Surgical Business Posts 47 Percent Year-over-Year Quarterly Revenue Growth;
Interventional Business Revenue Improves 31 Percent Sequentially Over First
Quarter
ST. PAUL, Minn., May 30 /PRNewswire-FirstCall/ -- Synovis Life
Technologies, Inc. (Nasdaq: SYNO), today reported financial results for the
second fiscal quarter ended April 30, 2007.
Second-quarter consolidated net revenue rose to $16.6 million, an 11
percent increase over $14.9 million in the year-ago period. Surgical
business revenue reached a record $9.1 million in the second quarter, the
fourth consecutive record-revenue quarter for this segment, and 47 percent
greater than the year-ago period. Interventional business revenue was $7.5
million in the quarter, lower than revenue of $8.7 million a year earlier
but up 31 percent sequentially from $5.8 million in the first quarter of
fiscal 2007. The company reported net earnings of $759,000, or $0.06 per
diluted share, in the second quarter compared with a net loss of $475,000,
or $0.04 per share, in the year-earlier period.
"The surgical business posted record revenue in the second quarter,
which led to strong improvement in consolidated operating income and net
income," said Richard Kramp, Synovis Life Technologies president and chief
executive officer. "We have completed our first year with a direct U.S.
sales force fully in place in the surgical business. The growth in the
bariatric market continues. We made our first incursions into the complex
ventral hernia market and recently added the 4Closure(TM) fascia closure
device to our surgical product portfolio. The interventional business
generated a significant revenue increase over the first quarter, with sales
to major cardiac rhythm management (CRM) customers showing notable
sequential improvement."
The consolidated gross margin in the quarter was 44 percent, an eight
percentage point improvement over the second quarter of fiscal 2006. The
higher margin is due to proportionately more surgical business revenue, as
well as improved margins in both business units.
The higher revenue levels and improved gross margins, combined with
operating expenses that were flat compared with the year-ago period,
resulted in consolidated operating income of $609,000 in the second
quarter. This is a significant improvement over the operating loss of $1.3
million a year earlier, and the first time the company has posted
consolidated operating income since the third quarter of fiscal 2005.
Synovis had $46.1 million in cash, cash equivalents and short-term
investments at April 30, 2007, compared to $47.0 million at the fiscal 2006
year-end. In April, the company acquired the 4Closure Surgical Fascia
Closure System from Fascia Closure Systems, LLC, for approximately $2.0
million in cash, plus additional future payouts as certain revenue levels
are achieved. Synovis continues to seek acquisitions with a strong
strategic fit to leverage the surgical business direct sales force.
In the first half of fiscal 2007, consolidated net revenue increased to
$30.8 million, up 9 percent from $28.2 million in the first six months of
the prior fiscal year. Consolidated net income improved to $1.0 million, or
$0.08 per diluted share, versus a net loss of $1.0 million, or $0.09 per
share, in the first half of fiscal 2006.
Surgical Business
The surgical business achieved record net revenue of $9.1 million in
the second quarter, up 47 percent over $6.2 million in the year-ago period
and an 8 percent gain sequentially over the fiscal 2007 first quarter. The
second-quarter gross margin was 63 percent, up from 59 percent in the
second quarter of fiscal 2006. Gross margin rose as a result of higher
average selling prices related to hospital pricing, as well as a favorable
product and geographic sales mix.
Operating income was $1.3 million, a sizeable turnaround from an
operating loss of $719,000 in the year-earlier quarter, and a sequential
improvement over operating income of $860,000 in the fiscal 2007 first
quarter.
Revenue from Peri-Strips(R) (PSD), Synovis' primary surgical business
product offering in the bariatric market, rose to $3.4 million in the
second quarter, up 63 percent over $2.1 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.
Second-quarter sales of Synovis' Tissue-Guard products rose to $3.1
million, a 32 percent gain over the prior-year quarter. The revenue
increases were due to higher average selling prices -- largely the result
of the transition to a direct sales force -- as well as significantly
higher unit sales.
Sales of the company's microsurgery products increased 55 percent in
the second quarter, reaching $1.3 million compared to $836,000 in the
previous year's quarter. Sales of the Microvascular Anastomotic Coupler, a
device for connecting small blood vessels without sutures, were up 46
percent over the same quarter last year, driven by an increase in unit
volume. Kramp noted, "The microsurgery line has become a strong contributor
to surgical business revenue. Once surgeons begin using the Coupler and
experience its benefits, they tend to become strong advocates for the
product."
In May, Synovis announced the company had received a U.S. patent for
the Flow Coupler. This next generation of the Coupler includes a tiny
Doppler sensor which gives physicians reliable, real-time information about
blood flow at the site of the vessel connection, allowing for early
intervention should a blockage begin to develop. The company expects to
complete development and verification testing of the Flow Coupler and file
a 510(k) submission to the Food and Drug Administration (FDA) by the end of
calendar 2007.
"The surgical business generated strong growth in both revenue and
operating income, underscoring the value of our 2006 sales force
transition," added Kramp. "While we benefited from hospital-level pricing,
unit growth was our goal and unit growth is what we achieved. Late in our
first quarter, we launched our Veritas product for complex ventral hernia
repair -- a significant market opportunity. Our sales staff spent a portion
of their time in the second quarter focused on introducing this product to
general surgeons, while maintaining a strong effort in the bariatric
market. The introduction involves establishing contact and rapport with
general surgeons followed by educating these potential customers regarding
Veritas hernia patch material and initiating physician experience with the
product. This introductory period provided clear indications regarding the
level of interest in Veritas for the hernia application, which reinforced
our decision to expand our direct sales force. We are reviewing plans for
the addition of eight to 12 sales professionals."
The Veritas Collagen Matrix product for complex ventral hernia repair
represents a potential $100 million market opportunity in the United
States. Veritas has the ability to remodel into the tissue it is repairing.
The formation of tissue adhesions is a painful and sometimes medically
dangerous complication which occurs in up to 30 percent of complex hernia
surgeries. Veritas is the only biological patch which has earned an FDA
indication for minimal tissue attachment.
The recently acquired 4Closure System is a device and operating method
used for closure of abdominal and chest wall incisions following
laparoscopic procedures which use devices 10 millimeters and larger in
diameter. The product is designed to close the incision at the inner fascia
layer of the abdominal wall to prevent post-operative hernias, particularly
in obese patients undergoing bariatric surgery. In April, Synovis trained
its sales representatives on this product and previewed it at the meeting
of the Society of American Gastrointestinal and Endoscopic Surgeons. The
company is planning a full roll-out of the 4Closure System at the American
Society for Bariatric Surgery meeting in June.
Interventional Business
Interventional business net revenue was $7.5 million in the second
fiscal quarter, down from $8.7 million in the year-ago period but up 31
percent sequentially from $5.8 million in the first quarter. The year-ago
second quarter was the last quarter before the ICD (implantable
cardioverter defibrillators) recall problems had a significant negative
effect on the worldwide CRM market and on interventional business revenue.
The interventional business gross margin was 21 percent in the second
quarter of fiscal 2007, up from 20 percent in the same period of fiscal
2006. Efficiency measures, as well as improved overhead utilization drove
the increased margin, partially offset by product mix changes.
Second-quarter operating results approached break even with a loss of
$49,000, compared to operating income of $4,000 in the year-ago period. It
was a marked improvement over the operating loss of $415,000 in the first
quarter of fiscal 2007.
Kramp commented, "We are gratified to see the sequential improvement in
interventional business revenue. This gain included significant growth with
our major CRM customers. We are optimistic that the CRM market is
stabilizing and that the interventional business will continue to benefit
as this market recovers. Our engineering and manufacturing capabilities are
equally well suited for servicing medical device companies in CRM and
non-CRM markets, and our development staff is pursuing opportunities to
diversify the interventional customer base."
Conference Call and Webcast
Synovis Life Technologies will host a live Webcast of its fiscal
second-quarter conference call today, May 30, 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, May 30.
If you prefer to listen to an audio replay of the conference call, dial
(800) 405-2236 and enter access number 11090146. The audio replay will be
available beginning at 1:00 p.m. CT on Wednesday, May 30, through 6:00 p.m.
CT on Friday, June 1.
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 Six Months Ended
April 30 April 30
2007 2006 2007 2006
Net revenue $ 16,623 $ 14,922 $ 30,810 $ 28,201
Cost of revenue 9,273 9,521 17,076 18,014
Gross margin 7,350 5,401 13,734 10,187
Gross margin percentage 44% 36% 45% 36%
Selling, general and
administrative 5,851 5,833 11,681 11,030
Research and development 890 818 1,703 1,638
Operating income (loss) 609 (1,250) 350 (2,481)
Interest income 484 300 977 578
Income (loss) before
provision for income taxes 1,093 (950) 1,327 (1,903)
Provision (benefit) for
income taxes 334 (475) 304 (856)
Net income (loss) $ 759 $ (475) $ 1,023 $ (1,047)
Basic earnings (loss) $ 0.06 $ (0.04) $ 0.08 $ (0.09)
per share
Diluted earnings (loss)
per share $ 0.06 $ (0.04) $ 0.08 $ (0.09)
Weighted average basic
shares outstanding 12,207 11,968 12,166 11,951
Weighted average diluted
shares outstanding 12,461 11,968 12,345 11,951
SYNOVIS LIFE TECHNOLOGIES, INC.
Business Segment Information (unaudited)
(In thousands)
Three Months Ended Six Months Ended
April 30 April 30
2007 2006 2007 2006
Net revenue
Surgical business $ 9,083 $ 6,190 $17,514 $ 12,351
Interventional business 7,540 8,732 13,296 15,850
Consolidated $ 16,623 $ 14,922 $30,810 $ 28,201
Gross margin
Surgical business $ 5,749 $ 3,649 $11,092 $ 7,007
Interventional business 1,601 1,752 2,642 3,180
Consolidated $ 7,350 $ 5,401 $13,734 $ 10,187
Gross margin percentage
Surgical business 63% 59% 63% 57%
Interventional business 21% 20% 20% 20%
Consolidated 44% 36% 45% 36%
Operating income (loss)
Surgical business $ 1,283 $ (719) $2,143 $ (1,025)
Interventional business (49) 4 (464) (348)
Corporate and other (625) (535) (1,329) (1,108)
Consolidated $ 609 $ (1,250) $350 $(2,481)
SYNOVIS LIFE TECHNOLOGIES, INC.
Condensed Consolidated Balance Sheets (unaudited)
As of April 30, 2007 and October 31, 2006
(In thousands, except share and per share data)
April 30, October 31,
2007 2006
ASSETS
Current assets:
Cash and cash equivalents $ 8,356 $ 7,053
Short-term investments 37,700 39,926
Accounts receivable, net 8,204 6,740
Inventories 10,144 8,590
Deferred income tax asset, net 1,017 1,017
Other current assets 1,296 1,742
Total current assets 66,717 65,068
Property, plant and equipment, net 11,452 12,228
Goodwill and other intangible
assets, net 9,311 7,393
Deferred income tax asset, net 563 861
Total assets $ 88,043 $ 85,550
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 6,012 $ 5,625
Total current liabilities 6,012 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, 12,235,449 at April 30,
2007 and 12,101,253 at October 31, 2006 122 121
Additional paid-in capital 76,214 75,132
Retained earnings 5,695 4,672
Total shareholders' equity 82,031 79,925
Total liabilities and
shareholders' equity $ 88,043 $ 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.,
for Synovis Life Technologies, 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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