Synovis Life Technologies Reports 49 Percent Increase in Operating Income in Fiscal 2011 Second Quarter

Revenue Up 13 Percent in Second Quarter and 20 Percent for First Half of Fiscal 2011

ST. PAUL, Minn.--()--Synovis Life Technologies, Inc. (Nasdaq: SYNO), today reported its financial results for the fiscal 2011 second quarter ended April 30, 2011.

For the quarter, net revenue rose to $19.8 million, a 13 percent increase over $17.6 million in the year-ago period. Operating income for the second quarter totaled $2.8 million, a 49 percent increase over operating income of $1.9 million in the year-ago period, chiefly due to higher revenue. Net income for the fiscal 2011 second quarter was $2.0 million, or $0.17 per diluted share, compared to net income of $1.2 million, or $0.11 per diluted share, in the fiscal 2010 second quarter.

“With a solid second quarter performance and revenue up 20 percent in the first half of the year, we are on track to achieve our fiscal 2011 goals,” said Richard Kramp, Synovis Life Technologies president and chief executive officer. “Among the quarter’s highlights was the publication of a study of the relative performance of biologic meshes, including our Veritas® Collagen Matrix, in the Journal of the American College of Surgeons. The study results confirm the favorable attributes of Veritas in abdominal wall repair, such as ventral hernia surgery. Our sales professionals are already incorporating these beneficial findings into their discussions with surgeons. Additionally, Synovis Orthopedic and Wound sales in the second quarter more than doubled from a year ago, with strong contributions from our hybrid sales staff of direct and independent sales representatives.”

In the first half of fiscal 2011, net revenue rose to $39.3 million, up 20 percent from $32.8 million in the first six months of the prior fiscal year. Net income was $3.8 million in the first half of fiscal 2011, or $0.33 per diluted share, compared to $1.9 million, or $0.17 per diluted share, in the first half of fiscal 2010.

Second Quarter Fiscal 2011 Highlights

  • Peri-Strips Dry® (PSD) revenue totaled a record $5.5 million in the second quarter, a 19 percent increase from the year-ago period. The company believes the number of gastric sleeve procedures performed is on the rise as private insurance companies increasingly reimburse for this surgery. Surgeons are more likely to use a buttress in gastric sleeve procedures compared to other bariatric surgeries, given the longer staple line.
  • Revenue from Veritas was $3.8 million in the second quarter, the third-highest revenue quarter ever for this product line. While this was down slightly from the strong quarter of a year ago, on a year-to-date basis, Veritas revenue has increased to $8.0 million, a 13 percent increase over the first six months of fiscal 2010. This product is still emerging and variability in order patterns is expected. Surgeons continue to praise Veritas’ unique qualities, and the study noted above will help Synovis continue to establish the benefits of Veritas in abdominal wall repair, as well as breast reconstruction.
  • Microsurgical products revenue totaled a record $3.5 million in the second quarter, up 30 percent over the same period last year, with sales of the Coupler and Flow Coupler® products up 38 percent. Both unit volume and pricing increases contributed to this record revenue quarter for Microsurgical.
  • Orthopedic and Wound product revenue totaled $1.1 million for the second quarter, up 142 percent from $446,000 a year ago. Strong growth in domestic sales of Unite® Biomatrix, used to treat chronic wounds, was the driver of this increase.
  • The second quarter gross margin was 73 percent, consistent with the same period last fiscal year.
  • Selling, general and administrative expenses totaled $10.4 million in the second quarter, up 5 percent from $9.9 million in the year-ago quarter. This increase was primarily due to incremental sales and marketing costs as a result of the expanded Microsurgical sales force, and higher sales and marketing activity at Orthopedic and Wound.
  • Research and development (R&D) expenses totaled $1.2 million in the second quarter, versus $1.1 million in the year-ago period. R&D investment in Orthopedic and Wound focused on development and testing of the PROcuff® orthopedic product and the related anchoring system and instrumentation. Synovis filed a 510(k) application with the FDA during the second quarter for this arthroscopically delivered device to reinforce rotator cuff and other tendon repairs.
  • Income tax expense was recorded at an effective rate of 36 percent in the second quarter of fiscal 2011. In addition, $120,000 of discrete tax benefit was recorded primarily related to exercises of employee incentive stock options during the quarter.

Balance Sheet and Cash Flow

  • Cash and investments totaled $64.3 million as of April 30, 2011, or $5.61 per share, up from $61.9 million at the end of fiscal 2010.
  • Operating activities provided cash of approximately $2.3 million in the second quarter of fiscal 2011, comparable with the year-ago period.

Conference Call and Webcast

Synovis Life Technologies will host a live webcast of its fiscal 2011 second quarter conference call today, May 25, at 10 a.m. CT to discuss the company’s results. To participate in the conference call, please dial (888) 679-8033 and enter pass code 57259697. Please dial in at least 10 minutes prior to the call.

To access the live webcast, go to the investor information section of the company’s website, www.synovislife.com, and click on the webcast icon. A webcast replay will be available beginning at noon CT, Wednesday, May 25.

If you prefer to listen to an audio replay of the conference call, dial (888) 286-8010 and enter access number 31966206. The audio replay will be available beginning at 2 p.m. CT on Wednesday, May 25, through 6 p.m. CT on Wednesday, June 1.

About Synovis Life Technologies

Synovis Life Technologies, Inc., a diversified medical device company based in St. Paul, Minn., develops, manufactures and markets biological and mechanical products used by several surgical specialties to facilitate the repair and reconstruction of soft tissue damaged or destroyed by disease or injury. The company’s products include implantable biomaterials for soft tissue repair, devices for microsurgery and surgical tools – all designed to reduce risks and/or facilitate critical surgeries, improve patient outcomes and reduce healthcare costs. For additional information on Synovis Life Technologies and its products, visit the company’s website at www.synovislife.com.

Forward-looking statements contained in this press release are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The statements can be identified by words such as “should”, “could”, “may”, “will”, “expect”, “believe”, “anticipate”, “estimate”, “continue”, or other similar expressions. Certain important factors that could cause results to differ materially from those anticipated by the forward-looking statements made herein include the timing of product introductions, the ability of the sales force to grow and sustain revenues, the impact of increased competition in various markets Synovis serves, the ability to re-establish the Orthopedic and Wound products in the marketplace sufficiently to achieve profitability, outcomes of clinical and marketing studies as well as regulatory submissions, the number of certain surgical procedures performed, the ability to identify, acquire and successfully integrate suitable acquisition candidates, any operational or financial impact from the current global economic downturn, the impact of healthcare reform legislation, as well as other factors found in the Company’s filings with the Securities and Exchange Commission, such as the “Risk Factors” section in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended October 31, 2010.

SYNOVIS LIFE TECHNOLOGIES, INC.

   
 

Consolidated Statements of Income (unaudited)

(In thousands, except per share data)

 
Three Months Ended Six Months Ended
April 30, April 30,

2011

 

2010

2011

 

2010

 
Net revenue $ 19,816 $ 17,600 $ 39,293 $ 32,812
Cost of revenue 5,377 4,738 10,669 9,098
Gross margin 14,439 12,862 28,624 23,714
Gross margin percentage 73% 73% 73% 72%
 
Selling, general and administrative expenses 10,391 9,858 20,900 18,715
Research and development expenses 1,247 1,126 2,547 2,201
 
Operating expenses 11,638 10,984 23,447 20,916
 

Operating income

2,801

1,878

5,177

2,798

 
Interest income 76 68 150 152
 
Income before provision for income taxes 2,877 1,946 5,327 2,950
 
Provision for income taxes 916 701 1,568 1,062
 
Net income $ 1,961 $ 1,245 $ 3,759 $ 1,888
 
Basic earnings per share $ 0.17 $ 0.11 $ 0.33 $ 0.17
 
Diluted earnings per share $ 0.17 $ 0.11 $ 0.33 $ 0.17
 

Weighted average shares
  outstanding - basic

11,392

11,240

11,330

11,226

Weighted average shares
  outstanding - diluted

11,625

11,436

11,545

11,410

 

SYNOVIS LIFE TECHNOLOGIES, INC.

   
 

Consolidated Revenues (unaudited)

(In thousands)

 
Three Months Ended Six Months Ended
April 30, April 30,

2011

 

2010

2011

 

2010

 
Veritas $ 3,847 $ 4,075 $ 8,006 $ 7,093
Peri-Strips 5,512 4,623 10,921 9,131
Tissue-Guard 4,400 4,265 8,625 8,024
Microsurgery 3,467 2,663 6,910 5,178
Orthopedic and Wound 1,080 446 1,963 605
Surgical tools and other   1,510   1,528   2,868   2,781
Total Revenue $ 19,816 $ 17,600 $ 39,293 $ 32,812
 

Domestic

$

16,833

$

14,746

$

33,568

$

27,648

International   2,983   2,854   5,725   5,164
Total Revenue $ 19,816 $ 17,600 $ 39,293 $ 32,812
 
SYNOVIS LIFE TECHNOLOGIES, INC.    
 
Consolidated Balance Sheets
As of April 30, 2011 (unaudited) and October 31, 2010
(In thousands, except share and per share data)
April 30,

October 31,

2011

2010

ASSETS
Current assets:
Cash and cash equivalents $ 15,546 $ 12,951
Short-term investments 30,443 41,119
Accounts receivable, net 10,168 8,701
Inventories 9,673 9,433
Deferred income tax asset, net 367 367
Other current assets   2,338   1,715
Total current assets 68,535 74,286
 
Investments, net 18,289 7,854
Property, plant and equipment, net 4,049 3,401
Goodwill 3,620 3,620
Other intangible assets, net 5,930 6,182
Deferred income tax asset, net   2,092   2,139
Total assets $ 102,515 $ 97,482
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 1,401 $ 1,644
Accrued expenses   4,608   6,371
Total current liabilities   6,009   8,015
Total liabilities   6,009   8,015
 
Shareholders’ equity:

Preferred stock: authorized 5,000,000 shares of $.01 par
  value; none issued or outstanding at both dates

---

---

Common stock: authorized 20,000,000 shares of $.01 par
  value; issued and outstanding 11,460,644 and
  11,228,654 at April 30, 2011 and October 31, 2010,
  respectively

115

112

Additional paid-in capital 65,070 61,780
Accumulated other comprehensive income 13 26
Retained earnings   31,308   27,549
Total shareholders’ equity   96,506   89,467
Total liabilities and shareholders’ equity $ 102,515 $ 97,482
 
SYNOVIS LIFE TECHNOLOGIES, INC.    
 
Consolidated Statements of Cash Flows (unaudited)
(In thousands) For the Six Months Ended April 30,
2011 2010
 
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,759 $ 1,888
 
Adjustments to reconcile net income to net cash
provided by operating activities:
 
Depreciation of property, plant and equipment 609 700
Amortization of intangible assets 381 399
Amortization of investment premium, net 578 842
Stock-based compensation 600 749
Excess tax benefit from stock option exercises (360 ) (179 )
Deferred income taxes 47 (260 )
 
Changes in operating assets and liabilities:
Accounts receivable (1,467 ) (1,057 )
Inventories (240 ) (1,282 )
Other current assets (623 ) (125 )
Accounts payable (243 ) (678 )
Accrued expenses   (1,403 )   209  
Net cash provided by operating activities   1,638     1,206  
 
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (1,257 ) (342 )
Investments in patents and trademarks (129 ) (22 )
Purchases of investments (26,258 ) (23,171 )
Proceeds from the maturing or sale of investments   25,908     18,649  
Net cash used in investing activities   (1,736 )   (4,886 )
 
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds related to stock-based compensation plans 2,459 1,036
Repurchase of the Company's common stock (126 ) (2,552 )
Excess tax benefit from stock option exercises   360     179  
Net cash provided by (used in) financing activities   2,693     (1,337 )
 
Net change in cash and cash equivalents 2,595 (5,017 )
Cash and cash equivalents at beginning of period 12,951     15,863  
Cash and cash equivalents at end of period $ 15,546   $ 10,846  

Contacts

Padilla Speer Beardsley Inc.
Nancy A. Johnson, 612-455-1745
or
Marian Briggs, 612-455-1742
or
Synovis Life Technologies, Inc.
Richard Kramp, President and CEO, 651-796-7300
or
Brett Reynolds, CFO, 651-796-7300

Contacts

Padilla Speer Beardsley Inc.
Nancy A. Johnson, 612-455-1745
or
Marian Briggs, 612-455-1742
or
Synovis Life Technologies, Inc.
Richard Kramp, President and CEO, 651-796-7300
or
Brett Reynolds, CFO, 651-796-7300