Synergetics USA, Inc. Reports Fourth Quarter And Fiscal Year 2014 Results

O’FALLON, MO--(Marketwired - October 14, 2014) - 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, 2014.

Fourth Quarter Summary:

• Total sales were $18.0 million, an increase of 0.8% year-over-year.
• OEM sales increased 2.0% and Ophthalmic sales increased 0.8% year-over-year.
• Domestic sales increased 0.4% and International sales increased 2.3% year-over-year.
• Disposable product sales increased 7.5% and capital equipment sales decreased 30.1%.
• GAAP EPS was $0.06 compared to $0.06 in the fourth quarter last year.
• Cash flow from operations increased 69% to $4.2 million, compared to $2.5 million last year.
• EBITDA increased 4.2% to $2.8 million, compared to $2.7 million last year.

Fiscal Year Summary:

• Total sales were $64.8 million, up 3.1% year-over-year.
• OEM sales increased 8.3% and Ophthalmic sales decreased 0.6% year-over-year.
• Domestic sales increased 4.1% and International sales increased 0.3% year-over-year.
• GAAP EPS was $0.12 versus $0.10 for the comparable period last year.
• Non-GAAP EPS was $0.14 versus $0.16 in fiscal year 2013.
• EBITDA increased 20% to $6.6 million, compared to $5.5 million in fiscal year 2013.

“Fourth quarter sales and cash flows reflect improving operating and financial performance across our businesses in both the U.S. and international markets,” said David M. Hable, the Company’s President and Chief Executive Officer. “Fiscal 2014 was marked by many positive milestones, including the performance of nearly 7,000 vitrectomy procedures with our innovative VersaVIT™ system, the launch of our second generation VersaVIT™ machine in June and significant progress toward our goal of launching new disposable products in both our ophthalmic and OEM businesses to drive sales and continue shifting our product mix toward categories with long-term, sustainable, demand trends.”

Fourth Quarter Results

Fourth quarter of fiscal 2014 sales totaled $18.0 million, an increase of 0.8%, compared to sales of $17.9 million in the fourth quarter of fiscal 2013. Fourth quarter sales performance was driven primarily by a 2.0% increase in OEM sales and a 0.8% increase in Ophthalmic sales.

• Total Domestic sales increased 0.4% to $13.4 million in the fourth quarter of fiscal 2014, driven by higher OEM sales, offset by lower other revenues, and, to a lesser extent, a modest decline in domestic ophthalmic sales compared to last year. International sales of $4.6 million this quarter increased 2.3% year-over-year primarily due to strong sales growth in emerging markets and a full fiscal quarter contribution from our acquisition of M.I.S.S. Ophthalmics compared to a partial quarter contribution in the prior year period.

• Total Ophthalmic sales increased 0.8% to $9.5 million, compared to $9.4 million in the fourth quarter of fiscal 2013. Domestic Ophthalmic sales decreased 0.5% primarily due low single-digit declines in our base ophthalmic business offset, partially, by sales of VersaVit™ and accessories. International Ophthalmic sales increased 2.3% year-over-year primarily due to strong sales in emerging markets and contributions from our acquisition of M.I.S.S. Ophthalmics.

• Total OEM sales increased 2.0% to $8.3 million, compared to $8.2 million in the fourth quarter of fiscal 2013. OEM sales include sales to our marketing partners. The increase in OEM sales benefited primarily from strong sales of Codman forceps and growth in sales of Stryker tips and tubing compared to last year.

• Capital equipment sales totaled $2.2 million in the fourth quarter of fiscal 2014 compared to $3.1 million in the fourth quarter of fiscal 2013, a decrease of 30.1% year-over-year, driven by the aforementioned decline in generator sales to our two major OEM customers. Disposable product sales totaled $15.5 million, an increase of 7.5% compared to sales of $14.4 million in the fourth quarter of fiscal 2013.

Gross profit for the fourth quarter of fiscal 2014 totaled $10.0 million, or 55.5% of sales, compared to $9.7 million, or 54.2% of sales, in the fourth quarter of fiscal 2013. Year-over-year gross margin performance was driven by product mix shift to ophthalmic disposables offset by lower sales of generators to our OEM partners in the period.

Total operating expenses increased 5.0% year-over-year to $7.8 million, or 43.5% of sales, in the fourth quarter of fiscal 2014 from $7.5 million, or 41.8% of sales, in the comparable 2013 period. Research and development expenses increased 16.6% to $1.1 million, or 6.4% of sales, compared to 5.5% last year. Sales and marketing expenses increased 7.7% to $3.7 million, or 20.6% of sales, compared to 19.3% of sales last year. General and administrative expenses declined 6.6% to $2.7 million, or 15.1% of sales, compared to 16.3% of sales last year. The increase in total operating expenses compared to the prior year was driven by an increase in selling and marketing expenses largely due to investments in VersaVit™ commercialization and expenses related to the Company’s exit of its King of Prussia facility, offset partially by a decrease in general and administrative expense. Fourth quarter of fiscal 2014 operating expenses were impacted by the medical device excise tax of $163,000, or 0.9% of sales, compared to $129,000, or 0.7% of sales, last year.

Reported operating income for the fourth quarter of fiscal 2014 declined 2.5% to $2.2 million, compared to $2.2 million last year. Reported net income declined 2.0% year-over-year to $1.4 million, or $0.06 per diluted share, from $1.4 million, or $0.06 per diluted share, for the same period of fiscal 2013.

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 2014 increased 3.1% to $64.8 million, compared to $62.8 million in the same period last year. Net income for fiscal year 2014 increased 19.7% to $3.1 million, or $0.12 per diluted share, compared to $2.6 million, or $0.10 per diluted share, in fiscal year 2013. 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 of July 31, 2014, the Company had approximately $15.4 million in cash on its balance sheet and no interest-bearing debt compared to $12.5 million in cash and no interest-bearing debt at the end of fiscal 2013.

Conference Call Information

Synergetics USA, Inc. will host a conference call on Tuesday, October 14, 2014 at 4:00 p.m. Central Time (5:00 p.m. Eastern Time) to review the Company’s results for the fiscal fourth quarter and fiscal year ended July 31, 2014. The toll free dial-in number to participate live on this call is (800) 588-4973, confirmation code 38212928. 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 adjustments to the extent occurring during the period: inventory write-downs and exit costs. 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, 2014 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, 2014 and 2013 (Dollars in thousands, except share and per share data) Three Months Three Months Twelve Months Twelve Months Ended Ended Ended Ended July 31, 2014 July 31, 2013 July 31, 2014 July 31, 2013 Net sales $ 18,008 $ 17,857 $ 64,769 $ 62,796 Cost of sales 8,013 8,181 28,540 30,425 ------------- ------------- ------------- ------------- Gross profit 9,995 9,676 36,229 32,371 ------------- ------------- ------------- ------------- Operating expenses Research and development 1,146 983 5,158 3,643 Sales and marketing 3,704 3,438 14,360 13,805 Medical device excise tax 163 129 486 289 Exit costs 104 -- 682 -- General and administrative 2,722 2,914 10,962 10,913 ------------- ------------- ------------- ------------- 7,839 7,464 31,648 28,650 ------------- ------------- ------------- ------------- Operating income 2,156 2,212 4,581 3,721 ------------- ------------- ------------- ------------- Other income (expenses) Investment income 2 13 10 31 Interest expense (20) (21) (19) (28) Miscellaneous (11) -- (11) (35) ------------- ------------- ------------- ------------- (29) (8) (20) (32) ------------- ------------- ------------- ------------- Income from operations before provision for income taxes 2,127 2,204 4,561 3,689 Provision for income taxes 717 765 1,498 1,130 ------------- ------------- ------------- ------------- Net income $ 1,410 $ 1,439 $ 3,063 $ 2,559 ============= ============= ============= ============= Earnings per share: Basic Net income $ 0.06 $ 0.06 $ 0.12 $ 0.10 ============= ============= ============= ============= Diluted Net income $ 0.06 $ 0.06 $ 0.12 $ 0.10 ============= ============= ============= ============= Basic weighted average common shares outstanding 25,352,326 25,290,882 25,323,622 25,243,010 Diluted weighted average common shares outstanding 25,400,341 25,367,558 25,393,264 25,337,525 Net income $ 1,410 $ 1,439 $ 3,063 $ 2,559 Foreign currency translation adjustment (77) 31 104 47 ------------- ------------- ------------- ------------- Comprehensive income $ 1,333 $ 1,470 $ 3,167 $ 2,606 ============= ============= ============= ============= SYNERGETICS USA, INC. AND SUBSIDIARIES Unaudited Table of Income from Continuing Operations and EBITDA Three and Twelve Months Ended July 31, 2014 and 2013 (In thousands) Three Months Ended Three Months Ended EBITDA Reconciliation July 31, 2014 July 31, 2013 Income from Operations $ 1,410 $ 1,439 Interest expense 20 21 Income taxes 717 765 Depreciation 309 267 Amortization 323 176 -------------------- -------------------- EBITDA $ 2,779 $ 2,668 ==================== ==================== EBITDA Reconciliation Twelve Months Twelve Months Ended July 31, 2014 Ended July 31, 2013 Income from Operations $ 3,063 $ 2,559 Interest expense 19 28 Income taxes 1,498 1,130 Depreciation 1,173 1,123 Amortization 876 680 -------------------- -------------------- EBITDA $ 6,629 $ 5,520 ==================== ==================== SYNERGETICS USA, INC. AND SUBSIDIARIES Unaudited Table of Adjusted Operating Income, Operating Margin and Non-GAAP EPS Twelve Months Ended July 31, 2014 and 2013 (Dollars in thousands, except per share information) Three Months Ended Twelve Months Ended ---------------------------- ---------------------------- July 31, 2014 July 31, 2013 July 31, 2014 July 31, 2013 ------------- ------------- ------------- ------------- Adjusted Operating Income GAAP operating income $ 2,156 $ 2,212 $ 4,581 $ 3,721 Exit costs 104 -- 682 -- ------------- Inventory write-down -- -- -- 2,092 ------------- ------------- ------------- ------------- Adjusted operating income 2,260 2,212 $ 5,263 $ 5,813 Net sales 18,008 17,857 $ 64,769 $ 62,796 ------------- ------------- Adjusted operating margin 12.5% 12.4% 8.1% 9.3% ============= ============= ============= ============= EBITDA $ 2,779 2,668 $ 6,629 $ 5,520 ============= ============= ============= ============= Non-GAAP EPS Impact Inventory write-down $ -- $ -- $ -- $ 2,092 Exit costs 104 -- 682 -- ------------- ------------- ------------- ------------- Effective tax rate 33.7 34.7 32.8 30.6 ------------- ------------- ------------- ------------- Tax effected write-down $ 69 $ -- $ 458 $ 1,452 Diluted weighted average common shares 25,400,341 25,367,558 25,393,264 25,337,525 ------------- ------------- ------------- ------------- Diluted earnings per share $ 0.00 $ 0.00 $ 0.02 $ 0.06 ============= ============= ============= ============= Synergetics USA, Inc. and Subsidiaries Consolidated Balance Sheets As of July 31, 2014 and 2013 (Dollars in thousands, except share data) 2014 2013 Assets Current Assets Cash and cash equivalents $ 15,443 $ 12,470 Accounts receivable, net of allowance for doubtful accounts of $722 and $495, respectively 14,641 14,425 Inventories 15,134 14,825 Income taxes refundable -- 254 Prepaid expenses 1,223 996 Deferred income taxes 2,042 1,827 -------------- -------------- Total current assets 48,483 44,797 Property and Equipment, net 8,785 8,962 Intangible and Other Assets Goodwill 12,738 12,155 Other intangible assets, net 11,911 11,715 Deferred income taxes 1,219 3,557 Patents, net 1,472 1,411 Cash value of life insurance 107 96 -------------- -------------- Total assets $ 84,715 $ 82,693 ============== ============== Liabilities and Stockholders’ Equity Current Liabilities Accounts payable $ 2,530 $ 3,237 Accrued expenses 2,845 3,486 Income taxes payable 386 -- Deferred revenue 1,288 1,288 -------------- -------------- Total current liabilities 7,049 8,011 -------------- -------------- Long-Term Liabilities Deferred revenue 13,242 14,530 -------------- -------------- Total long-term liabilities 13,242 14,530 -------------- -------------- Total liabilities 20,291 22,541 -------------- -------------- Commitments and Contingencies Stockholders’ Equity Common stock at July 31, 2014 and July 31, 2013, $0.001 par value, 50,000,000 shares authorized; 25,364,608 and 25,292,960 shares issued and outstanding, respectively 25 25 Additional paid-in capital 28,594 27,489 Retained earnings 36,160 33,097 Accumulated other comprehensive loss: Foreign currency translation adjustment (355) (459) -------------- -------------- Total stockholders’ equity 64,424 60,152 -------------- -------------- Total liabilities and stockholders’ equity $ 84,715 $ 82,693 ============== ============== Synergetics USA Inc. and Subsidiaries Consolidated Statements of Cash Flows Twelve Months Ended July 31, 2014 and 2013 (Dollars in thousands) Twelve Months Twelve Months Ended July 31, Ended July 31, 2014 2013 Cash Flows from Operating Activities Net income $ 3,063 $ 2,559 Adjustments to reconcile net income to net cash (used in) provided by operating activities Depreciation 1,173 1,123 Amortization 876 680 Provision for doubtful accounts receivable 338 207 Stock-based compensation 1,008 931 Deferred income taxes 1,836 (49) (Gain) loss on sale of equipment (10) 35 Changes in assets and liabilities (Increases) decreases in: Accounts receivable (406) (2,553) Inventories 179 1,191 Prepaid expenses (221) (130) Income taxes refundable 254 (254) Increase (decrease) in: Accounts payable (849) 845 Accrued expenses (667) 603 Deferred revenue (1,288) (1,288) Income taxes payable 380 (235) -------------- -------------- Net cash provided by operating activities 5,666 3,665 
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