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Synergetics Reports Third Quarter Fiscal Year 2014 Results

O'FALLON, MO -- (Marketwired) -- 06/09/14 -- Synergetics USA, Inc. (NASDAQ: SURG), a medical device company that designs, manufactures, and markets innovative surgical devices for ophthalmic and neurosurgical applications, today reported sales, gross profit, operating margin and net income for the third quarter ended April 30, 2014.

Third Quarter Summary:

  • Total sales were $16.1 million as compared to $16.3 million last year.
  • OEM sales were flat and Ophthalmic sales decreased 2.0% year-over-year.
  • Domestic product sales decreased 1.9% and International sales increased 2.8% year-over-year.
  • Disposable products sales increased 6.7% and capital equipment sales declined 33.9% year-over year.
  • GAAP EPS was $0.04 compared to $0.05 for the third quarter of last year.

"Our third quarter revenues were softer than expected due primarily to sharp declines in capital equipment sales which were partially offset by strong sales of disposables," stated Dave Hable, President and CEO of Synergetics USA, Inc. "Ophthalmic results were mixed in the quarter -- we did experience pockets of strength -- but not enough to offset the continued weakness in our base business. Results from our OEM business again benefitted from strong disposables sales, though weaker capital equipment sales and a difficult comparison challenged our ability to post positive growth compared to last year. Despite these challenges, the long-term growth opportunity for Synergetics remains compelling, and we see exciting opportunities to improve our growth rate and gain market share with our differentiated offerings of systems and disposables. We look forward to the launch of VersaVIT 2.0™ and the significant benefits it provides to our customers, and expect revenue contribution to ramp up meaningfully over time as we achieve broad market adoption. We will continue to execute our strategy to drive improvements in our operating and financial performance going forward."

Third Quarter Results

Third quarter sales decreased 0.8% to $16.1 million compared to $16.3 million in the third quarter of fiscal 2013. The decrease in third quarter sales from last year was due primarily to lower Domestic ophthalmic sales.

  • Total Ophthalmic sales decreased 2.0% to $8.5 million compared to $8.7 million in the third quarter of fiscal 2013. Domestic ophthalmic sales decreased 6.1% in the third quarter of fiscal 2014, primarily due to the decreased sales of ophthalmic base business capital equipment and disposables, partially offset by increased sales of procedural kits (including kits associated with VersaVIT™). International ophthalmic sales increased 3.1% in the third quarter of fiscal 2014, primarily due to increased sales from M.I.S.S. Ophthalmics Limited and positive contribution from foreign currency, partially offset by decreased sales of ophthalmic base business capital equipment and disposables.

  • Total OEM sales were flat in the third quarter of fiscal 2013. OEM sales benefited from higher volumes of disposable products sold to our two largest OEM partners, Codman & Shurtleff, Inc. and Stryker Corporation, offset by decreased electrosurgery generator sales to Codman. OEM sales also included deferred revenue of $322,000 recognized in the third quarter of both fiscal year periods.

  • Disposable product sales increased 6.7%, or $0.9 million, to $13.9 million in the third quarter of fiscal 2014 compared to the third quarter of fiscal 2013. Disposable sales accounted for approximately 85.9% of total sales in the third quarter of fiscal 2014.

  • Capital equipment sales totaled $1.9 million in the third quarter of fiscal 2014 compared to $2.9 million in the third quarter of fiscal 2013.

Gross profit for the third quarter of fiscal 2014 decreased to $8.9 million, or 55.2% of sales, compared to $9.1 million, or 55.7% of sales, in the third quarter of fiscal 2013. Gross margin in the third quarter of fiscal year 2014 was negatively impacted by the mix of products including both the increase in our International sales and the increase in the percentage of our OEM sales.

Research and development expenses increased to $1.3 million, or 8.1% of net sales. The Company's R&D investment is driven by the opportunities to accelerate new products to meet the needs of our surgeon customers and address the demands of the market. Sales and marketing expenses decreased to $3.5 million, or 21.4% of sales, this year, compared with $3.5 million, or 21.7% of net sales, for the same period last year. General and administrative expenses decreased to $2.6 million, or 16.1% of net sales, for the third quarter of fiscal 2014, compared with $2.7 million, or 16.7% of net sales, for the same period last year. Total operating expenses in the third quarter of fiscal year 2014 included incremental expenses of approximately $64,000 related to the Company's exit activities at its King of Prussia facility. Total operating expenses also included $83,000 in the third quarter of fiscal 2014 related to the impact from the medical device excise tax, as compared to $115,000 in the prior year period.

Operating income for the third quarter of fiscal 2014 decreased to $1.4 million compared to $1.7 million in the third quarter of fiscal 2013. Net income for the third quarter of fiscal 2014 decreased by $207,000 to $943,000, or $0.04 per diluted share, compared to $1.2 million, or $0.05 per diluted share, in the third quarter of fiscal 2013.

Nine Months Results and Balance Sheet

Total sales for the first nine months of fiscal 2014 increased 4.1% to $46.8 million compared with $44.9 million in the same period last year. Net income was $1.7 million for the first nine months of fiscal 2014 compared to net income of $1.1 million for the same period in fiscal 2013. Basic and diluted earnings per share for the first nine months of fiscal 2014 was $0.07 as compared to basic and diluted earnings per share of $0.04 for the first nine months of fiscal 2013.

As of April 30, 2014, the Company had approximately $12.8 million in cash and no interest-bearing debt on its balance sheet.

Conference Call Information

Synergetics USA, Inc. will host a conference call on Monday, June 9, 2014 at 4:00 p.m. Central Time (5:00 p.m. Eastern Time). The toll free dial-in number to participate live on this call is (800) 588-4973, confirmation code 37380959. For callers outside the U.S., the number is (847) 230-5643. Participants are encouraged to email questions to [email protected]. The conference call will also be simulcast live at http://www.synergeticsusa.com. An online replay will be available on the Company's website for approximately 30 days.

About Synergetics USA, Inc.

Through continuous improvement and development of our people, our mission is to design, manufacture and market innovative surgical devices, capital equipment, accessories and disposables of the highest quality in order to assist and enable surgeons who perform surgery around the world to provide a better quality of life for their patients.

Synergetics USA, Inc. (the "Company") is a leading supplier of precision surgical devices. The Company's primary focus is on the disciplines of ophthalmology and neurosurgery. The Company's distribution channels include a combination of direct and independent vitreoretinal sales organizations, both domestically and internationally, and important strategic alliances with market leaders. 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. The Company's website address is http://www.synergeticsusa.com.

Forward-Looking Statements

Some statements in this release may be "forward-looking statements" for the purposes of the Private Securities Litigation Reform Act of 1995. In some cases forward-looking statements can be identified by words such as "believe," "expect," "anticipate," "plan," "potential," "continue" or similar expressions. Such forward-looking statements include risks and uncertainties, and there are important factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements. These factors, risks and uncertainties are discussed in the Company's Annual Report on Form 10-K for the year ended July 31, 2013, as amended, as updated from time to time in our filings with the Securities and Exchange Commission. The Company is not responsible for updating the information contained in this press release beyond the published date, or for changes made to this document by wire services or Internet services.

                   Synergetics USA, Inc. and Subsidiaries
                   Condensed Consolidated Balance Sheets
             As of April 30, 2014 (Unaudited) and July 31, 2013
                 (Dollars in thousands, except share data)

                                                  April 30,      July 31,
                                                    2014           2013
Assets
Current Assets
  Cash and cash equivalents                     $     12,753   $     12,470
  Accounts receivable, net of allowance for
   doubtful accounts of $533 and $495,
   respectively                                       15,377         14,425
  Inventories                                         15,711         14,825
  Income taxes refundable                                537            254
  Prepaid expenses                                     1,601            996
  Deferred income taxes                                1,987          1,827
                                                ------------   ------------
      Total current assets                            47,966         44,797
Property and equipment, net                            8,915          8,962
Intangible and other assets
  Goodwill                                            12,303         12,155
  Other intangible assets, net                        11,341         11,715
  Deferred income taxes                                1,754          3,557
  Patents, net                                         1,468          1,411
  Cash value of life insurance                            96             96
                                                ------------   ------------
      Total assets                              $     83,843   $     82,693
                                                ============   ============
Liabilities and stockholders' equity
Current Liabilities
  Accounts payable                              $      3,196   $      3,237
  Accrued expenses                                     2,942          3,486
  Deferred revenue                                     1,288          1,288
                                                ------------   ------------
      Total current liabilities                        7,426          8,011
                                                ------------   ------------
Long-Term Liabilities
  Deferred revenue                                    13,564         14,530
                                                ------------   ------------
      Total long-term liabilities                     13,564         14,530
                                                ------------   ------------
      Total liabilities                               20,990         22,541
                                                ------------   ------------
Commitments and contingencies
Stockholders' Equity
  Common stock at April 30, 2014 and July 31,
   2013, $0.001 par value, 50,000,000 shares
   authorized; 25,333,479 and 25,292,960
   shares issued and outstanding, respectively            25             25
  Additional paid-in capital                          28,357         27,489
  Retained earnings                                   34,749         33,097
  Accumulated other comprehensive loss:
  Foreign currency translation adjustment               (278)          (459)
                                                ------------   ------------
      Total stockholders' equity                      62,853         60,152
                                                ------------   ------------
      Total liabilities and stockholders'
       equity                                   $     83,843   $     82,693
                                                ============   ============



                   Synergetics USA, Inc. and Subsidiaries
  Condensed Consolidated Statements of Operations and Comprehensive Income
                                 (Unaudited)
            Three and Nine Months Ended April 30, 2014 and 2013
          (Dollars in thousands, except share and per share data)

                              Three       Three
                              Months      Months    Nine Months Nine Months
                           Ended April Ended April  Ended April Ended April
                             30, 2014    30, 2013     30, 2014    30, 2013
Net sales                  $    16,135 $    16,264  $    46,761 $    44,939
Cost of sales                    7,223       7,213       20,527      22,244
                           ----------- -----------  ----------- -----------
      Gross profit               8,912       9,051       26,234      22,695
Operating expenses
    Research and
     development                 1,302         973        4,012       2,660
    Sales and marketing          3,450       3,523       10,655      10,367
    Medical device excise
     tax                            83         115          323         160
    Exit costs                      64          --          578          --
    General and
     administrative              2,602       2,719        8,240       7,999
                           ----------- -----------  ----------- -----------
                                 7,501       7,330       23,808      21,186
                           ----------- -----------  ----------- -----------
      Operating income           1,411       1,721        2,426       1,509
                           ----------- -----------  ----------- -----------
Other income (expenses)
    Investment income                1           5            7          18
    Interest expense                --          (2)          --          (6)
    Miscellaneous                   --         (12)          --         (35)
                                     1          (9)           7         (23)
      Income from
       operations before
       provision for
       income taxes              1,412       1,712        2,433       1,486
Provision for income taxes         469         562          781         366
                           ----------- -----------  ----------- -----------
      Net income           $       943 $     1,150  $     1,652 $     1,120
                           =========== ===========  =========== ===========
Earnings per share:
    Basic earnings per
     share                 $      0.04 $      0.05  $      0.07 $      0.04
                           =========== ===========  =========== ===========
    Diluted earnings per
     share                 $      0.04 $      0.05  $      0.07 $      0.04
                           =========== ===========  =========== ===========

    Basic weighted average
     common shares
     outstanding            25,331,925  25,299,131   25,311,641  25,229,250
    Diluted weighted
     average common shares
     outstanding            25,392,782  25,362,923   25,388,493  25,329,711

Net income                 $       943 $     1,150  $     1,652 $     1,120
Foreign currency
 translation adjustment             41        (238)         181          16
                           ----------- -----------  ----------- -----------
Comprehensive income       $       984 $       912  $     1,833 $     1,136
                           =========== ===========  =========== ===========



                   Synergetics USA Inc. and Subsidiaries
        Condensed Consolidated Statements of Cash Flows (Unaudited)
                 Nine Months Ended April 30, 2014 and 2013
                 (Dollars in thousands, except share data)

                                                 Nine Months    Nine Months
                                                 Ended April    Ended April
                                                  30, 2014       30, 2013
Cash Flows from Operating Activities
  Net income                                    $      1,652   $      1,120
  Adjustments to reconcile net income to net
   cash used in operating activities
    Depreciation                                         864            856
    Amortization                                         553            504
    Provision for doubtful accounts receivable            66             91
    Stock-based compensation                             807            713
    Deferred income taxes                              1,643           (215)
   Gain on sale                                           (9)
Changes in assets and liabilities
  (Increase) decrease in:
    Accounts receivable                                 (861)          (420)
    Inventories                                         (822)           672
    Prepaid expenses                                    (581)          (302)
    Income taxes refundable                             (282)          (862)
  (Decrease) increase in:
    Accounts payable                                     (60)           312
    Accrued expenses                                    (497)          (154)
    Deferred revenue                                    (966)          (966)
    Income taxes payable                                 (70)          (191)
                                                ------------   ------------
      Net cash provided by operating
       activities                               $      1,437   $      1,158
                                                ------------   ------------

Cash Flows from Investing Activities
    Proceeds from sale                                    18             --
    Purchase of property and equipment                  (800)          (397)
    Acquisition of patents and other
     intangibles                                        (229)          (298)
                                                ------------   ------------
      Net cash used in investing activities           (1,011)          (695)
                                                ------------   ------------

Cash Flows from Financing Activities
    Proceeds from the issuance of common stock            36             65
    Tax benefit associated with the exercise
     of non- qualified stock options                      25             72
                                                ------------   ------------
        Net cash provided by financing
         activities                                       61            137
                                                ------------   ------------

Foreign exchange rate effect on cash and cash
 equivalents                                            (204)          (181)
                                                ------------   ------------
Net decrease in cash and cash equivalents                283            419
Cash and cash equivalents
    Beginning                                         12,470         12,680
                                                ------------   ------------
    Ending                                      $     12,753   $     13,099
                                                ============   ============

SYNERGETICS USA, INC.
3845 Corporate Centre Drive
O'Fallon, Missouri 63368
(636) 939-5100
http://www.synergeticsusa.com
Pamela G. Boone
Chief Financial Officer

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