Synergetics USA : Reports Third Quarter of Fiscal Year 2015 Results

O'FALLON, MO--(Marketwired - Jun 9, 2015) - 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 third quarter of fiscal year 2015. 

Third Quarter Summary:

• Total sales were $19.4 million, an increase of 20.1% year-over-year and increased 22.0% year-over-year on a constant currency basis. Excluding the impacts of the acquisition of Sterimedix Limited in the period, total sales increased 6.0% year-over-year and increased 8.0% year-over-year on a constant currency basis.
• Ophthalmic sales increased 27.4% year-over-year and 30.9% year-over-year on a constant currency basis and neurosurgery sales increased 6.7% year-over-year.
• Domestic sales increased 9.0% year-over-year and international sales increased 53.3% year-over-year and 61.0% on a constant currency basis year-over-year.
• Disposable product sales increased 26.2% and capital equipment sales decreased 20.1%.
• GAAP EPS was $0.05 compared to $0.04 in the third quarter last year.
• EBITDA increased 36.1% to $2.6 million, compared to $1.9 million last year. 
  
  

"We are very pleased with our third quarter sales performance. On a constant currency basis, we reported organic revenue growth of 8.0% year-over-year, and total revenue growth of 22% year-over-year driven primarily by a full-quarter of contribution from our acquisition of Sterimedix," said David M. Hable, the Company's President and Chief Executive Officer. "The commercialization of our VersaVIT 2.0 system continues to progress and sales of the system and related disposables were one of the largest organic growth driver of our ophthalmic business again this quarter. Our OEM relationships remain strong as evidenced by the strong demand for our neurosurgical disposable products this quarter. We are pleased with the continued shift in our total Company product mix towards these higher-margin disposables in recent years, in excess of 90% of our sales in the third quarter. Synergetics' performance over the first nine months of fiscal year 2015 has been very strong with sales up 16.9% year-over-year on a constant currency basis, operating profit up 70.0% and net income and cash flow from operations of $2.9 million and $6.8 million, respectively. We look forward to continued solid growth, improving profitability and strong cash flow generation over the balance of fiscal 2015."

Third Quarter Results

Third quarter of fiscal 2015 sales totaled $19.4 million, an increase of 20.1%, compared to sales of $16.1 million in the third quarter of fiscal 2014. Total sales included contributions from our acquisition of Sterimedix of $2.3 million. Third quarter sales performance was driven primarily by a 27.4% increase in ophthalmic sales and a 6.7% increase in neurosurgery sales. Other sales increased 317.5% year-over-year.

Following the completion of the acquisition of Sterimedix, the Company assessed its sales presentation format and determined that a more comprehensive breakdown of its ophthalmic and neurosurgery sales is appropriate to more completely describe its revenues by market, as compared to reporting revenues by distribution category. The following table presents the Company's revised presentation of reporting enterprise-wide sales by market, as well as the previous presentation of reporting revenues by distribution category. The Company will provide sales results under both presentation formats for the balance of fiscal 2015 and will transition to the new presentation format of sales based upon market thereafter.

• Total ophthalmic sales increased 27.4% to $11.1 million, compared to $8.7 million in the third quarter of fiscal 2014. Domestic ophthalmic sales increased 11.4% primarily due to increased sales to ophthalmology OEM customers and sales of VersaVIT systems and disposables. International ophthalmic sales increased 46.5% year-over-year primarily due to the full-quarter contribution from our acquisition of Sterimedix, partially offset by a 9.9% decrease in organic international ophthalmology direct and distributor sales that reflect the impacts of foreign currency exchange rates compared to the prior year.
  
  
• Total neurosurgery sales increased 6.7% to $7.8 million, compared to $7.3 million in the third quarter of fiscal 2014. The increase in neurosurgery sales benefited primarily from strong volumes of disposable products to Codman & Shurtleff, Inc. and Stryker Corporation compared to the same period last year. Other sales increased 317.5% to $476,000, compared to $114,000 in the third quarter last year, primarily due to the addition of Sterimedix aesthetics sales in fiscal 2015 which did not contribute to sales results in the third quarter of fiscal 2014. 
  
  
• Total domestic sales increased 9.0% to $13.2 million in the third quarter of fiscal 2015, driven by higher ophthalmic sales compared to the same period last year. International sales increased 53.3% to $6.2 million primarily due to the addition of Sterimedix sales, partially offset by the 9.9% decrease in organic international ophthalmology sales primarily related to the impacts of foreign currency exchange rate changes compared to the prior year. Excluding the impacts of the change in foreign currency exchange rates, total international sales increased 61.0% year-over-year and international ophthalmic sales were essentially flat year-over-year.
  
  
• Capital equipment sales decreased 20.1% to $1.6 million, or 8.0% of sales in the third quarter of fiscal 2015 compared to $1.9 million, or 12.1% of sales, in the third quarter of fiscal 2014. Disposable product sales increased 26.2% to $17.5 million, or 90.3% of sales in the current quarter, compared to sales of $13.9 million, or 85.9% of sales in the third quarter of fiscal 2014. 
  
  

Gross profit for the third quarter of fiscal 2015 totaled $10.1 million, or 52.2% of sales, compared to $8.9 million, or 55.2% of sales, in the third quarter of fiscal 2014. Year-over-year gross margin performance was driven by the combination of the impact of the change in foreign currency exchange rates, higher product costs related to our upgrade of the VersaVIT installed base, and, to a lesser extent, expenses for inventory purchase price allocation related to our acquisition of Sterimedix.

Total operating expenses increased 11.1% year-over-year to $8.3 million, or 43.0% of sales, in the third quarter of fiscal 2015 from $7.5 million, or 46.5% of sales, in the comparable 2014 period. Research and development expenses decreased 23.9% to $1.0 million, or 5.1% of sales, compared to 8.1% of sales in the prior year period. Sales and marketing expenses increased 12.0% to $3.9 million, or 19.9% of sales, compared to 21.4% of sales in the prior year period. General and administrative expenses increased 28.9% to $3.4 million, or 17.3% of sales, compared to 16.1% of sales in the third quarter of fiscal 2014. Total operating expenses also increased due to expenses related to the Company's acquisition of Sterimedix of approximately $50,000.

Reported operating income for the third quarter of fiscal 2015 increased $0.4 million to $1.8 million, or 9.1% of sales, compared to operating income of $1.4 million in the third quarter of fiscal 2014. Reported net income increased $0.3 million to approximately $1.2 million, or $0.05 per diluted share, compared to net income of $0.9 million, or $0.04 per diluted share, for the same period of fiscal 2014.

As of April 30, 2015, the Company had approximately $10.4 million in cash and $2.6 million in interest-bearing debt. Cash flows provided by operating activities were $2.1 million for the three months ended April 30, 2015, compared to cash flows provided by operating activities of $1.7 million for the comparable fiscal 2014 period.

Conference Call Information

Synergetics USA, Inc. will host a conference call on Tuesday, June 9, 2015 at 4:00 p.m. Central Time (5:00 p.m. Eastern) to review the Company's results for the fiscal third quarter ended April 30, 2015. The toll free dial-in number to participate live on this call is (800) 446-1671, confirmation code 39690683. For callers outside the U.S., the number is (847) 413-3362. 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. A replay will be available on the Company's website for approximately 30 days.

Notes to Accompany the Enterprise-wide Sales Table:

(1) Net sales from ophthalmic represent all sales of ophthalmic devices from direct sales representatives, distribution partners and OEMs. Recognition of deferred revenue of $322,000 and $966,000 from Alcon, Inc. is included in this category for the three and nine months ended April 30, 2015 and 2014, respectively.

(2) Net sales from neurosurgery represent sales of electrosurgery generators, disposable bipolar forceps and related accessories and royalties from Codman, multi-channel generators, disposable ultrasonic tips and related accessories to Stryker and certain neurosurgery disposables sold through distribution. Many of the products that the Company sells to its neurosurgery OEM customers are shipped to their non-U.S. customers in various countries around the world, but are included in the Company's domestic revenues.

(3) Other net sales represent all sales of aesthetic devices, freight and other miscellaneous revenues.

(4) Net sales from ophthalmic represent sales of ophthalmic devices from direct sales representatives and distribution partners.

(5) Net sales from OEM represent sales of electrosurgery generators, disposable bipolar forceps and related accessories and royalties from Codman, multi-channel generators, disposable ultrasonic tips and related accessories to Stryker and sales of certain disposable products. Recognition of deferred revenues of $322,000 and $966,000 from Alcon, Inc. is included in this category for the three and nine months ended April 30, 2015 and 2014, respectively. Many of the products that the Company sells to its neurosurgery OEM customers are shipped to their non-U.S. customers in various countries around the world, but are included in the Company's domestic revenues.

(6) Other net sales represent direct neurosurgery revenues and other miscellaneous revenues.

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 on 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 growth in revenue and operating profit. In addition to the consolidated financial statements presented in accordance with GAAP, management uses certain non-GAAP measures, including EBITDA, to measure its operating performance. A definition of the components of EBITDA and reconciliation to the most directly comparable GAAP financial measure has been provided.

EBITDA is presented to enhance an understanding of the operating results and is not intended to represent cash flow or results of operations. The use of EBITDA provides an indication of our ability to service debt and measure operating performance. The Company believes EBITDA is useful in evaluating its operating performance compared to other companies in the industry, and is beneficial to investors, potential investors and other key stakeholders, including creditors who use this measure in their evaluation of performance.

The Company has subsidiaries in various foreign countries where a foreign currency is used to prepare financial statements which are then translated into U.S. dollars using an average exchange rate for the respective period. In analyzing changes in revenue, management believes that segregating changes in U.S. dollar sales caused by currency translation is informative in understanding the impact of economic trends, and may present information about revenues translated at the prior year rate to exclude the impact of foreign currency translation. 

These non-GAAP measures are not in accordance with, and should not be used as an alternative to, measures prepared in accordance with GAAP. These measures may be different from similar non-GAAP measures used by other companies. In addition, 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. Non-GAAP measures should only be used to evaluate our 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.

See Notes to Unaudited Condensed Consolidated Financial Statements.

Reconciliation of Revenues in Constant Currency

The revenues in constant currency were calculated by translating subsidiaries' revenues at the average exchange rate used to translate the respective period in 2014.

EBITDA Reconciliation