Synergetics FY13 Revenue Rises 4.6 Percent

Synergetics USA Inc. increased sales 4.6 percent for fiscal 2013 but weak activity in emerging markets sent fourth-quarter net income plummeting 26 percent to $1.4 million.

The O’Fallon, Mo.-based medical device company reported fourth quarter net sales of $17.9 million, up 6 percent year-over-year. Fourth quarter sales performance primarily was driven by a 9 percent increase in OEM sales and a 3 percent increase in ophthalmic sales. Separately, the company implemented a restructuring plan to close its King of Prussia, Pa., facility and consolidate its manufacturing operations into its exiting Missouri facility. Synergetics bigwigs expect to incur pre-tax charges of about $900,000 over the next 14 months, the majority of which are expected to be incurred during fiscal 2014.

For fiscal year 2013 (ended July 31), Synergetics reported net income of $2.6 million, down 54 percent from the same period last year. Total sales for the fiscal year increased 5 percent to $62.8 million, compared with $60 million in the same period last year.

“Our international results were softer than anticipated, driven by ongoing weakness in our base business and lower contributions from emerging markets compared to last year,” President/CEO David Hable said in a statement. “We were pleased with our fourth quarter revenue performance, particularly in the U.S., where we saw improving trends in our ophthalmic sales of both new and base business products. Commercialization of the VersaVIT system remains on-track as we continue to establish a solid installed base. Fourth quarter results also benefitted from strong demand from our OEM partners. “The recent acquisition of our U.K. distribution partner, M.I.S.S. Ophthalmics, contributed modestly to international revenues in the period, and we look forward to incremental contributions in fiscal 2014.”

Fourth quarter of fiscal 2013 sales totaled $17.9 million, an increase of 5.9 percent, compared with sales of $16.9 million in the fourth quarter of fiscal 2012. Fourth quarter sales performance primarily was driven by an 8.7 percent increase in OEM sales and by a 2.9 percent increase in ophthalmic sales. Other revenues increased 42.2 percent year-over-year to $268,400. 

• Total Domestic sales increased 7.6 percent to $13.3 million in the fourth quarter of FY13, driven primarily by higher OEM sales and by growth in domestic ophthalmic sales year-over-year. International sales of $4.5 million this quarter increased 1.2 percent year-over-year mostly due to increased sales of VersaVIT vitrectomy systems and procedural kits and contributions from additional sales from distributors in the United Kingdom and Canada, offsetting lower sales in emerging markets compared with last year.

• Total Ophthalmic sales increased 2.9 percent to $9.4 million, compared with $9.2 million in the fourth quarter of FY12. Domestic ophthalmic sales increased 4.4 percent due to increased sales of VersaVIT vitrectomy systems and procedural kits. International ophthalmic sales increased 1.3 percent year-over-year primarily due to additional sales from distributors in Canada and the United Kingdom and increased sales of VersaVIT vitrectomy systems and procedural kits. Excluding the contributions from the acquisition of Synergetics’ U.K. distributor (M.I.S.S. Ophthalmics) in the period, international ophthalmic sales were flat year-over-year.

• Total OEM sales increased 8.7 percent to $8.2 million, compared with $7.5 million in the fourth quarter of fiscal 2012. OEM sales include sales to marketing partners. Executives attributed the increase in OEM sales to strong disposable forceps and electrosurgical generator sales to Codman & Shurtleff, Inc. and Stryker Corp., which offset the loss of approximately $700,000 from Mobius Therapeutics LLC sales in the Q4 of 2013. Product sales to the company’s two major customers, Codman and Stryker, increased 21.1 percent.

• Disposable product sales totaled $14.4 million, an increase of 5 percent compared with sales of $13.8 million in the fourth quarter of FY12. Capital equipment sales totaled $3.1 million in the fourth quarter of fiscal 2013 compared with $2.8 million in the fourth quarter of fiscal 2012, an increase of 11.2 percent year-over-year. 

Gross profit for the fourth quarter of fiscal 2013 totaled $9.7 million, or 54.2 percent of sales, compared with $9.8 million, or 58.2 percent of sales, in the fourth quarter of FY12. Year-over-year gross margin performance was impacted by product mix including the mix of products within the firm’s ophthalmology product line and the mix of OEM sales in fiscal 2013 as well as the impacts of foreign currency.

Total operating expenses increased 9 percent year-over-year to $7.5 million, or 41.9 percent of sales, in the fourth quarter of fiscal 2013 from $6.9 million, or 40.7 percent of sales, in the comparable period. Research and development expenses declined 2.6 percent and comprised 5.5 percent of sales compared with 6 percent last year. Sales and marketing expenses increased 13.5 percent and were 19.3 percent of sales compared with 18 percent last year. General and administrative expenses rose 3.9 percent, representing 16.4 percent of sales compared with 16.7 percent last year. The increase in selling and marketing expenses largely was due to investments in VersaVIT commercialization, and the increase in G&A expense primarily was driven by costs associated with the acquisition of M.I.S.S. Ophthalmics in the period. Fourth quarter of fiscal 2013 operating expenses were impacted by the medical device excise tax of $129,000, or 0.7 percent of sales, which the company began paying in January 2013 and did not impact results in the prior year period.

“Our prospects for improving growth trends remain bright; we have strong relationships with our OEM partners, with expectations for growing volumes next year,” Hable said. “Looking ahead, we expect our ophthalmic business to continue to benefit from the growing contributions from the commercialization of the VersaVIT system and the associated sales of disposable products as utilization of the installed base increases. We remain focused on leveraging our sales growth into improving margin performance to drive long term earnings performance and shareholder returns.”

Reported operating income for the fourth quarter of fiscal 2013 declined 25.6 percent to $2.2 million, compared with $2.9 million last year. Operating income was negatively impacted by growth in operating expenses largely due to investments in VersaVIT commercialization, and by higher cost of goods sold compared to the fourth quarter of fiscal 2012.

Reported net income declined 25.9 percent year-over-year to $1.4 million, or $0.06 per diluted share, from $1.9 million, or $0.08 per diluted share, for the same period of FY12. The company’s cash flow from operating activity was $2.5 million, an increase of 358.3 percent year-over-year from $0.5 million in the prior year fourth quarter. Earnings before interest, taxes, depreciation and amortization, or EBITDA, totaled $2.6 million in the fourth quarter of fiscal 2013, down 18.8 percent from EBITDA of $3.3 million in the prior year fourth quarter.

Total sales for fiscal year 2013 increased 4.6 percent to $62.8 million, compared with $60 million in the same period last year. Income from continuing operations for FY13 declined 57.1 percent to $2.6 million, or $0.10 per diluted share, compared to $6 million, or $0.24 per diluted share, in fiscal year 2012. Net income for FY13 declined 54.2 percent to $2.6 million, or $0.10 per diluted share, versus $5.6 million, or $0.22 per diluted share, in FY12. Reported net income per diluted share in fiscal year 2013 includes approximately $0.06 resulting from an excess inventory write-down in the period, compared with $0.01 resulting from an obsolete inventory write-down in fiscal year 2012. Excluding the impacts of the inventory write-downs, income from operations for fiscal year 2013 declined 36 percent to $0.16 per diluted share, versus $0.25 per diluted share in FY12, primarily due to new product launches. These results exclude the loss from discontinued operations of approximately $382,000, or $0.02 per diluted share, related to the completion of the sale of assets from the company’s plastic injection molding business and approximately $367,000, or $0.01 per diluted share, from an inventory write-down in fiscal year 2012.

Synergetics USA designs, manufactures and markets surgical devices for ophthalmic and neurosurgical applications. The company’s product lines focus upon precision engineered, disposable and reusable devices, surgical equipment, procedural kits and the delivery of various energy modalities for the performance of surgery including: (i) laser energy, (ii) ultrasonic energy, (iii) radio frequency energy for electrosurgery and lesion generation and (iv) visible light energy for illumination, and where applicable, simultaneous infusion (irrigation) of fluids into the operative field.