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SI

SURMODICS INC (SRDX)·Q2 2024 Earnings Summary

Executive Summary

  • Q2 FY2024 delivered strong top-line growth and a return to GAAP profitability: revenue $32.0M (+18% YoY) and GAAP diluted EPS $0.02; Adjusted EBITDA improved to $4.8M; management raised FY2024 revenue and EPS guidance for the second time this year .
  • Medical Device momentum drove results: product sales +40% YoY to $11.1M on SurVeil DCB shipments to Abbott and Pounce thrombectomy growth; performance coatings royalties +27% with $1.4M catch-up payments; IVD declined 5% on softer substrate sales .
  • Guidance raised: FY2024 revenue to $122–$124M (prior $117–$121M) and Non-GAAP diluted loss per share to $(0.67)–$(0.47) (prior $(1.17)–$(0.87)); FY product gross margin now mid- to high-50s (prior mid-50s) .
  • Commercial catalysts: full launches of Pounce Venous (March) and Pounce LP (April), plus steady SurVeil commercialization by Abbott; Q2 results exceeded internal expectations by ~$2.5M vs prior range, supporting raised outlook .
  • Stock reaction catalysts: raised guidance and profitability inflection; visible VI portfolio ramp (SurVeil, Pounce arterial/venous, Pounce LP) and coatings growth increase confidence into 2H FY24 and beyond .

What Went Well and What Went Wrong

What Went Well

  • SurVeil DCB commercialization: steady monthly orders from Abbott; positive physician feedback; TRANSCEND RCT supports non-inferiority vs IN.PACT Admiral despite 75% lower drug load, aiding adoption narrative .
  • VI product launches and traction: completion of LMEs and full launches for Pounce Venous and Pounce LP; strong arterial thrombectomy growth with Pounce arterial exceeding $1M/quarter revenue per management color .
  • Coatings strength and cash generation: performance coatings royalties +27% YoY (incl. $1.4M catch-up), $7.4M cash from operations aided by a $3.4M cash tax refund; quarter-end cash/investments $40.9M .

What Went Wrong

  • IVD softness: revenue down 5% YoY on lower substrate sales; segment operating margin slightly down vs prior year (47% vs 49%) reflecting revenue decline .
  • Product gross margin dilution: 60.8% vs 62.6% YoY driven by higher mix of not-yet-scaled device products (SurVeil, Pounce, Sublime) and under-absorption/production inefficiencies .
  • One-time revenue tailwind: $1.4M royalty catch-up payments boosted Q2 coatings; management flagged this as atypical, a factor to watch in modeling .

Financial Results

MetricQ4 2023Q1 2024Q2 2024
Total Revenue ($USD Millions)$28.0 $30.6 $32.0
GAAP Diluted EPS ($USD)$0.47 $(0.06) $0.02
Non-GAAP Diluted EPS ($USD)$0.53 $0.00 $0.07
Adjusted EBITDA ($USD Millions)$1.66 $3.93 $4.81
Product Gross Margin (%)54.2% 53.2% 60.8%
Segment Revenue ($USD Millions)Q4 2023Q1 2024Q2 2024
Medical Device$21.0 $23.5 $24.8
In Vitro Diagnostics$6.9 $7.0 $7.1
Total$28.0 $30.6 $32.0
KPIs ($USD Millions unless noted)Q4 2023Q1 2024Q2 2024
Product Sales$15.36 $18.83 $18.10
Product Gross Profit$8.3 $10.0 $11.0
Product Gross Margin (%)54.2% 53.2% 60.8%
Royalties & License Fees (Total)$10.05 $9.18 $11.41
Performance Coatings Royalties & License Fees$8.96 $8.21 $10.32
SurVeil DCB License Fee Revenue$1.09 $0.97 $1.09
Research, Development and Other Revenue$2.56 $2.55 $2.45

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Total Revenue ($M)FY2024$117–$121 $122–$124 Raised
Total Revenue ex SurVeil DCB License Fees ($M)FY2024$113–$117 $118–$120 Raised
GAAP Diluted EPS ($)FY2024$(1.40)–$(1.10) $(0.90)–$(0.70) Raised (less negative)
Non-GAAP Diluted EPS ($)FY2024$(1.17)–$(0.87) $(0.67)–$(0.47) Raised (less negative)
Product Gross Margin (%)FY2024Mid-50s Mid- to high-50s Raised
Operating Expenses ex Product CostsFY2024Decrease low–mid single digits Decrease mid single digits Raised (more reduction)
R&D Expense ($M)FY2024$40–$41 $39.5–$40.5 Slightly lowered midpoint
SG&A Expense ($M)FY2024$54–$55 $53–$54 Slightly lowered
Interest Expense ($M)FY2024~$3.5 ~$3.5 Maintained
Tax Expense ($M)FY2024$2–$3 $3.5–$4.5 Raised
Quarterly Revenue ($M)Q2 FY2024$28.5–$29.5 Actual $32.0 Beat internal range
Quarterly Revenue ($M)Q3 FY2024n/a (prior call)$29.5–$30.5 New quarterly guide
Cash & Investments ($M)FY2024 YE$28–$32 $35–$38 Raised

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 FY2023)Q1 FY2024Current Period (Q2 FY2024)Trend
SurVeil DCB commercializationPreparing for Abbott launch; TRANSCEND 36-month data; initial stocking order planning Initial stocking order fulfilled; Abbott January launch; positioning as next-gen DCB Monthly orders; positive physician feedback; profit-sharing mechanics; OUS not yet planned Adoption building; execution steady
Pounce thrombectomy (arterial)Growth driver in FY2023; momentum into FY2024 Record MD product revenue; strong Pounce adoption Pounce arterial >$1M/quarter; continued traction Accelerating
Pounce VenousPipeline; LMEs progressing ~60 LME cases by Q1 end LME complete; commercial launch in March; favorable study outcomes Launched; expanding
Pounce LP (below-the-knee)Not yet launchedEarly clinical use; LME initiated; “game-changer” potential LME completed; full launch in April; strong physician feedback Launched; strong early feedback
Performance coatings (Serene/Preside)Preside launch; coatings growth Preside early clearances; strong customer interest Coatings royalties +27%; continued adoption; feasibility studies Growing steadily
Margins/scaleDevice scale-up weighed on margins Mix and under-absorption limited margins Product GM improved; scale efficiencies emerging; aiming for medtech-like margins over time Improving
Cash/OpEx disciplineSpending reduction plan; strong cash position Focus on cash efficiency; no borrowings assumed Cash from ops $7.4M; YE cash/investments raised to $35–$38M Strengthening

Management Commentary

  • “I’m incredibly proud of our team’s impressive pace of execution... strong financial performance... commercial launch of two new mechanical thrombectomy systems... Pounce Venous and Pounce LP.” — Gary Maharaj, CEO .
  • “We are raising our revenue and EPS guidance today for the second time this year... well-positioned to deliver strong, sustained revenue performance as we look ahead.” — Gary Maharaj, CEO .
  • “Our team achieved impressive revenue performance... total revenue growth of 18% year-over-year to $32 million... Medical Device product sales increased 40%... driven primarily by SurVeil DCB and Pounce thrombectomy.” — Gary Maharaj .
  • “Product gross margins are expected to be in the mid- to high 50s... we now expect combined product revenue from our SurVeil, Pounce and Sublime products of at least $15.5 million.” — Timothy Arens, CFO .
  • “There are scenarios where we can get [medtech-like margins] in calendar ’25, but we don’t want to give guidance quite yet.” — Gary Maharaj .

Q&A Highlights

  • SurVeil TAM and Abbott partnership: Management estimates ~500k above-the-knee U.S. cases annually and ~$1B TAM; Abbott launch in early innings with consistent monthly orders; profit-sharing recognized on shipments using conservative assumptions; first report from Abbott pending .
  • Below-the-knee treatment landscape: Pounce LP positioned to address hard-to-reach small vessels where aspiration/lytics/surgery have limitations; strong early clinical feedback; SurVeil OUS discussions not active; Sundance DCB requires partner funding for IDE .
  • Expenses & margins: R&D spend trending lower vs prior years; SG&A to throttle up in back half to support launches; product gross margins improving with scale; one-time $1.4M royalty catch-up boosted Q2 coatings .
  • Commercial footprint: U.S. sales force curated and selective expansion; international considered only if cash-neutral; Premier GPO agreement expected to expand reach (post-Q2 press release) .

Estimates Context

  • Wall Street consensus via S&P Global for SRDX Q2 FY2024 EPS and revenue was unavailable at time of request due to data access limits; results are therefore compared to company’s prior quarterly range and commentary rather than third-party consensus (Values retrieved from S&P Global).
  • Implications: With Q2 revenue at $32.0M versus the prior call’s $28.5–$29.5M range and raised FY guidance, sell-side models likely require upward revisions for FY revenue ex-license fees and narrower FY losses; watch for explicit consensus updates post-call .

Key Takeaways for Investors

  • The VI portfolio is ramping: SurVeil commercialization, Pounce arterial growth, and the new Pounce Venous and LP launches collectively expand addressable markets and diversify revenue drivers .
  • Coatings are a durable cash engine: royalty and license fees growth (incl. catch-ups) and Preside adoption underpin profitability and cash generation as device platforms scale .
  • Margin trajectory improving: product GM rose to 60.8%; scaling and manufacturing efficiencies should continue to lift margins as volumes ramp across SurVeil and Pounce .
  • FY guide raised again: total revenue and EPS ranges improved; mix shift away from SurVeil license fees towards product/coatings implies higher quality growth and more predictable cadence .
  • Cash discipline intact: strong operating cash flow, higher YE cash/investments outlook, and no new borrowings assumed—supports commercialization investments without equity/debt overhang .
  • Near-term trading lens: positive guide raise and profitability inflection are catalysts; monitor monthly SurVeil order cadence, Pounce launch adoption curves, and coatings royalty trend for continuation of momentum .
  • Medium-term thesis: if device platforms reach scale and coatings growth persists, SRDX’s blended margin profile and cash generation should strengthen, supporting valuation re-rating upon sustained execution .