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    SURMODICS (SRDX)

    Q2 2024 Earnings Summary

    Reported on May 1, 2024 (Before Market Open)
    Pre-Earnings Price$25.69Last close (Apr 30, 2024)
    Post-Earnings Price$27.88Open (May 1, 2024)
    Price Change
    $2.19(+8.52%)

    What went well

    • Surmodics' key growth products—SurVeil, Pounce, and Sublime—have exceeded internal projections and contributed to a strong quarter, with management expressing confidence in continued performance.
    • The company is effectively managing its cash, with sufficient reserves to fund growth without the need to raise additional capital, reassuring investors about its financial stability.
    • There is potential for future growth through international expansion of the SurVeil drug-coated balloon with Abbott, as Surmodics is open to producing more units for sale in international markets, which could significantly increase revenue.

    What went wrong

    • Revenue in the quarter was boosted by a one-time catch-up payment of $1.4 million, which may not recur in future periods, potentially leading to lower revenue growth ahead.
    • There is uncertainty regarding profit-sharing with Abbott, as management has not yet received reports from Abbott and may need to adjust estimates, which could impact future profitability.
    • Management is unable to provide guidance for fiscal 2025 due to uncertainties and lack of data on new product launches, indicating potential risks in future growth projections.

    Q&A Summary

    1. Revenue Growth & Guidance Increase
      Q: What is driving the $15.5M revenue guidance increase?
      A: The company raised its revenue guidance to at least $15.5 million for Pounce, SurVeil, and Sublime products, driven by strong performance, especially from SurVeil and Pounce arterial. While new product launches like Pounce LP and Pounce Venous contributed modestly, they are not the main drivers of the increase.

    2. Gross Margin Improvement
      Q: When will you reach med-tech gross margins?
      A: Gross margins improved to nearly 61% this quarter. As product volumes grow and manufacturing efficiencies increase, the company expects further margin enhancements, potentially reaching med-tech-like gross margins in the next couple of years, possibly as early as calendar 2025.

    3. SurVeil's Performance
      Q: Are you exceeding internal projections for SurVeil?
      A: While not disclosing specific numbers, the company is very pleased with SurVeil's performance, which exceeded expectations this quarter. SurVeil, along with Pounce, significantly contributed to over $3 million of product revenue growth.

    4. Abbott Profit-Sharing
      Q: Has the profit-sharing with Abbott started?
      A: The company began estimating profit-sharing from Abbott based on units shipped but has yet to receive the first profit-sharing report. More details are expected in the next quarter.

    5. R&D Spending Trends
      Q: Will R&D spending remain at 50% of revenue?
      A: R&D spending is decreasing from previous levels of around 50% of revenue. This year's spend is lower due to reduced investment in SurVeil and other drug-coated balloon platforms, while product revenue growth helps offset R&D expenses.

    6. Total Addressable Market for SurVeil
      Q: What is the TAM for SurVeil?
      A: The TAM is estimated at about $1 billion, with over 500,000 above-the-knee cases performed annually in the U.S.. The company believes every patient treated with balloon angioplasty is a candidate for a drug-coated balloon, potentially expanding the market.

    7. Sales Team Expansion
      Q: Will you expand the U.S. sales force or go international?
      A: The company is focusing on securing the U.S. market first and is disciplined about investments. International expansion isn't currently planned unless it doesn't impact cash utilization. The U.S. sales team may expand selectively based on product performance.

    8. One-Time Revenue Impact
      Q: Any one-time items impacting revenue this quarter?
      A: The only unique item was a $1.4 million catch-up payment. There were no other one-time revenue additions.

    9. Abbott's International Plans for SurVeil
      Q: Any plans for SurVeil outside the U.S.?
      A: Abbott is currently focused on the U.S. market for SurVeil. There have been no discussions or plans for international expansion at this time.

    10. Fiscal 2025 Guidance Preview
      Q: Will you preview fiscal 2025 expectations before Q4?
      A: The company doesn't plan to provide fiscal 2025 guidance before the fourth quarter earnings call. They prefer to wait until more data is available to validate their assumptions.

    11. Sundance Product Progress
      Q: Is Abbott interested in your below-the-knee products?
      A: The company hasn't had discussions with Abbott about their below-the-knee products like Sundance. They continue to seek partners to help fund and advance Sundance to the IDE level.

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