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Sales up 13.6% Year-Over-Year to $15.1 Million

Mon, 03/12/2012 - 1:45pm
The Associated Press

(http://www.synergeticsusa.com)

Synergetics USA, Inc. (NASDAQ: SURG), a medical device company that

designs, manufactures, and markets innovative surgical devices for

ophthalmic and neurosurgical applications, today announced results for

the second quarter ended January 31, 2012.

Highlights of the quarter include:

"We were encouraged by the strong, double-digit top line performance

across our Ophthalmic and OEM businesses and pleased to report growth

in net income and earnings per share of at least 40%. Moreover, we

achieved a number of second quarter financial records in revenues,

operating margins, EBITDA and net earnings," stated David M. Hable,

President and CEO of Synergetics USA, Inc. "We continue to make

progress with the implementation of our lean enterprise initiatives

and expect continued margin improvement and free cash flow generation.

In sum, we are focused on driving growth going forward and expect to

deliver continued strong results and we are on track for meeting our

stated goals."

Second Quarter Results

Second quarter of fiscal 2012 sales totaled $15.1 million, an increase

of 13.6% compared to sales of $13.3 million in the second quarter of

fiscal 2011. The increase in second quarter sales from last year was

due to double-digit growth in both ophthalmic disposable products and

OEM sales through our marketing partners. This growth was tempered by

a decline in our Other segment primarily due to residual direct

neurosurgery sales in the second quarter of fiscal 2011.

Gross profit for the second quarter of fiscal 2012 totaled $9.0

million, or 59.5% of sales, compared with $7.7 million, or 58.2% of

sales, in the second quarter of fiscal 2011.

Total operating expenses increased 7.8% year-over-year to $6.4

million, or 42.1% of sales in the second quarter from $5.9 million in

the comparable period. Research and development expenses were 6.1% of

sales compared to 7.4% last year. Sales and marketing expenses were

19.3% of sales compared to 20.6% last year and general and

administrative expenses were 16.7% of sales compared to 16.4% last

year.

Operating income for the second quarter of fiscal 2012 increased 42.7%

to $2.6 million compared with $1.8 million last year, representing an

operating margin of 17.4% this quarter versus 13.8% last year.

Operating income performance was due to the strong gross margin

improvement and moderate operating expense growth as the Company

begins to realize cost savings from its ongoing lean manufacturing

initiatives and as it benefitted from timing differences in research

and development.

Income from continuing operations increased 41.9% year-over-year to

$1.9 million, or $0.07 per diluted share, from $1.3 million, or $0.05

per diluted share for the same period of fiscal 2011.

Six Month Results

Total net sales for the first six months of fiscal 2012 increased

12.7% to $28.6 million compared with $25.4 million in the same period

last year. Net income for the first six months of fiscal 2012

increased 35.1% to $2.6 million, or $0.10 per diluted share, versus

$2.0 million, or $0.08 per diluted share, in the first six months of

fiscal 2011. These results are net of a loss from discontinued

operations of $382,000, or $0.02 per diluted share, related to the

completion of the sale of assets from our plastic injection molding

business in the period.

As of January 31, 2012, the Company had approximately $13.9 million in

cash and $741,000 in interest-bearing debt compared with $18.4 million

in cash and $1.1 million in debt at the end of fiscal 2011. The use of

cash over this period was primarily due to the tax payment of $6.0

million related to the Alcon supply agreement and settlement proceeds

paid during the first six months of fiscal 2012 in addition to the

continued use of cash to retire debt obligations. The Company expects

to pay off the remaining debt using cash flow from operations and its

strong cash balance in the third quarter of fiscal 2012.

Marketing Partner Strategic Updates

Alcon Supply Agreement

Subsequent to the end of the second quarter of fiscal 2012, Alcon

informed the Company that it had decided to cancel the orders and

forecasts covering the two products to have been supplied under the

supply agreement executed in April 2010. The Company plans on

recognizing the remaining deferred revenue associated with the supply

agreement ratably over the next fourteen years, which is the remaining

life of the patents, and the associated agreement. Importantly, the

supply agreement has not been cancelled and remains in effect with

both parties responsible for ongoing performance obligations.

Mobius Therapeutics Agreement

Synergetics recently entered into an agreement with Mobius

Therapeutics, LLC to provide packaging for Mitosol@, a drug recently

approved by the U.S. Food and Drug Administration to be used in

glaucoma surgery.

Stryker Agreement

Synergetics and Stryker Corporation have negotiated an early extension

of the supply agreement for disposable ultrasonic instrument tips and

certain other consumable products used in conjunction with the

ultrasonic aspirator console and handpieces through March 31, 2016.

"We are very excited about extending the agreement with Stryker over

the next five years and the increased sales opportunities we expect

going forward. The early extension of this important agreement allows

both companies to adequately plan for the volumes being generated,"

said David M. Hable. "The agreement extension highlights our excellent

partnership with Stryker and the potential to expand sales through

their extensive sales and marketing organization. In addition, we

continue to pursue cooperative development projects that build on

their market leading ultrasonic aspirator console."

Conference Call Information

Synergetics USA, Inc. will host a conference call on Tuesday, March

13, 2012, at 10:30 a.m. Eastern Time to discuss second quarter and six

month results and other recent developments and to review its growth

strategy. The toll free dial-in number to listen and participate live

on this call is (800) 588-4973, confirmation code 31637755. For

callers outside the U.S., the number is (847) 230-5643. Participants

are encouraged to email questions to

investorinfo@synergeticsusa.com(mailto:investorinfo@synergeticsusa.com).

The conference call will also be simulcast live at

http://www.synergeticsusa.com(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. Our distribution

channels include a combination of direct and independent sales

distribution organizations and important strategic alliances with

market leaders. The Company's product lines focus upon precision

engineered, disposable and reusable devices, procedural kits and the

delivery of various energy modalities for the performance of less

invasive 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(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, 2011, 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 Statements of Income

Three and Six Months Ended January 31, 2012, and 2011

(Dollars in thousands, except share and per share data)

Three Months Ended Six Months Ended

January 31, January 31, January 31, January 31,

2012 2011 2012 2011

------------ ------------ ------------ ------------

Net sales $ 15,080 $ 13,278 $ 28,585 $ 25,354

Cost of sales 6,108 5,548 11,696 10,605

------------ ------------ ------------ ------------

Gross profit 8,972 7,730 16,889 14,749

------------ ------------ ------------ ------------

Operating expenses

Research and

development 923 986 1,713 1,705

Sales and

marketing 2,906 2,734 5,983 5,757

General and

administrative 2,525 2,176 5,063 4,427

------------ ------------ ------------ ------------

6,354 5,896 12,759 11,889

------------ ------------ ------------ ------------

Operating income 2,618 1,834 4,130 2,860

------------ ------------ ------------ ------------

Other income

(expenses)

Investment income 9 28 23 60

Interest expense (15) (65) (33) (145)

Gain (loss) on

sale of product

line -- (99) -- (99)

Miscellaneous (4) (4) (6) (11)

------------ ------------ ------------ ------------

(10) (140) (16) (195)

------------ ------------ ------------ ------------

Income from

continuing

operations

before

provision for

income taxes 2,608 1,694 4,114 2,665

Provision for income

taxes 741 378 1,094 719

------------ ------------ ------------ ------------

Income from

continuing

operations 1,867 1,316 3,020 1,946

------------ ------------ ------------ ------------

(Income) loss from

discontinued

operations, net

of income tax

benefit

(provision) of

$193 and ($2),

respectively -- (4) 382 (7)

------------ ------------ ------------ ------------

Net income $ 1,867 $ 1,320 $ 2,638 $ 1,953

Earnings per share:

Basic

Income from

Continuing

Operations $ 0.07 $ 0.05 $ 0.12 $ 0.08

Loss from

Discontinued

Operations $ 0.00 $ 0.00 $ (0.02) $ 0.00

------------ ------------ ------------ ------------

Net Income $ 0.07 $ 0.05 $ 0.10 $ 0.08

Diluted

Income from

Continuing

Operations $ 0.07 $ 0.05 $ 0.12 $ 0.08

Loss from

Discontinued

Operations $ 0.00 $ 0.00 $ (0.02) $ 0.00

------------ ------------ ------------ ------------

Net Income $ 0.07 $ 0.05 $ 0.10 $ 0.08

Basic weighted

average common

shares outstanding 25,085,296 24,937,463 25,028,165 24,860,188

Diluted weighted

average common

shares outstanding 25,280,449 25,074,230 25,200,831 24,977,399

SYNERGETICS USA, INC. AND SUBSIDIARIES

Unaudited Table of Net Income and EBITDA

Three and Six Months Ended January 31, 2012 and January 31, 2011

(Dollars in thousands, except per share information)

Three Months Ended Six Months Ended

January 31, January 31, January 31, January 31,

2012 2011 2012 2011

------------ ------------ ------------ ------------

EBITDA Reconciliation

GAAP net income from

continuing operations $ 1,867 $ 1,316 $ 3,020 $ 1,946

Interest expense, net 15 65 33 145

Provision for income

taxes 741 378 1,094 719

Depreciation expense 280 247 570 509

Amortization expense 162 147 324 343

------------ ------------ ------------ ------------

EBITDA $ 3,065 $ 2,153 $ 5,041 $ 3,662

EBITDA, operating return on average equity and operating return on

average assets are not financial measures recognized by U.S. generally

accepted accounting principles ("GAAP"). EBITDA is defined as income

from continuing operations before interest expense, income taxes,

depreciation and amortization. Operating return on equity is defined

as income from continuing operations divided by average equity.

Operating return on assets is defined as income from continuing

operations plus interest expense divided by average assets.

Synergetics USA, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

As of January 31, 2012 (Unaudited) and July 31, 2011

(Dollars in thousands, except share data)

January 31, 2012 July 31, 2011

Assets

Current Assets

Cash and cash equivalents $ 13,930 $ 18,399

Accounts receivable, net of allowance

for doubtful accounts of $297 and

$282, respectively 10,516 11,148

Inventories 13,393 12,082

Income taxes refundable 31 ---

Prepaid expenses 1,199 961

Deferred income taxes 935 792

Assets held for sale --- 868

----------------- -----------------

Total current assets 40,004 44,250

Property and equipment, net 8,961 8,561

Intangible and other assets

Goodwill 10,661 10,660

Other intangible assets, net 11,535 11,792

Deferred income taxes 4,551 4,915

Patents, net 1,146 1,050

Cash value of life insurance 82 82

----------------- -----------------

Total assets $ 76,940 $ 81,310

Liabilities and stockholders' equity

Current Liabilities

Current maturities of long-term debt $ 741 $ 1,053

Accounts payable 2,343 1,567

Accrued expenses 2,610 3,193

Income taxes payable --- 6,233

Deferred revenue 1,288 540

----------------- -----------------

Total current liabilities 6,982 12,586

Long-Term Liabilities

Deferred revenue 16,461 18,060

----------------- -----------------

Total long-term liabilities 16,461 18,060

----------------- -----------------

Total liabilities 23,443 30,646

----------------- -----------------

Commitments and contingencies

Stockholders' Equity

Common stock at January 31, 2012 and

July 31, 2011, $0.001 par value,

50,000,000 shares authorized;

25,177,546 and 24,970,884 shares

issued and outstanding, respectively 25 25

Additional paid-in capital 25,886 25,598

Retained earnings 27,590 24,952

Accumulated other comprehensive

income:

Foreign currency translation

adjustment (4) 89

----------------- -----------------

Total stockholders' equity 53,497 50,664

----------------- -----------------

Total liabilities and stockholders'

equity $ 76,940 $ 81,310

Synergetics USA Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

Six Months Ended January 31, 2012 and 2011

(Dollars in thousands, except share data)

Six Months Ended Six Months Ended

January 31, 2012 January 31, 2011

Cash Flows from Operating Activities

Net income $ 2,638 $ 1,953

Plus: Loss from discontinued

operations - net of tax 382 (7)

Income from continuing operations 3,020 1,946

Adjustments to reconcile net income

to net cash provided by operating

activities

Depreciation 570 509

Amortization 324 343

Provision for doubtful accounts

receivable --- (16)

Stock-based compensation 275 161

Deferred income taxes 221 2

Loss of sale of product line --- 99

Gain on sale of equipment --- 50

Changes in assets and liabilities

(Increase) decrease in:

Accounts receivable 617 64

Inventories (1,361) (1,907)

Prepaid expenses (258) (158)

Income taxes refundable (31) (422)

(Decrease) increase in:

Accounts payable 804 155

Accrued expenses (428) (406)

Deferred revenue (851) 305

Income taxes payable (6,039) (11)

----------------- -----------------

Net cash (used in) provided by

continuing operating activities (3,137) 714

----------------- -----------------

Net cash used in discontinued

operations 34 (32)

Net (used in) provided by operating

activities (3,103) 682

----------------- -----------------

Cash Flows from Investing Activities

Proceeds from sale of equipment --- 11

Purchase of property and equipment (983) (949)

Acquisition of patents and other

intangibles (162) (140)

----------------- -----------------

Net cash used in continuing

investing activities (1,145) (1,078)

----------------- -----------------

Net cash used in discontinued

operations -- (236)

Net cash used in investing

activities (1,145) (1,314)

----------------- -----------------

Cash Flows from Financing Activities

Principal payments on revenue

bonds payable --- (58)

Payment on debt incurred for

acquisition of trademark (313) (295)

Tax benefit associated with the

exercise of non- qualified stock

options 8 97

Proceeds from the issuance of

common stock 5 152

----------------- -----------------

Net cash used in financing

activities (300) (104)

----------------- -----------------

Foreign exchange rate effect on cash

and cash equivalents 79 (14)

----------------- -----------------

Net decrease in cash and cash

equivalents (4,469) (750)

Cash and cash equivalents

Beginning 18,399 18,669

----------------- -----------------

Ending

$ 13,930 $ 17,919

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