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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2021

or

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 0-23837

Surmodics, Inc.

(Exact name of registrant as specified in its charter)

Minnesota	41-1356149
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

9924 West 74th Street, Eden Prairie, Minnesota 55344

(Address of principal executive offices) (Zip Code)

(952) 500-7000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, $0.05 par value	SRDX	Nasdaq Global Select Market

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.     Yes  ☒    No  ☐

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).    Yes  ☒    No  ☐

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	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☐	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  ☐    No  ☒

The number of shares of the registrant’s Common Stock, $0.05 par value per share, as of July 30, 2021 was 13,872,000.

TABLE OF CONTENTS

PART I.   FINANCIAL INFORMATION
Item 1.	Unaudited Condensed Financial Statements	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	29
Item 4.	Controls and Procedures	29
PART II.   OTHER INFORMATION
Item 1.	Legal Proceedings	30
Item 1A.	Risk Factors	30
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	30
Item 3.	Defaults Upon Senior Securities	30
Item 4.	Mine Safety Disclosures	30
Item 5.	Other Information	30
Item 6.	Exhibits	31
SIGNATURES		32

2

PART I. FINANCIAL INFORMATION

Item 1. Unaudited Condensed Financial Statements

Surmodics, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

	June 30,		September 30,
	2021		2020
(In thousands, except per share data)	(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents	$	62,177	$	30,785
Available-for-sale securities		5,741		30,313
Accounts receivable, net of allowances of $118 and $130 as of    June 30, 2021 and September 30, 2020, respectively		8,601		7,675
Contract assets — royalties and license fees		7,043		6,108
Inventories, net		6,316		5,966
Income tax receivable		1,136		2,391
Prepaids and other		3,098		3,370
Total Current Assets		94,112		86,608
Property and equipment, net		29,112		30,103
Available-for-sale securities		4,050		—
Deferred income taxes		6,368		7,315
Intangible assets, net		11,482		13,283
Goodwill		27,379		27,185
Other assets		4,696		4,269
Total Assets	$	177,199	$	168,763
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	1,519	$	1,515
Accrued liabilities:
Compensation		6,689		6,630
Accrued other		4,303		5,547
Deferred revenue		5,151		5,200
Total Current Liabilities		17,662		18,892
Deferred revenue, less current portion		11,035		10,796
Other long-term liabilities		7,670		8,020
Total Liabilities		36,367		37,708
Commitments and Contingencies (Note 17)
Stockholders’ Equity:
Series A Preferred stock — $.05 par value, 450 shares authorized; no shares    issued and outstanding		—		—
Common stock — $.05 par value, 45,000 shares authorized; 13,872 and    13,672 shares issued and outstanding as of June 30, 2021 and    September 30, 2020, respectively		694		684
Additional paid-in capital		20,025		15,369
Accumulated other comprehensive income		3,759		3,174
Retained earnings		116,354		111,828
Total Stockholders’ Equity		140,832		131,055
Total Liabilities and Stockholders’ Equity	$	177,199	$	168,763

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

3

Surmodics, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

	Three Months Ended							Nine Months Ended
	June 30,							June 30,
	2021			2020				2021			2020
(In thousands, except per share data)	(Unaudited)						(Unaudited)
Revenue:
Product sales	$	12,084		$	11,987			$	33,969		$	33,731
Royalties and license fees		8,796			12,398				38,182			30,767
Research, development and other		2,993			2,498				9,014			7,823
Total revenue		23,873			26,883				81,165			72,321
Operating costs and expenses:
Product costs		5,105			4,443				13,018			11,415
Research and development		12,246			13,324				36,003			37,401
Selling, general and administrative		7,885			7,416				22,815			21,092
Acquired intangible asset amortization		560			536				1,676			1,671
Acquisition transaction, integration and other costs		461			—				461			—
Total operating costs and expenses		26,257			25,719				73,973			71,579
Operating (loss) income		(2,384	)		1,164				7,192			742
Other (expense) income:
Investment income, net		26			124				95			584
Interest expense		(59	)		(29	)			(178	)		(99	)
Foreign exchange loss		(94	)		(48	)			(201	)		(125	)
Impairment loss on strategic investment and other		—			—				—			(478	)
Other (expense) income		(127	)		47				(284	)		(118	)
(Loss) income before income taxes		(2,511	)		1,211				6,908			624
Income tax (provision) benefit		(776	)		1,248				(2,382	)		3,445
Net (loss) income	$	(3,287	)	$	2,459			$	4,526		$	4,069
Basic net (loss) income per share	$	(0.24	)	$	0.18			$	0.33		$	0.30
Diluted net (loss) income per share	$	(0.24	)	$	0.18			$	0.32		$	0.30
Weighted average number of shares outstanding:
Basic		13,837			13,601				13,740			13,577
Diluted		13,837			13,786				13,959			13,775

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

4

Surmodics, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive (Loss) Income

	Three Months Ended					Nine Months Ended
	June 30,					June 30,
	2021			2020		2021			2020
(In thousands)	(Unaudited)					(Unaudited)
Net (loss) income	$	(3,287	)	$	2,459	$	4,526		$	4,069
Other comprehensive income:
Net changes related to available-for-sale securities, net of tax		4			185		(3	)		6
Foreign currency translation adjustments		524			794		588			1,067
Other comprehensive income		528			979		585			1,073
Comprehensive (loss) income	$	(2,759	)	$	3,438	$	5,111		$	5,142

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

	Three Months Ended June 30, 2021 and 2020
	(Unaudited)									Accumulated
							Additional			Other					Total
	Common Stock						Paid-In			Comprehensive		Retained			Stockholders’
(In thousands)	Shares			Amount			Capital			Income		Earnings			Equity
Balance at March 31, 2021		13,868		$	693		$	18,516		$	3,231	$	119,641		$	142,081
Net loss		—			—			—			—		(3,287	)		(3,287	)
Other comprehensive income, net of tax		—			—			—			528		—			528
Issuance of common stock		2			1			—			—		—			1
Common stock options exercised, net		2			—			90			—		—			90
Purchase of common stock to pay employee taxes		—			—			(37	)		—		—			(37	)
Stock-based compensation		—			—			1,456			—		—			1,456
Balance at June 30, 2021		13,872		$	694		$	20,025		$	3,759	$	116,354		$	140,832
Balance at March 31, 2020		13,609		$	680		$	11,481		$	490	$	112,315		$	124,966
Net income		—			—			—			—		2,459			2,459
Other comprehensive income, net of tax		—			—			—			979		—			979
Issuance of common stock		3			—			—			—		—			—
Common stock options exercised, net		33			2			849			—		—			851
Purchase of common stock to pay employee taxes		—			—			(12	)		—		—			(12	)
Stock-based compensation		—			—			1,340			—		—			1,340
Balance at June 30, 2020		13,645		$	682		$	13,658		$	1,469	$	114,774		$	130,583
	Nine Months Ended June 30, 2021 and 2020
	(Unaudited)									Accumulated
							Additional			Other					Total
	Common Stock						Paid-In			Comprehensive		Retained			Stockholders’
(In thousands)	Shares			Amount			Capital			Income		Earnings			Equity
Balance at September 30, 2020		13,672		$	684		$	15,369		$	3,174	$	111,828		$	131,055
Net income		—			—			—			—		4,526			4,526
Other comprehensive income, net of tax		—			—			—			585		—			585
Issuance of common stock		91			5			292			—		—			297
Common stock options exercised, net		127			6			2,324			—		—			2,330
Purchase of common stock to pay employee taxes		(18	)		(1	)		(2,278	)		—		—			(2,279	)
Stock-based compensation		—			—			4,318			—		—			4,318
Balance at June 30, 2021		13,872		$	694		$	20,025		$	3,759	$	116,354		$	140,832
Balance at September 30, 2019		13,504		$	675		$	10,740		$	396	$	110,705		$	122,516
Net income		—			—			—			—		4,069			4,069
Other comprehensive income, net of tax		—			—			—			1,073		—			1,073
Issuance of common stock		133			7			211			—		—			218
Common stock options exercised, net		53			2			949			—		—			951
Purchase of common stock to pay employee taxes		(45	)		(2	)		(2,279	)		—		—			(2,281	)
Stock-based compensation		—