 2025 | Nine Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Total revenue | $29,567 | $30,341 | $87,574 | $92,851 | | Operating (loss) income | $(5,242) | $(5,369) | $(11,733) | $(5,032) | | Net (loss) income | $(5,318) | $(7,554) | $(14,178) | $(8,093) | | Diluted net (loss) per share | $(0.37) | $(0.53) | $(0.99) | $(0.57) | Condensed Consolidated Statements of Cash Flows Nine-month operating cash usage increased to $5.5 million; cash and equivalents ended at $26.3 million Cash Flow Summary (Nine Months Ended June 30, in thousands) | Cash Flow Activity | 2025 (Unaudited) | 2024 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(5,540) | $(3,410) | | Net cash (used in) provided by investing activities | $(3,515) | $(12,395) | | Net cash (used in) provided by financing activities | $(1,184) | $(1,388) | | Net change in cash and cash equivalents | $(9,834) | $(17,118) | | Cash and Cash Equivalents, End of period | $26,281 | $24,301 | Notes to Condensed Consolidated Financial Statements Notes detail pending merger, FTC litigation, cyber incident costs, and deferred tax asset valuation allowance - On May 28, 2024, Surmodics entered into a merger agreement to be acquired by BCE Parent, LLC for $43.00 per share in cash. The merger is subject to litigation by the Federal Trade Commission (FTC)[17][77][81] - The company's SurVeil™ drug-coated balloon (DCB) received FDA premarket approval in June 2023 and is marketed in the U.S. by Abbott. Revenue from this collaborative arrangement includes product sales and a share of net profits[28][32] - In June 2025, the company experienced a cyber incident involving unauthorized access to its IT systems. It incurred $1.9 million in response costs, of which $1.7 million is expected to be recovered under its insurance policy[69][70] - The company maintains a full valuation allowance against its U.S. net deferred tax assets as of June 30, 2025, determining it is more likely than not that these assets will not be realized[62][117] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q3 revenue decline, lower Medical Device sales, $5.3 million merger charges, and sufficient liquidity Results of Operations Q3 revenue decreased 3% to $29.6 million, driven by lower Medical Device sales; gross margin declined to 48.8% Revenue by Segment (in thousands) | Segment | Q3 2025 | Q3 2024 | % Change | YTD 2025 | YTD 2024 | % Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Medical Device | $22,214 | $23,383 | (5)% | $66,204 | $71,754 | (8)% | | In Vitro Diagnostics | $7,353 | $6,958 | 6% | $21,370 | $21,097 | 1% | | Total Revenue | $29,567 | $30,341 | (3)% | $87,574 | $92,851 | (6)% | - Medical Device product sales decreased 11% in Q3 and 19% in the first nine months of fiscal 2025, primarily due to a $1.7 million (Q3) and $6.4 million (YTD) decrease in SurVeil DCB product sales[100] - SG&A expenses increased by 7% in Q3 and 14% YTD, largely driven by merger-related charges of $5.3 million and $10.1 million for the respective periods[110] - R&D expenses decreased by 22% in Q3 and 13% YTD, partly due to a $1.1 million refund for costs associated with the TRANSCEND clinical trial and reduced development costs for the Pounce platform[109] Segment Operating Results Medical Device operating loss narrowed to $0.2 million; Corporate segment loss widened to $8.3 million due to merger charges Operating (Loss) Income by Segment (in thousands) | Segment | Q3 2025 | Q3 2024 | YTD 2025 | YTD 2024 | | :--- | :--- | :--- | :--- | :--- | | Medical Device | $(211) | $(2,288) | $(1,915) | $(2,210) | | In Vitro Diagnostics | $3,295 | $3,153 | $9,554 | $9,633 | | Corporate | $(8,326) | $(6,234) | $(19,372) | $(12,455) | | Total Operating (Loss) Income | $(5,242) | $(5,369) | $(11,733) | $(5,032) | Liquidity and Capital Resources Cash and investments totaled $32.7 million; company has a $25 million term loan and revolver, with sufficient liquidity - Cash and available-for-sale investments totaled $32.7 million as of June 30, 2025[122] - The company has a $25 million term loan and a $25 million revolving credit facility, with $5 million drawn on the revolver as of June 30, 2025[123][125] - Management anticipates that existing cash, cash flow from operations, and the revolving credit facility will provide sufficient liquidity for fiscal 2025[126] Item 3. Quantitative and Qualitative Disclosures About Market Risk Primary market risks are interest rate and foreign currency, with a swap mitigating term loan interest rate risk - The company entered into a five-year interest rate swap to fix the interest rate on its $25.0 million term loan at 10.205% through maturity, mitigating exposure to floating rates tied to Term SOFR[136] - The company is exposed to Euro currency risk from its Irish manufacturing operations and from the SurVeil DCB transfer price, which is denominated in Euros[138] Item 4. Controls and Procedures Disclosure controls and procedures were effective as of June 30, 2025, with no material changes to internal controls - The company's Certifying Officers concluded that as of June 30, 2025, disclosure controls and procedures were effective[139] - No material changes were made to the internal control over financial reporting during the three months ended June 30, 2025[140] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is involved in FTC litigation regarding its pending acquisition, which the FTC seeks to block - The company is involved in litigation with the Federal Trade Commission (FTC) regarding the pending acquisition by an affiliate of GTCR LLC[141] Item 1A. Risk Factors A new risk factor highlights a June 2025 cyber incident, causing system unavailability and potential future liabilities - A new risk factor has been identified related to a cyber incident on June 5, 2025, where a threat actor gained unauthorized access to the company's IT systems[144] - The company remains subject to various risks from the incident, including potential litigation, changes in customer behavior, and regulatory scrutiny[144][145] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Repurchased 1,018 shares for tax obligations; $25.3 million authorized for buybacks, but credit agreement restricts activity - In Q3 FY2025, 1,018 shares were repurchased to satisfy employee tax withholding obligations on vested restricted stock[148] - The company has $25.3 million remaining under its stock repurchase authorization, but its ability to repurchase is restricted by its credit agreement[149]