Transcript Surg - ir presentation

OPHTHALMOLOGY
December 2012
Investor Presentation
QUALITY.
PERFORMANCE.
INNOVATION.
NEUROSURGERY
1
Safe Harbor Statement
Certain statements made in this presentation are forward-looking within the
meaning of the Private Securities Litigation Reform Act of 1995. This
presentation may include statements concerning management’s expectations
of future financial results, potential business, potential acquisitions,
government agency approvals, additional indications and therapeutic
applications for medical devices, as well as their outcomes, clinical efficacy
and potential markets and similar statements, all of which are forward
looking. Forward-looking statements involve risks and uncertainties that
could cause actual results to differ materially from predicted results. For a
discussion of such risks and uncertainties, please refer to the information set
forth under “Risk Factors” included in Synergetics USA, Inc.’s Annual Report
on Form 10-K for the year ended July 31, 2012, and information contained in
subsequent filings with the Securities and Exchange Commission. These
forward looking statements are made based upon our current expectations
and we undertake no duty to update information provided in this
presentation.
2
Overview
Corporate Information
• Synergetics USA, Inc. is a medical
device company focused in the fastgrowing ophthalmology and
neurosurgery markets
• Formed through a reverse merger of
Synergetics, Inc. and Valley Forge
Scientific in 2005
Market Information*
• NASDAQ: SURG
• Market Cap: $113.5 mm
• 52 Week Range: $3.30 – $7.55
• Shares Outstanding: 25mm
• Institutional Ownership: 47%
• Russell Microcap Index
• Synergetics, Inc. was founded in 1991
and Valley Forge was founded in 1980
• Corporate Headquarters: O’Fallon,
MO
• Manufacturing Facilities: O’Fallon, MO
and King of Prussia, PA
*Source: Yahoo Finance, as of 12/14/12.
3
Track Record of Growth
$62.0
70%
$60.0
60%
$58.0
50%
$56.0
40%
$54.0
30%
$52.0
20%
$50.0
10%
$48.0
0%
FY-09
Revenue ($,mm)
FY-10
FY-11
Gross Margin (%, r-axis)
FY-12
Op Margin (%, r-axis)
4
FY 2012 Revenue Mix
Ophthalmic
OEM
Other
Domestic
International
• Ophthalmic sales represent Synergetics’ largest and business
• In the U.S., Synergetics sells ophthalmic surgical products directly to end-users at
hospitals, ambulatory surgery centers and surgeon offices throughout the country
• Internationally, Synergetics sells and distributes ophthalmic surgical products in
approximately 60 countries
• Marketing partner and key OEM relationships with J&J’s Codman division and Stryker
for neurosurgery products.
5
Overall Strategy
1. Drive accelerating growth in Ophthalmology
1. Manage OEM neurosurgery business for stable growth and
strong cash flows
2. Deliver improving profitability through enterprise-wide
lean initiatives
3. Demonstrate solid financial performance
6
Recent Events
1. Implementation of corporate-wide lean initiatives
2. Project Restore to improve cost structure
3. Transition of Neurosurgery business to OEM marketing
partners from direct sales
4. Alcon settlement and discontinuation of supply agreement
7
Ophthalmic Surgical Market
8
Ophthalmic Surgical Market
Retinal Market
$1.13 Billion
18.4% of Total
Cataract Market
$5.0 Billion
81.6% of Total
9
2011 Global Retinal Surgery Device Market
Market Size = $935 Million
Annual Rate of Growth* ~7%
Hemostasis, $24mm
Cryosurgery, $36mm
Light Pipes, $20mm
Retinal Laser Probes,
$39mm
Tamponades, $59mm
Light Sources & Other,
$9mm
Vitrectomy Packs,
$277mm
Instruments, $111mm
Vitrectomy Machines,
$148mm
Retinal Lasers, $212mm
*We estimate that the vitreoretinal market grew approximately 7 percent to $997 million in 2012, as compared to 2011.
10
2012 Global Retinal Surgery Device Market
Market Size = $1.13 Billion
Hemostasis, $25M
Light Sources, $7M
Retinal Laser Probes, $35M
Light Pipes, $36M
Cryosurgery, $37M
Single Use Items, $2M
Vitrectomy Packs, $324M
Tamponades, $62M
Instruments,
$130M
Vitrectomy Machines,
$202M
Retinal Lasers, $271M
Synergetics products compete in 67% of the market
11
ASC vs. Hospital
Ambulatory Surgery Center (ASC)
•
•
•
•
•
•
Physicians control care for patients
Typically surgeons own or have ownership or
may be corporate owned
More efficient – less time wasted
Specialized (ophtho, ortho, etc.)
Highly focused on profitability
Lower costs to patients and government
(current vitrectomy reimbursement rate of
$1,655)
Hospital Out-Patient Department (HOPD)
•
•
•
•
•
Challenging patient flow (pre, intra, post)
Staff not specialized and are trained to handle
multiple specialties.
Patient frustrations – parking, long walks to OR,
confusing, etc.
Equipped to handle more difficult procedures
Higher cost to patient and government (current
vitrectomy reimbursement rate of $2,820)
Procedure Location
Hospital Owned ASC 29.2%
SurgeonOwned ASC 34.1%
Hospital OR 36.7%
12
The Financial Aspect of the ASC
2012 National Medicare ASC Reimbursement Rate
Vitrectomy pack
Wide-angle viewing pack, eg: BIOM
Disposable forceps OR disposable laser probe
$1,655
(400)
(85)
(150)
Back table pack
(25)
Misc. (gas, syringes, kenalog, ICG, soft tip, etc.)
(40)
Per case net profit, after supply costs
$955
13
New
Ophthalmic Products
VersaVIT™
VersaPACK™
Core
Directional
Laser Probes
DDMSDiamond Duster
Membrane
Scraper
UVE
(Ultimate Vit Enhancer)
Endoilluminator
Awh Chandelier
Photon II
14
VersaPACK™:
Compelling Value Proposition
• VersaPACK is our first product for
the $275 million vitrectomy pack
market
• Compelling value proposition to
retinal surgeons
• Competitively priced vs. other packs
• Compatible with existing competitive
vitrectomy machines
• Enables continued use of 1st gen
machines thus avoiding large capital
expenditure
• Estimated 200,000 vitrectomies
performed yearly (U.S.)
• High margin, recurring disposable
product
15
VersaVIT™:
A Game Changer
• VersaVIT is our first product for the
lucrative vitrectomy machine market
• Entry into a new market opportunity
valued at ~$150 million
• A new concept in retinal surgery
• Highly portable,
• Moderately priced, and
• Easy to use
• Compact, lightweight and portable
• Small footprint
• < 25 pounds
• Capable of running on battery power and
gas cartridges
• Ideally suited for ambulatory surgery
centers, as a traveling unit for satellite
offices and potentially for in-office
procedures
• Very competitively priced
16
VersaVIT™ vs. CONSTELLATION® Vision System
VersaVIT™
Small & Portable at 25lbs.
Simple setup and user operation
Unique fluid containment system
Battery and CO² cartridge compatible for
cord free use
• Cost efficient system
• Lower operating costs
•
•
•
•
CONSTELLATION®
•
•
•
•
•
•
Ferrari of vitrectomy machines
Large footprint
Many bells and whistles
High acquisition cost
Increases operating costs
Reliability issues
17
VersaVIT™:
Strategic Growth Plan
• “Sweet spot” targeting highest volume ASC
facilities that perform the majority of
vitrectomy procedures
• Also selling to corporate entities that
own/operate for-profit ASCs and select teaching
institutions
• US Market: 23 direct sales reps
• Securing evaluations
• Converting evaluations into placements or sales
• Driving disposables utilization (VersaPACK ™)
• OUS markets utilize a hybrid distribution of
direct sales reps and dealers
• Performed over 500 VersaVIT ™ procedures to
date
• Expect modest sequential improvements in
VersaVIT ™ revenues through FY 2013 with
more pronounced growth occurring in FY 2014
18
Ophthalmology Product Video
19
Neurosurgery Market
20
Neurosurgery Overview
• Best-in-class neurosurgical technologies
•
•
•
•
Ultrasonic aspirators
Disposable tips and tubing
Electrosurgical generators
Disposable bipolar forceps
• Strong OEM partnerships
• J&J’s Codman division distributes our electrosurgical generators
and bipolar forceps
• Stryker distributes our ultrasonic aspirator disposables
• Multi-year OEM contracts with Codman and Stryker provide high
visibility
• Attractive operating margins
• High barriers to entry
• Expanding OEM platform complements our strategic focus
• Packaging Mitosol®, a drug used in glaucoma surgery, for
Mobius Therapeutics™
21
Stryker
OEM (Neurosurgery) Products
Disposable Tips
Lesion Generator
Codman
OMNI Ultrasonic
Aspirator
Codman Synergy
Disposable
Bipolar Forceps
CMC V
22
Neurosurgery Product Video
23
Financials
24
Financial Comparison - Quarterly
Fiscal Year Ends July 31
(in thousands, except per share data)
1Q - FY 12
1Q – FY 13
Y/Y Change
Sales:
Ophthalmic
$8,762
$8,662
(1.1%)
OEM (1)
$4,544
5,749
26.5%
199
209
5.0%
$13,505
$14,620
8.3%
Adjusted Gross Margin
58.6%
58.0%
(60 bps)
Adjusted Operating Margin
11.2%
13.3%
210 bps
Income from Continuing Ops
$1,153
$1,352
17.3%
$0.05
$0.05
--
Cash
$13,743
$12,324
(10.3%)
Debt
$898
$0
(100.0%)
Other (2)
Total
EPS from Continuing Ops
(1)
(2)
N/M
Revenues from OEM represent sales and royalties to Stryker, Codman and Iridex. Revenues from our marketing partners have been combined with the revenues from our
OEM customers as of Fiscal 2012.
Revenues from Other represent direct neurosurgery revenues and other miscellaneous revenues.
Not Meaningful.
25
Financial Comparison - Annual
Fiscal Year Ends July 31
(in thousands)
FY 2011
Y/Y Change
(2011 vs. 2010)
FY 2012
Y/Y Change
Sales:
Ophthalmic
$34,547
9.0%
$35,240
2.0%
OEM (1)
19,456
61.0%
23,973
23.2%
Other (2)
1,654
(79.9%)
Total:
$55,657
7.0%
801
$60,014
(51.6%)
7.8%
Adjusted Gross Margin(3)
58.9%
+130 bps
58.1%
(80 bps)
Adjusted Operating Margin(3)
15.0%
+330 bps
14.7%
(30 bps)
Adjusted Net Income from Operations(3)
$5,738
56.0%
$6,227
8.5%
Cash
$18,399
(1.4%)
$12,680
(31.1%)
Debt
$1,053
(74.1%)
$0
(1)
(2)
(3)
N/M
N/M
Revenues from OEM represent sales and royalties to Stryker, Codman and Iridex. Revenues from our marketing partners have been combined with the revenues from our OEM
customers as of Fiscal 2012.
Revenues from Other represent direct neurosurgery revenues and other miscellaneous revenues.
Adjusted Gross Margin, adjusted Operating Margin and Adjusted Net Income for FY12 excludes impact of inventory write-down ($367,000 pre-tax, $268,000 after-tax). Nonoperating adjustments include inventory writedown in 3Q’12 and loss from product line sale in 2Q11 ($99,000 pre-tax and $69,000 after-tax) . See Non-GAAP reconciliation table
at the end of this presentation for additional detail. Adjusted Net Income from Net Income for FY 2011 and 2012 are net of one-time events.
Not Meaningful.
26
Investment Rationale
• Serving growing ophthalmic and neurosurgery markets
with leading technologies
• Retinal surgery a compelling segment of ophthalmology
• High barriers to entry and limited competition
• New product introductions to help drive acceleration in
revenue growth
• Business model favors high margin disposables and
leverages off our capital equipment
• Lean initiatives fueling improving operating margins
27
Management Team
• David M. Hable – President, CEO
Over 30 years of progressive responsibility in sales, marketing, new business development
and general management in the medical device industry. 20+ years with J&J/Codman.
• Pamela Boone – Executive Vice President, CFO
Previously served as CFO, VP and Corporate Controller for Maverick Tube Corporation. Over
25 years of financial expertise.
• Jerry Malis, M.D. – Executive Vice President, CSO
Served as President, CEO and Chairman of Valley Forge. Over 40 years of industry experience.
Published over 50 articles in the biological science, electronics and engineering fields. Issued
ten U.S. patents.
• Michael Fanning – Vice President, Domestic Sales
Over 20 years in sales and management roles, working in service, medical device and
manufacturing sectors.
• Jason Stroisch – Vice President, Marketing & Technology
Over 15 years in the medical device industry covering engineering, international sales and
marketing management roles.
• Joan Kraus – Vice President, Regulatory Affairs / Quality Assurance
Previously served as Senior Director Global Compliance for Teleflex Medical. Over 25 years in
quality systems and process improvement roles working in medical devices, manufacturing,
and distribution sectors.
28
Non-GAAP Reconciliations
(1)
Fiscal Year Ends July 31
(in thousands, except share and per share data)
Net Sales
FY 2012
FY 2011
(unaudited)
$55,657
$60,014
$32,781
$34,519
--
367
$32,781
$34,886
58.9%
58.1%
$8,349
$8,481
--
367
$8,349
$8,848
15.0%
14.7%
Effective Tax Rate
--
29.5%
Tax effect from adjustments
--
$108
$5,738
$6,227
25,035,095
25,253,580
GAAP diluted earnings per share from Continuing Ops
$0.23
$0.24
Adjusted Non-GAAP diluted EPS
$0.23
$0.25
GAAP Gross Profit
Non-Operating Adjustments(2)
Adjusted Gross Profit
Adjusted Gross Margin
GAAP Operating Income
Non-Operating Adjustments(2)
Adjusted Operating Profit
Adjusted Operating Margin
Adjusted Net Income from
continuing operations(2)
Diluted Shares Outstanding(3)
(1)
(2)
(3)
See slide 26 for full description of Synergetics USA, Inc. Use of Non-GAAP Financial Information.
Non-operating adjustments include inventory writedown in 3Q’12 and loss from product line sale in 2Q11 ($99,000 pre-tax and $69,000 after-tax). See Non-GAAP
reconciliation table at the end of this presentation for additional detail. Adjusted Net Income from Net Income for FY 2011 and 2012 are net of one-time events.
Represents diluted weighted average common shares outstanding.
29
(1)
Use of
Non-GAAP Financial Information
In addition to results reported in accordance with GAAP, the Company occasionally provides non-GAAP financial
information that management uses in evaluating the Company’s performance, such as EBITDA. These non-GAAP
amounts, including EBITDA, consist of GAAP amounts excluding inventory write-down and disposition charges to
the extent occurring during the period. EBITDA is defined as income from continuing operations before interest
expense, income taxes, depreciation and amortization.
The Company measures its performance primarily through its operating profit. In addition to its consolidated
financial statements presented in accordance with GAAP, management uses certain non-GAAP measures, including
EBITDA, to measure operating performance. The Company provides a definition of the components of these
measurements and reconciliation to the most directly comparable GAAP financial measure.
EBITDA is presented to enhance an understanding of the Company’s operating results and is not intended to
represent cash flow or results of operations. The use of EBITDA provides an indication of the Company’s ability to
service debt and measure operating performance. Management believes EBITDA is useful in evaluating the
Company’s operating performance compared to other companies in its industry and is beneficial to investors,
potential investors and other key stakeholders, including creditors, who use this measure in their evaluation of the
Company’s performance.
The Company’s calculation of EBITDA may be different from that used by other companies and is not based on any
comprehensive set of accounting rules or principles. EBITDA does have certain material limitations primarily due
to the exclusion of certain amounts that are material to the Company’s results of operations, such as interest
expense, income tax expense, depreciation and amortization. Due to these limitations, EBITDA should not be
considered a measure of discretionary cash available to the Company to invest in its business and should be
utilized in conjunction with other information contained in the Company’s unaudited condensed consolidated
financial statements prepared in accordance with GAAP.
30
OPHTHALMOLOGY
QUALITY.
PERFORMANCE.
INNOVATION.
NEUROSURGERY
3845 Corporate Centre Drive
O’Fallon, MO 63368
(636) 939-5100
www.synergeticsusa.com