Synergetics Reports Second Quarter Fiscal Year 2013 Results

Marketwired

O'FALLON, MO--(Marketwire - Mar 12, 2013) - Synergetics USA, Inc. (NASDAQ: SURG), a medical device company that designs, manufactures, and markets innovative surgical devices for ophthalmic and neurosurgical applications, today reported results for the second quarter ended January 31, 2013. 

Second Quarter Summary:

  • Total sales were $14.1 million, a year-over-year decline of 6.8%.
  • Ophthalmic sales declined 2.5% and OEM sales declined 13.3% year-over-year.
  • Domestic sales declined 8.6% and International sales declined 1.5% year-over-year.
  • Disposable products sales declined 3.9% and capital equipment sales declined 15.1% year-over-year.
  • $2 million pre-tax write-off of excess inventory negatively impacts gross margin.
  • More than 1,200 vitrectomies performed since VersaVIT™ launch in late 2012.

Second quarter fiscal 2013 sales declined 6.8% to $14.1 million and net income declined 174% year-over-year to a loss of $1.4 million, or $0.05 per share, compared to net income of $1.9 million, or $0.07 per diluted share, in the second quarter of fiscal 2012.

"We were disappointed with our second quarter performance on both the top and bottom line. Total sales growth was pressured chiefly by ongoing competitive challenges in our base Ophthalmic business and fluctuating order patterns in our OEM business," stated Dave Hable, President and CEO of Synergetics USA, Inc. "Earnings performance was impacted by the combination of slower sales growth and lower margins due primarily to the measures we took to improve our inventory position this quarter. Despite the slower sales growth, we remain encouraged by the early market positive response for VersaVIT™, our innovative, portable vitrectomy machine and related procedural kits, which launched late last year. We expect improving performance over the balance of fiscal 2013 driven by improving order flow from our OEM partners and increasing contributions from our VersaVIT™ franchise."

Second Quarter Results

Second quarter sales declined 6.8% to $14.1 million compared $15.1 million in the second quarter of fiscal 2012. The decline in second quarter sales compared to last year was due primarily to lower OEM sales and to a lesser extent by a decline in Ophthalmic sales. 

  • Total Ophthalmic sales declined 2.5% to $8.7 million compared with $8.9 million in the second quarter of fiscal 2012. Total Ophthalmic sales were flat sequentially. Ophthalmic sales declined due to lower sales of capital equipment, disposables and repairs in our base business product portfolio. This weakness was partially offset by new product sales, specifically, in sales of systems and procedural kits related to the commercialization of the Company's new vitrectomy machine, the VersaVIT™. 

  • Total OEM sales declined 13.3% to $5.2 million compared with $6.0 million in the second quarter of fiscal 2012. The decrease in OEM sales during the second quarter resulted primarily from one of our marketing partners rebalancing disposable inventory during the quarter, partially offset by strong disposable sales to our other marketing partner. Sales of capital equipment declined year-over-year as well due largely to unusual ordering patterns with our partners. The Company expects to recover this business in the second half of fiscal 2013. OEM sales also included deferred revenue of $322,000 recognized in the second quarter of fiscal 2013 compared with $453,000 in the second quarter of fiscal 2012.

  • Disposable product sales declined 3.9%, or $0.5 million, to $11.4 million in the second quarter of fiscal 2013 compared with the second quarter of fiscal 2012. Disposable sales accounted for approximately 81% of total sales in the second quarter of fiscal 2013. This softness was attributable to weak trends in the Ophthalmic base business due to competitive pressures and a reduction in orders from our OEM partner for disposable neurosurgery products due to year-end inventory rebalancing measures.

  • Capital equipment sales declined 15.1% to $2.3 million in the second quarter of fiscal 2013 compared with $2.7 million in the second quarter of fiscal 2012. 

Gross profit for the second quarter of fiscal 2013 was $5.2 million, or 36.8% of sales, compared with $9.0 million, or 59.5% of sales, in the second quarter of fiscal 2012. The decline in gross profit margin in the second quarter of fiscal 2013 was driven primarily by the following four factors: (i) an approximate $2.0 million write-off of excess inventory and its associated labor and overhead negatively impacted our margin by 14.3 percentage points; (ii) weak demand for both our disposables and capital equipment reduced our ability to absorb labor and overhead and negatively impacted margin by 3.3 percentage points; (iii) the decreased benefit from the foreign currency exchange negatively impacted margin by 1.4 percentage points; and (iv) the decreased benefit from the deferred revenue negatively impacted margin by 0.9 percentage points. The gross margin was also negatively impacted by the unfavorable mix of products within our domestic ophthalmology product line and between our domestic and international sales.

Research and development expenses declined 10.4% to $827,000, or 5.9% of net sales, in the most recent quarter compared with $923,000, 6.1% of net sales, in the second quarter of fiscal 2012. Sales and marketing expenses increased 23.2% to $3.6 million, or 25.5% of sales, for the second quarter of fiscal 2013 compared with $2.9 million, or 19.3% of net sales, for the second quarter of fiscal 2012. The increase was primarily due to expenses related to the commercialization of the VersaVIT™ vitrectomy system in the period. General and administrative expenses increased 13.7% to $2.9 million, or 20.4% of net sales, in the second quarter of fiscal 2012, compared with $2.5 million, or 16.7% of net sales, for the second quarter of fiscal 2012. The increase in general and administrative expenses as a percentage of net sales was primarily due to higher compensation expenses compared to the prior year period.

Operating loss for the second quarter of fiscal 2013 was $2.1 million compared with operating income of $2.6 million in the second quarter of fiscal 2012. The decrease in operating income was primarily the result of the decline in sales and a 45.4 percent increase in cost of sales, primarily due to the $2.0 million excess inventory write-off in the period.

The Company reported a net loss of $1.4 million for the second quarter of fiscal 2013, a change of $3.2 million from net income of $1.9 million for the same period in fiscal 2012. Basic and diluted earnings per share from continuing operations for the second quarter of fiscal 2013 were a loss of $0.05 as compared to basic and diluted earnings per share of $0.07 for the second quarter of fiscal 2012.

Six Months Results and Balance Sheet

Total sales for the first six months of fiscal 2013 increased 0.3% to $28.7 million compared with $28.6 million in the same period last year. Net loss from continuing operations was $30,000 for the first six months of fiscal 2013, a change of $3.0 million from net income from continuing operations of $3.0 million for the same period in fiscal 2012. Basic and diluted earnings per share from continuing operations for the first six months of fiscal 2013 was $0.00 as compared to basic and diluted earnings from continuing operations per share of $0.12 for the first six months of fiscal 2012.

As of January 31, 2013, the Company had approximately $11.7 million in cash and no interest-bearing debt on its balance sheet.

Conference Call Information

Synergetics USA, Inc. will host a conference call on Wednesday, March 13, 2013, 9:30 a.m. Central Time (10:30 a.m. Eastern). The toll free dial-in number to participate live on this call is (800) 588-4973, confirmation code 34285098. 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, surgical equipment and consumables 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. 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 distributor sales organizations 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.

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, 2012, 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  
Condensed Consolidated Statements of Operations and Comprehensive Income  
Three Months and Six Months Ended January 31, 2013 and 2012  
(Dollars in thousands, except share and per share data)  
   
    Three Months Ended January 31, 2013     Three Months Ended January 31, 2012     Six Months Ended January 31, 2013     Six Months Ended January 31, 2012  
Net sales   $ 14,055     $ 15,080     $ 28,675     $ 28,585  
Cost of sales     8,884       6,108       15,031       11,696  
    Gross profit     5,171       8,972       13,644       16,889  
Operating expenses                                
  Research and development     827       923       1,688       1,713  
  Sales and marketing     3,580       2,906       6,843       5,983  
  General and administrative     2,872       2,525       5,280       5,063  
      7,279       6,354       13,811       12,759  
    Operating (loss) income     (2,108 )     2,618       (167 )     4,130  
Other income (expenses)                                
  Investment income     6       9       13       23  
  Interest expense     (4 )     (15 )     (4 )     (33 )
  Medical device excise tax     (45 )     --       (45 )     --  
  Miscellaneous     (20 )     (4 )     (23 )     (6 )
      (63 )     (10 )     (59 )     (16 )
    (Loss) income from continuing operations before provision for income taxes     (2,171 )     2,608       (226 )     4,114  
Provision for income taxes     (789 )     741       (196 )     1,094  
    (Loss) income from continuing operations     (1,382 )     1,867       (30 )     3,020  
  Loss from discontinued operations, net of income tax benefit of $0 and $193, respectively     --       --       --       (382 )
    Net (loss) income   $ (1,382 )   $ 1,867     $ (30 )   $ 2,638  
Earnings per share:                                
  Basic                                
    (Loss) income from continuing operations   $ (0.05 )   $ 0.07     $ (0.00 )   $ 0.12  
    Loss from discontinued operations     0.00       0.00       0.00       (0.02 )
    Net (loss) income   $ (0.05 )   $ 0.07     $ (0.00 )   $ 0.10  
  Diluted                                
    (Loss) income from continuing operations   $ (0.05 )   $ 0.07     $ (0.00 )   $ 0.12  
    Loss from discontinued operations     0.00       0.00       0.00       (0.02 )
    Net (loss) income   $ (0.05 )   $ 0.07     $ (0.00 )   $ 0.10  
  Basic weighted average common shares outstanding     25,230,142       25,085,296       25,195,449       25,028,165  
  Diluted weighted average common shares outstanding     25,230,142       25,280,449       25,195,449       25,200,831  
Net (loss) income   $ (1,382 )   $ 1,867     $ (30 )   $ 2,638  
Foreign currency translation adjustment     184       122       254       93  
Comprehensive (loss) income   $ (1,198 )   $ 1,989     $ 224     $ 2,731  

See Notes to Unaudited Condensed Consolidated Financial Statements.

   
   
Synergetics USA, Inc. and Subsidiaries  
Condensed Consolidated Balance Sheets  
As of January 31, 2013 (Unaudited) and July 31, 2012  
(Dollars in thousands, except share data)  
   
    January 31, 2013     July 31, 2012  
Assets                
Current Assets                
  Cash and cash equivalents   $ 11,684     $ 12,680  
  Accounts receivable, net of allowance for doubtful accounts of $358 and $319, respectively     11,203       11,796  
  Inventories     15,180       15,679  
  Income taxes refundable     1,161       --  
  Prepaid expenses     1,157       825  
  Deferred income taxes     1,909       1,247  
      Total current assets     42,294       42,227  
Property and equipment, net     8,998       9,239  
Intangible and other assets                
  Goodwill     10,660       10,660  
  Other intangible assets, net     11,020       11,277  
  Deferred income taxes     3,852       4,088  
  Patents, net     1,234       1,179  
  Cash value of life insurance     93       93  
      Total assets   $ 78,151     $ 78,763  
Liabilities and stockholders' equity                
Current Liabilities                
  Accounts payable   $ 1,901     $ 2,144  
  Accrued expenses     2,471       2,844  
  Income taxes payable     --       191  
  Deferred revenue     1,288       1,288  
      Total current liabilities     5,660       6,467  
Long-Term Liabilities                
  Deferred revenue     15,174       15,818  
      Total long-term liabilities     15,174       15,818  
      Total liabilities     20,834       22,285  
Commitments and contingencies                
Stockholders' Equity                
  Common stock at January 31, 2013 and July 31, 2012, $0.001 par value, 50,000,000 shares authorized; 25,298,681 and 25,160,069 shares issued and outstanding, respectively     25       25  
  Additional paid-in capital     27,037       26,421  
  Retained earnings     30,507       30,538  
  Accumulated other comprehensive (loss):                
    Foreign currency translation adjustment     (252 )     (506 )
      Total stockholders' equity     57,317       56,478  
      Total liabilities and stockholders' equity   $ 78,151     $ 78,763  

See Notes to Unaudited Condensed Consolidated Financial Statements.

   
   
Synergetics USA Inc. and Subsidiaries  
Condensed Consolidated Statements of Cash Flows  
Six Months Ended January 31, 2013 and 2012  
(Dollars in thousands, except share data)  
   
    Six Months Ended January 31, 2013     Six Months Ended January 31, 2012  
Cash Flows from Operating Activities                
  Net (loss) income   $ (30 )   $ 2,638  
  Plus: Loss from discontinued operations - net of tax     --       382  
  (Loss) income from continuing operations     (30 )     3,020  
  Adjustments to reconcile net income to net cash used in operating activities                
    Depreciation     542       570  
    Amortization     317       324  
    Provision for doubtful accounts receivable     31       --  
    Stock-based compensation     456       275  
    Deferred income taxes     (426 )     221  
Changes in assets and liabilities                
  (Increase) decrease in:                
    Accounts receivable     781       617  
    Inventories     591       (1,361 )
    Prepaid expenses     (297 )     (258 )
    Income taxes refundable     (1,161 )     (31 )
  (Decrease) increase in:                
    Accounts payable     (256 )     804  
    Accrued expenses     (384 )     (428 )
    Deferred revenue     (644 )     (851 )
    Income taxes payable     (191 )     (6,039 )
      Net cash used in continuing operating activities     (671 )     (3,137 )
Net cash provided by discontinued operations     --       34  
Net cash used in operating activities     (671 )     (3,103 )
                 
Cash Flows from Investing Activities                
    Purchase of property and equipment     (301 )     (983 )
    Acquisition of patents and other intangibles     (115 )     (162 )
      Net cash used in continuing investing activities     (416 )     (1,145 )
                 
Cash Flows from Financing Activities                
    Payment on debt incurred for acquisition of trademark     --       (313 )
    Tax benefit associated with the exercise of non-qualified stock options     72       8  
    Proceeds from the issuance of common stock     88       5  
      Net cash provided by (used in) financing activities     160       (300 )
Foreign exchange rate effect on cash and cash equivalents     (69 )     79  
Net decrease in cash and cash equivalents     (996 )     (4,469 )
Cash and cash equivalents                
    Beginning     12,680       18,399  
    Ending   $ 11,684     $ 13,930  
                 

See Notes to Unaudited Condensed Consolidated Financial Statements.

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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