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SurModics, Inc. (



F4Q 2011 Earnings Call

November 3, 2011 5:00 am ET


Timothy J. Arens – Vice President of Finance and Interim Chief Financial Officer

Gary R. Maharaj – President and Chief Executive Officer


Ross Taylor – CL King & Associates

Gregory M. Macosko – Lord Abbett

Elizabeth Lilly – GAMCO Investors

Dorsey R. Gardner – Kelso Management Company, Inc.



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Good afternoon, ladies and gentlemen, thank you for standing by. Welcome to the SurModics Fourth Quarter 2011 Earnings Conference Call. During today’s presentation, all parties will be in a listen-only mode. And following the presentation, the conference will be open for questions. (Operator instructions) This conference is being recorded today, November 3, 2011.

I would now like to turn the conference over to Tim Arens, Vice President of Finance and Interim Chief Financial Officer. Please go ahead, sir.

Timothy J. Arens

Thank you, Douglas. Good afternoon and welcome to SurModics fiscal fourth quarter and full year 2011 conference call. Also with me on the call is Gary Maharaj, our Chief Executive Officer.

Our press release reporting quarterly and full year results was issued earlier this afternoon and is available on our website at

Before we begin, it is my duty to inform you that this conference call is being webcast and is accessible through the Investor Relations section of the SurModics website, where the audio recording of the webcast will also be archived for future reference.

I will remind you that some of the statements made during this call may be considered forward-looking. The 10-K for fiscal year 2010 identifies certain factors that could cause the company’s actual results to differ materially from those projected in any forward-looking statements made during this call. The company does not undertake any duty to update any forward-looking statements as a result of new information or future events or developments.

During the call, we may include reference to financial measures, which are not calculated in accordance with generally accepted accounting principles or GAAP. These measures maybe used by management to compare the operating performance of the company over time, but they should not be consider to substitute for GAAP measures. Each of these items is described in the footnotes of the supplemental non-GAAP information that accompanied our press release this afternoon.

On today’s call, I will highlight select financials results for the quarter and year, as well as discuss our outlook for fiscal 2010. Gary will then discuss our key achievements for the year, our announcement regarding the sale of our SurModics Pharmaceuticals business to Evonik Industries, and our strategy and growth drivers moving forward. Following this discussion, we will open the call to take you questions.

Let me begin with some financial highlights. We are pleased with our fiscal 2011 performance. Our efforts to strengthen our core businesses have already began to yield positive results as we achieved record revenue in fiscal 2011 for both our hydrophilic coatings offerings as well as our in-vitro diagnostics products.

Revenue for the fourth quarter totaled $17.2 million, an increase of 10% over the $15.5 million reported in the fourth quarter of last year. This represented our first quarterly year-to-year revenue growth performance since the fiscal 2010 third quarter.

On a sequential basis, revenue was down 5% from the $18 million reported in our third quarter as weakness in pharmaceuticals more than offset gains in our medical device and in-vitro diagnostics businesses.

For the full fiscal year 2011, revenue was $67.8 million, down 3% from fiscal year 2010. On a GAAP basis, our diluted loss per share was $0.74 for the fourth quarter. For the full year, our GAAP diluted loss per share was $0.73.

During the fourth quarter, we recognized $18.9 million of special charges associated with the restructuring charge and certain asset impairment charges. In total, the net impact of these items reduced our fourth quarter GAAP EPS by $0.81.

Let me take a moment to briefly explain each item. First, we recorded a restructuring charge of $1 million or $0.04 per share related to our August strategic realignment, also we recognized asset impairment charges totaling $17.9 million or $0.77 per share as we wrote down pharma-related assets in Alabama to the fair value based on recent evaluations associated with our strategic alternatives process.

Earnings per share on a non-GAAP basis were $0.06 for the fourth quarter of fiscal 2011, a decline from the adjusted earnings per share of $0.13 earned during the third quarter. For the full year 2011, adjusted earnings per share assuming a normalized effective tax rate of 38% was $0.32, a 16% decline compared with adjusted EPS of $0.38 for the full fiscal year 2010.

We put in our press release on Tuesday; we announced that SurModics had signed a definitive agreement under which our pharmaceuticals business will be divested to Evonik Industries for $30 million in cash. The divestiture includes the entire portfolio of product and services of our pharmaceuticals business including the cGMP facility Birmingham, Alabama.

In fiscal 2011 and 2010, Cypher based royalty and product revenue associated with our pharma drug delivery coatings and our hydrophilic coatings totaled $6.7 million and $9.8 million respectively. Our following comments include the effects of Cypher unless otherwise noted.

I’ll now turn our discussion to the sales by business unit. For the fourth quarter, total Medical Device sales, which include revenue from both our hydrophilic coatings and device drug delivery technologies were 10.2 million, up 7% sequentially from the $9.6 million reported in Q3. We did achieved record hydrophilic coating revenue of $8.8 million during the quarter representing 7% growth compared with the year ago period. Device drug delivery revenue of $1.4 million declined 4% compared with a year ago period.

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