Synergetics Reports Fourth Quarter and Fiscal Year 2013 Results

Marketwired

O'FALLON, MO--(Marketwired - Oct 1, 2013) - Synergetics USA, Inc. (NASDAQ: SURG), a medical device company that designs, manufactures, and markets innovative surgical devices for ophthalmic and neurosurgical applications, today announced results for the fourth quarter and fiscal year ended July 31, 2013. 

Fourth Quarter Summary:

  • Total sales were $17.9 million, an increase of 5.9% year-over-year. Total sales increased 9.8% on a sequential basis.
  • OEM sales increased 8.7% and Ophthalmic sales increased 2.9% year-over-year.
  • Domestic sales increased 7.6% and International sales increased 1.2% year-over-year.
  • Disposable product sales increased 5.0% and capital equipment sales increased 11.2%.
  • GAAP EPS was $0.06 versus $0.08 for the comparable period last year.
  • Cash flow from operations was $2.5 million which increased 37.1% sequentially.

Fiscal Year Summary:

  • Total sales were $62.8 million, up 4.6% year-over-year.
  • OEM sales increased 10.4% and Ophthalmic sales increased 0.6% year-over-year.
  • Domestic sales increased 5.5% and International sales increased 2.1% year-over-year.
  • GAAP EPS was $0.10 versus $0.22 for the comparable period last year.
  • Non-GAAP EPS was $0.16 versus $0.25 in fiscal year 2012.

"We were pleased with our fourth quarter revenue performance, particularly in the U.S., where we saw improving trends in our ophthalmic sales of both new and base business products. Commercialization of the VersaVIT™ system remains on-track as we continue to establish a solid installed base. Fourth quarter results also benefitted from strong demand from our OEM partners," said David M. Hable, the Company's President and Chief Executive Officer. "Our international results were softer than anticipated, driven by ongoing weakness in our base business and lower contributions from emerging markets compared to last year. The recent acquisition of our U.K. distribution partner, M.I.S.S. Ophthalmics, contributed modestly to international revenues in the period, and we look forward to incremental contributions in fiscal 2014."

"Our prospects for improving growth trends remain bright; we have strong relationships with our OEM partners, with expectations for growing volumes next year. Looking ahead, we expect our ophthalmic business to continue to benefit from the growing contributions from the commercialization of the VersaVIT™ system and the associated sales of disposable products as utilization of the installed base increases. We remain focused on leveraging our sales growth into improving margin performance to drive long term earnings performance and shareholder returns."

Fourth Quarter Results

Fourth quarter of fiscal 2013 sales totaled $17.9 million, an increase of 5.9%, compared to sales of $16.9 million in the fourth quarter of fiscal 2012. Fourth quarter sales performance was driven primarily by an 8.7% increase in OEM sales and by a 2.9% increase in Ophthalmic sales. Other revenues increased 42.2% year-over-year to $268,400. 

  • Total Domestic sales increased 7.6% to $13.3 million in the fourth quarter of fiscal 2013, driven primarily by higher OEM sales and by growth in Domestic Ophthalmic sales year-over-year. International sales of $4.5 million this quarter increased 1.2% year-over-year primarily due to increased sales of VersaVIT™ vitrectomy systems and procedural kits and contributions from additional sales from distributors in the U.K. and Canada offsetting lower sales in emerging markets compared to last year.

  • Total Ophthalmic sales increased 2.9% to $9.4 million, compared with $9.2 million in the fourth quarter of fiscal 2012. Domestic Ophthalmic sales increased 4.4% primarily due to increased sales of VersaVIT™ vitrectomy systems and procedural kits. International Ophthalmic sales increased 1.3% year-over-year primarily due to additional sales from distributors in Canada and the U.K. and increased sales of VersaVIT™ vitrectomy systems and procedural kits. Excluding the contributions from the acquisition of our U.K. distributor, M.I.S.S. Ophthalmics, in the period, International Ophthalmic sales were flat year-over-year.

  • Total OEM sales increased 8.7% to $8.2 million, compared with $7.5 million in the fourth quarter of fiscal 2012. OEM sales include sales to our marketing partners. The increase in OEM sales benefited primarily from strong disposable forceps and electrosurgical generator sales to Codman & Shurtleff, Inc. ("Codman") and Stryker Corporation ("Stryker") which offset the loss of approximately $0.7 million from Mobius Therapeutics, LLC sales in the fourth quarter of 2013. Product sales to our two major customers, Codman and Stryker, increased 21.1%.

  • Disposable product sales totaled $14.4 million, an increase of 5.0% compared with sales of $13.8 million in the fourth quarter of fiscal 2012. Capital equipment sales totaled $3.1 million in the fourth quarter of fiscal 2013 compared with $2.8 million in the fourth quarter of fiscal 2012, an increase of 11.2% year-over-year. 

Gross profit for the fourth quarter of fiscal 2013 totaled $9.7 million, or 54.2% of sales, compared with $9.8 million, or 58.2% of sales, in the fourth quarter of fiscal 2012. Year-over-year gross margin performance was impacted by product mix including the mix of products within our ophthalmology product line and the mix of OEM sales in fiscal 2013 and the impacts of foreign currency.

Total operating expenses increased 9.0% year-over-year to $7.5 million, or 41.9% of sales, in the fourth quarter of fiscal 2013 from $6.9 million, or 40.7% of sales, in the comparable period. Research and development expenses declined 2.6% and comprised 5.5% of sales compared to 6.0% last year. Sales and marketing expenses increased 13.5% and were 19.3% of sales compared to 18.0% last year. General and administrative expenses rose 3.9%, representing 16.4% of sales compared to 16.7% last year. The increase in selling and marketing expenses was largely due to investments in VersaVit™ commercialization, and the increase in G&A expense was primarily driven by costs associated with our acquisition of M.I.S.S. Ophthalmics in the period. Fourth quarter of fiscal 2013 operating expenses were impacted by the medical device excise tax of $129,000, or 0.7% of sales, which the Company began paying in January 2013 and did not impact results in the prior year period.

Reported operating income for the fourth quarter of fiscal 2013 declined 25.6% to $2.2 million, compared with $2.9 million last year. Operating income was negatively impacted by growth in operating expenses largely due to investments in VersaVIT™ commercialization, and by higher cost of goods sold compared to the fourth quarter of fiscal 2012.

Reported net income declined 25.9% year-over-year to $1.4 million, or $0.06 per diluted share, from $1.9 million, or $0.08 per diluted share, for the same period of fiscal 2012. The Company's cash flow from operating activity was $2.5 million, an increase of 358.3% year-over-year from $0.5 million in the prior year fourth quarter. Earnings before interest, taxes, depreciation and amortization, or EBITDA, totaled $2.6 million in the fourth quarter of fiscal 2013, down 18.8% from EBITDA of $3.3 million in the prior year fourth quarter. 

Refer to the tables at the end of this release for a reconciliation of GAAP net income to EBITDA, GAAP operating income to adjusted operating income and GAAP diluted earnings per share to adjusted non-GAAP earnings per share and the "Use of Non-GAAP Financial Information" section below.

Fiscal Year Results and Balance Sheet

Total sales for fiscal year 2013 increased 4.6% to $62.8 million, compared with $60.0 million in the same period last year. Income from continuing operations for fiscal year 2013 declined 57.1% to $2.6 million, or $0.10 per diluted share, compared to $6.0 million, or $0.24 per diluted share, in fiscal year 2012. Net income for fiscal year 2013 declined 54.2% to $2.6 million, or $0.10 per diluted share, versus $5.6 million, or $0.22 per diluted share, in fiscal year 2012. Reported net income per diluted share in fiscal year 2013 includes approximately $0.06 resulting from an excess inventory write-down in the period, as compared to $0.01 resulting from an obsolete inventory write-down in fiscal year 2012. Excluding the impacts of the inventory write-downs, income from operations for fiscal year 2013 declined 36% to $0.16 per diluted share, versus $0.25 per diluted share in fiscal year 2012, primarily due to our investment in new product launches. These results exclude the loss from discontinued operations of approximately $382,000, or $0.02 per diluted share, related to the completion of the sale of assets from our plastic injection molding business and approximately $367,000, or $0.01 per diluted share, from an inventory write-down in fiscal year 2012.

As of July 31, 2013, the Company had approximately $12.5 million in cash on its balance sheet and no debt compared with $12.7 million in cash and no debt at the end of fiscal 2012.

Conference Call Information

Synergetics USA, Inc. will host a conference call on Tuesday, October 1, 2013 at 4:00 p.m. Central Time (5:00 p.m. Eastern) to review the Company's results for the fiscal fourth quarter and fiscal year ended July 31, 2013. The toll free dial-in number to participate live on this call is (800) 588-4973, confirmation code 35678823. For callers outside the U.S., the number is (847) 230-5643. The conference call will also be available live via webcast at http://www.synergeticsusa.com. A replay will be available on the Company's website for approximately 30 days.

About Synergetics USA, Inc.

Through continuous improvement and development of our people, our mission is to design, manufacture and market innovative surgical devices, capital equipment, accessories and disposables of the highest quality in order to assist and enable surgeons who perform surgery around the world to provide a better quality of life for their patients. 

Synergetics USA, Inc. (the "Company") is a leading supplier of precision surgical devices. The Company's primary focus is on the disciplines of ophthalmology and neurosurgery. Our distribution channels include a combination of direct and independent sales distributor organizations, both domestically and internationally, and important strategic alliances with market leaders. The Company's product lines focus upon precision engineered, disposable and reusable devices, surgical equipment, procedural kits and the delivery of various energy modalities for the performance of surgery including: (i) laser energy, (ii) ultrasonic energy, (iii) radio frequency energy 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 http://www.synergeticsusa.com.

Use of Non-GAAP Financial Information

The Company measures its performance primarily through its operating profit. In addition to results reported in accordance with GAAP, the Company provides adjusted operating income and margin, EBITDA and adjusted diluted earnings per share. These adjusted amounts consist of GAAP amounts excluding the following adjustment to the extent occurring during the period: inventory write-downs and disposition charges. Adjusted earnings per diluted share were calculated by dividing adjusted net income for diluted earnings per share by diluted weighted average shares outstanding. The Company believes that the presentation of adjusted operating income and margin, EBITDA and adjusted diluted earnings per share provides important supplemental information to management and investors seeking to understand the financial and business trends relating to our financial condition and results of operations.

These non-GAAP measures are considered by the Company's Board of Directors and management as a basis for measuring and evaluating the Company's overall operating performance and ability to service debt. They are presented to enhance an understanding of the Company's operating results and are not intended to represent cash flow or results of operations.

These non-GAAP measures are not in accordance with, or an alternative to, measures prepared in accordance with GAAP and may be different from non-GAAP measures used by other companies. In addition, these non-GAAP measures are not based on any comprehensive set of accounting rules or principles. Non-GAAP measures have limitations in that they do not reflect all of the amounts associated with the Company's results of operations as determined in accordance with GAAP. These measures should only be used to evaluate the Company's results of operations in conjunction with the corresponding GAAP measures.

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 the Company's Annual Report on Form 10-K for the year ended July 31, 2013, as amended, as updated from time to time in our filings with the Securities and Exchange Commission. The Company is not responsible for updating the information contained in this press release beyond the published date, or for changes made to this document by wire services or Internet services.

   
Synergetics USA, Inc. and Subsidiaries  
Consolidated Statements of Income and Comprehensive Income  
Three and Twelve Months Ended July 31, 2013, and 2012  
(Dollars in thousands, except share and per share data)  
   
    Three Months Ended July 31, 2013     Three Months
Ended July 31,
2012
    Twelve Months Ended July 31, 2013     Twelve Months
Ended July 31,
2012
 
Net sales   $ 17,857     $ 16,861     $ 62,796     $ 60,014  
Cost of sales     8,181       7,052       30,425       24,495  
Gross profit     9,676       9,809       32,371       34,519  
Operating expenses                                
Research and development     983       1,009       3,643       3,642  
Sales and marketing     3,438       3,030       13,805       11,881  
Medical device excise tax     129       --       289       --  
General and administrative     2,933       2,824       10,932       10,515  
      7,483       6,863       28,669       26,038  
Operating income     2,193       2,946       3,702       8,481  
Other income (expenses)                                
Investment income     13       8       31       40  
Interest expense     (2 )     --       (9 )     (43 )
Miscellaneous     --       (4 )     (35 )     (11 )
      11       4       (13 )     (14 )
Income from continuing operations before provision for income taxes    

2,204
     

2,950
     

3,689
     

8,467
 
Provision for income taxes     765       1,008       1,130       2,499  
Income from continuing operations     1,439       1,942       2,559       5,968  
Loss from discontinued operations, net of income tax benefit of $--, $--, $-- and $193, respectively    

--
     

--
     

--
     

(382
)
Net income   $ 1,439     $ 1,942     $ 2,559     $ 5,586  
Earnings per share:                                
Basic                                
  Income from continuing operations   $ 0.06     $ 0.08     $ 0.10     $ 0.24  
  Loss from discontinued operations     --       --       --       (0.02 )
  Net income   $ 0.06     $ 0.08     $ 0.10     $ 0.22  
Diluted                                
  Income from continuing operations   $ 0.06     $ 0.08     $ 0.10     $ 0.24  
  Loss from discontinued operations     --       --       --       (0.02 )
  Net income   $ 0.06     $ 0.08     $ 0.10     $ 0.22  
Basic weighted average common shares outstanding    
25,290,882
     
25,165,493
     
25,243,010
     
25,100,064
 
Diluted weighted average common shares outstanding    
25,367,558
     
25,293,168
     
25,337,525
     
25,256,584
 
Net income   $ 1,439     $ 1,942     $ 2,559     $ 5,586  
Foreign currency translation adjustment     31       (633 )     47       (595 )
Comprehensive income   $ 1,470     $ 1,309     $ 2,606     $ 4,991  
                                 
                                 
                                 
SYNERGETICS USA, INC. AND SUBSIDIARIES
Unaudited Table of Income from Continuing Operations and EBITDA
Three and Twelve Months Ended July 31, 2013, and 2012
(In thousands)
 

EBITDA Reconciliation
  Three Months
Ended July 31, 2013
  Three Months
Ended July 31, 2012
Income from Continuing Operations   $ 1,439   $ 1,942
Interest     2     --
Income taxes     765     1,008
Depreciation     267     198
Amortization     176     115
EBITDA   $ 2,649   $ 3,263
             
EBITDA Reconciliation   Twelve Months
Ended July 31, 2013
  Twelve Months
Ended July 31, 2012
Income from Continuing Operations   $ 2,559   $ 5,968
Interest     9     43
Income taxes     1,130     2,499
Depreciation     1,123     1,093
Amortization     680     600
EBITDA   $ 5,501   $ 10,203
             
             
             
SYNERGETICS USA, INC. AND SUBSIDIARIES  
Unaudited Table of Adjusted Operating Income, Operating Margin and Non-GAAP EPS  
Twelve Months Ended July 31, 2013, and 2012  
(Dollars in thousands, except per share information)  
   
    Twelve Months Ended  
    July 31, 2013     July 31, 2012  
Adjusted Operating Income                
GAAP operating income   $ 3,702     $ 8,481  
  Inventory write-down     2,092       367  
  Adjusted operating income   $ 5,794     $ 8,848  
  Net sales   $ 62,796     $ 60,014  
  Adjusted operating margin     9.2 %     14.7 %
EBITDA   $ 5,501     $ 10,203  
                 
Non-GAAP EPS Impact                
  Inventory write-down   $ 2,092     $ 367  
  Effective tax rate     30.6       29.5  
  Tax effected write-down   $ 1,452     $ 259  
  Diluted weighted average common shares     25,337,525       25,256,584  
  Diluted earnings per share   $ 0.06     $ 0.01  
                 
                 
                 
Synergetics USA, Inc. and Subsidiaries  
Consolidated Balance Sheets  
As of July 31, 2013 and 2012  
(Dollars in thousands, except share data)  
   
    2013     2012  
Assets                
Current Assets                
  Cash and cash equivalents   $ 12,470     $ 12,680  
  Accounts receivable, net of allowance for doubtful accounts of $495 and $319, respectively     14,425       11,796  
  Inventories     14,825       15,679  
  Income taxes refundable     254       --  
  Prepaid expenses     996       825  
  Deferred income taxes     1,827       1,247  
      Total current assets     44,797       42,227  
Property and equipment, net     8,962       9,239  
Intangible and other assets                
  Goodwill     12,155       10,660  
  Other intangible assets, net     11,715       11,277  
  Deferred income taxes     3,557       4,088  
  Patents, net     1,411       1,179  
  Cash value of life insurance     96       93  
      Total assets   $ 82,693     $ 78,763  
Liabilities and stockholders' equity                
Current Liabilities                
  Accounts payable   $ 3,237       2,144  
  Accrued expenses     3,486       2,844  
  Income taxes payable     --       191  
  Deferred revenue     1,288       1,288  
      Total current liabilities     8,011       6,467  
Long-Term Liabilities                
  Deferred revenue     14,530       15,818  
      Total long-term liabilities     14,530       15,818  
      Total liabilities     22,541       22,285  
Commitments and contingencies                
Stockholders' Equity                
  Common stock at July 31, 2013 and July 31, 2012, $0.001 par value, 50,000,000 shares authorized; 25,292,960 and 25,160,069 shares issued and outstanding, respectively     25       25  
  Additional paid-in capital     27,489       26,421  
  Retained earnings     33,097       30,538  
  Accumulated other comprehensive loss:                
    Foreign currency translation adjustment     (459 )     (506 )
      Total stockholders' equity     60,152       56,478  
      Total liabilities and stockholders' equity   $ 82,693     $ 78,763  
                 
                 
                 
Synergetics USA Inc. and Subsidiaries  
Consolidated Statements of Cash Flows  
Twelve Months Ended July 31, 2013 and 2012  
(Dollars in thousands)  
   
    Twelve Months Ended
July 31, 2013
    Twelve Months Ended
July 31, 2012
 
Cash Flows from operating activities                
  Net income   $ 2,559     $ 5,586  
  Plus: Loss from discontinued operations - net of tax     --       382  
  Income from continuing operations     2,559       5,968  
  Adjustments to reconcile net income to net cash provided by (used in) operating activities                
    Depreciation     1,123       1,093  
    Amortization     680       600  
    Provision for doubtful accounts receivable     207       50  
    Stock-based compensation     931       764  
    Deferred income taxes     (49 )     153  
    Loss on sale of equipment     35       --  
Changes in assets and liabilities                
  (Increase) decrease in:                
    Accounts receivable     (2,553 )     (843 )
    Inventories     1,191       (3,695 )
    Prepaid expenses     (130 )     93  
    Income taxes refundable     (254 )     219  
  (Decrease) increase in:                
    Accounts payable     845       615  
    Accrued expenses     603       (183 )
    Deferred revenue     (1,288 )     (1,494 )
    Income taxes payable     (235 )     (5,848 )
      Net cash provided by (used in) continuing operating activities     3,665       (2,508 )
Net cash provided by discontinued operations     --       59  
Net cash provided by (used in) operating activities     3,665       (2,449 )
                   
Cash Flows from investing activities                
    Proceeds on the sale of equipment     55       --  
    Purchase of property and equipment     (550 )     (1,809 )
    Acquisition of patents and other intangibles     (412 )     (214 )
    Acquisitions, less cash acquired     (2,848 )     --  
    Increase in cash value of life insurance     (3 )     (11 )
      Net cash used in continuing investing activities     (3,758 )     (2,034 )
                   
Cash Flows from financing activities                
    Payment on debt incurred for acquisition of trademark     --       (313 )
    Principal payments on long-term debt     --       (740 )
    Tax benefit associated with the exercise of non-qualified stock options     72       24  
    Proceeds from the issuance of common stock     65       35  
      Net cash provided by (used in) financing activities     137       (994 )
Foreign exchange rate effect on cash and cash equivalents     (254 )     (242 )
Net decrease in cash and cash equivalents     (210 )     (5,719 )
Cash and cash equivalents                
  Beginning     12,680       18,399  
  Ending   $ 12,470     $ 12,680  
                   
  Supplemental Disclosures of Cash Flow Information                
  Cash paid for:                
  Interest   $ 9     $ 63  
  Income taxes paid     1,568       7,950  
  Supplemental Schedule of Non-cash Investing and Financing Activity                
  Purchase of equipment included in accounts payable     120       --  
                 
                 
                 
Contact:
SYNERGETICS USA, INC.
3845 Corporate Centre Drive
O'Fallon, Missouri 63368
(636) 939-5100
http://www.synergeticsusa.com
Pamela G. Boone
Chief Financial Officer
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