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Surmodics' (SRDX) Q3 Earnings, Revenues Fall Shy of Estimates

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·5 min read
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  • SRDX
  • WST
  • EHC

Surmodics, Inc. SRDX delivered adjusted loss per share of 17 cents in the fiscal third quarter of 2021 against the year-ago quarter’s adjusted earnings per share (“EPS”) of 21 cents. The figure was wider than the Zacks Consensus Estimate of a loss of 11 cents per share.

GAAP loss per share for the quarter was 24 cents against the year-earlier EPS of 18 cents.

Revenues in Detail

Surmodics registered revenues of $23.9 million in the fiscal third quarter, down 11.2% year over year. The figure lagged the Zacks Consensus Estimate by 0.3%.

Although the company reported year-over-year fall in overall revenues, the top line was boosted by continued strength in its In Vitro Diagnostics (“IVD”) and royalty revenues.

Segmental Analysis

Surmodics operates via two reportable segments — Medical Device and IVD.

In the reported quarter, sales at the Medical Device segment summed $16.8 million, down 18.3% from the year-ago quarter.

In the quarter under review, IVD sales jumped 11.8% to $7.1 million, driven by favorable order timing for the company’s distributed antigen products as well as microarray slide development projects.

The company also derives revenues from three primary sources — Product sales, Royalties and license fees, and Research, development and other fees.

In the quarter under review, Product sales were $12.1 million, up 0.8% from the prior-year quarter. Royalty and license fee revenues totaled $8.8 million, down 29.1% from the prior-year quarter. Research, development and other revenues were $2.9 million, up 19.8% year over year.

Surmodics, Inc. Price, Consensus and EPS Surprise

Surmodics, Inc. Price, Consensus and EPS Surprise
Surmodics, Inc. Price, Consensus and EPS Surprise

Surmodics, Inc. price-consensus-eps-surprise-chart | Surmodics, Inc. Quote

Margin Trend

In the quarter under review, Surmodics’ gross profit fell 16.4% to $18.8 million. Gross margin contracted 486 basis points (bps) to 78.6%.

Selling, general & administrative expenses rose 6.3% to $7.9 million. Research and development expenses went down 8.1% year over year to $12.2 million. Adjusted operating expenses of $20.1 million declined 2.9% year over year.

Adjusted operating loss totaled $1.4 million against the prior-year quarter’s adjusted operating income of $1.7 million.

Financial Position

Surmodics exited the fiscal 2021 third quarter with cash and cash equivalents of $62.2 million compared with $48.2 million at the end of fiscal second quarter. The company ended the quarter with no debt on its balance sheet.

Cumulative net cash flow from operating activities at the end of the fiscal third quarter was $14.5 million compared with $12.7 million a year ago.

Fiscal 2021 Guidance

On the back of its performance for the first nine months of fiscal 2021, Surmodics has raised its full-year financial outlook.

The company now projects current fiscal year revenues to be within the range of $103.5-$105.5 million, up from the previous range of $101-$105 million. The Zacks Consensus Estimate for the same is currently pegged at $103.4 million.

Adjusted diluted EPS for fiscal 2021 is expected within the range of 16-31 cents, narrowed from the previous expectation of 10-35 cents. The Zacks Consensus Estimate for the same is currently pegged at 31 cents, which matches the upper end of the company-provided guidance.

Our Take

Surmodics exited the third quarter of fiscal 2021 with lower-than-expected results. The company reported dismal year-over-year top- and bottom-line results, which is concerning. Lower revenues from the Medical Device segment, as well as lower royalty and license fees, are discouraging. Gross margin expansion also does not bode well for the stock. Surmodics incurred operating loss in the reported quarter, which further raises our apprehension.

On a positive note, Surmodics registered robust revenues from its IVD segment as well as revenues from its Product sales, and research, development and other business. On the regulatory front, the company completed the submission of its final premarket approval for the SurVeil drug-coated balloon. Surmodics also received the FDA’s 510(k) clearance for Sublime .018 RX PTA Dilatation Catheter and on expanded indication for Pounce Thrombectomy System for use in vessels as small as 3.5 mm. These developments buoy our optimism.

The company saw a successful first-patient usage of Pounce Thrombectomy System for arterial clot removal in the quarter. Surmodics also completed the buyout of Vetex Medical Limited, thus expanding its thrombectomy portfolio with a second FDA 510(k)-cleared device — ReVene Thrombectomy Catheter. These developments instill our confidence on the stock.

Zacks Rank and Stocks to Consider

Surmodics currently carries a Zacks Rank #4 (Sell).

Some better-ranked stocks in the broader medical space that have announced their quarterly results are Encompass Health Corporation EHC, West Pharmaceutical Services, Inc. WST and Hill-Rom Holdings, Inc. HRC.

Encompass Health, carrying a Zacks Rank #1 (Strong Buy), reported second-quarter 2021 adjusted EPS of $1.17, which beat the Zacks Consensus Estimate by 15.8%. Second-quarter revenues of $1.3 billion outpaced the consensus mark by 1.5%. You can see the complete list of today’s Zacks #1 Rank stocks here.

West Pharmaceutical reported second-quarter 2021 adjusted EPS of $2.46, which surpassed the Zacks Consensus Estimate by 41.4%. Second-quarter revenues of $723.6 million outpaced the Zacks Consensus Estimate by 8.7%. It currently carries a Zacks Rank #2 (Buy).

Hill-Rom reported third-quarter fiscal 2021 adjusted EPS of $1.38, which beat the Zacks Consensus Estimate by 2.9%. Fiscal third-quarter revenues of $717.7 million outpaced the consensus mark by 1.6%. It currently carries a Zacks Rank #2.


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