Surmodics(SRDX) - 2021 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Total revenue for Q2 2021 increased by 53% to $35 million compared to $22.8 million in the prior year quarter, benefiting from a $10.8 million revenue recognition from the SurVeil clinical report milestone [7][25][24] - Excluding the milestone payment, total revenue grew by 6% year-over-year [8][25] - Diluted GAAP earnings per share were $0.58, up from $0.11 in the prior year quarter, while non-GAAP earnings per share were $0.62 compared to $0.04 in the prior year [37][8] Business Line Data and Key Metrics Changes - Medical Device revenue increased by 71% to $27.9 million, including the milestone revenue; excluding this, it grew by 5% year-over-year [25] - In Vitro Diagnostics (IVD) revenue reached a record $7.1 million, up 9% year-over-year, driven by demand for diagnostic test components [21][25] - Royalty and license fee revenue totaled $20.1 million, up from $11.8 million in the prior year, primarily due to the milestone payment [26] Market Data and Key Metrics Changes - The IVD business unit generated operating income of $3.8 million, with an operating margin of 54%, up from 53% in the prior year [35] - The Medical Device business reported operating income of $8.6 million, compared to an operating loss of $1.5 million in the prior year [34] Company Strategy and Development Direction - The company aims to complete the final PMA submission to the FDA for the SurVeil drug-coated balloon and continue advancing its product pipeline [9][12] - The focus is on optimizing cash flow from IVD and Medical Device businesses to support strategic growth initiatives [9][22] - The company is excited about the potential of the Sundance drug-coated balloon and the Avess AV fistula DCB, with expectations for significant market opportunities [14][15][77] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the future, believing that better times lie ahead following a challenging year [23] - The company expects fiscal year 2021 revenue to range from $101 million to $105 million, with growth in royalty revenue anticipated [39] - Management highlighted the importance of strategic partnerships, particularly with Abbott, to overcome market inertia and drive product adoption [60][69] Other Important Information - The company reported a strong cash position with $70 million in cash and investments, providing capacity to support strategic growth initiatives [38][106] - R&D expenses increased by 8% to $12.9 million, reflecting ongoing clinical and regulatory activities [32] Q&A Session Summary Question: Interest from potential partners regarding pipeline projects - Management acknowledged external interest but emphasized the importance of understanding clinical feedback before engaging in discussions [46][47] Question: R&D spending expectations - R&D spending is expected to remain flat in dollar terms, but as revenue grows, the percentage of revenue spent on R&D is likely to decline [48][50] Question: Manufacturing capabilities after management changes - Management reassured that the new executive manager in Ireland is well-prepared and has been training for the role [52][53] Question: Timing for SurVeil PMA submission and approval - Management confirmed the expectation to submit the PMA in Q4 and receive approval by the end of calendar 2021 [57] Question: Clinician feedback on TRANSCEND results - Management noted that initial clinician feedback has been lukewarm but expressed confidence in Abbott's marketing capabilities to address this [58][60] Question: Opportunities and timelines for pipeline products - Management highlighted optimism for the Avess and Sundance products, with expectations for significant contributions to revenue by fiscal 2023 or 2024 [78][83] Question: IVD business performance and revenue sources - Management clarified that the IVD revenue growth was primarily driven by COVID-related testing, with core business growth being modest [89] Question: Valuation of the IVD business as a standalone asset - Management indicated that the IVD business has shown remarkable growth and could be valued positively based on its EBITDA performance [93][95] Question: Capital allocation strategy with increased cash reserves - Management stated that the strong cash position allows for dynamic capital allocation to support growth initiatives and potential acquisitions [106][109]