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Synovis Life Technologies Reports 28 Percent Revenue Growth for Fiscal 2011 First Quarter.

Reports Record Quarterly Revenue in Multiple Product Lines; Earnings per Share of $0.16 versus $0.06 in Prior Year

ST. PAUL, Minn. -- Synovis Life Technologies, Inc. (Nasdaq: SYNO), today reported its financial results for the fiscal 2011 first quarter ended Jan. 31, 2011.

For the quarter, net revenue rose to $19.5 million, a 28 percent increase over $15.2 million in the year-ago period. Net income for the fiscal 2011 first quarter was $1.8 million, or $0.16 per diluted share, compared to net income of $0.6 million, or $0.06 per diluted share, in the fiscal 2010 first quarter. Discrete income tax benefits recorded in the first quarter of fiscal 2011 contributed $0.02 to net income per diluted share.

"Synovis is off to a strong start in fiscal 2011, with record quarterly revenue in multiple product lines," said Richard Kramp, Synovis Life Technologies president and chief executive officer. "In each area of focus, our products are gaining acceptance among physicians for their unique, differentiating features and superior clinical performance. Our specialized sales teams and distribution networks are expanding our customer base, developing solid relationships and becoming increasingly effective in our target markets. In fiscal 2011, we are investing in resources to support continued growth in our high-value product lines: Veritas([R]), Peri-Strips([R]), Microsurgical, and Orthopedic and Wound."

Kramp added, "I am also proud to announce that Synovis was recently named 'Manufacturer of the Year' by the Manufacturers Alliance. This award recognizes Minnesota companies which are using lean manufacturing tools and techniques to reduce non-value added processes and improve efficiency, and then sharing their experience with others. Everyone at Synovis has participated in one or more activities supporting our overall lean program and thereby made this award possible. In our company's culture, we encourage all of our employees to think about ways to improve what they do, and then we listen to their ideas and implement positive changes to benefit customers, shareholders and employees."

First Quarter Fiscal 2011 Highlights

* Revenue from Veritas rose to $4.2 million in the first quarter, a 38 percent increase over the comparable period last year. Veritas comprised 21 percent of overall net revenue, and is increasingly used by surgeons in the hernia and breast reconstruction markets.

* Microsurgical products revenue totaled $3.4 million in the first quarter, up 37 percent over the same period last year, with sales of the Coupler and Flow Coupler([R]) products up 48 percent. Late in the first quarter, two additional sales representatives were hired to bring the Microsurgical sales force to 11 professionals in the United States.

* Peri-Strips Dry([R]) (PSD) revenue totaled $5.4 million in the first quarter, a 20 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.

* Orthopedic and Wound product revenue totaled $883,000 for the first quarter, up from $159,000 a year ago. Orthopedic and Wound was established in July 2009 with the acquisition of substantially all of the assets of Pegasus Biologics, Inc. and its products were relaunched in January 2010. Orthopedic and Wound products include the OrthADAPT([R]) Bioimplant for orthopedic applications and Unite([R]) Biomatrix to treat chronic wounds.

* The first quarter gross margin improved to 73 percent, up from 71 percent in the same period last fiscal year.

* Selling, general and administrative expenses totaled $10.5 million in the first quarter, up 19 percent from $8.9 million in the year-ago quarter, primarily due to higher sales and marketing costs.

* Research and development (R&D) expenses totaled $1.3 million in the first quarter, versus $1.1 million in the year-ago period. R&D investment in Orthopedic and Wound was higher in the current quarter due to the development and testing of the ProCUFF[TM] orthopedic product and the related anchoring system and instrumentation. In the fiscal 2011 second quarter, Synovis expects to file a 510(k) application with the FDA for the anchoring system and instrumentation for this arthroscopically delivered device to reinforce rotator cuff and other tendon repairs.

* Operating income for the first quarter totaled $2.4 million, more than double operating income of $0.9 million in the year-ago period, chiefly due to higher revenue.

* Income tax expense was recorded at an effective rate of 36 percent in the first quarter of fiscal 2011. In addition, discrete tax benefits accounted for $230,000, or $0.02 per diluted share, in the quarter due to reinstatement of the federal R&D credit for prior periods and an adjustment to the company's deferred tax rate.

Balance Sheet and Cash Flow

* Cash and investments totaled $61.5 million as of Jan. 31, 2011, or $5.43 per share, consistent with the $61.9 million at the end of fiscal 2010.

* Operating activities used cash of approximately $0.6 million in the first quarter of fiscal 2011, versus $1.2 million used in the year-ago period. Cash is typically used in the first quarter for payment of year-end accruals.

Conference Call and Webcast

Synovis Life Technologies will host a live webcast of its fiscal 2011 first quarter conference call today, Feb. 23, at 10 a.m. CT to discuss the company's results. To participate in the conference call, please dial (888) 679-8035 and enter pass code 99379149. 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, Feb. 23.

If you prefer to listen to an audio replay of the conference call, dial (888) 286-8010 and enter access number 52407312. The audio replay will be available beginning at 2 p.m. CT on Wednesday, Feb. 23, through 6 p.m. CT on Wednesday, March 9.

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 recently enacted healthcare reform legislation, as well as other factors found in the Company's filings with the SEC, such as the "Risk Factors" section in 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


January 31


2011


2010


Net revenue


$19,477


$15,212


Cost of revenue


5,292


4,360


Gross margin


14,185


10,852


Gross margin percentage


73%


71%


Selling, general and administrative expenses


10,509


8,857


Research and development expenses


1,300


1,075


Operating expenses


11,809


9,932


Operating income


2,376


920


Interest income


74


84


Income before provision for income taxes


2,450


1,004


Provision for income taxes


652


361


Net income


$1,798


$643


Basic earnings per share


$0.16


$0.06


Diluted earnings per share


$0.16


$0.06


Weighted average shares


outstanding - basic


11,270


11,213


Weighted average shares


outstanding - diluted


11,456


11,386


SYNOVIS LIFE TECHNOLOGIES, INC.


Consolidated Revenues (unaudited)


(In thousands)


Three Months Ended


January 31


2011


2010


Veritas


$4,159


$3,018


Peri-Strips


5,409


4,508


Tissue-Guard


4,225


3,759


Microsurgery


3,443


2,515


Orthopedic and Wound


883


159


Surgical tools and other


1,358


1,253


Total Revenue


$19,477


$15,212


Domestic


$16,735


$12,902


International


2,742


2,310


Total Revenue


$19,477


$15,212


SYNOVIS LIFE TECHNOLOGIES, INC.


Consolidated Balance Sheets


As of January 31, 2011 (unaudited) and October 31, 2010


(In thousands, except share and per share data)


January 31,


October 31,


2011


2010


ASSETS


Current assets:


Cash and cash equivalents


$18,346


$12,951


Short-term investments


31,217


41,119


Accounts receivable, net


9,600


8,701


Inventories


9,146


9,433


Deferred income tax asset, net


367


367


Other current assets


2,515


1,715


Total current assets


71,191


74,286


Investments, net


11,958


7,854


Property, plant and equipment, net


3,636


3,401


Goodwill


3,620


3,620


Other intangible assets, net


6,058


6,182


Deferred income tax asset, net


2,095


2,139


Total assets


$98,558


$97,482


LIABILITIES AND SHAREHOLDERS' EQUITY


Current liabilities:


Accounts payable


$1,810


$1,644


Accrued expenses


4,149


6,371


Total current liabilities


5,959


8,015


Total liabilities


5,959


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 11,336,920 and


11,228,654 at January 31, 2011 and October 31,


113


112


2010, respectively


Additional paid-in capital


63,150


61,780


Accumulated other comprehensive income (loss)


(11)


26


Retained earnings


29,347


27,549


Total shareholders' equity


92,599


89,467


Total liabilities and shareholders' equity


$98,558


$97,482


SYNOVIS LIFE TECHNOLOGIES, INC.


Consolidated Statements of Cash Flows (unaudited)


(In thousands)


For the three months ended January 31,


2011


2010


CASH FLOWS FROM OPERATING ACTIVITIES:


Net income


$1,798


$643


Adjustments to reconcile net income to net cash


used in operating activities:


Depreciation of property, plant and equipment


307


348


Amortization of intangible assets


191


204


Amortization of investment premium, net


101


426


Stock-based compensation


309


375


Tax benefit from stock option exercises


156


-


Deferred income taxes


44


(169)


Changes in operating assets and liabilities:


Accounts receivable


(899)


(173)


Inventories


287


(707)


Other current assets


(800)


(1)


Accounts payable


166


(680)


Accrued expenses


(2,222)


(1,423)


Net cash used in operating activities


(562)


(1,157)


CASH FLOWS FROM INVESTING ACTIVITIES:


Purchase of property, plant and equipment


(542)


(128)


Investments in patents and trademarks


(67)


(14)


Purchases of investments


(6,000)


(19,273)


Proceeds from the maturing or sale of investments


11,660


18,650


Other


-


(2)


Net cash provided by (used in) investing activities


5,051


(767)


CASH FLOWS FROM FINANCING ACTIVITIES:


Net proceeds related to stock-based compensation plans


1,014


51


Repurchase of the Company's common stock


(126)


(2,552)


Excess tax benefit from stock option exercises


18


1


Net cash provided by (used in) financing activities


906


(2,500)


Net change in cash and cash equivalents


5,395


(4,424)


Cash and cash equivalents at beginning of period


12,951


15,863


Cash and cash equivalents at end of period


$18,346


$11,439
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Date:Feb 23, 2011
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