Surmodics, Inc. (NASDAQ:SRDX) Q1 2024 Earnings Call Transcript

Surmodics, Inc. (NASDAQ:SRDX) Q1 2024 Earnings Call Transcript February 1, 2024

Surmodics, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Welcome everyone to the Surmodics First Quarter of Fiscal Year 2024 Earnings Call. Please note that this call is being webcast. The webcast is accessible through the Investor Relations section of the Surmodics website at www.surmodics.com, where an audio replay will be archived for future reference. An earnings press release disclosing Surmodics’ quarterly and full-year results was issued earlier today and is available on the company website as well. Before I begin, I’d like to remind everyone that remarks and responses to your questions on today’s call may contain forward-looking statements. These forward-looking statements are covered under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995 and include statements regarding Surmodics’ future financial and operating results or other statements that are not historical facts.

Please, be advised that actual results could differ materially from those stated or implied by Surmodics’ forward-looking statements, resulting from certain risks and uncertainties, including those described in the company’s SEC filings. Surmodics disclaims any duty to update or revise these forward-looking statements as a result of new information, future events, developments, or otherwise. This call will also include references to non-GAAP measures because Surmodics believes they provide useful information for investors. Today’s earnings release contains reconciliation tables to GAAP results. I would now like to turn the conference over to Mr. Gary Maharaj, Surmodics’ President and Chief Executive Officer. Please go ahead, sir.

Gary Maharaj: Thank you, operator. Welcome everyone to our first quarter fiscal year 2024 earnings call. Here is what we plan to cover today. I’ll begin with a high-level overview of our quarterly financial performance followed by a discussion of our recent progress from an operational standpoint and our outlook for the rest of the year. Tim will discuss our Q1 financial results in more detail and review our financial guidance for fiscal 2024, which we updated in today’s earnings press release. Then, we’ll open the call for questions. Let’s start with a discussion of our financial performance. In the first quarter, we were pleased to achieve total revenue growth of 23% year-over-year to $30.6 million. Excluding the SurVeil DCB license fee revenue in both periods, which represented an approximately $300,000 headwind in the quarter, we achieved total revenue growth of 25% year-over-year.

Our total revenue performance came in just above our stated range of expectations for the quarter of $29.5 million to $30.5 million, which we shared on our last earnings call. Importantly, our performance was driven by impressive contributions from both of our business segments. The Medical Device segment grew 24% year-over-year to $23.5 million and increased 27% including the year-over-year headwind related to the SurVeil DCB license fee revenue that I just mentioned. And revenue from our in vitro diagnostics or IVD segment grew 18% year-over-year to $7 million. In our Medical Device segment, growth was primarily driven by record product sales, which increased 43% year-over-year, fueled by our Vascular Interventions device portfolio, specifically our SurVeil drug-coated balloon and Pounce Thrombectomy platform.

We also saw important contributions from royalties and license fees from our performance coatings, as well as R&D services revenue. Growth in our IVD segment, which was exceptionally strong in the quarter benefited from a combination of factors, including strong demand for select products heading into peak influenza season. The timing of orders and the continued return of more normalized purchasing patterns from some of our customers that had taken steps last year to manage COVID era’s elevated inventory levels. Lastly, we were pleased to complement our impressive revenue performance with year-over-year improvements in our operating results, delivering adjusted EBITDA of $3.9 million is $7.2 million improvement compared to the first quarter of last year.

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Q&A Session

Overall, we were quite pleased to deliver a strong start to Fiscal 2024. Turning now to our operational progress in the first quarter; in addition to our financial performance, our team has been hard at work executing with respect to the three strategic objectives for fiscal 2024 that we outlined in our last earnings call. As a reminder, these objectives are; first, to capitalize on the key near-term growth catalyst in our vascular interventions portfolio, our SurVeil DCB, Pounce thrombectomy, and Sublime radial access products. Second, to drive durable revenue growth and cash flow generation across our core medical device performance coatings offerings and IVD business. And third; to facilitate our long-term growth by developing and introducing new products and line extensions that will enhance our existing Pounce, Sublime, and medical device performance coatings portfolio.

Let me walk you through our recent progress with respect to each of these objectives beginning with our Vascular Interventions portfolio. As I mentioned, product revenue in our medical device segment increased 43% year-over-year. This impressive growth was driven primarily by sales of our SurVeil DCB and Pounce thrombectomy products. Most notably, we generated the first commercial revenue from our SurVeil DCB as we began shipping units in October to our commercial partner Abbott in preparation for a January launch. I’m pleased to report that the commercial manufacturing process proceeded reasonably smoothly, during the first quarter and we ultimately completed all shipments required to satisfy Abbott’s initial commercial stocking order on time as planned.

Drug-coated balloons like our SurVeil DCB are some of the most difficult to manufacture with consistent quality in the interventional device segment. Our efficient and successful transition from manufacturing clinical units to commercial quantities, a process which I’ve previously equated to starting a diesel engine in the middle of winter speaks to Surmodics’ unique technology capabilities and expertise as an organization as well as the talent and dedication of our employees. Our SurVeil’s operation team did an excellent job of ensuring the success of initial commercial production and I’d like to give them a shout-out in today’s call to thank them for their efforts. In addition to our manufacturing efforts, we continue to support Abbott’s commercial readiness activities such as the development of technical, marketing, and sales team training materials.

We are also pleased to share the three-year results of our 446 patient TRANSCEND trial, which was presented at the 50th annual VEITHsymposium on November 15. As a reminder, the 65-site randomized control trial, found our SurVeilDCB to be non-inferior in both safety and efficacy to the market-leading IN.PACT Admiral DCB, which uses a 75% higher drug load of Paclitaxel. 97% of our patients in the trial completed their three-year follow-up, and we were pleased to see that the data continued to demonstrate sustained safety and efficacy outcomes for the low-dose SurVeil DCB that are comparable to the control device. I’m pleased, we were able to provide this compelling clinical evidence to the medical community which supports the long-term outcomes that can be achieved with our technology.

I will also add this is the only randomized controlled worldwide trial of a low-dose DCB compared to a high-dose DCB like the IN.PACT. With this recent progress as a backdrop, I’m excited to share that SurVeil DCB is now a commercial product available in the United States through Abbott. Last week at the International Symposium in endovascular therapy, Abbott hosted a lunch symposium featuring the SurVeil DCB entitled Drug-Coated Balloons, time to unveil what you’re not seeing. Dr. Bill Gray, a key opinion leader in the field of interventional cardiology and one of the principal investigators of the TRANSCEND pivotal trial, discussed the differentiating features of the SurVeil DCD, which he highlighted in the three-year clinical data from the TRANSCEND trial.

We’re excited to see the SurVeil DCB positioned as the next generation of drug-coated balloons. We look forward to Abbot’s progress and remain committed to addressing their future demand as they move through the initial months of commercialization. In addition to the commercial revenue, we recognize from the initial stocking order for our SurVeil DCB, sales of our Pounce thrombectomy products also represented an important contribution to the 43% growth we achieved in the medical device segment. Sales of these products continued to track with our expectations as our direct sales team remained focused on supporting both existing and potential customers, raising awareness in the marketplace, and educating the medical community. We ended the first quarter with a direct sales team consisting of 23 territory managers, which is unchanged from the end of fiscal 2023 and compares to 28 territory managers as of December 31, 2022.

Building on the progress made in fiscal 2023, our team continued to establish a foundation for future growth by developing existing accounts and expanding our active customer base. In the first quarter, we continued to be pleased that our customer — we had great customer reorder rates and saw a healthy year-over-year growth in average revenue per existing customer. As part of our efforts to raise market awareness and educate prospective new users, during the quarter, we sponsored two digital and print supplements in Endovascular Today, a leading industry publication with an Editorial Advisory Board composed of the top Endovascular specialists. The publication’s focus is the latest technological advancements in the Endovascular field. And the November issue featured a supplement on our Sublime radial access platform and its impact on patients and practices and the December issue featured a supplement on our Pounce arterial thrombectomy system.