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SurModics, Inc. (



F1Q12 Earnings Call

February 06, 2012 10:00 AM ET


Tim Arens - Interim CFO

Gary Maharaj - President & CEO


Ernie Andberg - Feltl and Company

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Ladies and gentlemen, thank you for standing by. Welcome to the SurModics First Quarter 2012 Earnings Conference Call. (Operator Instructions). Today's conference is being recorded, February 6, 2012.

I would now like to turn the conference over to Tim Arens, Interim Chief Financial Officer. Please go ahead.

Tim Arens

Thank you, Alicia. Good morning and welcome to SurModics' Fiscal 2012 First Quarter Conference Call. Also with me on the call is Gary Maharaj, our Chief Executive Officer.

Our press release report and our full first quarter results was issued earlier this morning 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 2011 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.

On today's call, I will comment on our restatement for fiscal 2011 and will highlight select financial results for the quarter. Gary will then discuss our key achievements for the quarter and provide an update on our strategy and growth drivers. Following this discussion, we will open the call to take your questions.

Before probably begin with our financial highlights, let me take a moment to explain the delay in issuing our results for the first quarter and the postponement of our earnings conference call last week.

During the preparation of our first quarter earnings results, our accounting team discovered that the fourth 2011 Pharmaceuticals related asset impairment charge was calculated incorrectly. Our internal team moved quickly to address the issue and management determined that a restatement was necessary for our full year and fourth quarter 2011 financial results.

However, this particular restatement was unique in that it involved complex non-routine accounting issues around the asset impairment charge. We felt that we could reach a conclusion on this matter prior to the originally scheduled earnings call, however, we determined shortly before the call that further analysis was necessary to ensure the accuracy of the asset impairment charge. We apologize for any inconvenience this may have caused and thank you all for your patience and understanding.

Accordingly, we will be restating our fiscal 2011 financials in an amended 10K filling, which should be available within the next two weeks. Before I provide you with additional details on the restatement I want to make three points very clear.

First, this is a non-cash impairment charge and pertains to a non-routine accounting event associated with our former Pharmaceuticals business. Second, the restatement has no effect on continuing operations and third we do not believe the restatement is systemic in anyway.

Let me now describe the issue leading to the restatement. As you likely remember on November 17, 2011 we announced the completion of the previously announced sale of substantially all our SurModics Pharmaceuticals assets to Evonik Industries.

Under the terms of the sale, the entire portfolio of products and services of SurModics Pharmaceuticals including the Company's cGMP development and manufacturing facility located in Birmingham, Alabama was acquired by Evonik for $30 million in cash.

In the fourth quarter of fiscal 2011, $17.9 a million asset impairment charge related to the Pharma assets was taken. We have now determined that the Pharma carry-in value utilized in Q4 fiscal 2011 to determine the amount of the asset impairment charge should have excluded certain deferred revenue, deferred taxes and other liabilities totaling $10.2 million.

As a result, the asset impairment charge should have been $28.1 million. Therefore the restated net loss for Q4 fiscal 2011 and the full year fiscal 2011 are $18.7 million and $18.5 million respectively.

The diluted loss per share for Q4 fiscal 2011 and the full-year fiscal 2011 are $1.07 and $1.06 respectively. Importantly this issue was spotted internally by our accounting team and we have moved quickly and in accordance with SEC guidelines to address the issue.

Let me now continue on where our first quarter financial highlights. Unless otherwise noted, first quarter financial results discussed today exclude discontinued operations. I'll address to results from our discontinued operations in more detail a bit later in my comments.

Our efforts to strengthen our core business continue to yield positive results, as our hydrophilic coatings have delivered their 10th consecutive quarter of revenue growth and our In Vitro Diagnostic products have delivered their third consecutive quarter of revenue growth.

Revenue for the first quarter totaled $11.9 million, a 5% decline from the $12.5 million reported in the first quarter of last year. Our first quarter revenue was impacted by a $2 million decline in revenue associated with Cypher and Cypher Select Plus drug eluting stents. Excluding the impact of Cypher, revenue increased 14% from the year ago period.

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