Surgical Business Posts 37 Percent Revenue Growth and Record Revenue
ST. PAUL, Minn., Feb. 28 /PRNewswire-FirstCall/ -- Synovis Life
Technologies, Inc. (Nasdaq: SYNO) today reported financial results for the
first fiscal quarter ended January 31, 2007.
First-quarter consolidated net revenue rose to $14.2 million, a 7
percent increase over $13.3 million in the year-ago period. Surgical
business revenue reached a record $8.4 million in the first quarter, the
third consecutive record-revenue quarter in this segment, and 37 percent
greater than the year-ago period. Interventional business revenue was $5.8
million in the quarter, versus $7.1 million a year earlier, with the
decrease attributable to lower sales in the cardiac rhythm management (CRM)
market. The company reported net earnings of $264,000, or $0.02 per diluted
share, in the first quarter, an improvement over a net loss of $572,000, or
$0.05 per share, in the year-earlier period.
"The surgical business produced another strong quarter, and we are
pleased to report a consolidated profit for the period," said Richard
Kramp, Synovis Life Technologies president and chief executive officer.
"The transition to a direct sales force was completed in January, as
planned, with the final transitional commission payments made to our former
distributors. We are excited about our ongoing growth potential in the
bariatric market as well as new product applications in this business
segment. The fiscal first quarter is traditionally the slowest revenue
quarter for the interventional business, but we remain confident that we
will participate in the expected recovery of the CRM market when it
occurs."
The consolidated gross margin in the quarter was 45 percent, a
9-percentage point improvement over the first quarter of fiscal 2006. The
higher margin is due to proportionately more surgical business revenue and
an increase in the surgical business gross margin, partially offset by a
decrease in the interventional business gross margin.
Consolidated operating expenses totaled $6.6 million in the quarter, up
$626,000 from the year-ago period, with most of the increase coming from
additional investment in the direct U.S. sales force in the surgical
business as well as higher legal expenses. First-quarter operating expenses
also include approximately $150,000 in stock option expense, compared to
approximately $60,000 in the year-ago quarter.
With $48.0 million in cash, cash equivalents and short-term investments
at January 31, 2007, the company is actively looking for acquisitions to
leverage the surgical business sales force. Cash provided by operating
activities was $1.1 million in the fiscal first quarter, versus $491,000 in
cash used by operations in the year-ago period.
Surgical Business
The surgical business, completing its third quarter with a fully
staffed direct U.S. sales force, achieved record net revenue of $8.4
million in the first quarter -. a 5 percent sequential gain over the fiscal
2006 fourth quarter and a 37 percent increase over net revenue of $6.1
million in the year-ago period. Operating income was $860,000, a sequential
improvement over operating income of $570,000 in the fiscal 2006 fourth
quarter, and a marked improvement from an operating loss of $306,000 in the
year-earlier quarter.
The first-quarter gross margin was 63 percent, up from 55 percent in
the first quarter of fiscal 2006. The gross margin rose as a result of
higher average selling prices related to hospital pricing, as well as
product and geographic sales mix.
Revenue from Peri-Strips(R) (PSD), the primary surgical business
product offering in the bariatric market, rose to $3.4 million in the first
quarter, up 13 percent sequentially over $3.0 million in the fiscal 2006
fourth quarter, and up 66 percent over $2.0 million a year ago.
Peri-Strips, including PSD Apex, PSD Veritas(R) and PSD Veritas Circular,
represent a comprehensive line of buttressing products for the bariatric
market.
First-quarter sales of Synovis' Tissue-Guard products increased to $2.7
million, a 12 percent increase over the prior-year quarter. Sales of the
company's microsurgery products increased 21 percent in the first quarter,
reaching $1.1 million, compared to $882,000 in the previous year's quarter.
Sales of the Microvascular Anastomotic Coupler, a device for connecting
small blood vessels without sutures, were up 30 percent over the same
quarter last year.
"Our surgical sales force is being increasingly leveraged as they focus
on continued penetration of the bariatric market and, just recently,
expansion into the complex ventral hernia market," noted Kramp.
"First-quarter revenue growth compared to a year ago came from unit sales
growth, a product mix shift toward sales of our higher-priced Veritas
products and hospital-level pricing. The strong revenue growth and
substantial operating profits of the past two quarters reflect the early
success of our strategy to convert to a direct sales force, and the
significant efforts of our employees in executing this strategy."
The company recently launched a Veritas(R) Collagen Matrix product for
complex ventral hernia repair, a potential $100 million market opportunity.
In the first fiscal quarter of 2007, Veritas received clearance from the
Food and Drug Administration for a minimal tissue attachment indication.
Kramp added, "We are optimistic about the competitive strength of our
Veritas patch in the hernia market for a number of reasons, including its
ability to remodel into the tissue it is repairing, as well as its
performance in minimizing tissue attachment. Tissue attachment is a painful
and sometimes medically dangerous complication of hernia surgery, and
Veritas is the only biological patch product to our knowledge which has
earned this FDA indication."
Synovis' PSD Veritas Circular stapler buttress, protected by a patent
issued October 31, 2006, is used to reinforce surgical staple lines at the
junction of the intestine to the newly created stomach pouch in bariatric
surgery and to reduce leakage risk at this challenging connection. For
marketing purposes, the company is collecting clinical data generated by
several leading colorectal surgeons on a larger circular buttress used in
colorectal surgery. A full market launch of Peri-Strips products, both
linear and circular, into the colorectal market is anticipated before the
end of the fiscal year. Buttressing in colorectal surgery represents an
estimated annual market opportunity between $100 million and $200 million.
Interventional Business
Interventional business revenue declined to $5.8 million in the first
quarter from $7.1 million in the year-ago period. The revenue decrease was
due to reduced sales of two platinum coil products to one CRM customer,
partially offset by increased sales of other coils to this customer and
other CRM customers.
The interventional segment gross margin was 18 percent in the first
quarter of fiscal 2007, down from 20 percent in the same period of fiscal
2006. The gross margin decrease was primarily due to product mix changes.
The $1.3 million revenue decrease resulted in an operating loss increase of
only $63,000 to $415,000 in the fiscal 2007 first quarter. "The effect of
the revenue decrease on operating performance was largely contained by the
cost reductions and efficiency improvements put in place throughout 2006,"
said Kramp. "This is significant as we look toward the latter quarters of
2007 and the expected recovery of the CRM market. Furthermore, our
development staff is engaged in several promising projects to expand our
market and customer base."
The contraction of the CRM market that occurred in 2006 appears to have
stabilized during the company's first fiscal quarter of 2007, but there are
still no clear signs of a return to sustained growth in this market. Recent
quarterly reports published by the largest domestic CRM companies indicate
that the overall CRM market appeared to be flat on a sequential and
year-over-year basis, with some market share changes among the big three
CRM companies. The general consensus of these company reports is that
mid-single digit percentage growth is expected in latter 2007, which
Synovis believes should have a positive effect on its interventional
business operating results when the recovery occurs.
Conference Call and Webcast
Synovis Life Technologies will host a live Webcast of its fiscal
first-quarter conference call today, February 28, at 10:00 a.m. CT to
discuss the company's results. To access the live Webcast, go to the
investor information section of the company's Web site,
http://www.synovislife.com , and click on the Webcast icon. A Webcast
replay will be available beginning at noon CT, Wednesday, February 28.
If you prefer to listen to an audio replay of the conference call, dial
(800) 405-2236 and enter access number 11084020. The audio replay will be
available beginning at 1:00 p.m. CT on Wednesday, February 28, through 6:00
p.m. CT on Friday, March 2.
About Synovis Life Technologies
Synovis Life Technologies, Inc., based in St. Paul, Minn., is a
diversified medical device company engaged in developing, manufacturing and
bringing to market medical devices for the surgical and interventional
treatment of disease. For additional information on Synovis Life
Technologies and its businesses, visit the company's Web site at
http://www.synovislife.com .
Forward-looking statements contained in this press release are made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. The statements can be identified by words such as
"should," "could," "may," "will," "expect," "believe," "anticipate,"
"estimate," "continue," or other similar expressions. Certain important
factors that could cause results to differ materially from those
anticipated by the forward-looking statements made herein include the
timing of product introductions, outcomes of clinical and market trials as
well as regulatory submissions, the number of certain surgical procedures
performed, the ability to identify, acquire and successfully integrate
suitable acquisition candidates, the cost and outcome of intellectual
property litigation, and the level and timing of orders from contract
manufacturing customers, as well as the other factors found in the
company's Annual Report on Form 10-K for the year ended October 31, 2006.
SYNOVIS LIFE TECHNOLOGIES, INC.
Condensed Consolidated Results of Operations (unaudited)
(In thousands, except per share data)
Three Months Ended
January 31
2007 2006
Net revenue $14,187 $13,279
Cost of revenue 7,803 8,493
Gross margin 6,384 4,786
Gross margin percentage 45% 36%
Selling, general and administrative 5,830 5,197
Research and development 813 820
Operating loss (259) (1,231)
Interest, net 493 278
Income (loss) before benefit from income taxes 234 (953)
Benefit from income taxes (30) (381)
Net income (loss) $264 $(572)
Basic earnings (loss) per share $0.02 $(0.05)
Diluted earnings (loss) per share $0.02 $(0.05)
Weighted average basic shares outstanding 12,127 11,934
Weighted average diluted shares outstanding 12,225 11,934
SYNOVIS LIFE TECHNOLOGIES, INC.
Business Segment Information (unaudited)
(In thousands)
Three Months Ended
January 31
2007 2006
Net revenue
Surgical business $8,431 $6,161
Interventional business 5,756 7,118
Consolidated $14,187 $13,279
Gross margin
Surgical business $5,343 $3,358
Interventional business 1,041 1,428
Consolidated $6,384 $4,786
Gross margin percentage
Surgical business 63% 55%
Interventional business 18% 20%
Consolidated 45% 36%
Operating income (loss)
Surgical business $860 $(306)
Interventional business (415) (352)
Corporate and other (704) (573)
Consolidated $(259) $(1,231)
SYNOVIS LIFE TECHNOLOGIES, INC.
Condensed Consolidated Balance Sheets (unaudited)
As of January 31, 2007 and October 31, 2006
(In thousands, except share and per share data)
January 31, October 31,
2007 2006
ASSETS
Current assets:
Cash and cash equivalents $8,445 $ 7,053
Short-term investments 39,506 39,926
Accounts receivable, net 6,791 6,740
Inventories 10,229 8,590
Deferred income tax asset, net 1,017 1,017
Other current assets 1,377 1,742
Total current assets 67,365 65,068
Property, plant and equipment, net 11,847 12,228
Goodwill and other intangible assets, net 7,328 7,393
Deferred income tax asset, net 891 861
Total assets $87,431 $85,550
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses 6,783 5,625
Total current liabilities 6,783 5,625
Shareholders' equity:
Preferred stock: authorized 5,000,000 shares
of $.01 par value; none issued or outstanding
at both dates --- ---
Common stock: authorized 20,000,000 shares of
$.01 par value; issued and outstanding,
12,159,473 at January 31, 2007 and 12,101,253
at October 31, 2006 122 121
Additional paid-in capital 75,590 75,132
Retained earnings 4,936 4,672
Total shareholders' equity 80,648 79,925
Total liabilities and shareholders' equity $87,431 $85,550
SOURCE Synovis Life Technologies, Inc.
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Related links:
http://www.synovislife.com
CONTACT:
Nancy A. Johnson, +1-612-455-1745, or Marian
Briggs, +1-612-455-1742, both of Padilla Speer Beardsley Inc., or
Richard Kramp, President and CEO, or Brett Reynolds, CFO, both of
Synovis Life Technologies, Inc., +1-651-796-7300
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