UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM
(Mark One)
For the quarterly period ended
or
Commission File Number:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
(Address of principal executive offices) (Zip Code)
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(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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Trading Symbol |
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Name of each exchange on which registered |
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Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging Growth Company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
The number of shares of the registrant’s Common Stock, $0.05 par value per share, as of January 29, 2024 was
TABLE OF CONTENTS
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Item 1. |
3 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
28 |
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Item 4. |
29 |
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Item 1. |
30 |
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Item 1A. |
30 |
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Item 2. |
30 |
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Item 3. |
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Item 4. |
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Item 5. |
30 |
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Item 6. |
31 |
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32 |
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2
PART I. FINANCIAL INFORMATION
Item 1. Unaudited Condensed Consolidated Financial Statements
Surmodics, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
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December 31, |
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September 30, |
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2023 |
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2023 |
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(In thousands, except per share data) |
(Unaudited) |
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ASSETS |
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Current Assets: |
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Cash and cash equivalents |
$ |
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$ |
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Available-for-sale securities |
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Accounts receivable, net of allowances of $ |
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Contract assets |
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Inventories, net |
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Income tax receivable |
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Prepaids and other |
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Total Current Assets |
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Property and equipment, net |
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Intangible assets, net |
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Goodwill |
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Other assets |
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Total Assets |
$ |
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$ |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current Liabilities: |
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Accounts payable |
$ |
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$ |
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Accrued liabilities: |
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Compensation |
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Accrued other |
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Deferred revenue |
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Total Current Liabilities |
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Long-term debt, net |
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Deferred revenue, less current portion |
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Deferred income taxes |
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Other long-term liabilities |
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Total Liabilities |
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(Note 11) |
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Stockholders’ Equity: |
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Series A Preferred stock — $ |
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Common stock — $ |
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Additional paid-in capital |
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Accumulated other comprehensive loss |
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( |
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Retained earnings |
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Total Stockholders’ Equity |
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Total Liabilities and Stockholders’ Equity |
$ |
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$ |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
Surmodics, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
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Three Months Ended December 31, |
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2023 |
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2022 |
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(In thousands, except per share data) |
(Unaudited) |
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Revenue: |
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Product sales |
$ |
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$ |
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Royalties and license fees |
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Research, development and other |
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Total revenue |
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Operating costs and expenses: |
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Research and development |
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Selling, general and administrative |
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Acquired intangible asset amortization |
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Contingent consideration expense |
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— |
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Total operating costs and expenses |
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Operating loss |
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( |
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( |
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Other expense: |
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Interest expense, net |
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( |
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( |
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Foreign exchange loss |
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( |
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( |
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Investment income, net |
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Other expense, net |
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( |
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( |
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Loss before income taxes |
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( |
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( |
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Income tax (expense) benefit |
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( |
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Net loss |
$ |
( |
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$ |
( |
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Basic net loss per share |
$ |
( |
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$ |
( |
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Diluted net loss per share |
$ |
( |
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$ |
( |
) |
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Weighted average number of shares outstanding: |
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Basic |
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Diluted |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
Surmodics, Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income (Loss)
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Three Months Ended December 31, |
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2023 |
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2022 |
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(In thousands) |
(Unaudited) |
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Net loss |
$ |
( |
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$ |
( |
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Other comprehensive income: |
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Derivative instruments: |
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Unrealized net loss |
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( |
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( |
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Net (gain) loss reclassified to earnings |
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( |
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Net changes related to available-for-sale securities, net of tax |
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( |
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— |
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Foreign currency translation adjustments |
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Other comprehensive income |
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Comprehensive income (loss) |
$ |
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$ |
( |
) |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5
Surmodics, Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders’ Equity
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Three Months Ended December 31, 2023 and 2022 |
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(Unaudited) |
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Accumulated |
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Additional |
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Other |
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Total |
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Common Stock |
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Paid-In |
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Comprehensive |
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Retained |
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Stockholders’ |
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(In thousands) |
Shares |
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Amount |
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Capital |
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Loss |
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Earnings |
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Equity |
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Balance at September 30, 2023 |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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Net loss |
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— |
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— |
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— |
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— |
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( |
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( |
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Other comprehensive income, net of tax |
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— |
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— |
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— |
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— |
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Issuance of common stock |
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( |
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— |
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— |
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— |
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Common stock options exercised, net |
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— |
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— |
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— |
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Purchase of common stock to pay |
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( |
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( |
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( |
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— |
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— |
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( |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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Balance at December 31, 2023 |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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Balance at September 30, 2022 |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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Net loss |
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— |
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— |
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— |
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— |
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( |
) |
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( |
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Other comprehensive income, net of tax |
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— |
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— |
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— |
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— |
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Issuance of common stock |
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( |
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— |
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— |
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— |
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Common stock options exercised, net |
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— |
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— |
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Purchase of common stock to pay |
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( |
) |
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( |
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( |
) |
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— |
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— |
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( |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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Balance at December 31, 2022 |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
6
Surmodics, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
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Three Months Ended December 31, |
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2023 |
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2022 |
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(In thousands) |
(Unaudited) |
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Operating Activities: |
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Net loss |
$ |
( |
) |
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$ |
( |
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Adjustments to reconcile net loss to net cash used in operating activities: |
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Depreciation and amortization |
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Stock-based compensation |
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Noncash lease expense |
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Amortization of debt issuance costs |
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Provision for credit losses |
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Deferred taxes |
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( |
) |
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( |
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Other |
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( |
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Change in operating assets and liabilities: |
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Accounts receivable and contract assets |
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( |
) |
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Inventories |
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( |
) |
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Prepaids and other |
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( |
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( |
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Accounts payable |
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( |
) |
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( |
) |
Accrued liabilities |
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( |
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( |
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Income taxes |
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Deferred revenue |
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( |
) |
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( |
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Net cash used in operating activities |
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( |
) |
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( |
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Investing Activities: |
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Purchases of property and equipment |
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( |
) |
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( |
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Purchases of available-for-sale securities |
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( |
) |
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— |
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Maturities of available-for-sale securities |
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— |
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Net cash used in investing activities |
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( |
) |
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( |
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Financing Activities: |
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Payments of short-term borrowings |
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— |
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( |
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Proceeds from issuance of long-term debt |
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— |
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Payments of debt issuance costs |
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— |
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( |
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Issuance of common stock |
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Payments for taxes related to net share settlement of equity awards |
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( |
) |
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( |
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Net cash (used in) provided by financing activities |
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( |
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Effect of exchange rate changes on cash |
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Net change in cash and cash equivalents |
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( |
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Cash and Cash Equivalents: |
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Beginning of period |
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End of period |
$ |
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$ |
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Supplemental Information: |
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Cash paid for income taxes |
$ |
— |
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$ |
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Cash paid for interest |
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Noncash investing and financing activities: |
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Acquisition of property and equipment |
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Right-of-use assets obtained in exchange for operating lease liabilities |
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— |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
7
Surmodics, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Period Ended December 31, 2023
(Unaudited)
1. Organization
Description of Business
Surmodics, Inc. and subsidiaries (referred to as “Surmodics,” the “Company,” “we,” “us,” “our” and other like terms) is a leading provider of performance coating technologies for intravascular medical devices and chemical and biological components for in vitro diagnostic (“IVD”) immunoassay tests and microarrays. Surmodics develops and commercializes highly differentiated vascular intervention medical devices that are designed to address unmet clinical needs and engineered to the most demanding requirements. This key growth strategy leverages the combination of the Company’s expertise in proprietary surface modification and drug-delivery coating technologies, along with its device design, development and manufacturing capabilities. The Company’s mission is to improve the detection and treatment of disease. Surmodics is headquartered in Eden Prairie, Minnesota.
Basis of Presentation and Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements include all accounts and wholly-owned subsidiaries and have been prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”). All intercompany transactions have been eliminated. The Company operates on a fiscal year ending on September 30. In accordance with the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”), the Company has omitted footnote disclosures that would substantially duplicate the disclosures contained in the audited consolidated financial statements of the Company. These unaudited condensed consolidated financial statements should be read together with the audited consolidated financial statements for the fiscal year ended September 30, 2023, and notes thereto included in our Annual Report on Form 10-K as filed with the SEC.
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Ultimate results could differ from those estimates. The results of operations for the three months ended December 31, 2023 are not necessarily indicative of the results that may be expected for the entire 2024 fiscal year.
New Accounting Pronouncements
Not Yet Adopted
In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2023-07, Segment Reporting: Improvements to Reportable Segment Disclosures. This guidance requires disclosure of incremental segment information on an annual and interim basis. This amendment is effective for our fiscal year ending September 30, 2025 and interim periods within our fiscal year ending September 30, 2026. We are currently assessing the impact of this guidance on our disclosures.
In December 2023, the FASB issued ASU No. 2023-09, Income Taxes: Improvements to Income Tax Disclosures. This guidance requires consistent categories and greater disaggregation of information in the rate reconciliation and disclosures of income taxes paid by jurisdiction. This amendment is effective for our fiscal year ending September 30, 2026 and interim periods within our fiscal year ending September 30, 2027. We are currently assessing the impact of this guidance on our disclosures.
No other new accounting pronouncement issued or effective during the fiscal year has had, or is expected to have, a material impact on the Company’s condensed consolidated financial statements.
8
2. Revenue
The following table is a disaggregation of revenue within each reportable segment.
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Three Months Ended December 31, |
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(In thousands) |
2023 |
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2022 |
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Medical Device |
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Product sales |
$ |
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$ |
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Royalties & license fees – performance coatings |
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License fees – SurVeil DCB |
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Research, development and other |
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Medical Device Revenue |
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In Vitro Diagnostics |
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Product sales |
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Research, development and other |
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In Vitro Diagnostics Revenue |
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Total Revenue |
$ |
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$ |
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Contract assets totaled $
3. Collaborative Arrangement
On February 26, 2018, the Company entered into an agreement with Abbott Vascular, Inc. (“Abbott”) with respect to one of the device products in our Medical Device reportable segment, the SurVeil™ drug-coated balloon (“DCB”) for treatment of the superficial femoral artery (the “Abbott Agreement”). In June 2023, the SurVeil DCB received U.S. Food and Drug Administration (“FDA”) premarket approval (“PMA”) and may now be marketed and sold in the U.S. by Abbott.
SurVeil DCB License Fees
Under the Abbott Agreement, Surmodics is responsible for conducting all necessary clinical trials, including completion of the ongoing, five-year TRANSCEND pivotal clinical trial of the SurVeil DCB. The Company has received payments totaling $
License fee revenue on milestone payments received under the Abbott Agreement is recognized using the cost-to-cost method based on total costs incurred to date relative to total expected costs for the TRANSCEND pivotal clinical trial, which is expected to be competed in fiscal 2025. See Note 2 Revenue for SurVeil DCB license fee revenue recognized in our Medical Device reportable segment.
As of December 31, 2023 and September 30, 2023, deferred revenue on the condensed consolidated balance sheets totaled $
The amount of revenue recognized that was included in the respective beginning of fiscal year balances of deferred revenue on the condensed consolidated balance sheets totaled $
9
SurVeil DCB Product Sales
Under the Abbott Agreement, we supply commercial units of the SurVeil DCB to Abbott, and Abbott has exclusive worldwide distribution rights. During the three months ended December 31, 2023, we commenced shipment of commercial units of the SurVeil DCB to Abbott. We recognize revenue from the sale of commercial units of the SurVeil DCB to Abbott at the time of shipment in product sales on the condensed consolidated statements of operations. The amount of SurVeil DCB product sales revenue recognized includes (i) the contractual transfer price per unit and (ii) an estimate of Surmodics’ share of net profits resulting from product sales by Abbott to third parties pursuant to the Abbott Agreement (“estimated SurVeil DCB profit-sharing”). On a quarterly basis, Abbott (i) reports to us its third-party sales of the SurVeil DCB the quarter after those sales occur, which may occur within two years following shipment based on the product’s current shelf life; and (ii) reports to us and pays the actual amount of profit-sharing. Estimated SurVeil DCB profit-sharing represents variable consideration and is recorded in contract assets on the condensed consolidated balance sheets. We estimate variable consideration as the most-likely amount to which we expect to be entitled, and we include estimated amounts in the transaction price to the extent it is probable that a significant reversal of cumulative revenue will not occur when the uncertainty associated with the variable consideration is resolved. Significant judgment is required in estimating the amount of variable consideration to recognize when assessing factors outside of Surmodics’ influence, such as limited availability of third-party information, expected duration of time until resolution, and limited relevant past experience.
4. Fair Value Measurements
Assets and liabilities measured at fair value on a recurring basis by level of the fair value hierarchy were as follows:
|
December 31, 2023 |
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(In thousands) |
Quoted Prices in Active Markets for Identical Instruments |
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Significant Other |
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Significant |
|
|
Total Fair Value |
|
||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
||||
Cash equivalents (1) |
$ |
— |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
||
Available-for-sale securities (1) |
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Total assets |
$ |
— |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
||||
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
||||
Interest rate swap (2) |
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Total liabilities |
$ |
— |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
||
|
September 30, 2023 |
|
|||||||||||||
(In thousands) |
Quoted Prices in |
|
|
Significant Other |
|
|
Significant |
|
|
Total Fair Value |
|
||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
||||
Cash equivalents (1) |
$ |
— |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
||
Available-for-sale securities (1) |
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Interest rate swap (2) |
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Total assets |
$ |
— |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
||
10
5. Supplemental Balance Sheet Information
Investments — Available-for-sale Securities
The amortized cost, unrealized holding gains and losses, and fair value of available-for-sale securities were as follows:
|
|
December 31, 2023 |
|
|||||||||||||
(In thousands) |
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
Fair |
|
||||
Commercial paper and corporate bonds |
|
$ |
|
|
$ |
— |
|
|
$ |
( |
) |
|
$ |
|
||
Available-for-sale securities |
|
$ |
|
|
$ |
— |
|
|
$ |
( |
) |
|
$ |
|
||
|
|
September 30, 2023 |
|
|||||||||||||
(In thousands) |
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
Fair |
|
||||
Commercial paper and corporate bonds |
|
$ |
|
|
$ |
— |
|
|
$ |
( |
) |
|
$ |
|
||
Available-for-sale securities |
|
$ |
|
|
$ |
— |
|
|
$ |
( |
) |
|
$ |
|
||
Inventories
Inventories consisted of the following components:
|
December 31, |
|
|
September 30, |
|
||
(In thousands) |
2023 |
|
|
2023 |
|
||
Raw materials |
$ |
|
|
$ |
|
||
Work-in process |
|
|
|
|
|
||
Finished products |
|
|
|
|
|
||
Total |
$ |
|
|
$ |
|
||
Prepaids and Other Assets, Current
Prepaids and other current assets consisted of the following:
|
December 31, |
|
|
September 30, |
|
||
(In thousands) |
2023 |
|
|
2023 |
|
||
Prepaid expenses |
$ |
|
|
$ |
|
||
Irish research and development credits receivable |
|
|
|
|
|
||
CARES Act employee retention credit receivable (1) |
|
|
|
|
|
||
Prepaids and other |
$ |
|
|
$ |
|
||
11
Intangible Assets
Intangible assets consisted of the following:
|
December 31, 2023 |
|
|||||||||||||
(Dollars in thousands) |
Weighted Average Original Life (Years) |
|
|
Gross Carrying Amount |
|
|
Accumulated Amortization |
|
|
Net |
|
||||
Definite-lived intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
||||
Customer lists and relationships |
|
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
Developed technology |
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Patents and other |
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Total definite-lived intangible assets |
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Unamortized intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
||||
Trademarks and trade names |
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Total intangible assets |
|
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
|
September 30, 2023 |
|
|||||||||||||
(Dollars in thousands) |
Weighted Average Original Life (Years) |
|
|
Gross Carrying Amount |
|
|
Accumulated Amortization |
|
|
Net |
|
||||
Definite-lived intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
||||
Customer lists and relationships |
|
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
Developed technology |
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Patents and other |
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Total definite-lived intangible assets |
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Unamortized intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
||||
Trademarks and trade names |
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Total intangible assets |
|
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
Intangible asset amortization expense was $
(In thousands) |
|
|
|
Remainder of 2024 |
$ |
|
|
2025 |
|
|
|
2026 |
|
|
|
2027 |
|
|
|
2028 |
|
|
|
2029 |
|
|
|
Thereafter |
|
|
|
Definite-lived intangible assets |
$ |
|
|
Future amortization amounts presented above are estimates. Actual future amortization expense may be different as a result of future acquisitions, impairments, changes in amortization periods, foreign currency translation rates, or other factors.
Goodwill
Changes in the carrying amount of goodwill by segment were as follows:
(In thousands) |
In Vitro |
|
|
Medical |
|
|
Total |
|
|||
Goodwill as of September 30, 2023 |
$ |
|
|
$ |
|
|
$ |
|
|||
Currency translation adjustment |
|
— |
|
|
|
|
|
|
|
||
Goodwill as of December 31, 2023 |
$ |
|
|
$ |
|
|
$ |
|
|||
12
Other Assets, Noncurrent
Other noncurrent assets consisted of the following:
|
December 31, |
|
|
September 30, |
|
||
(In thousands) |
2023 |
|
|
2023 |
|
||
Operating lease right-of-use assets |
$ |
|
|
$ |
|
||
Other |
|
|
|
|
|
||
Other assets |
$ |
|
|
$ |
|
||
Accrued Other Liabilities
Accrued other liabilities consisted of the following:
|
December 31, |
|
|
September 30, |
|
||
(In thousands) |
2023 |
|
|
2023 |
|
||
Accrued professional fees |
$ |
|
|
$ |
|
||
Accrued clinical study expense |
|
|
|
|
|
||
Accrued purchases |
|
|
|
|
|
||
Deferred consideration (1) |
|
|
|
|
|
||
Operating lease liabilities, current portion |
|
|
|
|
|
||
Other |
|
|
|
|
|
||
Total accrued other liabilities |
$ |
|
|
$ |
|
||
Other Long-term Liabilities
Other long-term liabilities consisted of the following:
|
December 31, |
|
|
September 30, |
|
||
(In thousands) |
2023 |
|
|
2023 |
|
||
Deferred consideration (1) |
$ |
|
|
$ |
|
||
Unrecognized tax benefits (2) |
|
|
|
|
|
||
|
|
|
|
|
|||
Other |
|
|
|
|
|
||
Other long-term liabilities |
$ |
|
|
$ |
|
||
6. Debt
Debt consisted of the following:
|
December 31, |
|
|
September 30, |
|
||
(In thousands) |
2023 |
|
|
2023 |
|
||
Revolving Credit Facility, |
$ |
|
|
$ |
|
||
Tranche 1 Term Loans, |
|
|
|
|
|
||
Long-term debt, gross |
|
|
|
|
|
||
Less: Unamortized debt issuance costs |
|
( |
) |
|
|
( |
) |
Long-term debt, net |
$ |
|
|
$ |
|
||
13
On October 14, 2022, the Company entered into a secured revolving credit facility and secured term loan facilities pursuant to a Credit, Security and Guaranty Agreement (the “MidCap Credit Agreement”) with Mid Cap Funding IV Trust, as agent, and MidCap Financial Trust, as term loan servicer and the lenders from time to time party thereto. The MidCap Credit Agreement provides for availability under a secured revolving line of credit of up to $
The MidCap Credit Agreement also provides for up to $
Pursuant to the MidCap Credit Agreement, the Company provided a first priority security interest in all existing and future acquired assets, including intellectual property and real estate, owned by the Company. The MidCap Credit Agreement contains certain covenants that limit the Company’s ability to engage in certain transactions. Subject to certain limited exceptions, these covenants limit the Company’s ability to, among other things:
The MidCap Credit Agreement also contains customary indemnification obligations and customary events of default, including, among other things, (i) non-payment, (ii) breach of warranty, (iii) non-performance of covenants and obligations, (iv) default on other indebtedness, (v) judgments, (vi) change of control, (vii) bankruptcy and insolvency, (viii) impairment of security, (ix) termination of a pension plan, (x) regulatory matters, and (xi) material adverse effect.
In addition, the Company must maintain minimum core net revenue levels tested quarterly to the extent that Term Loans advanced under the MidCap Credit Agreement exceed $
Borrowings under the MidCap Credit Agreement bear interest at the forward-looking,
14
Subject to certain limitations, the Term Loans have a prepayment fee for payments made prior to the maturity date equal to
7. Derivative Financial Instruments
As of December 31, 2023 and September 30, 2023, derivative financial instruments on the condensed consolidated balance sheets consisted of a fixed-to-variable interest rate swap to mitigate exposure to interest rate increases related to our Term Loans (“interest rate swap”). The interest rate swap has been designated as a cash flow hedge. See Note 6 Debt for further information on our financing arrangements.
|
Asset (Liability) |
||||||||||||||||||||
(In thousands) |
Gross Recognized Amount |
|
|
Gross Offset Amount |
|
|
Net Amount Presented |
|
|
Cash Collateral Receivable |
|
|
Net Amount Reported |
|
|
Balance Sheet Location |
|||||
December 31, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Interest rate swap |
$ |
( |
) |
|
$ |
— |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
|||
September 30, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Interest rate swap |
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
||||
The pretax amounts recognized in accumulated other comprehensive loss (“AOCL”) for designated hedge derivative instruments were as follows:
|
Three Months Ended December 31, |
|
|||||
(In thousands) |
2023 |
|
|
2022 |
|
||
Beginning unrealized net gain in AOCL |
$ |
|
|
$ |
— |
|
|
Net loss recognized in other comprehensive income (loss) |
|
( |
) |
|
|
( |
) |
|
( |
) |
|
|
|
||
Ending unrealized loss in AOCL |
$ |
( |
) |
|
$ |
( |
) |
8. Stock-based Compensation Plans
The Company has stock-based compensation plans approved by its shareholders under which it grants stock options, restricted stock awards, restricted stock units and deferred stock units to officers, directors and key employees.
|
Three Months Ended December 31, |
|
|||||
(In thousands) |
2023 |
|
|
2022 |
|
||
Product costs |
$ |
|
|
$ |
|
||
Research and development |
|
|
|
|
|
||
Selling, general and administrative |
|
|
|
|
|
||
Total |
$ |
|
|
$ |
|
||
15
As of December 31, 2023, unrecognized compensation costs related to non-vested awards totaled approximately $
Stock Option Awards
The Company awards stock options to officers, directors and key employees and uses the Black-Scholes option pricing model to determine the fair value of stock options as of the date of each grant.
|
Three Months Ended December 31, |
|
|||||
|
2023 |
|
|
2022 |
|
||
Stock option grant activity: |
|
|
|
|
|
||
Stock options granted |
|
|
|
|
|
||
Weighted average grant date fair value |
$ |
|
|
$ |
|
||
Weighted average exercise price |
$ |
|
|
$ |
|
||
Restricted Stock Awards
During the three months ended December 31, 2023 and 2022, the Company awarded
Restricted Stock Unit Awards
During each of the three months ended December 31, 2023 and 2022, the Company awarded
Employee Stock Purchase Plan
9. Net Loss Per Share Data
Basic net income (loss) per common share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of common and common equivalent shares outstanding during the period. The Company’s potentially dilutive common shares are those that result from dilutive common stock options and non-vested stock relating to restricted stock awards and restricted stock units.
|
Three Months Ended December 31, |
|
|||||
(In thousands) |
2023 |
|
|
2022 |
|
||
Basic weighted average shares outstanding |
|
|
|
|
|
||
Dilutive effect of outstanding stock options, non-vested restricted stock, and non-vested restricted stock units |
|
— |
|
|
|
— |
|
Diluted weighted average shares outstanding |
|
|
|
|
|
||
16
10. Income Taxes
A valuation allowance is required to be recognized against deferred tax assets if, based on the available evidence, it is more likely than not (defined as a likelihood of more than
Discrete tax benefits related to stock-based compensation awards vested, expired, canceled and exercised was $
11. Commitments and Contingencies
Asset Acquisitions. In fiscal 2018, the Company acquired certain intellectual property assets of Embolitech, LLC (the “Embolitech Transaction”). As part of the Embolitech Transaction, the Company paid the sellers $
17
Vetex Acquisition. In fiscal 2021, Surmodics acquired all of the outstanding shares of Vetex with an upfront cash payment of $
12. Segment Information
Segment revenue, operating loss, and depreciation and amortization were as follows:
|
Three Months Ended December 31, |
|
|||||
(In thousands) |
2023 |
|
|
2022 |
|
||
Revenue: |
|
|
|
|
|
||
Medical Device |
$ |
|
|
$ |
|
||
In Vitro Diagnostics |
|
|
|
|
|
||
Total revenue |
$ |
|
|
$ |
|
||
|
|
|
|
|
|
||
Operating loss: |
|
|
|
|
|
||
Medical Device |
$ |
( |
) |
|
$ |
( |
) |
In Vitro Diagnostics |
|
|
|
|
|
||
Total segment operating income (loss) |
|
|
|
|
( |
) |
|
Corporate |
|
( |
) |
|
|
( |
) |
Total operating loss |
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
||
Depreciation and amortization: |
|
|
|
|
|
||
Medical Device |
$ |
|
|
$ |
|
||
In Vitro Diagnostics |
|
|
|
|
|
||
Corporate |
|
|
|
|
|
||
Total depreciation and amortization |
$ |
|
|
$ |
|
||
The Corporate category includes expenses that are not fully allocated to the Medical Device and In Vitro Diagnostics segments. These Corporate costs are related to administrative corporate functions, such as executive management, corporate accounting, information technology, legal, human resources and Board of Directors. Corporate may also include expenses, such as acquisition-related costs and litigation, which are not specific to a segment and thus not allocated to the reportable segments.
Asset information by segment is not presented because the Company does not provide its chief operating decision maker assets by segment, as the data is not readily available.
18
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis provides information management believes is useful in understanding the operating results, cash flows and financial condition of Surmodics. The discussion should be read in conjunction with both the unaudited condensed consolidated financial statements and related notes included in this Quarterly Report on Form 10-Q and our audited consolidated financial statements and related notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations, each included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2023. This discussion contains various “Forward-Looking Statements” within the meaning of the Private Securities Litigation Reform Act of 1995. We refer readers to the statement entitled “Forward-Looking Statements” located at the end of this Item 2.
Overview
Surmodics, Inc. (referred to as “Surmodics,” the “Company,” “we,” “us,” “our” and other like terms) is a leading provider of performance coating technologies for intravascular medical devices and chemical and biological components for in vitro diagnostic (“IVD”) immunoassay tests and microarrays. Surmodics develops and commercializes highly differentiated vascular intervention medical devices that are designed to address unmet clinical needs and engineered to the most demanding requirements. This key growth strategy leverages the combination of the Company’s expertise in proprietary surface modification and drug-delivery coating technologies, along with its device design, development and manufacturing capabilities. The Company’s mission is to improve the detection and treatment of disease. Surmodics is headquartered in Eden Prairie, Minnesota.
Vascular Intervention Medical Device Platforms
Within our Medical Device segment, we develop and manufacture our own proprietary vascular intervention medical device products, which leverage our expertise in performance coating technologies, product design and engineering capabilities. We believe our strategy of developing our own medical device products has increased, and will continue to increase, our relevance in the medical device industry. This strategy is key to our future growth and profitability, providing us with the opportunity to capture more revenue and operating margin with vascular intervention device products than we would by licensing our device-enabling technologies.
Highlighted below are select medical device products within our development pipeline that are our focus for development and commercialization efforts. For our drug-coated balloon (“DCB") platform, we are commercializing our SurVeil™ DCB through a distribution arrangement with Abbott Vascular, Inc. (“Abbott”). For both our thrombectomy and radial access platforms, we are pursuing commercialization via a direct sales strategy leveraging a small team of experienced sales professionals and clinical specialists. Beginning in fiscal 2022, we began to see modest, but meaningful and growing revenue associated with the adoption, utilization and sales of our Pounce™ and Sublime™ platform products.
Drug-coated Balloon Platform
Surmodics’ DCBs are designed for vascular interventions to treat peripheral arterial disease (“PAD”), a condition that causes a narrowing of the blood vessels supplying the extremities.
In the first quarter of fiscal 2024, we completed shipment of Abbott’s initial stocking order of commercial units of the SurVeil DCB, resulting in recognition of product sales, which included both (i) the contractual transfer price, and (ii) an estimate of Surmodics’ share of net profits resulting from product sales by Abbott to third parties. As of January 2024, the SurVeil DCB is now a commercial product available in the U.S. through Abbott.
19
Pounce Thrombectomy Platform
We have successfully developed, internally and through acquisitions, multiple FDA 510(k)-cleared mechanical thrombectomy devices for the non-surgical removal of thrombi and emboli (clots) from the peripheral vasculature. In addition to FDA clearance, our Pounce Venous Thrombectomy System has the necessary regulatory approval for commercialization in the E.U. We believe that the ease of use, intuitive design and efficient performance of our thrombectomy products make these devices viable first-line treatment options for interventionalists. These devices include:
In the third quarter of fiscal 2023, the low-profile (LP) model of the Pounce Arterial Thrombectomy System received FDA 510(k) regulatory clearance, which will allow for clot removal in below-the-knee peripheral arteries (2 mm to 4 mm in diameter), expanding the addressable market for the Pounce platform. Limited market evaluations for the Pounce LP device began in the first quarter of fiscal 2024, and transition to commercial launch is targeted for fiscal 2024.
Sublime Radial Access Platform
We have successfully developed and received FDA 510(k) regulatory clearance for a suite of devices that enable vascular intervention via radial (wrist) access for which commercial sales began in the first quarter of fiscal 2022. These devices include:
For more information regarding our vascular intervention medical devices, see Part I, Item 1 of our Annual Report on Form 10-K for the fiscal year ended September 30, 2023.
20
Results of Operations
Three Months Ended December 31, 2023 and 2022
Revenue. Revenue in the first quarter of fiscal 2024 was $30.6 million, a $5.6 million or 23% increase compared to the prior-year quarter. The following is a summary of revenue streams within each reportable segment.
|
Three Months Ended December 31, |
||||||||||||||
(Dollars in thousands) |
2023 |
|
|
2022 |
|
|
Increase/(Decrease) |
||||||||
Medical Device |
|
|
|
|
|
|
|
|
|
|
|
||||
Product sales |
$ |
11,950 |
|
|
$ |
8,380 |
|
|
$ |
3,570 |
|
|
43 |
|
% |
Royalties & license fees – performance coatings |
|
8,208 |
|
|
|
7,469 |
|
|
|
739 |
|
|
10 |
|
% |
License fees – SurVeil DCB |
|
971 |
|
|
|
1,296 |
|
|
|
(325 |
) |
|
(25 |
) |
% |
R&D and other |
|
2,416 |
|
|
|
1,873 |
|
|
|
543 |
|
|
29 |
|
% |
Medical Device Revenue |
|
23,545 |
|
|
|
19,018 |
|
|
|
4,527 |
|
|
24 |
|
% |
In Vitro Diagnostics |
|
|
|
|
|
|
|
|
|
|
|
||||
Product sales |
|
6,877 |
|
|
|
5,854 |
|
|
|
1,023 |
|
|
17 |
|
% |
R&D and other |
|
130 |
|
|
|
61 |
|
|
|
69 |
|
|
113 |
|
% |
In Vitro Diagnostics Revenue |
|
7,007 |
|
|
|
5,915 |
|
|
|
1,092 |
|
|
18 |
|
% |
Total Revenue |
$ |
30,552 |
|
|
$ |
24,933 |
|
|
$ |
5,619 |
|
|
23 |
|
% |
Medical Device. Revenue in our Medical Device segment was $23.5 million in the first quarter of fiscal 2024, a 24% increase from $19.0 million in the prior-year quarter.
In Vitro Diagnostics. Revenue in our In Vitro Diagnostics (“IVD”) segment was $7.0 million in the first quarter of fiscal 2024, an 18% increase from $5.9 million in the prior-year quarter.
21
Operating Costs and Expenses. Product sales, product costs, product gross profit, product gross margin, and operating costs were as follows:
|
Three Months Ended December 31, |
||||||||||||||||
(Dollars in thousands) |
2023 |
|
2022 |
|
Increase/(Decrease) |
||||||||||||
Product sales |
$ |
18,827 |
|
|
|
$ |
14,234 |
|
|
|
$ |
4,593 |
|
|
32 |
|
% |
Product costs |
|
8,803 |
|
|
|
|
5,267 |
|
|
|
|
3,536 |
|
|
67 |
|
% |
Product gross profit (1) |
|
10,024 |
|
|
|
|
8,967 |
|
|
|
|
1,057 |
|
|
12 |
|
% |
% Product gross margin (2) |
|
53.2 |
|
% |
|
|
63.0 |
|
% |
|
|
(9.8 |
) |
ppt |
|||
R&D expense |
|
8,664 |
|
|
|
|
12,743 |
|
|
|
|
(4,079 |
) |
|
(32 |
) |
% |
% Total revenue |
|
28 |
|
% |
|
|
51 |
|
% |
|
|
|
|
|
|
||
SG&A expense |
|
12,537 |
|
|
|
|
13,236 |
|
|
|
|
(699 |
) |
|
(5 |
) |
% |
% Total revenue |
|
41 |
|
% |
|
|
53 |
|
% |
|
|
|
|
|
|
||
Acquired intangible asset amortization |
|
870 |
|
|
|
|
913 |
|
|
|
|
(43 |
) |
|
(5 |
) |
% |
Contingent consideration expense |
|
— |
|
|
|
|
3 |
|
|
|
|
(3 |
) |
|
|
|
|
Product gross profit and product gross margins. Product gross profit increased $1.1 million, or 12%, in the first quarter of fiscal 2024, compared to the prior-year period. Product gross margins were 53.2% and 63.0% in the first quarter of fiscal 2024 and 2023, respectively. The decrease in product gross margin in the first quarter of fiscal 2024 was primarily driven by several factors.
In fiscal 2024, product gross margins may continue to be adversely impacted by the shift in revenue mix towards sales of vascular intervention medical devices at relatively lower margins.
R&D expense. R&D expense declined 32%, or $4.1 million, in the first quarter of fiscal 2024, compared to the prior-year quarter. R&D expense as a percentage of revenue was 28% and 51% in the first quarter of fiscal 2024 and 2023, respectively. The decrease in R&D expense was primarily driven by lower SurVeil DCB R&D expenses due to the transition to commercialization, the timing of certain investments in product development, and the spending reduction plan and workforce reduction implemented in the second quarter of fiscal 2023,. For full-year fiscal 2024, we expect R&D expense to decrease between $5.5 million and $6.5 million, compared to fiscal 2023, primarily related to lower SurVeil DCB expenses as the result of transition to commercialization and the workforce reduction implemented in the second quarter of fiscal 2023, partly offset by our continued investment in our Pounce thrombectomy and Sublime radial access product platforms.
Selling, general and administrative (“SG&A”) expense. SG&A expense decreased 5%, or $0.7 million in the first quarter of fiscal 2024, compared to the prior-year quarter. SG&A expense as a percentage of revenue was 41% and 53% in the first quarter of fiscal 2024 and 2023, respectively. The decrease in SG&A expense was primarily related to lower headcount, largely as the result of the spending reduction plan and workforce reduction implemented in the second quarter of fiscal 2023. For full-year fiscal 2024, we expect SG&A expense to increase between $2.0 million and $3.0 million, compared to fiscal 2023, as we continue to advance the commercialization of our Pounce thrombectomy and Sublime radial access product platforms.
Acquired intangible asset amortization. We have previously acquired certain intangible assets through business combinations, which are amortized over periods ranging from seven to 14 years.
22
Other expense. Major classifications of other expense were as follows:
|
Three Months Ended December 31, |
|
|||||
(In thousands) |
2023 |
|
|
2022 |
|
||
Interest expense, net |
$ |
(896 |
) |
|
$ |
(826 |
) |
Foreign exchange loss |
|
(45 |
) |
|
|
(125 |
) |
Investment income, net |
|
539 |
|
|
|
172 |
|
Other expense, net |
$ |
(402 |
) |
|
$ |
(779 |
) |
Interest expense, net increased in the first quarter of fiscal 2024, compared to the prior-year quarter, due to higher interest rates. Refer to “Liquidity and Capital Resources” for further discussion of financing arrangements and expectations for fiscal 2024 interest expense. Foreign currency exchange (losses) gains result primarily from the impact of U.S. dollar to Euro exchange rate fluctuations on certain intercompany transactions and balances. Investment income, net increased in the first quarter of fiscal 2024, compared to the prior-year quarter, due to increased investments in available-for-sale securities, as well as higher interest rates.
Income taxes. We reported income tax expense of $(0.1) million and income tax benefit of $0.2 million in the first quarter of fiscal 2024 and 2023, respectively. Our effective tax rate was (9)% and 2% for the first quarter of fiscal 2024 and 2023, respectively.
Segment Operating Results
Operating results for each of our reportable segments were as follows:
|
Three Months Ended December 31, |
|
|||||||||
(In thousands) |
2023 |
|
|
2022 |
|
|
$ Change |
|
|||
Operating loss: |
|
|
|
|
|
|
|
|
|||
Medical Device |
$ |
(224 |
) |
|
$ |
(7,235 |
) |
|
$ |
7,011 |
|
In Vitro Diagnostics |
|
3,124 |
|
|
|
2,948 |
|
|
|
176 |
|
Total segment operating income (loss) |
|
2,900 |
|
|
|
(4,287 |
) |
|
|
7,187 |
|
Corporate |
|
(3,222 |
) |
|
|
(2,942 |
) |
|
|
(280 |
) |
Total operating loss |
$ |
(322 |
) |
|
$ |
(7,229 |
) |
|
$ |
6,907 |
|
Medical Device. Our Medical Device business reported an operating loss of $(0.2) million in the first quarter of fiscal 2024, compared to $(7.2) million in the prior-year quarter, representing (1)% and (38)% of revenue, respectively.
23
In Vitro Diagnostics. Our In Vitro Diagnostics business reported operating income of $3.1 million and $2.9 million in the first quarter of fiscal 2024 and 2023, respectively, representing 45% and 50% of revenue, respectively.
Corporate. The Corporate category includes expenses for administrative corporate functions, such as executive management, corporate accounting, information technology, legal, human resources and Board of Directors related fees and expenses, which we do not fully allocate to the Medical Device and IVD segments. Corporate also includes expenses, such as acquisition-related costs and litigation, which are not specific to a segment and thus not allocated to our reportable segments. The unallocated Corporate expense operating loss was $(3.2) million and $(2.9) million in the first quarter of fiscal 2024 and 2023, respectively.
Cash Flow Operating Results
The following is a summary of cash flow results:
|
Three Months Ended December 31, |
|
|||||
(In thousands) |
2023 |
|
|
2022 |
|
||
Cash (used in) provided by: |
|
|
|
|
|
||
Operating activities |
$ |
(8,792 |
) |
|
$ |
(10,802 |
) |
Investing activities |
|
(8,470 |
) |
|
|
(977 |
) |
Financing activities |
|
(1,049 |
) |
|
|
18,800 |
|
Effect of exchange rates on changes in cash and cash equivalents |
|
247 |
|
|
|
411 |
|
Net change in cash and cash equivalents |
$ |
(18,064 |
) |
|
$ |
7,432 |
|
Operating Activities. Cash used in operating activities was $(8.8) million in the first three months of fiscal 2024, compared to cash used of $(10.8) million in the same prior-year period. Net loss was $(0.8) million in the first three months of fiscal 2024, compared to $(7.8) million in the same prior-year period. Net changes in operating assets and liabilities reduced cash flows from operating activities by $(12.4) million in the first three months of fiscal 2024 and reduced cash flows from operating activities by $(7.3) million in the same prior-year period. Significant changes in operating assets and liabilities affecting cash flows during these periods included:
24
Investing Activities. Cash used in investing activities totaled $(8.4) million in the first three months of fiscal 2024, compared to cash used of $(1.0) million in the same prior-year period.
Financing Activities. Cash (used in) provided by financing activities totaled $(1.0) million and $18.8 million in the first three months of fiscal 2024 and 2023, respectively.
Liquidity and Capital Resources
As of December 31, 2023, working capital totaled $63.3 million, an increase of $0.6 million from September 30, 2023. We define working capital as current assets minus current liabilities. Cash and cash equivalents and available-for-sale investments totaled $35.2 million as of December 31, 2023, a decrease of $10.2 million from $45.4 million as of September 30, 2023.
The Company proactively manages its access to capital to support liquidity and continued growth. On October 14, 2022, Surmodics entered into a new, five-year secured credit agreement with MidCap, consisting of up to $100 million in term loans ($25 million of which is at the sole discretion of MidCap) and a $25 million revolving credit facility. At close, the Company drew $25 million on the term loan and $5 million on the revolving credit facility. These proceeds were partially used to retire the Company’s then existing $25 million revolving credit facility with Bridgewater Bank, of which $10 million was outstanding. Upon closing in October 2022, the Company’s cash balance increased by $19.3 million. In fiscal 2024, the Company expects total interest expense under the credit agreement with MidCap to be approximately $3.5 million.
25
As of December 31, 2023, the Company’s shelf registration statement with the SEC allows the Company to offer potentially up to $200 million in debt securities, common stock, preferred stock, warrants, and other securities or any such combination of such securities in amounts, at prices, and on terms announced if and when the securities are ever offered. This shelf registration statement expires in May 2026.
In fiscal 2024, we anticipate an increase in SG&A expenditures of between $2.0 million and $3.0 million, as well as an increase in capital expenditures. We also anticipate R&D expenses will continue to be significant in fiscal 2024, primarily related to medical device product development, including continued investment in our Pounce and Sublime product platforms. We believe that our existing cash and cash equivalents and available-for-sale investments, which totaled $35.2 million as of December 31, 2023, together with cash flow from operations and our revolving credit facility and term loans, will provide liquidity sufficient to meet our cash needs and fund our operations and planned capital expenditures for fiscal 2024. There can be no assurance, however, that our business will continue to generate cash flows at historic levels.
Beyond fiscal 2024, our cash requirements will depend extensively on the timing of market introduction and extent of market acceptance of products in our medical device product portfolio, including the SurVeil DCB distributed by Abbott, our exclusive distribution partner for the product. Our long-term cash requirements also will be significantly impacted by the level of our investment in commercialization of our vascular intervention device products and whether we make future corporate transactions. We cannot accurately predict our long-term cash requirements at this time. We may seek additional sources of liquidity and capital resources, including through borrowing, debt or equity financing or corporate transactions to generate cashflow. There can be no assurance that such transactions will be available to us on favorable terms, if at all.
Customer Concentrations
We have agreements with a diverse base of customers and certain customers have multiple products using our technology. Abbott and Medtronic are our largest customers, comprising 27% and 10%, respectively, of our consolidated revenue for fiscal 2023. Abbott and Medtronic each comprised 19% and 10%, respectively, of our consolidated revenue for the three months ended December 31, 2023.
Critical Accounting Policies and Significant Estimates
Critical accounting policies are those policies that require the application of management’s most challenging subjective or complex judgment, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Critical accounting policies involve judgments and uncertainties that are sufficiently likely to result in materially different results under different assumptions and conditions. For the three months ended December 31, 2023, there were no significant changes in our critical accounting policies. For a detailed description of our other critical accounting policies and significant estimates, see Management’s Discussion and Analysis of Financial Condition and Results of Operations under Item 7 in our Annual Report on Form 10-K for the fiscal year ended September 30, 2023.
26
Forward-looking Statements
This Quarterly Report on Form 10-Q, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 2, contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements include, but are not limited to, our strategies for growth, including our ability to sign new license agreements, conduct clinical evaluations, and bring new products to market; the expected duration of limited market evaluations and timing of commercial launches of our products; the development of future products and their anticipated attributes; the period over which deferred revenue related to the Abbott Agreement is expected to be recognized; our plans to evaluate our strategy for further clinical investment in the Sundance DCB; future revenue growth, our longer-term valuation-creation strategy, and our future potential; information about our product pipeline; future gross margins, operating expenses, and capital expenditures; the potential impact of a shift in revenue mix towards sales of medical devices; estimated future amortization expense; expectations regarding operating expenses and their impact on our cash flows; the period over which unrecognized compensation costs is expected to be recognized; research and development plans and expenses; the expected completion timeframe for the TRANSCEND clinical trial; anticipated cash requirements; the intended use of remaining proceeds of our borrowing under the MidCap Credit Agreement; future cash flows and sources of funding, and their ability together with existing cash, and cash equivalents, to provide liquidity sufficient to meet our cash needs and fund our operations and planned capital expenditures for fiscal 2024; statements regarding cash requirements beyond fiscal 2024; expectations regarding capital available under our secured revolving credit facility and secured term loan facilities; expectations regarding the maturity of debt; future impacts of our interest rate swap transactions; our expected interest expense in fiscal 2024 under the credit agreement with MidCap; the impact of potential lawsuits or claims; the potential impact of interest rate fluctuations on our results of operations and cash flows; the impact of potential change in raw material prices, sources of raw materials and our ability to manufacture raw materials ourselves; the potential impact on the Company of currency fluctuations; future income tax (expense) benefit; expected income tax expense and cash taxes to be paid; the likelihood that we will realize the benefits of our deferred tax assets; and the impact of the adoption of new accounting pronouncements. Without limiting the foregoing, words or phrases such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “forecast,” “intend,” “may,” “plan,” “possible,” “project,” “will” and similar terminology, generally identify forward-looking statements. Forward-looking statements may also represent challenging goals for us. These statements, which represent our expectations or beliefs concerning various future events, are based on current expectations that involve a number of risks and uncertainties that could cause actual results to differ materially from those of such forward-looking statements. We caution that undue reliance should not be placed on such forward-looking statements, which speak only as of the date made. Some of the factors which could cause results to differ from those expressed in any forward-looking statement are set forth under “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended September 30, 2023. We disclaim any intent or obligation to update publicly these forward-looking statements, whether because of new information, future events or otherwise.
Although it is not possible to create a comprehensive list of all factors that may cause actual results to differ from our forward-looking statements, such factors include, among others:
27
Many of these factors are outside our control and knowledge and could result in increased volatility in period-to-period results. Investors are advised not to place undue reliance upon our forward-looking statements and to consult any further disclosures by us on this subject in our filings with the Securities and Exchange Commission.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Our investment policy requires investments with high credit quality issuers and limits the amount of credit exposure to any one issuer. Our investments consist principally of interest-bearing corporate debt securities with varying maturity dates, which generally are less than one year. Because of the credit criteria of our investment policies, the primary market risk associated with these investments is interest rate risk. As of December 31, 2023, we held $11.8 million in available-for-sale debt securities. Therefore, interest rate fluctuations relating to investments would have an insignificant impact on our results of operations or cash flows. Our policy also allows the Company to hold a substantial portion of funds in cash and cash equivalents, which are defined as financial instruments with original maturities of three months or less and may include money market instruments, certificates of deposit, repurchase agreements and commercial paper instruments.
Loans under the Midcap credit agreement bear interest at floating rates tied to Term SOFR. As a result, changes in Term SOFR can affect our results of operations and cash flows to the extent we do not have effective interest rate swap arrangements in place. On October 14, 2022, we entered into a five-year interest rate swap transaction with Wells Fargo Bank, N.A. with respect to $25.0 million of notional value of the term loans funded under the MidCap credit agreement. The interest rate swap transaction fixes at 4.455% the one-month Term SOFR portion of interest rate under the $25.0 million initial Term Loan funded such that the interest rate on $25.0 million of the Term Loan will be 10.205% through its maturity. We have no other swap arrangements in place for any other loans under the Midcap credit agreement.
Management believes that a reasonable change in raw material prices would not have a material impact on future earnings or cash flows because the Company’s inventory exposure is not material.
We are exposed to increasing Euro currency risk with respect to our manufacturing operations in Ireland. In addition, the contractual transfer price paid by Abbott for commercial units of our SurVeil DCB product is denominated in Euros. In a period where the U.S. dollar is strengthening or weakening relative to the Euro, our revenue and expenses denominated in Euro currency are translated into U.S. dollars at a lower or higher value than they would be in an otherwise constant currency exchange rate environment. All sales transactions are denominated in U.S. dollars or Euros. We generate royalties revenue from the sale of customer products in foreign jurisdictions. Royalties generated in foreign jurisdictions by customers are converted and paid in U.S. dollars per contractual terms. Substantially all of our purchasing transactions are denominated in U.S. dollars or Euros. To date, we have not entered into any foreign currency forward exchange contracts or other derivative financial instruments to hedge the effects of adverse fluctuations in foreign currency exchange rates.
28
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Company’s management, under the supervision and with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, referred to collectively herein as the Certifying Officers, carried out an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of December 31, 2023. Based on that evaluation, the Company’s Certifying Officers concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) were effective to ensure that information required to be disclosed by the Company in reports that it files under the Exchange Act is recorded, processed, summarized and reported within the time period specified in the Securities and Exchange Commission rules and forms, and to ensure that information required to be disclosed by the Company in the reports the Company files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its Certifying Officers, as appropriate, to allow timely decisions regarding required disclosures.
Changes in Internal Controls over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) during the three months ended December 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
29
PART II — OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, the Company has been involved in various legal actions involving its operations, products and technologies, including intellectual property and employment disputes.
Item 1A. Risk Factors
The risks identified in our Annual Report on Form 10-K for the fiscal year ended September 30, 2023, filed with the Securities and Exchange Commission on November 22, 2023, under Part I, Item 1A, “Risk Factors” could affect our financial performance and could cause our actual results for future periods to differ materially from our anticipated results or other expectations, including those expressed in any forward-looking statements made in this Quarterly Report on Form 10-Q.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table presents the information with respect to purchases made by or on behalf of Surmodics, Inc. or any “affiliated purchaser” (as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934), of our common stock during the three months ended December 31, 2023.
|
|
Total Number of |
|
|
Average Price Paid |
|
|
Total Number of Shares Purchased as Part of Publicly Announced Programs |
|
|
Maximum Dollar Value of Shares that May Yet Be Purchased Under the Programs |
|
||||
Period: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
October 1 – 31, 2023 |
|
|
111 |
|
|
$ |
28.72 |
|
|
|
— |
|
|
$ |
25,300,000 |
|
November 1 – 30, 2023 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
25,300,000 |
|
December 1 – 31, 2023 |
|
|
28,717 |
|
|
|
32.82 |
|
|
|
— |
|
|
|
25,300,000 |
|
Total |
|
|
28,828 |
|
|
|
32.80 |
|
|
|
— |
|
|
|
|
|
The Company has an aggregate of $25.3 million available for future common stock purchases under the current authorizations. The MidCap credit agreement restricts our ability to repurchase our common stock.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not Applicable.
Item 5. Other Information
None.
30
Item 6. Exhibits |
EXHIBIT INDEX |
|
Exhibit |
|
Description |
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
101.INS* |
|
Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File as its XBRL tags are embedded within the Inline XBRL document. |
|
|
|
101.SCH* |
|
Inline XBRL Taxonomy Extension Schema With Embedded Linkbase Documents. |
|
|
|
104* |
|
Cover page formatted as Inline XBRL and contained in Exhibit 101. |
* Filed herewith
31
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
February 1, 2024 |
Surmodics, Inc. |
|
|
|
|
|
By: |
/s/ Timothy J. Arens |
|
|
Timothy J. Arens |
|
|
Senior Vice President of Finance and Chief Financial Officer |
|
|
|
|
|
(duly authorized signatory and principal financial officer) |
32
EXHIBIT 31.1
CERTIFICATION PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Gary R. Maharaj, certify that:
Dated: February 1, 2024 |
Signature: |
/s/ Gary R. Maharaj |
|
|
Gary R. Maharaj |
|
|
President and |
|
|
Chief Executive Officer |
EXHIBIT 31.2
CERTIFICATION PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Timothy J. Arens, certify that:
Dated: February 1, 2024 |
Signature: |
/s/ Timothy J. Arens |
|
|
Timothy J. Arens |
|
|
Senior Vice President of Finance and Chief Financial Officer |
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Surmodics, Inc. (the “Company”) on Form 10-Q for the quarter ended December 31, 2023, as filed with the Securities and Exchange Commission (the “Report”), I, Gary R. Maharaj, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:
Dated: February 1, 2024 |
Signature: |
/s/ Gary R. Maharaj |
|
|
Gary R. Maharaj |
|
|
President and |
|
|
Chief Executive Officer |
EXHIBIT 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Surmodics, Inc. (the “Company”) on Form 10-Q for the quarter ended December 31, 2023, as filed with the Securities and Exchange Commission (the “Report”), I, Timothy J. Arens, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:
Dated: February 1, 2024 |
Signature: |
/s/ Timothy J. Arens |
|
|
Timothy J. Arens |
|
|
Senior Vice President of Finance and Chief Financial Officer |
|
|
|
Condensed Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands |
Dec. 31, 2023 |
Sep. 30, 2023 |
|---|---|---|
| Statement of Financial Position [Abstract] | ||
| Allowances (accounts receivable) | $ 86 | $ 80 |
| Series A preferred stock, par value | $ 0.05 | $ 0.05 |
| Series A preferred stock, shares authorized | 450,000 | 450,000 |
| Series A preferred stock, shares issued | 0 | 0 |
| Series A preferred stock, shares outstanding | 0 | 0 |
| Common stock, par value | $ 0.05 | $ 0.05 |
| Common stock, shares authorized | 45,000,000 | 45,000,000 |
| Common stock, shares issued | 14,235,000 | 14,155,000 |
| Common stock, shares outstanding | 14,235,000 | 14,155,000 |
Condensed Consolidated Statements of Comprehensive Income (Loss) - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Dec. 31, 2023 |
Dec. 31, 2022 |
|
| Statement of Comprehensive Income [Abstract] | ||
| Net loss | $ (786) | $ (7,843) |
| Derivative instruments: | ||
| Unrealized net loss | (620) | (444) |
| Net (gain) loss reclassified to earnings | (62) | 31 |
| Net changes related to available-for-sale securities, net of tax | (8) | |
| Foreign currency translation adjustments | 2,797 | 5,670 |
| Other comprehensive income | 2,107 | 5,257 |
| Comprehensive income (loss) | $ 1,321 | $ (2,586) |
Organization |
3 Months Ended |
|---|---|
Dec. 31, 2023 | |
| Accounting Policies [Abstract] | |
| Organization | 1. Organization Description of Business Surmodics, Inc. and subsidiaries (referred to as “Surmodics,” the “Company,” “we,” “us,” “our” and other like terms) is a leading provider of performance coating technologies for intravascular medical devices and chemical and biological components for in vitro diagnostic (“IVD”) immunoassay tests and microarrays. Surmodics develops and commercializes highly differentiated vascular intervention medical devices that are designed to address unmet clinical needs and engineered to the most demanding requirements. This key growth strategy leverages the combination of the Company’s expertise in proprietary surface modification and drug-delivery coating technologies, along with its device design, development and manufacturing capabilities. The Company’s mission is to improve the detection and treatment of disease. Surmodics is headquartered in Eden Prairie, Minnesota. Basis of Presentation and Principles of Consolidation The accompanying unaudited condensed consolidated financial statements include all accounts and wholly-owned subsidiaries and have been prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”). All intercompany transactions have been eliminated. The Company operates on a fiscal year ending on September 30. In accordance with the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”), the Company has omitted footnote disclosures that would substantially duplicate the disclosures contained in the audited consolidated financial statements of the Company. These unaudited condensed consolidated financial statements should be read together with the audited consolidated financial statements for the fiscal year ended September 30, 2023, and notes thereto included in our Annual Report on Form 10-K as filed with the SEC. Use of Estimates The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Ultimate results could differ from those estimates. The results of operations for the three months ended December 31, 2023 are not necessarily indicative of the results that may be expected for the entire 2024 fiscal year. New Accounting Pronouncements Not Yet Adopted In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2023-07, Segment Reporting: Improvements to Reportable Segment Disclosures. This guidance requires disclosure of incremental segment information on an annual and interim basis. This amendment is effective for our fiscal year ending September 30, 2025 and interim periods within our fiscal year ending September 30, 2026. We are currently assessing the impact of this guidance on our disclosures. In December 2023, the FASB issued ASU No. 2023-09, Income Taxes: Improvements to Income Tax Disclosures. This guidance requires consistent categories and greater disaggregation of information in the rate reconciliation and disclosures of income taxes paid by jurisdiction. This amendment is effective for our fiscal year ending September 30, 2026 and interim periods within our fiscal year ending September 30, 2027. We are currently assessing the impact of this guidance on our disclosures. No other new accounting pronouncement issued or effective during the fiscal year has had, or is expected to have, a material impact on the Company’s condensed consolidated financial statements. |
Revenue |
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| Revenue from Contract with Customer [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Revenue | 2. Revenue The following table is a disaggregation of revenue within each reportable segment.
Contract assets totaled $9.2 million and $7.8 million as of December 31, 2023 and September 30, 2023, respectively, on the condensed consolidated balance sheets. Fluctuations in the balance of contract assets result primarily from (i) fluctuations in the sales volume of performance coating royalties and license fees earned, but not collected, at each balance sheet date due to payment timing and contractual changes in the normal course of business; and (ii) starting in fiscal 2024, sales-based profit-sharing earned, but not collected, related to a collaborative arrangement (Note 3). |
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Collaborative Arrangement |
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Dec. 31, 2023 | |
| Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
| Collaborative Arrangement | 3. Collaborative Arrangement On February 26, 2018, the Company entered into an agreement with Abbott Vascular, Inc. (“Abbott”) with respect to one of the device products in our Medical Device reportable segment, the SurVeil™ drug-coated balloon (“DCB”) for treatment of the superficial femoral artery (the “Abbott Agreement”). In June 2023, the SurVeil DCB received U.S. Food and Drug Administration (“FDA”) premarket approval (“PMA”) and may now be marketed and sold in the U.S. by Abbott. SurVeil DCB License Fees Under the Abbott Agreement, Surmodics is responsible for conducting all necessary clinical trials, including completion of the ongoing, five-year TRANSCEND pivotal clinical trial of the SurVeil DCB. The Company has received payments totaling $87.8 million for achievement of clinical and regulatory milestones under the Abbott Agreement, which consisted of the following: (i) $25 million upfront fee in fiscal 2018, (ii) $10 million milestone payment in fiscal 2019, (iii) $10.8 million milestone payment in fiscal 2020, (iv) $15 million milestone payment in fiscal 2021, and (v) $27 million milestone payment in the third quarter of fiscal 2023 upon receipt of PMA for the SurVeil DCB from the FDA. There are no remaining contingent or other milestone payments under the Abbott Agreement. License fee revenue on milestone payments received under the Abbott Agreement is recognized using the cost-to-cost method based on total costs incurred to date relative to total expected costs for the TRANSCEND pivotal clinical trial, which is expected to be competed in fiscal 2025. See Note 2 Revenue for SurVeil DCB license fee revenue recognized in our Medical Device reportable segment. As of December 31, 2023 and September 30, 2023, deferred revenue on the condensed consolidated balance sheets totaled $5.7 million and $6.8 million, respectively, which was primarily related to milestone payments received under the Abbott Agreement. The $5.7 million in deferred revenue as of December 31, 2023, which represents the Company’s performance obligations that are unsatisfied for executed contracts with an original duration of one year or more, is expected to be recognized as revenue over the next two years through fiscal 2025 as services, principally TRANSCEND clinical trial, are completed. The amount of revenue recognized that was included in the respective beginning of fiscal year balances of deferred revenue on the condensed consolidated balance sheets totaled $1.0 million and $1.3 million for the three months ended December 31, 2023 and 2022, respectively. SurVeil DCB Product Sales Under the Abbott Agreement, we supply commercial units of the SurVeil DCB to Abbott, and Abbott has exclusive worldwide distribution rights. During the three months ended December 31, 2023, we commenced shipment of commercial units of the SurVeil DCB to Abbott. We recognize revenue from the sale of commercial units of the SurVeil DCB to Abbott at the time of shipment in product sales on the condensed consolidated statements of operations. The amount of SurVeil DCB product sales revenue recognized includes (i) the contractual transfer price per unit and (ii) an estimate of Surmodics’ share of net profits resulting from product sales by Abbott to third parties pursuant to the Abbott Agreement (“estimated SurVeil DCB profit-sharing”). On a quarterly basis, Abbott (i) reports to us its third-party sales of the SurVeil DCB the quarter after those sales occur, which may occur within two years following shipment based on the product’s current shelf life; and (ii) reports to us and pays the actual amount of profit-sharing. Estimated SurVeil DCB profit-sharing represents variable consideration and is recorded in contract assets on the condensed consolidated balance sheets. We estimate variable consideration as the most-likely amount to which we expect to be entitled, and we include estimated amounts in the transaction price to the extent it is probable that a significant reversal of cumulative revenue will not occur when the uncertainty associated with the variable consideration is resolved. Significant judgment is required in estimating the amount of variable consideration to recognize when assessing factors outside of Surmodics’ influence, such as limited availability of third-party information, expected duration of time until resolution, and limited relevant past experience. |
Fair Value Measurements |
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| Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fair Value Measurements | 4. Fair Value Measurements Assets and liabilities measured at fair value on a recurring basis by level of the fair value hierarchy were as follows:
(1) Fair value of cash equivalents (money market funds) and available-for-sale securities (commercial paper and corporate bond securities) was based on quoted vendor prices and broker pricing where all significant inputs are observable. (2) Fair value of interest rate swap is based on forward-looking, one-month term secured overnight financing rate (“Term SOFR”) spot rates and interest rate curves (Note 7). |
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Supplemental Balance Sheet Information |
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| Balance Sheet Related Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Supplemental Balance Sheet Information | 5. Supplemental Balance Sheet Information Investments — Available-for-sale Securities The amortized cost, unrealized holding gains and losses, and fair value of available-for-sale securities were as follows:
Inventories Inventories consisted of the following components:
Prepaids and Other Assets, Current Prepaids and other current assets consisted of the following:
(1) Receivable consisted of anticipated reimbursement of personnel expenses incurred in fiscal periods prior to fiscal 2022 as a result of our eligibility for the employee retention credit under the provisions of the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”). Intangible Assets Intangible assets consisted of the following:
Intangible asset amortization expense was $0.9 million and $1.0 million for the three months ended December 31, 2023 and 2022, respectively. Based on the intangible assets in service as of December 31, 2023, estimated amortization expense for future fiscal years was as follows:
Future amortization amounts presented above are estimates. Actual future amortization expense may be different as a result of future acquisitions, impairments, changes in amortization periods, foreign currency translation rates, or other factors. Goodwill Changes in the carrying amount of goodwill by segment were as follows:
Other Assets, Noncurrent Other noncurrent assets consisted of the following:
Accrued Other Liabilities Accrued other liabilities consisted of the following:
(1) Deferred consideration consisted of the present value of guaranteed payments to be made in connection with the fiscal 2021 acquisition of Vetex Medical Limited (“Vetex”) and a fiscal 2018 asset acquisition (Note 11). Other Long-term Liabilities Other long-term liabilities consisted of the following:
(1) Deferred consideration consisted of the present value of guaranteed payments to be made in connection with the fiscal 2021 Vetex acquisition (Note 11). (2) Balance of unrecognized tax benefits includes accrued interest and penalties, if applicable (Note 10). |
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Debt |
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| Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Debt | 6. Debt Debt consisted of the following:
On October 14, 2022, the Company entered into a secured revolving credit facility and secured term loan facilities pursuant to a Credit, Security and Guaranty Agreement (the “MidCap Credit Agreement”) with Mid Cap Funding IV Trust, as agent, and MidCap Financial Trust, as term loan servicer and the lenders from time to time party thereto. The MidCap Credit Agreement provides for availability under a secured revolving line of credit of up to $25.0 million (the “Revolving Credit Facility”). Availability under the Revolving Credit Facility is subject to a borrowing base. The MidCap Credit Agreement also provides for up to $75.0 million in term loans (the “Term Loans”), consisting of a $25.0 million Tranche 1 (“Tranche 1”) and a $50.0 million Tranche 2 (“Tranche 2”), which may be drawn in increments of at least $10.0 million. In addition, after the closing and prior to December 31, 2024, the Term Loan lenders may, in their sole discretion, fund an additional tranche of Term Loans of up to $25.0 million upon the written request of the Company. Upon closing, the Company borrowed $25.0 million of Tranche 1, borrowed $5.0 million on the Revolving Credit Facility, and used approximately $10.0 million of the proceeds to repay borrowings under the revolving credit facility with Bridgewater Bank. The Company intends to use the remaining proceeds to fund working capital needs and for other general corporate purposes, as permitted under the MidCap Credit Agreement. Until December 31, 2024, the Company will be eligible to borrow Tranche 2 at the Company’s option upon meeting certain conditions set forth in the MidCap Credit Agreement, including having no less than $60.0 million of rolling-four-quarter core net revenue as of the end of the prior fiscal quarter. Core net revenue is defined in the MidCap Credit Agreement as the sum of revenue from our In Vitro Diagnostics segment and revenues from performance coating technologies in our Medical Device segment. Pursuant to the MidCap Credit Agreement, the Company provided a first priority security interest in all existing and future acquired assets, including intellectual property and real estate, owned by the Company. The MidCap Credit Agreement contains certain covenants that limit the Company’s ability to engage in certain transactions. Subject to certain limited exceptions, these covenants limit the Company’s ability to, among other things: • create, incur, assume or permit to exist any additional indebtedness, or create, incur, allow or permit to exist any additional liens; • enter into any amendment or other modification of certain agreements; • effect certain changes in the Company’s business, fiscal year, management, entity name or business locations; • liquidate or dissolve, merge with or into, or consolidate with, any other company; • pay cash dividends on, make any other distributions in respect of, or redeem, retire or repurchase, any shares of the Company’s capital stock; • make certain investments, other than limited permitted acquisitions; and • enter into transactions with the Company’s affiliates. The MidCap Credit Agreement also contains customary indemnification obligations and customary events of default, including, among other things, (i) non-payment, (ii) breach of warranty, (iii) non-performance of covenants and obligations, (iv) default on other indebtedness, (v) judgments, (vi) change of control, (vii) bankruptcy and insolvency, (viii) impairment of security, (ix) termination of a pension plan, (x) regulatory matters, and (xi) material adverse effect. In addition, the Company must maintain minimum core net revenue levels tested quarterly to the extent that Term Loans advanced under the MidCap Credit Agreement exceed $25.0 million. In the event of default under the MidCap Credit Agreement, the Company would be required to pay interest on principal and all other due and unpaid obligations at the current rate in effect plus 2%. Borrowings under the MidCap Credit Agreement bear interest at the forward-looking, one-month secured overnight financing rate (“Term SOFR”) as published by CME Group Benchmark Administration Limited plus 0.10% (“Adjusted Term SOFR”). The Revolving Credit Facility bears interest at an annual rate equal to 3.00% plus the greater of Adjusted Term SOFR or 1.50%, and the Term Loans bear interest at an annual rate equal to 5.75% plus the greater of Adjusted Term SOFR or 1.50%. The Company is required to make monthly interest payments on the Revolving Credit Facility with the entire principal payment due at maturity. The Company is required to make 48 monthly interest payments on the Term Loans beginning on November 1, 2022 (the “Interest-Only Period”). If the Company is in covenant compliance at the end of the Interest-Only Period, the Company will have the option to extend the Interest-Only Period through maturity with the entire principal payment due at maturity. If the Company is not in covenant compliance at the end of the Interest-Only Period, the Company is required to make 12 months of straight-line amortization payments with the entire principal amount due at maturity. Subject to certain limitations, the Term Loans have a prepayment fee for payments made prior to the maturity date equal to 2.0% of the prepaid principal amount for the second year following the closing date and 1.0% of the prepaid principal amount for the third year following the closing date and thereafter. In addition, if the Revolving Credit Facility is terminated in whole or in part prior to the maturity date, the Company must pay a prepayment fee equal to 2.0% of the terminated commitment amount for the second year following the closing date of the MidCap Credit Agreement and 1.0% of the terminated commitment amount for the third year following the closing date and thereafter. The Company is also required to pay a full exit fee at the time of maturity or full prepayment event equal to 2.5% of the aggregate principal amount of the Term Loans made pursuant to the MidCap Credit Agreement and a partial exit fee at the time of any partial prepayment event equal to 2.5% of the amount prepaid. This exit fee is accreted over the remaining term of the Term Loans. The Company also is obligated to pay customary origination fees at the time of each funding of the Term Loans and a customary annual administrative fee based on the amount borrowed under the Term Loan, due on an annual basis. The customary fees on the Revolving Credit Facility include (i) an origination fee based on the commitment amount, which was paid on the closing date, (ii) an annual collateral management fee of 0.50% per annum based on the outstanding balance of the Revolving Credit Facility, payable monthly in arrears and (iii) an unused line fee of 0.50% per annum based on the average unused portion of the Revolving Credit Facility, payable monthly in arrears. The Company must also maintain a minimum balance of no less than 20% of availability under the Revolving Credit Facility or a minimum balance fee applies of 0.50% per annum. Expenses recognized for fees for the Revolving Credit Facility and Term Loans are reported in interest expense, net on the condensed consolidated statements of operations. |
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Derivative Financial Instruments |
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| Derivative Instruments and Hedging Activities Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Derivative Financial Instruments | 7. Derivative Financial Instruments As of December 31, 2023 and September 30, 2023, derivative financial instruments on the condensed consolidated balance sheets consisted of a fixed-to-variable interest rate swap to mitigate exposure to interest rate increases related to our Term Loans (“interest rate swap”). The interest rate swap has been designated as a cash flow hedge. See Note 6 Debt for further information on our financing arrangements. The net fair value of designated hedge derivatives subject to master netting arrangements reported on the condensed consolidated balance sheets was as follows:
The pretax amounts recognized in accumulated other comprehensive loss (“AOCL”) for designated hedge derivative instruments were as follows:
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Stock-based Compensation Plans |
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Dec. 31, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share-Based Payment Arrangement [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based Compensation Plans | 8. Stock-based Compensation Plans The Company has stock-based compensation plans approved by its shareholders under which it grants stock options, restricted stock awards, restricted stock units and deferred stock units to officers, directors and key employees. Stock-based compensation expense was reported as follows in the condensed consolidated statements of operations:
As of December 31, 2023, unrecognized compensation costs related to non-vested awards totaled approximately $16.0 million, which is expected to be recognized over a weighted average period of approximately 2.7 years. Stock Option Awards The Company awards stock options to officers, directors and key employees and uses the Black-Scholes option pricing model to determine the fair value of stock options as of the date of each grant. Stock option grant activity was as follows:
Restricted Stock Awards During the three months ended December 31, 2023 and 2022, the Company awarded 98,000 and 99,000 restricted stock shares, respectively, to certain key employees and officers with a weighted average grant date fair value per share of $33.64 and $36.05, respectively. Restricted Stock is valued based on the market value of the shares as of the date of grant. Restricted Stock Unit Awards During each of the three months ended December 31, 2023 and 2022, the Company awarded 5,000 and 6,000 restricted stock units (“RSUs”), respectively, to directors and to key employees in foreign jurisdictions with a weighted average grant date fair value per unit of $33.64 and $36.13, respectively. RSUs are valued based on the market value of the shares as of the date of grant. Employee Stock Purchase Plan Our U.S. employees are eligible to participate in the amended 1999 Employee Stock Purchase Plan (“ESPP”) approved by our shareholders. During the three months ended December 31, 2023 and 2022, no shares were issued under the ESPP. |
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Net Loss Per Share Data |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||
| Net Loss Per Share Data | 9. Net Loss Per Share Data Basic net income (loss) per common share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of common and common equivalent shares outstanding during the period. The Company’s potentially dilutive common shares are those that result from dilutive common stock options and non-vested stock relating to restricted stock awards and restricted stock units. The calculation of diluted loss per share excluded 0.1 million in weighted-average shares for each of the three months ended December 31, 2023 and 2022, as their effect was anti-dilutive. Basic and diluted weighted average shares outstanding were as follows:
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Income Taxes |
3 Months Ended |
|---|---|
Dec. 31, 2023 | |
| Income Tax Disclosure [Abstract] | |
| Income Taxes | 10. Income Taxes For interim income tax reporting, the Company estimates its full-year effective tax rate and applies it to fiscal year-to-date pretax income (loss), excluding unusual or infrequently occurring discrete items. Tax jurisdictions with losses for which tax benefits cannot be realized are excluded. The Company reported an income tax expense of $(0.1) million and income tax benefit of $0.2 million for the three months ended December 31, 2023 and 2022, respectively. • Beginning in our fiscal 2023, certain research and development (“R&D”) costs are required to be capitalized and amortized over a five-year period under the Tax Cuts and Jobs Act enacted in December 2017. This change impacts the expected U.S. federal and state income tax expense and cash taxes paid and to be paid for our fiscal 2024 and 2023. • Since September 30, 2022, we have maintained a full valuation allowance against U.S. net deferred tax assets. As a result, we are no longer recording a tax benefit associated with U.S. pretax losses and incremental deferred tax assets. • Recurring items cause our effective tax rate to differ from the U.S. federal statutory rate of 21%, including foreign-derived intangible income (“FDII”) deductions in the U.S., U.S. federal and Irish R&D credits, Irish and U.S. state tax rates, and excess tax benefits associated with stock-based compensation. A valuation allowance is required to be recognized against deferred tax assets if, based on the available evidence, it is more likely than not (defined as a likelihood of more than 50%) that all or a portion of such assets will not be realized. We apply judgment to consider the relative impact of negative and positive evidence, and the weight given to negative and positive evidence is commensurate with the extent to which such evidence can be objectively verified. Objective historical evidence, such as cumulative three-year pre-tax income (losses) adjusted for permanent adjustments, is given greater weight than subjective positive evidence, such as forecasts of future earnings. The more objective negative evidence that exists limits our ability to consider other, potentially positive, subjective evidence, such as our future earnings projections. Based on our evaluation of all available positive and negative evidence, and by placing greater weight on the objectively verifiable evidence, we determined, as of December 31, 2023 and September 30, 2023, that it is more likely than not that our net U.S. deferred tax assets will not be realized. Due to significant estimates used to establish the valuation allowance and the potential for changes in facts and circumstances, it is reasonably possible that we will be required to record additional adjustments to the valuation allowance in future reporting periods that could have a material effect on our results of operations. Discrete tax benefits related to stock-based compensation awards vested, expired, canceled and exercised was $0.1 million or less for each of the three months ended December 31, 2023 and 2022. The total amount of unrecognized tax benefits, excluding interest and penalties that, if recognized, would affect the effective tax rate was $3.7 million and $3.1 million as of December 31, 2023 and September 30, 2023, respectively. Interest and penalties related to unrecognized tax benefits are recorded in the income tax (expense) benefit. The Company files income tax returns, including returns for its subsidiaries, in the U.S. federal jurisdiction and in various state jurisdictions, as well as several non-U.S. jurisdictions. Uncertain tax positions are related to tax years that remain subject to examination. The Internal Revenue Service commenced an examination of the Company’s fiscal 2019 U.S. federal tax return in fiscal 2022; the examination has not been completed. U.S. federal income tax returns for years prior to fiscal 2019 are no longer subject to examination by federal tax authorities. For tax returns for U.S. state and local jurisdictions, the Company is no longer subject to examination for tax years generally before fiscal 2013. For tax returns for non-U.S. jurisdictions, the Company is no longer subject to income tax examination for years prior to 2019. There were no undistributed earnings in foreign subsidiaries as of December 31, 2023 and September 30, 2023. |
Commitments and Contingencies |
3 Months Ended |
|---|---|
Dec. 31, 2023 | |
| Commitments and Contingencies Disclosure [Abstract] | |
| Commitments and Contingencies | 11. Commitments and Contingencies Asset Acquisitions. In fiscal 2018, the Company acquired certain intellectual property assets of Embolitech, LLC (the “Embolitech Transaction”). As part of the Embolitech Transaction, the Company paid the sellers $5.0 million in fiscal 2018, $1.0 million in fiscal 2020, $1.0 million in fiscal 2021, $0.5 million in fiscal 2022 and $1.0 million in fiscal 2023. The Company is obligated to pay an additional installment of $0.9 million in fiscal 2024, which may be accelerated upon the occurrence of certain sales and regulatory milestones. An additional $1.0 million payment is contingent upon the achievement of a certain regulatory milestone within a contingency period ending in 2033. Vetex Acquisition. In fiscal 2021, Surmodics acquired all of the outstanding shares of Vetex with an upfront cash payment of $39.9 million. The Company is obligated to pay two installments, each in the amount of $1.8 million, in the fourth quarter of fiscal 2024 and fiscal 2027. These payments may be accelerated upon the occurrence of certain product development and regulatory milestones. An additional $3.5 million in payments is contingent upon the achievement of certain product development and regulatory milestones within a contingency period ending in fiscal 2027. |
Segment Information |
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Dec. 31, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Segment Information | 12. Segment Information Segment revenue, operating loss, and depreciation and amortization were as follows:
The Corporate category includes expenses that are not fully allocated to the Medical Device and In Vitro Diagnostics segments. These Corporate costs are related to administrative corporate functions, such as executive management, corporate accounting, information technology, legal, human resources and Board of Directors. Corporate may also include expenses, such as acquisition-related costs and litigation, which are not specific to a segment and thus not allocated to the reportable segments. Asset information by segment is not presented because the Company does not provide its chief operating decision maker assets by segment, as the data is not readily available. |
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Organization (Policies) |
3 Months Ended |
|---|---|
Dec. 31, 2023 | |
| Accounting Policies [Abstract] | |
| Description of Business | Description of Business Surmodics, Inc. and subsidiaries (referred to as “Surmodics,” the “Company,” “we,” “us,” “our” and other like terms) is a leading provider of performance coating technologies for intravascular medical devices and chemical and biological components for in vitro diagnostic (“IVD”) immunoassay tests and microarrays. Surmodics develops and commercializes highly differentiated vascular intervention medical devices that are designed to address unmet clinical needs and engineered to the most demanding requirements. This key growth strategy leverages the combination of the Company’s expertise in proprietary surface modification and drug-delivery coating technologies, along with its device design, development and manufacturing capabilities. The Company’s mission is to improve the detection and treatment of disease. Surmodics is headquartered in Eden Prairie, Minnesota. |
| Basis of Presentation and Principles of Consolidation | Basis of Presentation and Principles of Consolidation The accompanying unaudited condensed consolidated financial statements include all accounts and wholly-owned subsidiaries and have been prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”). All intercompany transactions have been eliminated. The Company operates on a fiscal year ending on September 30. In accordance with the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”), the Company has omitted footnote disclosures that would substantially duplicate the disclosures contained in the audited consolidated financial statements of the Company. These unaudited condensed consolidated financial statements should be read together with the audited consolidated financial statements for the fiscal year ended September 30, 2023, and notes thereto included in our Annual Report on Form 10-K as filed with the SEC. |
| Use of Estimates | Use of Estimates The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Ultimate results could differ from those estimates. The results of operations for the three months ended December 31, 2023 are not necessarily indicative of the results that may be expected for the entire 2024 fiscal year. |
| New Accounting Pronouncements | New Accounting Pronouncements Not Yet Adopted In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2023-07, Segment Reporting: Improvements to Reportable Segment Disclosures. This guidance requires disclosure of incremental segment information on an annual and interim basis. This amendment is effective for our fiscal year ending September 30, 2025 and interim periods within our fiscal year ending September 30, 2026. We are currently assessing the impact of this guidance on our disclosures. In December 2023, the FASB issued ASU No. 2023-09, Income Taxes: Improvements to Income Tax Disclosures. This guidance requires consistent categories and greater disaggregation of information in the rate reconciliation and disclosures of income taxes paid by jurisdiction. This amendment is effective for our fiscal year ending September 30, 2026 and interim periods within our fiscal year ending September 30, 2027. We are currently assessing the impact of this guidance on our disclosures. No other new accounting pronouncement issued or effective during the fiscal year has had, or is expected to have, a material impact on the Company’s condensed consolidated financial statements. |
| Net Loss Per Share Data | Basic net income (loss) per common share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of common and common equivalent shares outstanding during the period. The Company’s potentially dilutive common shares are those that result from dilutive common stock options and non-vested stock relating to restricted stock awards and restricted stock units. The calculation of diluted loss per share excluded 0.1 million in weighted-average shares for each of the three months ended December 31, 2023 and 2022, as their effect was anti-dilutive. Basic and diluted weighted average shares outstanding were as follows: |
| Income Taxes | For interim income tax reporting, the Company estimates its full-year effective tax rate and applies it to fiscal year-to-date pretax income (loss), excluding unusual or infrequently occurring discrete items. Tax jurisdictions with losses for which tax benefits cannot be realized are excluded. |
| Income Tax Uncertainties | The Company files income tax returns, including returns for its subsidiaries, in the U.S. federal jurisdiction and in various state jurisdictions, as well as several non-U.S. jurisdictions. Uncertain tax positions are related to tax years that remain subject to examination. The Internal Revenue Service commenced an examination of the Company’s fiscal 2019 U.S. federal tax return in fiscal 2022; the examination has not been completed. U.S. federal income tax returns for years prior to fiscal 2019 are no longer subject to examination by federal tax authorities. For tax returns for U.S. state and local jurisdictions, the Company is no longer subject to examination for tax years generally before fiscal 2013. For tax returns for non-U.S. jurisdictions, the Company is no longer subject to income tax examination for years prior to 2019. |
Revenue (Tables) |
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| Revenue from Contract with Customer [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of Disaggregation of Revenue Within Reportable Segment | The following table is a disaggregation of revenue within each reportable segment.
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Fair Value Measurements (Tables) |
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| Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Assets and Liabilities Measured at Fair Value on Recurring Basis | Assets and liabilities measured at fair value on a recurring basis by level of the fair value hierarchy were as follows:
(1) Fair value of cash equivalents (money market funds) and available-for-sale securities (commercial paper and corporate bond securities) was based on quoted vendor prices and broker pricing where all significant inputs are observable. (2)
Fair value of interest rate swap is based on forward-looking, one-month term secured overnight financing rate (“Term SOFR”) spot rates and interest rate curves (Note 7). |
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Supplemental Balance Sheet Information (Tables) |
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| Balance Sheet Related Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Amortized Cost, Unrealized Holding Gains (Losses) and Fair Value of Available for Sale Securities | The amortized cost, unrealized holding gains and losses, and fair value of available-for-sale securities were as follows:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Components of Inventories | Inventories consisted of the following components:
|
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| Summary of Prepaids and Other Current Assets | Prepaids and other current assets consisted of the following:
(1)
Receivable consisted of anticipated reimbursement of personnel expenses incurred in fiscal periods prior to fiscal 2022 as a result of our eligibility for the employee retention credit under the provisions of the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”). |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Intangible Assets | Intangible assets consisted of the following:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Estimated Amortization Expense | Based on the intangible assets in service as of December 31, 2023, estimated amortization expense for future fiscal years was as follows:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Carrying Amount of Goodwill By Reportable Segment | Changes in the carrying amount of goodwill by segment were as follows:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of Other Noncurrent Assets | Other noncurrent assets consisted of the following:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Accrued Other Liabilities | Accrued other liabilities consisted of the following:
(1)
Deferred consideration consisted of the present value of guaranteed payments to be made in connection with the fiscal 2021 acquisition of Vetex Medical Limited (“Vetex”) and a fiscal 2018 asset acquisition (Note 11). |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Other Long-term Liabilities | Other long-term liabilities consisted of the following:
(1) Deferred consideration consisted of the present value of guaranteed payments to be made in connection with the fiscal 2021 Vetex acquisition (Note 11). (2)
Balance of unrecognized tax benefits includes accrued interest and penalties, if applicable (Note 10). |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Debt (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Debt | Debt consisted of the following:
|
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Derivative Financial Instruments (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Derivative Instruments and Hedging Activities Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Net Fair Value of Designated Hedge Derivatives Subject to Master Netting Arrangements Reported on Condensed Consolidated Balance Sheets | The net fair value of designated hedge derivatives subject to master netting arrangements reported on the condensed consolidated balance sheets was as follows:
|
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| Schedule of Pretax Amounts Recognized in Accumulated Other Comprehensive Loss ("AOCL") for Designated Hedge Derivative Instruments | The pretax amounts recognized in accumulated other comprehensive loss (“AOCL”) for designated hedge derivative instruments were as follows:
|
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Stock-based Compensation Plans (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share-Based Payment Arrangement [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based Compensation Expenses | Stock-based compensation expense was reported as follows in the condensed consolidated statements of operations:
|
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| Summary of Stock Option Grant Activity | Stock option grant activity was as follows:
|
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Net Loss Per Share Data (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||
| Basic and Diluted Weighted Average Shares Outstanding | Basic and
|
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Segment Information (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Segment Revenue, Operating loss and Depreciation and Amortization | Segment revenue, operating loss, and depreciation and amortization were as follows:
|
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Revenue - Additional Information (Detail) - USD ($) $ in Thousands |
Dec. 31, 2023 |
Sep. 30, 2023 |
|---|---|---|
| Revenue from Contract with Customer [Abstract] | ||
| Contract assets | $ 9,178 | $ 7,796 |
Collaborative Arrangement - Additional Information (Detail 1) - Abbott Agreement [Member] - Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date: 2024-01-01 - Licence Fees [Member] $ in Millions |
3 Months Ended |
|---|---|
|
Dec. 31, 2023
USD ($)
| |
| Collaborative Arrangements And Noncollaborative Arrangement Transactions [Line Items] | |
| Remaining performance obligation, amount | $ 5.7 |
| Remaining performance obligation, expected timing of satisfaction, period | two years |
| Minimum [Member] | |
| Collaborative Arrangements And Noncollaborative Arrangement Transactions [Line Items] | |
| Remaining performance obligation, satisfaction period | 1 year |
Supplemental Balance Sheet Information - Amortized Cost, Unrealized Holding Gains and (Losses) and Fair Value of Available-for-sale Securities (Details) - USD ($) $ in Thousands |
Dec. 31, 2023 |
Sep. 30, 2023 |
|---|---|---|
| Debt Securities, Available-for-Sale [Line Items] | ||
| Amortized Cost | $ 11,829 | $ 3,936 |
| Unrealized Losses | (10) | (3) |
| Fair Value | 11,819 | 3,933 |
| Commercial paper and corporate bonds [Member] | ||
| Debt Securities, Available-for-Sale [Line Items] | ||
| Amortized Cost | 11,829 | 3,936 |
| Unrealized Losses | (10) | (3) |
| Fair Value | $ 11,819 | $ 3,933 |
Supplemental Balance Sheet Information - Components of Inventories (Detail) - USD ($) $ in Thousands |
Dec. 31, 2023 |
Sep. 30, 2023 |
|---|---|---|
| Inventory Disclosure [Abstract] | ||
| Raw materials | $ 9,091 | $ 8,063 |
| Work-in process | 2,067 | 2,607 |
| Finished products | 3,280 | 4,169 |
| Total | $ 14,438 | $ 14,839 |
Supplemental Balance Sheet Information - Summary of Prepaids and Other Current Assets (Detail) - USD ($) $ in Thousands |
Dec. 31, 2023 |
Sep. 30, 2023 |
|---|---|---|
| Prepaid Expense and Other Assets, Current [Abstract] | ||
| Prepaid expenses | $ 3,635 | $ 2,600 |
| Irish research and development credits receivable | 662 | 1,322 |
| CARES Act employee retention credit receivable | 3,441 | 3,441 |
| Prepaids and other | $ 7,738 | $ 7,363 |
Supplemental Balance Sheet Information - Additional Information (Detail) - USD ($) $ in Millions |
3 Months Ended | |
|---|---|---|
Dec. 31, 2023 |
Dec. 31, 2022 |
|
| Balance Sheet Related Disclosures [Abstract] | ||
| Amortization expense | $ 0.9 | $ 1.0 |
Supplemental Balance Sheet Information - Estimated Amortization Expense (Detail) $ in Thousands |
Dec. 31, 2023
USD ($)
|
|---|---|
| Goodwill and Intangible Assets Disclosure [Abstract] | |
| Remainder of 2024 | $ 2,866 |
| 2025 | 3,786 |
| 2026 | 2,877 |
| 2027 | 2,624 |
| 2028 | 2,613 |
| 2029 | 2,613 |
| Thereafter | 8,254 |
| Definite-lived intangible assets, Net | $ 25,633 |
Supplemental Balance Sheet Information - Schedule of Carrying Amount of Goodwill by Segment (Detail) $ in Thousands |
3 Months Ended |
|---|---|
|
Dec. 31, 2023
USD ($)
| |
| Goodwill [Line Items] | |
| Goodwill as of September 30, 2022 | $ 42,946 |
| Currency translation adjustment | 1,337 |
| Goodwill as of December 31, 2023 | 44,283 |
| In Vitro Diagnostics [Member] | |
| Goodwill [Line Items] | |
| Goodwill as of September 30, 2022 | 8,010 |
| Goodwill as of December 31, 2023 | 8,010 |
| Medical Device [Member] | |
| Goodwill [Line Items] | |
| Goodwill as of September 30, 2022 | 34,936 |
| Currency translation adjustment | 1,337 |
| Goodwill as of December 31, 2023 | $ 36,273 |
Supplemental Balance Sheet Information - Summary of Other Noncurrent Assets (Detail) - USD ($) $ in Thousands |
Dec. 31, 2023 |
Sep. 30, 2023 |
|---|---|---|
| Schedule Of Investments [Line Items] | ||
| Other assets | $ 4,373 | $ 3,864 |
| Operating Lease Right-of-Use Assets [Member] | ||
| Schedule Of Investments [Line Items] | ||
| Other assets | 3,649 | 2,987 |
| Other [Member] | ||
| Schedule Of Investments [Line Items] | ||
| Other assets | $ 724 | $ 877 |
Supplemental Balance Sheet Information - Schedule of Accrued Other Liabilities (Detail) - USD ($) $ in Thousands |
Dec. 31, 2023 |
Sep. 30, 2023 |
|---|---|---|
| Accrued Liabilities, Current [Abstract] | ||
| Accrued professional fees | $ 200 | $ 178 |
| Accrued clinical study expense | 405 | 1,056 |
| Accrued purchases | 1,275 | 1,142 |
| Deferred consideration | 2,627 | 2,661 |
| Operating lease liability, current portion | 997 | 872 |
| Other | 305 | 535 |
| Total accrued other liabilities | $ 5,809 | $ 6,444 |
Supplemental Balance Sheet Information - Schedule of Other Long-term Liabilities (Detail) - USD ($) $ in Thousands |
Dec. 31, 2023 |
Sep. 30, 2023 |
|---|---|---|
| Other Liabilities Disclosure [Abstract] | ||
| Deferred consideration | $ 1,637 | $ 1,629 |
| Unrecognized tax benefits | 3,301 | 3,332 |
| Operating lease liabilities, less current portion | $ 3,436 | $ 2,974 |
| Operating Lease, Liability, Noncurrent, Statement of Financial Position [Extensible Enumeration] | Other long-term liabilities | Other long-term liabilities |
| Other | $ 156 | $ 125 |
| Other long-term liabilities | $ 8,530 | $ 8,060 |
Debt - Schedule of Debt (Detail) - USD ($) $ in Thousands |
Dec. 31, 2023 |
Sep. 30, 2023 |
|---|---|---|
| Schedule of Debt [Line Items] | ||
| Long-term debt, gross | $ 30,000 | $ 30,000 |
| Less: Unamortized debt issuance costs | (557) | (595) |
| Long-term debt, net | 29,443 | 29,405 |
| Revolving Credit Facility [Member] | Term SOFR [Member] | ||
| Schedule of Debt [Line Items] | ||
| Long-term debt, gross | 5,000 | 5,000 |
| Secured Term Loan Facilities [Member] | Term SOFR [Member] | Tranche 1 [Member] | ||
| Schedule of Debt [Line Items] | ||
| Long-term debt, gross | $ 25,000 | $ 25,000 |
Debt - Schedule of Debt (Parenthetical) (Detail) - Term SOFR [Member] |
3 Months Ended |
|---|---|
Dec. 31, 2023 | |
| Revolving Credit Facility [Member] | |
| Schedule of Debt [Line Items] | |
| Description of variable rate basis | Term SOFR + 3.00% |
| Debt instrument, basis spread on variable rate | 3.00% |
| Maturity date | Oct. 01, 2027 |
| Secured Term Loan Facilities [Member] | Tranche 1 [Member] | |
| Schedule of Debt [Line Items] | |
| Description of variable rate basis | Term SOFR +5.75% |
| Debt instrument, basis spread on variable rate | 5.75% |
| Maturity date | Oct. 01, 2027 |
Derivative Financial Instruments - Schedule of Net Fair Value of Designated Hedge Derivatives Subject to Master Netting Arrangements Reported on Condensed Consolidated Balance Sheets (Detail) - Interest Rate Swap [Member] - USD ($) $ in Thousands |
Dec. 31, 2023 |
Sep. 30, 2023 |
|---|---|---|
| Offsetting Assets [Line Items] | ||
| Gross Recognized Amount | $ (499) | |
| Gross Recognized Amount | $ 183 | |
| Net Amount Presented | (499) | 183 |
| Cash Collateral Receivable | 520 | |
| Net Amount Reported | $ 21 | |
| Net Amount Reported | $ 183 | |
| Derivative Asset, Statement of Financial Position [Extensible Enumeration] | Other Assets, Noncurrent | Other Assets, Noncurrent |
Derivative Financial Instruments - Schedule of Pretax Amounts Recognized in Accumulated Other Comprehensive Loss ("AOCL") for Designated Hedge Derivative Instruments (Detail) - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Dec. 31, 2023 |
Dec. 31, 2022 |
|
| Derivative Instruments, Gain (Loss) [Line Items] | ||
| Beginning unrealized net gain in AOCL | $ 183 | |
| Net loss recognized in other comprehensive income (loss) | (620) | $ (444) |
| Net (gain) loss reclassified into interest expense | $ (62) | $ 31 |
| Derivative Instrument, Gain (Loss) Reclassified from AOCI into Income, Effective Portion, Statement of Income or Comprehensive Income [Extensible Enumeration] | Other Comprehensive Income (Loss), Derivative, Excluded Component, Increase (Decrease), Adjustments, after Tax | Other Comprehensive Income (Loss), Derivative, Excluded Component, Increase (Decrease), Adjustments, after Tax |
| Ending unrealized loss in AOCL | $ (499) | $ (413) |
Stock-based Compensation Plans - Stock-based Compensation Expenses (Detail) - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Dec. 31, 2023 |
Dec. 31, 2022 |
|
| Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items] | ||
| Stock-based compensation expense | $ 1,968 | $ 1,965 |
| Product costs [Member] | ||
| Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items] | ||
| Stock-based compensation expense | 72 | 67 |
| Research and development [Member] | ||
| Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items] | ||
| Stock-based compensation expense | 370 | 374 |
| Selling, general and administrative [Member] | ||
| Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items] | ||
| Stock-based compensation expense | $ 1,526 | $ 1,524 |
Stock-based Compensation Plans - Additional Information (Detail) - USD ($) $ / shares in Units, $ in Millions |
3 Months Ended | |
|---|---|---|
Dec. 31, 2023 |
Dec. 31, 2022 |
|
| Stock-Based Compensation Activity [Line Items] | ||
| Unrecognized compensation costs, nonvested awards, amount | $ 16.0 | |
| Unrecognized compensation costs, nonvested awards, weighted average recognition period | 2 years 8 months 12 days | |
| Restricted Stock Awards [Member] | ||
| Stock-Based Compensation Activity [Line Items] | ||
| Units granted | 98,000 | 99,000 |
| Weighted average grant date fair value | $ 33.64 | $ 36.05 |
| Restricted Stock Unit Awards [Member] | ||
| Stock-Based Compensation Activity [Line Items] | ||
| Units granted | 5,000 | 6,000 |
| Weighted average grant date fair value | $ 33.64 | $ 36.13 |
| Employee Stock Purchase Plan [Member] | ||
| Stock-Based Compensation Activity [Line Items] | ||
| Shares issued | 0 | 0 |
Stock-based Compensation Plans - Summary of Stock Option Grant Activity (Detail) - Stock Option Awards [Member] - $ / shares |
3 Months Ended | |
|---|---|---|
Dec. 31, 2023 |
Dec. 31, 2022 |
|
| Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items] | ||
| Stock options granted | 250,000 | 269,000 |
| Weighted average grant date fair value | $ 15.82 | $ 15.53 |
| Weighted average exercise price | $ 33.64 | $ 35.97 |
Net Loss Per Share Data - Additional Information (Detail) - shares shares in Millions |
3 Months Ended | |
|---|---|---|
Dec. 31, 2023 |
Dec. 31, 2022 |
|
| Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||
| Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount | 0.1 | 0.1 |
Net Loss Per Share Data - Basic and Diluted Weighted Average Shares Outstanding (Detail) - shares shares in Thousands |
3 Months Ended | |
|---|---|---|
Dec. 31, 2023 |
Dec. 31, 2022 |
|
| Earnings Per Share [Abstract] | ||
| Basic weighted average shares outstanding | 14,102 | 13,983 |
| Diluted weighted average shares outstanding | 14,102 | 13,983 |
Income Taxes - Additional Information (Detail) - USD ($) |
3 Months Ended | ||
|---|---|---|---|
Dec. 31, 2023 |
Dec. 31, 2022 |
Sep. 30, 2023 |
|
| Income Tax Disclosure [Line Items] | |||
| Income tax (expense) benefit | $ (62,000) | $ 165,000 | |
| U.S. federal statutory tax rate | 21.00% | ||
| Valuation allowance percentage | 50.00% | ||
| Unrecognized tax benefits excluding interest and penalties that would impact effective tax rate | $ 3,700,000 | $ 3,100,000 | |
| Undistributed earnings in foreign subsidiaries | 0 | $ 0 | |
| Maximum [Member] | |||
| Income Tax Disclosure [Line Items] | |||
| Discrete tax benefits related to stock-based compensation awards | $ 100,000 | $ 100,000 | |
Segment Information - Segment Revenue, Operating loss and Depreciation and Amortization (Detail) - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Dec. 31, 2023 |
Dec. 31, 2022 |
|
| Segment Reporting Information [Line Items] | ||
| Revenue | $ 30,552 | $ 24,933 |
| Total operating loss | (322) | (7,229) |
| Depreciation and amortization | 2,333 | 2,122 |
| Operating Segments [Member] | ||
| Segment Reporting Information [Line Items] | ||
| Revenue | 30,552 | 24,933 |
| Total operating loss | 2,900 | (4,287) |
| Operating Segments [Member] | Medical Device [Member] | ||
| Segment Reporting Information [Line Items] | ||
| Revenue | 23,545 | 19,018 |
| Total operating loss | (224) | (7,235) |
| Depreciation and amortization | 2,054 | 1,953 |
| Operating Segments [Member] | In Vitro Diagnostics [Member] | ||
| Segment Reporting Information [Line Items] | ||
| Revenue | 7,007 | 5,915 |
| Total operating loss | 3,124 | 2,948 |
| Depreciation and amortization | 97 | 77 |
| Corporate Non Segment [Member] | ||
| Segment Reporting Information [Line Items] | ||
| Total operating loss | (3,222) | (2,942) |
| Depreciation and amortization | $ 182 | $ 92 |