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 March 31, 2019
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 of incorporation) |
(I.R.S. Employer Identification No.) |
9924 West 74th Street, Eden Prairie, Minnesota 55344
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code:
(952) 500-7000
Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:
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, or 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 ☒
|
Title of each class |
Trading Symbol |
Name of each exchange on which registered |
|
Common Stock, $0.05 par value |
SRDX |
Nasdaq Global Select Market |
The number of shares of the registrant’s Common Stock, $0.05 par value per share, as of April 30, 2019 was 13,488,496
1
TABLE OF CONTENTS
|
|
||
|
Item 1. |
3 |
|
|
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
24 |
|
Item 3. |
32 |
|
|
Item 4. |
33 |
|
|
|
|
|
|
Item 1. |
34 |
|
|
Item 1A. |
34 |
|
|
Item 2. |
35 |
|
|
Item 3. |
35 |
|
|
Item 4. |
35 |
|
|
Item 5. |
35 |
|
|
Item 6. |
36 |
|
|
|
37 |
|
2
Item 1. Unaudited Condensed Financial Statements
Surmodics, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
|
|
|
March 31, |
|
|
September 30, |
|
||
|
|
|
2019 |
|
|
2018 |
|
||
|
(in thousands, except share and per share data) |
|
(Unaudited) |
|
|||||
|
ASSETS |
|
|
|
|
|
|
|
|
|
Current Assets: |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
22,470 |
|
|
$ |
23,318 |
|
|
Restricted cash |
|
|
— |
|
|
|
350 |
|
|
Available-for-sale securities |
|
|
24,023 |
|
|
|
41,352 |
|
|
Accounts receivable, net of allowance for doubtful accounts of $181 and $147 as of March 31, 2019 and September 30, 2018, respectively |
|
|
9,312 |
|
|
|
8,877 |
|
|
Contract assets - royalties and license fees |
|
|
7,065 |
|
|
|
— |
|
|
Inventories, net |
|
|
4,345 |
|
|
|
4,016 |
|
|
Income tax receivable |
|
|
1,137 |
|
|
|
1,152 |
|
|
Prepaids and other |
|
|
3,165 |
|
|
|
2,462 |
|
|
Total Current Assets |
|
|
71,517 |
|
|
|
81,527 |
|
|
Deferred tax assets |
|
|
5,301 |
|
|
|
6,304 |
|
|
Property and equipment, net |
|
|
29,512 |
|
|
|
30,143 |
|
|
Intangible assets, net |
|
|
16,020 |
|
|
|
17,683 |
|
|
Goodwill |
|
|
26,549 |
|
|
|
27,032 |
|
|
Other assets |
|
|
2,081 |
|
|
|
1,446 |
|
|
Total Assets |
|
$ |
150,980 |
|
|
$ |
164,135 |
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
3,746 |
|
|
$ |
2,546 |
|
|
Accrued liabilities: |
|
|
|
|
|
|
|
|
|
Compensation |
|
|
2,107 |
|
|
|
5,635 |
|
|
Accrued other |
|
|
5,097 |
|
|
|
6,265 |
|
|
Deferred revenue |
|
|
6,385 |
|
|
|
9,646 |
|
|
Contingent consideration |
|
|
3,009 |
|
|
|
11,041 |
|
|
Total Current Liabilities |
|
|
20,344 |
|
|
|
35,133 |
|
|
Contingent consideration, less current portion |
|
|
— |
|
|
|
3,425 |
|
|
Deferred revenue, less current portion |
|
|
10,470 |
|
|
|
11,247 |
|
|
Other long-term liabilities |
|
|
4,853 |
|
|
|
5,720 |
|
|
Total Liabilities |
|
|
35,667 |
|
|
|
55,525 |
|
|
Commitments and Contingencies (Note 15) |
|
|
|
|
|
|
|
|
|
Stockholders’ Equity: |
|
|
|
|
|
|
|
|
|
Series A Preferred stock- $.05 par value, 450,000 shares authorized; no shares issued and outstanding |
|
|
— |
|
|
|
— |
|
|
Common stock- $.05 par value, 45,000,000 shares authorized; 13,488,738 and 13,397,647 shares issued and outstanding as of March 31, 2019 and September 30, 2018, respectively |
|
|
674 |
|
|
|
670 |
|
|
Additional paid-in capital |
|
|
7,510 |
|
|
|
7,607 |
|
|
Accumulated other comprehensive income |
|
|
1,444 |
|
|
|
2,718 |
|
|
Retained earnings |
|
|
105,685 |
|
|
|
97,615 |
|
|
Total Stockholders’ Equity |
|
|
115,313 |
|
|
|
108,610 |
|
|
Total Liabilities and Stockholders’ Equity |
|
$ |
150,980 |
|
|
$ |
164,135 |
|
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 |
|
|
Six Months Ended |
|
||||||||||
|
|
|
March 31, |
|
|
March 31, |
|
||||||||||
|
|
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
||||
|
(In thousands, except per share data) |
|
(Unaudited) |
|
(Unaudited) |
|
|||||||||||
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product sales |
|
$ |
9,887 |
|
|
$ |
8,686 |
|
|
$ |
19,638 |
|
|
$ |
16,774 |
|
|
Royalties and license fees |
|
|
9,932 |
|
|
|
8,428 |
|
|
|
20,028 |
|
|
|
15,504 |
|
|
Research, development and other |
|
|
2,857 |
|
|
|
1,944 |
|
|
|
5,251 |
|
|
|
3,793 |
|
|
Total revenue |
|
|
22,676 |
|
|
|
19,058 |
|
|
|
44,917 |
|
|
|
36,071 |
|
|
Operating costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product costs |
|
|
3,093 |
|
|
|
2,913 |
|
|
|
6,616 |
|
|
|
5,804 |
|
|
Research and development |
|
|
13,555 |
|
|
|
10,774 |
|
|
|
25,041 |
|
|
|
18,605 |
|
|
Selling, general and administrative |
|
|
4,876 |
|
|
|
6,440 |
|
|
|
10,825 |
|
|
|
11,628 |
|
|
Acquired intangible asset amortization |
|
|
604 |
|
|
|
636 |
|
|
|
1,210 |
|
|
|
1,254 |
|
|
Contingent consideration gain |
|
|
(317 |
) |
|
|
(2,230 |
) |
|
|
(352 |
) |
|
|
(1,112 |
) |
|
Total operating costs and expenses |
|
|
21,811 |
|
|
|
18,533 |
|
|
|
43,340 |
|
|
|
36,179 |
|
|
Operating income (loss) |
|
|
865 |
|
|
|
525 |
|
|
|
1,577 |
|
|
|
(108 |
) |
|
Other income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment income, net |
|
|
265 |
|
|
|
142 |
|
|
|
581 |
|
|
|
263 |
|
|
Interest expense |
|
|
(37 |
) |
|
|
— |
|
|
|
(74 |
) |
|
|
— |
|
|
Foreign exchange gain (loss) |
|
|
5 |
|
|
|
(353 |
) |
|
|
141 |
|
|
|
(539 |
) |
|
Gain on strategic investment and other |
|
|
2 |
|
|
|
— |
|
|
|
9 |
|
|
|
177 |
|
|
Other income (loss), net |
|
|
235 |
|
|
|
(211 |
) |
|
|
657 |
|
|
|
(99 |
) |
|
Income (loss) before income taxes |
|
|
1,100 |
|
|
|
314 |
|
|
|
2,234 |
|
|
|
(207 |
) |
|
Income tax benefit |
|
|
162 |
|
|
|
1,220 |
|
|
|
338 |
|
|
|
185 |
|
|
Net income (loss) |
|
$ |
1,262 |
|
|
$ |
1,534 |
|
|
$ |
2,572 |
|
|
$ |
(22 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per share |
|
$ |
0.09 |
|
|
$ |
0.12 |
|
|
$ |
0.19 |
|
|
$ |
(0.00 |
) |
|
Diluted net income (loss) per share |
|
$ |
0.09 |
|
|
$ |
0.11 |
|
|
$ |
0.19 |
|
|
$ |
(0.00 |
) |
|
Weighted average number of shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
13,390 |
|
|
|
13,102 |
|
|
|
13,379 |
|
|
|
13,078 |
|
|
Diluted |
|
|
13,785 |
|
|
|
13,465 |
|
|
|
13,816 |
|
|
|
13,078 |
|
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)
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
|
March 31, |
|
|
March 31, |
|
||||||||||
|
|
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
||||
|
(In thousands) |
|
(Unaudited) |
|
|
(Unaudited) |
|
||||||||||
|
Net income (loss) |
|
$ |
1,262 |
|
|
$ |
1,534 |
|
|
$ |
2,572 |
|
|
$ |
(22 |
) |
|
Other comprehensive (loss) income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding gains (losses) on available-for-sale securities, net of tax |
|
|
39 |
|
|
|
(28 |
) |
|
|
44 |
|
|
|
(41 |
) |
|
Foreign currency translation adjustments |
|
|
(779 |
) |
|
|
1,207 |
|
|
|
(1,318 |
) |
|
|
1,837 |
|
|
Other comprehensive (loss) income |
|
|
(740 |
) |
|
|
1,179 |
|
|
|
(1,274 |
) |
|
|
1,796 |
|
|
Comprehensive income |
|
$ |
522 |
|
|
$ |
2,713 |
|
|
$ |
1,298 |
|
|
$ |
1,774 |
|
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 March 31, 2019 and 2018 |
|
|||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
Other |
|
|
|
|
|
|
Total |
|
|||
|
|
|
Common Stock |
|
|
Paid-In |
|
|
Comprehensive |
|
|
Retained |
|
|
Stockholders’ |
|
|||||||||
|
(In thousands) |
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Income |
|
|
Earnings |
|
|
Equity |
|
||||||
|
Balance at December 31, 2018 |
|
|
13,483 |
|
|
$ |
674 |
|
|
$ |
6,340 |
|
|
$ |
2,184 |
|
|
$ |
104,423 |
|
|
$ |
113,621 |
|
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,262 |
|
|
|
1,262 |
|
|
Other comprehensive loss, net of tax |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(740 |
) |
|
|
— |
|
|
|
(740 |
) |
|
Issuance of common stock |
|
|
6 |
|
|
|
— |
|
|
|
209 |
|
|
|
— |
|
|
|
— |
|
|
|
209 |
|
|
Common stock options exercised, net |
|
|
1 |
|
|
|
— |
|
|
|
19 |
|
|
|
— |
|
|
|
— |
|
|
|
19 |
|
|
Purchase of common stock to pay employee taxes |
|
|
(1 |
) |
|
|
— |
|
|
|
(17 |
) |
|
|
— |
|
|
|
— |
|
|
|
(17 |
) |
|
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
959 |
|
|
|
— |
|
|
|
— |
|
|
|
959 |
|
|
Balance at March 31, 2019 |
|
|
13,489 |
|
|
$ |
674 |
|
|
$ |
7,510 |
|
|
$ |
1,444 |
|
|
$ |
105,685 |
|
|
$ |
115,313 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2017 |
|
|
13,196 |
|
|
$ |
660 |
|
|
$ |
5,337 |
|
|
$ |
4,034 |
|
|
$ |
100,516 |
|
|
$ |
110,547 |
|
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,534 |
|
|
|
1,534 |
|
|
Other comprehensive income, net of tax |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,179 |
|
|
|
— |
|
|
|
1,179 |
|
|
Issuance of common stock |
|
|
3 |
|
|
|
— |
|
|
|
166 |
|
|
|
— |
|
|
|
— |
|
|
|
166 |
|
|
Common stock options exercised, net |
|
|
159 |
|
|
|
8 |
|
|
|
54 |
|
|
|
— |
|
|
|
— |
|
|
|
62 |
|
|
Purchase of common stock to pay employee taxes |
|
|
(111 |
) |
|
|
(6 |
) |
|
|
(1,225 |
) |
|
|
— |
|
|
|
— |
|
|
|
(1,231 |
) |
|
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
1,099 |
|
|
|
— |
|
|
|
— |
|
|
|
1,099 |
|
|
Balance at March 31, 2018 |
|
|
13,247 |
|
|
$ |
662 |
|
|
$ |
5,431 |
|
|
$ |
5,213 |
|
|
$ |
102,050 |
|
|
$ |
113,356 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended March 31, 2019 and 2018 |
|
|||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
Other |
|
|
|
|
|
|
Total |
|
|||
|
|
|
Common Stock |
|
|
Paid-In |
|
|
Comprehensive |
|
|
Retained |
|
|
Stockholders’ |
|
|||||||||
|
(In thousands) |
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Income |
|
|
Earnings |
|
|
Equity |
|
||||||
|
Balance at September 30, 2018 |
|
|
13,398 |
|
|
$ |
670 |
|
|
$ |
7,607 |
|
|
$ |
2,718 |
|
|
$ |
97,615 |
|
|
$ |
108,610 |
|
|
Net impact from adoption of ASC Topic 606 (Note 2) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
5,498 |
|
|
|
5,498 |
|
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,572 |
|
|
|
2,572 |
|
|
Other comprehensive loss, net of tax |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1,274 |
) |
|
|
— |
|
|
|
(1,274 |
) |
|
Issuance of common stock |
|
|
134 |
|
|
|
6 |
|
|
|
203 |
|
|
|
— |
|
|
|
— |
|
|
|
209 |
|
|
Common stock options exercised, net |
|
|
2 |
|
|
|
0 |
|
|
|
55 |
|
|
|
— |
|
|
|
— |
|
|
|
55 |
|
|
Purchase of common stock to pay employee taxes |
|
|
(45 |
) |
|
|
(2 |
) |
|
|
(2,545 |
) |
|
|
— |
|
|
|
— |
|
|
|
(2,547 |
) |
|
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
2,190 |
|
|
|
— |
|
|
|
— |
|
|
|
2,190 |
|
|
Balance at March 31, 2019 |
|
|
13,489 |
|
|
$ |
674 |
|
|
$ |
7,510 |
|
|
$ |
1,444 |
|
|
$ |
105,685 |
|
|
$ |
115,313 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2017 |
|
|
13,095 |
|
|
$ |
655 |
|
|
$ |
5,413 |
|
|
$ |
3,417 |
|
|
$ |
102,072 |
|
|
$ |
111,557 |
|
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(22 |
) |
|
|
(22 |
) |
|
Other comprehensive income, net of tax |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,796 |
|
|
|
— |
|
|
|
1,796 |
|
|
Issuance of common stock |
|
|
127 |
|
|
|
6 |
|
|
|
160 |
|
|
|
— |
|
|
|
— |
|
|
|
166 |
|
|
Common stock options exercised, net |
|
|
171 |
|
|
|
8 |
|
|
|
209 |
|
|
|
— |
|
|
|
— |
|
|
|
217 |
|
|
Purchase of common stock to pay employee taxes |
|
|
(146 |
) |
|
|
(7 |
) |
|
|
(2,354 |
) |
|
|
— |
|
|
|
— |
|
|
|
(2,361 |
) |
|
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
2,003 |
|
|
|
— |
|
|
|
— |
|
|
|
2,003 |
|
|
Balance at March 31, 2018 |
|
|
13,247 |
|
|
$ |
662 |
|
|
$ |
5,431 |
|
|
$ |
5,213 |
|
|
$ |
102,050 |
|
|
$ |
113,356 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6
Surmodics, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
|
|
|
Six Months Ended |
|
|||||
|
|
|
March 31, |
|
|||||
|
|
|
2019 |
|
|
2018 |
|
||
|
(in thousands) |
|
(Unaudited) |
|
|||||
|
Operating Activities: |
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
2,572 |
|
|
$ |
(22 |
) |
|
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities: |
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
3,575 |
|
|
|
3,106 |
|
|
Stock-based compensation |
|
|
2,190 |
|
|
|
2,003 |
|
|
Payment of contingent consideration obligations in excess of acquisition-date value |
|
|
(2,041 |
) |
|
|
— |
|
|
Contingent consideration gain |
|
|
(352 |
) |
|
|
(1,112 |
) |
|
Unrealized foreign exchange gain |
|
|
— |
|
|
|
518 |
|
|
Deferred taxes (1) |
|
|
(213 |
) |
|
|
701 |
|
|
Gain on strategic investment |
|
|
(7 |
) |
|
|
(177 |
) |
|
Provision for bad debts |
|
|
119 |
|
|
|
25 |
|
|
Other |
|
|
(10 |
) |
|
|
92 |
|
|
Change in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
Accounts receivable and contract asset (1) |
|
|
(756 |
) |
|
|
(15 |
) |
|
Inventories |
|
|
(355 |
) |
|
|
(500 |
) |
|
Prepaids and other |
|
|
(1,430 |
) |
|
|
(1,366 |
) |
|
Accounts payable |
|
|
1,273 |
|
|
|
(418 |
) |
|
Accrued liabilities |
|
|
(4,071 |
) |
|
|
810 |
|
|
Income taxes (1) |
|
|
(291 |
) |
|
|
(776 |
) |
|
Deferred revenue (1) |
|
|
(4,141 |
) |
|
|
24,562 |
|
|
Net cash (used in) provided by operating activities |
|
|
(3,938 |
) |
|
|
27,431 |
|
|
Investing Activities: |
|
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
|
(3,118 |
) |
|
|
(4,020 |
) |
|
Purchases of available-for-sale securities |
|
|
(20,085 |
) |
|
|
(43,517 |
) |
|
Maturities of available-for-sale securities |
|
|
37,458 |
|
|
|
33,000 |
|
|
Cash proceeds from sales of property and equipment |
|
|
10 |
|
|
|
4 |
|
|
Cash received from sale of strategic investment |
|
|
7 |
|
|
|
177 |
|
|
Net cash provided by (used in) investing activities |
|
|
14,272 |
|
|
|
(14,356 |
) |
|
Financing Activities: |
|
|
|
|
|
|
|
|
|
Issuance of common stock |
|
|
264 |
|
|
|
377 |
|
|
Payments for taxes related to net share settlement of equity awards |
|
|
(2,678 |
) |
|
|
(1,132 |
) |
|
Payment of contingent consideration obligations |
|
|
(9,064 |
) |
|
|
(925 |
) |
|
Net cash used in financing activities |
|
|
(11,478 |
) |
|
|
(1,680 |
) |
|
Effect of exchange rate changes on cash, restricted cash and cash equivalents |
|
|
(54 |
) |
|
|
133 |
|
|
Net change in cash, restricted cash and cash equivalents |
|
|
(1,198 |
) |
|
|
11,528 |
|
|
Cash, Restricted Cash and Cash Equivalents: |
|
|
|
|
|
|
|
|
|
Beginning of period |
|
|
23,668 |
|
|
|
16,534 |
|
|
End of period |
|
$ |
22,470 |
|
|
$ |
28,062 |
|
|
Supplemental Information: |
|
|
|
|
|
|
|
|
|
Cash paid for income taxes |
|
$ |
150 |
|
|
$ |
782 |
|
|
Noncash transactions from investing and financing activities: |
|
|
|
|
|
|
|
|
|
Acquisition of property and equipment, net of refundable credits in other current assets and liabilities |
|
$ |
65 |
|
|
$ |
329 |
|
|
Accrued taxes related to net share settlement of equity awards |
|
|
— |
|
|
|
1,222 |
|
|
(1) |
Amounts presented are net of impact from adoption of ASC Topic 606. |
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 March 31, 2019
(Unaudited)
1. Basis of Presentation
The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S.”) (“GAAP”) and, in the opinion of management, reflect all adjustments, consisting of normal recurring adjustments, needed to fairly present the financial results of Surmodics, Inc. and subsidiaries (“Surmodics” or the “Company”) for the periods presented. These financial statements include amounts that are based on management’s best estimates and judgments. These estimates may be adjusted as more information becomes available, and any adjustment could be significant. The impact of any change in estimates is included in the determination of net income (loss) in the period in which the change in estimate is identified. The results of operations for the three and six months ended March 31, 2019 are not necessarily indicative of the results that may be expected for the entire 2019 fiscal year.
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, 2018, and footnotes thereto included in the Company’s Form 10-K as filed with the SEC on November 30, 2018.
New Accounting Pronouncements
Recently Adopted
In May 2014, the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) issued Update No. 2014-09, Revenue from Contracts with Customers (“ASC Topic 606”). The core principal of ASC Topic 606 is to recognize revenue in a manner that depicts the transfer of goods or services to customers in amounts that reflect the consideration an entity expects to be entitled to in exchange for those goods or services. The guidance also requires expanded disclosures relating to the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers, as well as significant judgements and changes in judgements, which are described in Note 2 to the condensed consolidated financial statements. The Company adopted ASC Topic 606 in the first quarter of fiscal year 2019 using the modified retrospective method and applied the new revenue standard to all new customer contracts initiated on or after the effective date and contracts which had remaining performance obligations as of the effective date.
The adoption of ASC Topic 606 resulted in an acceleration of minimum license fees and sales-based royalty revenue earned under the Company’s hydrophilic coating technology license agreements by approximately one quarter. Prior to the adoption of ASC Topic 606, sales-based royalties were recognized in the period the Company’s customers reported the underlying sales, which is generally one quarter after the sales occurred. Additionally, minimum royalties were recognized in the period they were contractually owed to the Company. Upon adoption of ASC Topic 606, sales-based royalties are recognized in the period the underlying customer sale occurs, while the minimum royalties are recognized at each renewal of the license contract, which generally occurs on the last day of the quarter for minimum royalties contractually due in the following quarter. The adoption of ASC Topic 606 resulted in cumulative-effect adjustments to opening retained earnings, contract assets, deferred tax assets and income tax receivable.
8
The impact of the adoption of ASC Topic 606 on the opening consolidated balance sheet as of October 1, 2018, as compared with the consolidated balance sheet previously reported as of September 30, 2018, was as follows:
|
(Dollars in thousands) |
|
September 30, 2018, As Reported |
|
|
Adjustments for Adoption of Topic 606 |
|
|
October 1, 2018 Opening Balance |
|
|||
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract assets - royalties and license fees |
||||||||||||