Synergetics USA, Inc. Reports Third Quarter Fiscal Year 2014 Results

O’FALLON, MO--(Marketwired - June 09, 2014) - Synergetics USA, Inc. (NASDAQ: SURG), a medical device company that designs, manufactures, and markets innovative surgical devices for ophthalmic and neurosurgical applications, today reported sales, gross profit, operating margin and net income for the third quarter ended April 30, 2014.

Third Quarter Summary:

• Total sales were $16.1 million as compared to $16.3 million last year.
• OEM sales were flat and Ophthalmic sales decreased 2.0% year-over-year.
• Domestic product sales decreased 1.9% and International sales increased 2.8% year-over-year.
• Disposable products sales increased 6.7% and capital equipment sales declined 33.9% year-over year.
• GAAP EPS was $0.04 compared to $0.05 for the third quarter of last year.

“Our third quarter revenues were softer than expected due primarily to sharp declines in capital equipment sales which were partially offset by strong sales of disposables,” stated Dave Hable, President and CEO of Synergetics USA, Inc. “Ophthalmic results were mixed in the quarter -- we did experience pockets of strength -- but not enough to offset the continued weakness in our base business. Results from our OEM business again benefitted from strong disposables sales, though weaker capital equipment sales and a difficult comparison challenged our ability to post positive growth compared to last year. Despite these challenges, the long-term growth opportunity for Synergetics remains compelling, and we see exciting opportunities to improve our growth rate and gain market share with our differentiated offerings of systems and disposables. We look forward to the launch of VersaVIT 2.0™ and the significant benefits it provides to our customers, and expect revenue contribution to ramp up meaningfully over time as we achieve broad market adoption. We will continue to execute our strategy to drive improvements in our operating and financial performance going forward.”

Third Quarter Results

Third quarter sales decreased 0.8% to $16.1 million compared to $16.3 million in the third quarter of fiscal 2013. The decrease in third quarter sales from last year was due primarily to lower Domestic ophthalmic sales.

• Total Ophthalmic sales decreased 2.0% to $8.5 million compared to $8.7 million in the third quarter of fiscal 2013. Domestic ophthalmic sales decreased 6.1% in the third quarter of fiscal 2014, primarily due to the decreased sales of ophthalmic base business capital equipment and disposables, partially offset by increased sales of procedural kits (including kits associated with VersaVIT™). International ophthalmic sales increased 3.1% in the third quarter of fiscal 2014, primarily due to increased sales from M.I.S.S. Ophthalmics Limited and positive contribution from foreign currency, partially offset by decreased sales of ophthalmic base business capital equipment and disposables.

• Total OEM sales were flat in the third quarter of fiscal 2013. OEM sales benefited from higher volumes of disposable products sold to our two largest OEM partners, Codman & Shurtleff, Inc. and Stryker Corporation, offset by decreased electrosurgery generator sales to Codman. OEM sales also included deferred revenue of $322,000 recognized in the third quarter of both fiscal year periods.

• Disposable product sales increased 6.7%, or $0.9 million, to $13.9 million in the third quarter of fiscal 2014 compared to the third quarter of fiscal 2013. Disposable sales accounted for approximately 85.9% of total sales in the third quarter of fiscal 2014.

• Capital equipment sales totaled $1.9 million in the third quarter of fiscal 2014 compared to $2.9 million in the third quarter of fiscal 2013.
  

Gross profit for the third quarter of fiscal 2014 decreased to $8.9 million, or 55.2% of sales, compared to $9.1 million, or 55.7% of sales, in the third quarter of fiscal 2013. Gross margin in the third quarter of fiscal year 2014 was negatively impacted by the mix of products including both the increase in our International sales and the increase in the percentage of our OEM sales.

Research and development expenses increased to $1.3 million, or 8.1% of net sales. The Company’s R&D investment is driven by the opportunities to accelerate new products to meet the needs of our surgeon customers and address the demands of the market. Sales and marketing expenses decreased to $3.5 million, or 21.4% of sales, this year, compared with $3.5 million, or 21.7% of net sales, for the same period last year. General and administrative expenses decreased to $2.6 million, or 16.1% of net sales, for the third quarter of fiscal 2014, compared with $2.7 million, or 16.7% of net sales, for the same period last year. Total operating expenses in the third quarter of fiscal year 2014 included incremental expenses of approximately $64,000 related to the Company’s exit activities at its King of Prussia facility. Total operating expenses also included $83,000 in the third quarter of fiscal 2014 related to the impact from the medical device excise tax, as compared to $115,000 in the prior year period.

Operating income for the third quarter of fiscal 2014 decreased to $1.4 million compared to $1.7 million in the third quarter of fiscal 2013. Net income for the third quarter of fiscal 2014 decreased by $207,000 to $943,000, or $0.04 per diluted share, compared to $1.2 million, or $0.05 per diluted share, in the third quarter of fiscal 2013.

Nine Months Results and Balance Sheet

Total sales for the first nine months of fiscal 2014 increased 4.1% to $46.8 million compared with $44.9 million in the same period last year. Net income was $1.7 million for the first nine months of fiscal 2014 compared to net income of $1.1 million for the same period in fiscal 2013. Basic and diluted earnings per share for the first nine months of fiscal 2014 was $0.07 as compared to basic and diluted earnings per share of $0.04 for the first nine months of fiscal 2013.

As of April 30, 2014, the Company had approximately $12.8 million in cash and no interest-bearing debt on its balance sheet.

Conference Call Information

Synergetics USA, Inc. will host a conference call on Monday, June 9, 2014 at 4:00 p.m. Central Time (5:00 p.m. Eastern Time). The toll free dial-in number to participate live on this call is (800) 588-4973, confirmation code 37380959. For callers outside the U.S., the number is (847) 230-5643. Participants are encouraged to email questions to investorinfo@synergeticsusa.com. The conference call will also be simulcast live at http://www.synergeticsusa.com. An online 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. The Company’s distribution channels include a combination of direct and independent vitreoretinal sales 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.

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 Condensed Consolidated Balance Sheets As of April 30, 2014 (Unaudited) and July 31, 2013 (Dollars in thousands, except share data) April 30, July 31, 2014 2013 Assets Current Assets Cash and cash equivalents $ 12,753 $ 12,470 Accounts receivable, net of allowance for doubtful accounts of $533 and $495, respectively 15,377 14,425 Inventories 15,711 14,825 Income taxes refundable 537 254 Prepaid expenses 1,601 996 Deferred income taxes 1,987 1,827 ------------ ------------ Total current assets 47,966 44,797 Property and equipment, net 8,915 8,962 Intangible and other assets Goodwill 12,303 12,155 Other intangible assets, net 11,341 11,715 Deferred income taxes 1,754 3,557 Patents, net 1,468 1,411 Cash value of life insurance 96 96 ------------ ------------ Total assets $ 83,843 $ 82,693 ============ ============ Liabilities and stockholders’ equity Current Liabilities Accounts payable $ 3,196 $ 3,237 Accrued expenses 2,942 3,486 Deferred revenue 1,288 1,288 ------------ ------------ Total current liabilities 7,426 8,011 ------------ ------------ Long-Term Liabilities Deferred revenue 13,564 14,530 ------------ ------------ Total long-term liabilities 13,564 14,530 ------------ ------------ Total liabilities 20,990 22,541 ------------ ------------ Commitments and contingencies Stockholders’ Equity Common stock at April 30, 2014 and July 31, 2013, $0.001 par value, 50,000,000 shares authorized; 25,333,479 and 25,292,960 shares issued and outstanding, respectively 25 25 Additional paid-in capital 28,357 27,489 Retained earnings 34,749 33,097 Accumulated other comprehensive loss: Foreign currency translation adjustment (278) (459) ------------ ------------ Total stockholders’ equity 62,853 60,152 ------------ ------------ Total liabilities and stockholders’ equity $ 83,843 $ 82,693 ============ ============ Synergetics USA, Inc. and Subsidiaries Condensed Consolidated Statements of Operations and Comprehensive Income (Unaudited) Three and Nine Months Ended April 30, 2014 and 2013 (Dollars in thousands, except share and per share data) Three Three Months Months Nine Months Nine Months Ended April Ended April Ended April Ended April 30, 2014 30, 2013 30, 2014 30, 2013 Net sales $ 16,135 $ 16,264 $ 46,761 $ 44,939 Cost of sales 7,223 7,213 20,527 22,244 ----------- ----------- ----------- ----------- Gross profit 8,912 9,051 26,234 22,695 Operating expenses Research and development 1,302 973 4,012 2,660 Sales and marketing 3,450 3,523 10,655 10,367 Medical device excise tax 83 115 323 160 Exit costs 64 -- 578 -- General and administrative 2,602 2,719 8,240 7,999 ----------- ----------- ----------- ----------- 7,501 7,330 23,808 21,186 ----------- ----------- ----------- ----------- Operating income 1,411 1,721 2,426 1,509 ----------- ----------- ----------- ----------- Other income (expenses) Investment income 1 5 7 18 Interest expense -- (2) -- (6) Miscellaneous -- (12) -- (35) 1 (9) 7 (23) Income from operations before provision for income taxes 1,412 1,712 2,433 1,486 Provision for income taxes 469 562 781 366 ----------- ----------- ----------- ----------- Net income $ 943 $ 1,150 $ 1,652 $ 1,120 =========== =========== =========== =========== Earnings per share: Basic earnings per share $ 0.04 $ 0.05 $ 0.07 $ 0.04 =========== =========== =========== =========== Diluted earnings per share $ 0.04 $ 0.05 $ 0.07 $ 0.04 =========== =========== =========== =========== Basic weighted average common shares outstanding 25,331,925 25,299,131 25,311,641 25,229,250 Diluted weighted average common shares outstanding 25,392,782 25,362,923 25,388,493 25,329,711 Net income $ 943 $ 1,150 $ 1,652 $ 1,120 Foreign currency translation adjustment 41 (238) 181 16 ----------- ----------- ----------- ----------- Comprehensive income $ 984 $ 912 $ 1,833 $ 1,136 =========== =========== =========== =========== Synergetics USA Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows (Unaudited) Nine Months Ended April 30, 2014 and 2013 (Dollars in thousands, except share data) Nine Months Nine Months Ended April Ended April 30, 2014 30, 2013 Cash Flows from Operating Activities Net income $ 1,652 $ 1,120 Adjustments to reconcile net income to net cash used in operating activities Depreciation 864 856 Amortization 553 504 Provision for doubtful accounts receivable 66 91 Stock-based compensation 807 713 Deferred income taxes 1,643 (215) Gain on sale (9) Changes in assets and liabilities (Increase) decrease in: Accounts receivable (861) (420) Inventories (822) 672 Prepaid expenses (581) (302) Income taxes refundable (282) (862) (Decrease) increase in: Accounts payable (60) 312 Accrued expenses (497) (154) Deferred revenue (966) (966) Income taxes payable (70) (191) ------------ ------------ Net cash provided by operating activities $ 1,437 $ 1,158 ------------ ------------ Cash Flows from Investing Activities Proceeds from sale 18 -- Purchase of property and equipment (800) (397) Acquisition of patents and other intangibles (229) (298) ------------ ------------ Net cash used in investing activities (1,011) (695) ------------ ------------ Cash Flows from Financing Activities Proceeds from the issuance of common stock 36 65 Tax benefit associated with the exercise of non- qualified stock options 25 72 ------------ ------------ Net cash provided by financing activities 61 137 ------------ ------------ Foreign exchange rate effect on cash and cash equivalents (204) (181) ------------ ------------ Net decrease in cash and cash equivalents 283 419 Cash and cash equivalents Beginning 12,470 12,680 ------------ ------------ Ending $ 12,753 $ 13,099 ============ ============