Synergetics USA, Inc. (NASDAQ: SURG), a medical device company that designs, manufactures, and markets innovative microsurgical devices for ophthalmic and neurosurgical applications, today reported its results for the first quarter ended October 31, 2010. The Company reported first quarter 2011 sales of $12.1 million and net income of $633,000, or $0.03 per diluted share.

“We are very pleased with our performance in the first quarter of fiscal 2011,” stated Dave Hable, President and CEO of Synergetics USA, Inc. “We faced a significant challenge to overcome a $444,000 shortfall in sales arising from the sale of the Omni ® product line. In addition, there was a modest headwind associated with lower sales of capital equipment due to the overall economic environment. This shortfall was overcome by a 6% growth in sales of our disposable products. In effect, we replaced relatively low margin capital equipment sales with higher margin disposable product sales. As a result, our sales mix improved and our disposable sales now constitute 83% of our total product sales. This also increased the number of units manufactured, causing a decline in our overhead rates.

“Our focus for fiscal 2011 continues to be building on sales and improving our margins. We are focused on our top four research and development projects that will expand our reach in the vitreoretinal and intracranial markets to drive organic growth. We stepped up our R&D programs in key areas and expect to introduce new products in the coming year. We also expect to begin shipping products to Alcon, Inc. in the third quarter of fiscal 2011. In addition, our strong financial condition is providing the foundation to aggressively pursue new business development opportunities that have the potential of expanding our markets for ophthalmic and neurosurgery products.”

First Quarter Results

First quarter 2011 sales were unchanged at $12.1 million compared with the first quarter of 2010. Although sales were unchanged, the mix of sales in the first quarter of fiscal 2011 was favorably impacted by increased sales of our higher margin disposable products that was offset by lower sales of neurosurgical products due to the transition of our direct neurosurgery sales to our marketing partners and lower sales of capital equipment.
  • Ophthalmic sales rose 6.0% to $8.0 million compared with the first quarter of fiscal 2010.
  • Neurosurgical sales (including sales to our marketing partners) declined 22.4% to $2.2 million in the first quarter of fiscal 2011 compared with $2.9 million in the same period in 2010. The decline in neurosurgery sales was the result of the transition to Codman & Shurtleff, Inc. (“Codman”) and Stryker under marketing partner agreements.
  • Total OEM sales rose 8.7% to $1.8 million compared with $1.7 million in the first quarter of fiscal 2010.

“Our top six product lines representing approximately 72% of total first quarter sales showed solid growth since last year and were up 16.9% compared with the first quarter of fiscal 2010,” continued Mr. Hable. “We are pleased with the solid organic growth from these key product groups, especially in our disposable product lines that carry higher margins and offer the opportunity for repeat purchases.

“Unit sales of neurosurgical products sold through Codman and Stryker were also up since last year due to the increased market penetration of our marketing partners in domestic and international markets; however, our total revenue from neurosurgical products remains below last year due to lower transfer pricing. We believe this has been more than offset by lower sales and marketing costs and improved manufacturing efficiencies arising from the growth in unit volume,” stated Mr. Hable.

Gross profit for the first quarter of fiscal 2011 rose to $7.0 million, or 58.2% of sales, compared with $6.9 million, or 57.0% of sales, in the first quarter of 2010. The growth in gross profit and margin was due to improved profit margins on our ophthalmology products and improved absorption of both labor and overhead on all products, partially offset by the margin impact of the transition of sales to our marketing partners. As the Company replaced large dollar capital equipment sales with smaller dollar disposables sales, the number of units manufactured increased and caused a corresponding reduction in our overhead rates.

R&D expenses as a percentage of net sales were 6.0% and 5.4% for the first quarter of fiscal 2011 and 2010, respectively.

Sales and marketing expenses were down $236,000 to $3.0 million, or 25.0% of net sales, for the first quarter of 2011, compared with $3.3 million, or 26.8% of net sales, for the first quarter of 2010.

General and administrative expenses increased by approximately $222,000 to $2.3 million, or 18.6% of net sales, in the first fiscal quarter of 2011, compared with $2.0 million, or 16.7% of net sales, for the first fiscal quarter of 2010.

Operating income for the first quarter of fiscal 2011 increased to $1.0 million compared with $979,000 in the first quarter of fiscal 2010. The improvement in operating income was primarily the result of the increase in gross profit margin.

First quarter 2011 net income increased 16.8% to $633,000, compared with net income of $542,000 in the first quarter 2010. Net income per share rose 50.0% to $0.03 in the first quarter of fiscal 2011 from $0.02 in the first quarter of fiscal 2010. Basic weighted-average shares outstanding increased from 24,458,089 at October 31, 2009, to 24,782,913 at October 31, 2010.

“We are very positive about the outlook for Synergetics’ future,” stated Mr. Hable. “Our entire team is focused on the key strategies to build sales and grow net income. We believe our strong cash position and reduced debt will provide us with the financial flexibility and leverage to achieve these goals.”

Conference Call Information

Synergetics USA, Inc. will host a conference call on Wednesday, December 15, 2010, at 10:30 a.m. Eastern Time. The toll free dial-in number to listen and participate live on this call is (800) 447-0521, confirmation code 28432132. For callers outside the U.S., the number is (847) 413-3238. Participants are encouraged to email questions to The conference call will also be simulcast live at An online replay will be available on the Company’s website for approximately 30 days.

About Synergetics USA, Inc.

Synergetics USA, Inc. (“Synergetics USA” or the “Company”) is a leading supplier of precision microsurgery devices. The Company’s primary focus is on the microsurgical disciplines of ophthalmology and neurosurgery. Our distribution channels include a combination of direct and independent sales organizations and important strategic alliances with market leaders. The Company’s product lines focus upon precision engineered, microsurgical, hand-held devices and the delivery of various energy modalities for the performance of less invasive microsurgery including: (i) laser energy, (ii) ultrasonic energy, (iii) radio frequency for electrosurgery and lesion generation and (iv) visible light energy for illumination, and where applicable, simultaneous infusion (irrigation) of fluids into the operative field. The Company’s website address is

Forward-Looking Statements

Some statements in this release may be “forward-looking statements” for the purposes of the Private Securities Litigation Reform Act of 1995. In some cases forward-looking statements can be identified by words such as “believe,” “expect,” “anticipate,” “plan,” “potential,” “continue” or similar expressions. Such forward-looking statements include risks and uncertainties, and there are important factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements. These factors, risks and uncertainties are discussed in Synergetics’ Annual Report on Form 10-K for the year ended July 31, 2010, as updated from time to time in our filings with the Securities and Exchange Commission.

Synergetics USA, Inc. and Subsidiaries

Consolidated Statements of Income

Three Months Ended October 31, 2010, and 2009

(Dollars in thousands, except share and per share data)

Three Months Ended

October 31, 2010

Three Months Ended

October 31, 2009
Net sales     $ 12,076       $ 12,146  
Cost of sales       5,053         5,219  
Gross profit       7,023         6,927  
Operating expenses            
Research and development       719         659  
Sales and marketing       3,023         3,259  
General and administrative       2,252         2,030  
        5,994         5,948  
Operating income       1,029         979  
Other income (expenses)            
Investment income       32         --  
Interest expense       (80 )       (168 )
Miscellaneous       (7 )       (10 )
        (55 )       (178 )

Income before provision for income taxes
      974         801  
Provision for income taxes       341         259  
Net income     $ 633       $ 542  
Earnings per share:            
Basic     $ 0.03       $ 0.02  
Diluted     $ 0.03       $ 0.02  
Basic weighted average common shares outstanding       24,782,913         24,458,089  
Diluted weighted average common shares outstanding      



Synergetics USA, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

As of October 31, 2010 (Unaudited) and July 31, 2010

(Dollars in thousands, except share information)
      October 31, 2010     July 31, 2010

Current Assets
Cash and cash equivalents     $ 18,519     $ 18,669  
Accounts receivable, net of allowance for doubtful accounts of $293 and $282, respectively       9,132       9,056  
Inventories       13,421       11,891  
Prepaid expenses       530       792  
Deferred income taxes       658       658  
Total current assets       42,260       41,066  
Property and equipment, net       8,044       8,044  
Intangible and other assets            
Goodwill       10,690       10,690  
Other intangible assets, net       12,180       12,353  
Patents, net       897       870  
Cash value of life insurance       72       72  
Total assets     $ 74,143     $ 73,095  
Liabilities and stockholders’ equity            
Current Liabilities            
Current maturities of long-term debt     $ 1,407     $ 1,398  
Current maturities of revenue bonds payable       116       116  
Accounts payable       1,844       1,800  
Accrued expenses       2,694       2,624  
Income taxes payable       254       11  
Deferred revenue       400       400  
Total current liabilities       6,715       6,349  
Long-Term Liabilities            
Long-term debt, less current maturities       784       939  
Revenue bonds payable, less current maturities       1,583       1,612  
Deferred revenue       18,630       18,630  
Deferred income taxes       1,264       1,339  
Total long-term liabilities       22,261       22,520  
Total liabilities       28,976       28,869  
Stockholders’ Equity            
Common stock at October 31, 2010 and July 31, 2010, $0.001 par value, 50,000,000 shares authorized; 24,842,441 and 24,772,155 shares issued and outstanding, respectively       25       25  
Additional paid-in capital       25,087       24,905  
Retained earnings       19,952       19,319  
Accumulated other comprehensive loss:            
Foreign currency translation adjustment       103       (23 )
Total stockholders’ equity     $ 45,167     $ 44,226  
Total liabilities and stockholders’ equity     $ 74,143     $ 73,095  

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