Synovis Life Technologies third-quarter net revenue increases 17% to $17.6 million

Aug 25 2010

Synovis Life Technologies, Inc. (Nasdaq: SYNO), today reported its financial results for the third quarter ended July 31, 2010.

“Third quarter revenue growth was strong, with particularly good performance from our Veritas® and Microsurgery products”

For the 2010 fiscal third quarter, net revenue rose to $17.6 million, a 17 percent increase over $15.0 million in the year-ago period. Net income was $1.5 million, or $0.13 per diluted share, in the fiscal third quarter, versus a net loss on a GAAP basis of $(4.9) million, or $(0.42) per share, in the year-earlier period. Adjusted fiscal 2009 third quarter net income (non-GAAP), excluding certain special charges, was $2.2 million, or $0.19 per diluted share. As anticipated, 2010's net income was lower than last year's adjusted net income, mainly due to investments to sustain long-term growth.

"Third quarter revenue growth was strong, with particularly good performance from our Veritas^® and Microsurgery products," said Richard W. Kramp, Synovis Life Technologies' president and chief executive officer. "Further, worldwide sales of Peri-Strips^® rose 6 percent to a record $5.1 million in the just-completed quarter. One year ago, we made an investment in our direct sales force, and today that investment is paying dividends. Our sales teams are expanding penetration and becoming increasingly effective. Earlier this month, we named Jodi Brendel vice president of sales and marketing for the Surgical group. Jodi has extensive experience developing innovative sales and marketing programs and increasing the effectiveness of high talent sales teams calling on multiple surgical specialties. She is passionate about the advantages of our products and the abilities of the Surgical sales team."

Gross margin for the fiscal third quarter was 72.2 percent, up slightly from the year-ago quarter. SG&A expenses totaled $9.5 million in the third quarter, up $2.2 million from the year-ago quarter, with approximately $900,000 of the increase due to the company's investment in a larger direct sales force and $1.1 million the result of incremental costs associated with its Orthopedic and Wound group. Research and development expenses totaled $896,000 in the third quarter, down from $945,000 in the year-ago period. Operating income for the third quarter totaled $2.3 million, compared to an operating loss of $(1.7) million and adjusted operating income (non-GAAP) of $2.4 million in the year-ago period.

In the first nine months of fiscal 2010, net revenue rose to $50.4 million, up 17 percent from $43.2 million in the first nine months of the prior fiscal year. Net income was $3.4 million, or $0.30 per diluted share, compared to a net loss of $(1.1) million, or $(0.10) per share, in the first nine months of fiscal 2009. Adjusted net income (non-GAAP), excluding certain special charges, was $5.9 million, or $0.50 per diluted share, in the year-ago period.

Third Quarter Revenue Highlights and Other Key Points

• Revenue from Veritas rose to $3.6 million in the third quarter, a 55 percent increase over the comparable period last year.
• Synovis sponsored a symposium titled "The Advantages of Bovine Pericardium: An Emerging Choice in Abdominal Wall Reconstruction" during the Abdominal Wall Reconstruction conference in Washington, D.C., in June. Two well known surgeons presented their positive experiences with Veritas in abdominal repairs.
• Revenue from Microsurgical products totaled $2.7 million in the third quarter, a 13 percent increase over the same period last year and a quarterly record. Sales of the Flow Coupler^®, which received FDA marketing clearance in the fiscal second quarter, contributed to Microsurgical's record third quarter sales.
• Revenue from Peri-Strips Dry (PSD) totaled $5.1 million in the third quarter, a 6 percent increase from the year-ago period and also a quarterly record. Revenue of PSD configured for use on Ethicon surgical staplers rose 22 percent from the third quarter a year ago. Revenue of PSD configured for use on Covidien staplers was down 19 percent from a year ago, but increased 9 percent sequentially in the third quarter from the second quarter.
• A poster presentation of scientific data relating to the hemostatic properties of PSD relative to a competitive synthetic buttress product (Duet) at the American Society of Metabolic and Bariatric Surgery conference confirmed that the Duet product lacked the intrinsic hemostatic properties of PSD.
• A major private insurance carrier announced it will cover a portion of the cost associated with the gastric sleeve surgical procedure for weight loss. This procedure involves a longer staple line with an increased potential for bleeding and gastric fluid leakage, the types of complications PSD is designed to prevent.
• Revenue from Orthopedic and Wound products totaled $588,000 for the fiscal third quarter, up 32 percent sequentially from the second quarter. Orthopedic and Wound was established in July 2009 with the acquisition of substantially all of the assets of Pegasus Biologics, Inc. The primary products are the OrthADAPT^® Bioimplant for orthopedic applications and Unite^® Biomatrix for the treatment of chronic wounds.
• The combined direct and indirect sales force for Orthopedic and Wound products reached approximately 80 people at the end of the third quarter, with eight direct sales representatives fully dedicated to these products and the independent representatives selling these products as well as other, non-competing products. This sales team covers approximately two-thirds of the United States. Synovis expects to add other U.S. independent representatives in the fourth quarter.
• An extensive training effort was conducted during the third quarter for the Orthopedic and Wound sales force, with primary product training given to the new independent representatives and comprehensive sales training undertaken with both direct representatives and many of the independent representatives who joined the sales team in earlier quarters.
• Revenue from the Tissue-Guard line of products for vascular, thoracic and neuro applications totaled $4.3 million in the quarter, a 6 percent increase over the year-ago period.

Balance Sheet and Cash Flow

• Cash and investments totaled $61.0 million as of July 31, 2010, or $5.39 per share, up from $59.3 million at the end of the second quarter of fiscal 2010.
• Operating activities provided cash of approximately $2.2 million in the third quarter of fiscal 2010 and provided cash of $3.6 million in the first nine months of fiscal 2010.
• Non-cash stock-based compensation expense was $363,000 in the fiscal third quarter ($0.02 per diluted share after-tax), versus $252,000 ($0.02 per diluted share after-tax) in the year-ago period.