8-K: Surmodics Reports Q2 Fiscal 2025 Results, Introduces Fiscal Year 2025 Guidance Amidst Pending GTCR Acquisition

Surmodics announced its Q2 fiscal year 2025 financial results, revealing a revenue decrease and GAAP loss, while also introducing financial guidance for the remainder of the fiscal year, all while navigating a pending acquisition by GTCR and related FTC litigation.

Summary

• Surmodics reported a 12% year-over-year decrease in total revenue for Q2 fiscal year 2025, reaching $28.1 million.
• Excluding SurVeil DCB license fee revenue, total revenue decreased by 10% to $27.8 million.
• The company experienced a GAAP loss of $(5.2) million, compared to a net income of $0.2 million in the prior-year period.
• Adjusted EBITDA was $1.9 million, down from $4.8 million in the same period last year.
• The company announced the successful early clinical use and commercial release of the Pounce XL Thrombectomy System.
• The FTC is seeking to block the pending acquisition of Surmodics by GTCR LLC.
• Surmodics expects fiscal year 2025 total revenue to range from $114 million to $117 million, a decrease of 10% to 7% compared to fiscal 2024.
• GAAP net loss for fiscal year 2025 is projected to be between $(1.60) and $(1.40) per diluted share.
• Non-GAAP net loss is expected to range from $(0.62) to $(0.42) per diluted share.
• The company had $31.1 million in cash and investments as of March 31, 2025.

Sentiment

Score: 4

Explanation: The sentiment is slightly negative due to decreased revenue, a GAAP loss, and the FTC's challenge to the acquisition, offset by some growth in specific product lines.

Positives

• The Pounce XL Thrombectomy System was successfully used clinically and commercially released, expanding the Pounce Thrombectomy Platform.
• Sales of the Pounce Thrombectomy Platform grew by almost 25% year-over-year.
• The TRANSCEND clinical trial demonstrated the SurVeil DCB is non-inferior to the IN.PACT Admiral DCB.
• In Vitro Diagnostics (IVD) revenue increased $0.2 million, or 3%, to $7.4 million.
• The company continues to experience continued growth in customer utilization of its Serene hydrophilic coating.

Negatives

• Total revenue decreased by 12% year-over-year to $28.1 million in Q2 fiscal year 2025.
• GAAP net loss was $(5.2) million, a significant drop from the $0.2 million net income in the prior year.
• Adjusted EBITDA decreased to $1.9 million from $4.8 million in the prior year.
• The FTC is attempting to block the acquisition of Surmodics by GTCR.
• SurVeil DCB product sales revenue decreased by $2.4 million compared to the second quarter of fiscal 2024.
• Product gross profit decreased $3.8 million, or 35%, to $7.2 million.
• Product gross margin was 47.8%, compared to 60.8% in the second quarter of 2024.

Risks

• The pending acquisition by GTCR is subject to FTC litigation, which could prevent the merger.
• Lower demand for commercial shipments of SurVeil DCB from Abbott is impacting revenue.
• The company faces risks related to the consummation of the proposed Merger, including the risk that the Merger may not be consummated.
• The company's stock price may decline significantly if the Merger is not completed.
• The Merger Agreement may be terminated in circumstances requiring the company to pay the buyer a termination fee of $20,380,000.
• The effects that the announcement or pendency of the Merger may have on the company and its business, including the risks that as a result the company's business, operating results or stock price may suffer.
• The company's ability to retain or recruit key employees may be adversely affected.
• The company's business relationships (including, customers, and suppliers) may be adversely affected.
• The company's managements or employees attention may be diverted from other important matters.
• The effect of limitations that the Merger Agreement places on the company's ability to operate its business, return capital to shareholders or engage in alternative transactions.
• The nature, cost and outcome of pending and future litigation and other legal proceedings, including proceedings related to the Merger and instituted against the company and others.
• The risk that the Merger and related transactions may involve unexpected costs, liabilities or delays.
• Reliance on third parties (including customers and licensees) and their failure to successfully develop, obtain regulatory approval for, market, and sell products incorporating Surmodics' technologies.
• Possible adverse market conditions and possible adverse impacts on Surmodics' cash flows.
• Supply chain constraints.
• International trade actions announced, threatened or implemented by the U.S. or other countries, and uncertainty related to such trade actions and our customers response to these actions are unpredictable.

Future Outlook

Surmodics expects fiscal 2025 total revenue to range from $114 million to $117 million, representing a decrease of 10% to 7% compared to fiscal 2024. The company anticipates continued impact from lower SurVeil DCB license fee and product revenue. GAAP net loss is expected to range from $(1.60) to $(1.40) per diluted share, and non-GAAP net loss is expected to range from $(0.62) to $(0.42) per diluted share.

Management Comments

• Gary Maharaj, President and CEO of Surmodics, Inc., stated that the company's total revenue performance was challenged by lower revenue related to SurVeil DCB and performance coating royalty and license fee catch-up payments.
• Mr. Maharaj noted that the team is focused on advancing the long-term growth of products, controlling expenses, and completing the pending acquisition by GTCR.
• Mr. Maharaj concluded: We are introducing financial guidance today to provide enhanced transparency regarding our expectations for the balance of fiscal 2025.

Industry Context

Surmodics operates in the medical device and in vitro diagnostics industries. The decrease in revenue and earnings reflects challenges in the SurVeil DCB product line, while the Pounce Thrombectomy Platform shows growth potential. The pending acquisition by GTCR and the FTC's opposition add uncertainty to the company's future.

Comparison to Industry Standards

• Comparing Surmodics' performance to companies like Medtronic or Boston Scientific, which also have drug-coated balloon products, reveals a significant difference in scale and market share.
• While Surmodics' SurVeil DCB aims to compete with Medtronic's IN.PACT Admiral DCB, the lower demand from Abbott indicates a struggle to gain market traction.
• The growth in the Pounce Thrombectomy Platform is a positive sign, but it needs to scale significantly to offset the decline in other areas.
• The FTC's challenge to the GTCR acquisition is unusual, as regulatory hurdles are more common in mergers between direct competitors.
• The company's financial guidance suggests a challenging year ahead, with a focus on cost control and strategic initiatives.

Legal Proceedings

• The U.S. Federal Trade Commission (FTC) voted to issue an administrative complaint and authorized its staff to seek to block the pending acquisition of Surmodics by an affiliate of GTCR LLC (GTCR) in federal court.

Stakeholder Impact

• Shareholders face uncertainty due to the pending acquisition and FTC litigation.
• Employees may experience disruption due to the acquisition and potential changes in the company's structure.
• Customers may be affected by changes in product availability and pricing.
• Suppliers may be impacted by changes in the company's supply chain.
• Creditors may be affected by changes in the company's financial performance.

Next Steps

• Surmodics will continue to respond to the FTC's administrative complaint challenging the proposed merger.
• The company will focus on advancing its strategic initiatives to facilitate long-term growth.
• Surmodics will work to drive adoption of the Pounce Thrombectomy Platform.
• The company will continue building its customer pipeline for Preside, its next generation hydrophilic medical device coating.
• Surmodics will continue to drive growth in sales of its IVD products.

Key Dates

Keywords

Surmodics, financial results, GTCR, acquisition, SurVeil DCB, Pounce Thrombectomy Platform, medical device, in vitro diagnostics, FTC, revenue, EBITDA, GAAP loss, financial guidance