Q2 2024 Surmodics Inc Earnings Call

Operator: It includes statements regarding SurModics' future financial and operating results or other statements that are not historical facts. Please be advised that actual results could differ materially from those stated or implied by SurModics' forward-looking statements, resulting from certain risks and uncertainties, including those described in the company's SEC filing. SurModics disclaims any duty to update or revise these forward-looking statements as a result of new information, future events, developments, or otherwise.

Welcome everyone to some monarch second quarter of fiscal year 'twenty 'twenty four earnings call. Please note that this call is being webcast. The webcast accessible through Investor Relations section of the semantics website at www.

W. Thermotics dot com, we're an audio replay will be archived for future reference.

An earnings press release, just closing symbolic quarterly and full year results was issued earlier today and is available on the company website as well.

Before we begin I would like to remind everyone that remarks in response to your questions on today's call may contain forward looking statements. These forward looking statements are covered under the safe Harbor provisions of the private Securities Litigation Reform Act of 1995 and include statements regarding <unk> future financial and operating results.

Or other statements that are not historical facts. Please be advised that actual results could differ materially from those stated or implied by surmount its forward looking statements.

I think from certain risks and uncertainties, including those described in the company's SEC filings.

<unk> disclaims any duty to update or revise these forward looking statements as a result of new information future events developments or otherwise. This call will also include references to non-GAAP measures because somebody believes they provide useful information for investors today.

Today's earnings release contains a reconciliation table to GAAP results.

Operator: This call will also include references to non-GAAP measures because SurModics believes they provide useful information for investors. Today's earnings release contains reconciliation tables to GAAP results. I would now like to turn the call over to Mr. Gary Maharaj, SurModics President and Chief Executive Officer. Please go ahead, sir.

I would now like to turn the call over to Mr. Gary Maharaj, Dramatics, President and Chief Executive Officer. Please go ahead Sir.

Gary R. Maharaj: Thank you, Cat, and welcome everyone to our second quarter fiscal year 2024 earnings call. Let me provide you with a brief overview of what we plan to cover today. I will review our quarterly financial performance at a high level and discuss the operational progress we've made with respect to our key strategic objectives for fiscal 2024. Tim will then walk through our financial results in further detail and review our financial guidance, which we updated in our Earnings Press release earlier this morning. I'll then share some concluding thoughts on our outlook before opening the call for questions.

Gary R. Maharaj: Thank you Kat.

Gary R. Maharaj: And welcome everyone to our second quarter fiscal year 2024 earnings call.

Gary R. Maharaj: Let me provide you with a brief overview of what you plan to cover today.

Gary R. Maharaj: I will review, our quarterly financial performance at a high level and discuss the operational progress we've made with respect to our key strategic objectives for fiscal 'twenty 'twenty four.

Gary R. Maharaj: Tim will then walk through our financial results in further detail on reveal financial guidance, which we updated in our earnings press release earlier this morning.

Tim: I'll, then share some concluding thoughts and our outlook before opening the call for questions.

Gary R. Maharaj: With that as a backdrop, let's begin with a review of our quarterly financial results. Our team achieved impressive revenue performance in our second fiscal quarter, culminating in total revenue growth of 18% year-over-year to $32 million. We grew 19%, excluding license fee revenue related to our surveilled drug-coded balloon, which represented a headwind of approximately $240,000 year-over-year.

Tim: With that as a backdrop, let's begin with a review of our quarterly financial results.

Tim: Our team achieved impressive revenue performance in our second fiscal quarter.

Tim: And eating and total revenue growth of 18% year over year to $32 million.

We grew 19% excluding license fee revenue related to our surveil drug coated balloon, which represented a headwind of approximately 240000 year over year.

Gary R. Maharaj: Our team's performance handily exceeded our expectations for the quarter, coming in $2.5 million above the range of expectations that we shared in our last earnings call. Looking at the revenue year-over-year performance of our two business segments, revenue from our in vitro diagnostics, or IVD, segment decreased 5% to $7.1 million, which was consistent with our expectations given the high comparable of the prior year quarter. Our revenue growth in the second quarter was exclusively driven by the medical device segment revenue, which increased 26% to $24.8 million and 29% excluding the headwind I mentioned related to the surveilled ECB license fee revenue within our medical device segment.

Tim: Oh team's performance handedly exceeded all expectations for the quarter coming into play $5 million above the range of expectations depreciate in our last earnings call.

Tim: Looking at the revenue year over year performance of our two business segments revenue from our in vitro diagnostics, though I V. D segment decreased 5% to $7.1 billion, which was consistent with our expectations given the high comparable of the prior year quarter.

Tim: Our revenue growth in the second quarter was exclusively driven by the medical device segment revenue, which increased 26% to $24 $8 million and 29%, excluding the headwind I mentioned related to the <unk> license fee revenue.

Tim: Within our medical device segment.

Gary R. Maharaj: Our year-over-year performance was fueled primarily by product sales, which increased by 40% year-over-year, that's 4-0, generating $3.2 million of growth. I'm pleased to report that nearly all of the $3.2 million in medical device product sales growth was driven by sales of our vascular interventions portfolio, which includes our surveilled ECB, pounds thrombectomy, and sublime radial access products. We were pleased with the performance of each of these three product platforms, which I'll discuss in detail later.

Tim: Oh year over year performance was fueled primarily by product sales, which increased by 40% year over year, that's four zero generating $3 $2 million of growth.

Tim: I am pleased to report that nearly all of the $3 two metal in dollars in medical device product sales growth was driven by sales of full of vascular interventions portfolio, which includes our <unk> pounds thrombectomy and sublime radial access products.

Tim: We were pleased with the performance of each of these three product platform has allowed to discuss in detail later.

Gary R. Maharaj: We also saw impressive contributions from royalties and license fee revenue related to our medical device performance coatings, which increased 27% year-over-year, generating $2.2 million of growth, driven in part by $1.4 million in catch-up payments reported to us by our customers. Importantly, both of these areas of our medical device segment exceeded our expectations, driving the $2.5 million of total revenue outperformance that we saw relative to our stated range of expectations for the quarter.

Tim: We also saw impressive contributions from royalties and license fee revenue related to a medical device performance coatings, which increased 27% year over year generating $2 2 million of growth drew.

Driven in part by a $1 $4 million in catch up payments reported to us by our customers.

Tim: Importantly, both of these areas are thought medical device segment exceeded our expectations driving the $2 $5 million of total revenue outperformance that we saw relative to our stated range of expectations for the quarter.

Gary R. Maharaj: In addition to our strong revenue performance, we achieved notable year-over-year improvements in our profitability profile, including an $8 million improvement from a GAAP net loss to GAAP net income and a $6.3 million increase in our adjusted EBITDA. We generated significantly $7.4 million in cash flow from operations in the quarter to further strengthen our balance.

Tim: In addition to our strong revenue performance, we achieved notable year over year improvements in our profitability profile, including an $8 million improvement from a GAAP net loss to GAAP net income and a $6 $3 million increase in our adjusted EBITDA.

Tim: And.

Tim: We generated significantly seven $4 million in cash flow from operations in the quarter to further strengthen our balance sheet.

Gary R. Maharaj: Our cash flow performance exceeded our expectations this quarter, driven in part by the royalty capture payments I just mentioned, as well as a $3.4 million cash tax refund that we secured from the IRS during the second quarter, which Tim will discuss. All in all, we were quite pleased with our second quarter financial results across the board. Shifting to a discussion of our recent operational performance, I'm excited to report that our team's achievements in recent months have enabled us to deliver strong progress with respect to each of our three stated strategic objectives for Fiscal 24.

Tim: Cash flow performance exceeded our expectations this quarter driven in part by the royalty catch up payments I, just mentioned as well as a $3 $4 million cash tax refund that we secured from the IRS during the second quarter, which Tim will discuss.

Tim: All in all we were quite pleased with our second quarter financial results across the board.

Shifting to a discussion of our recent operational performance I'm excited to report that our team's achievements in recent months and enabled us to deliver strong progress with respect to each of our three stated strategic objectives for fiscal 'twenty four.

Gary R. Maharaj: Let me begin with our first objective, to capitalize on the key near-term growth catalysts in our vascular interventions portfolio by facilitating the adoption and utilization of our Surveil BCB, Pounds Thrombectomy, and Sublime Radial Access products. Our success with respect to this initiative is reflected, in part, by the strong product revenue growth in the medical device segment. As I mentioned earlier, growth in sales of these products fueled a 40% increase in product revenue and accounted for nearly all of the 3.2 million of product sales growth in the segment. Most notably, we saw consistent demand for our Surveil drug-coated balloon from our commercial partner Abbott following the initial stocking order placed in our fiscal first quarter.

Let's begin with our food subjective to capitalize on the key near term growth catalysts in our vascular interventions portfolio by.

Tim: By facilitating the adoption and utilization of our surveil BCB pounds from back to me and sublime radial access products.

Tim: Our success with respect to this initiative as reflected in part by the strong product revenue growth in the medical device segment as I mentioned earlier growth in sales of these products fueled a 40% increase in product revenue and accounted for nearly all of the $3 2 million of product sales growth in the segment.

Tim: Most notably we saw consistent demand for surveil drug coated balloon from old commercial partner Abbott. Following the initial stocking order placed in our fiscal first quarter.

Gary R. Maharaj: As we shared on our last earnings call, we were pleased to see Abbott initiate the commercialization of our Surveil DCB in late January. As their team has progressed through the initial months of commercialization, we have been focused on satisfying their demand for product and providing technical information to support their sales, marketing, and clinical training activities. Since the fulfillment of the initial monitored stocking order during the first quarter, we have received orders and updated forecasts from Abbott on a monthly basis, and our team has been continuously building and shipping products to meet these monthly orders.

Tim: As we shared on our last earnings call. We were pleased to see Abbott initiate the commercialization of <unk> in late January as he says he was progress through the initial months of commercialization, we have been focused on satisfying their demand for product and providing technical information to support their sales marketing and clinical training activities.

Tim: Yes.

Tim: Since the fulfillment of the initial Seville stocking order during the first quarter, we have received orders and updated forecast from the happen on a monthly basis I know, what he must be continuously building and shipping products to meet these monthly orders.

Gary R. Maharaj: From a manufacturing standpoint, I'm pleased with our successful transition to a steady state of operations following the initial stocking order. As I've said before, drug portables are some of the most difficult interventional devices to make in the industry, and we take pride in our ability to efficiently manufacture the surveilled ECB to an exacting standard. While our commercial partner remains in the first few months of commercialization, the initial feedback garnered from physician users has been positive.

Tim: From a manufacturing standpoint, I'm pleased to those successful transition to a steady state of operations. Following the initial stocking order.

Tim: <unk> said before drug coated balloon for some of the most difficult interventional devices to make in the industry and we take pride in our ability to efficiently manufacture to surveil BCB to an exacting standards.

Tim: While our commercial partner remains of the first few months of commercialization. The initial feedback on it from physician users has been positive based on this feedback the beliefs reveals ability to achieve uniform targeted transfer and retention of paclitaxel as the treatment area with the highly deliverable balloon platform.

Gary R. Maharaj: Based on this feedback, we believe Surveil's ability to achieve uniform, targeted transfer and retention of paclitaxel at the treatment area with a highly deliverable balloon platform and ultimately achieve clinical outcomes consistent with the market-leading IMPACT Admiral device, which carries a 75% higher drug load of this cytotoxic drug. This represents a compelling clinical advantage for physicians seeking to optimize treatment of peripheral artery disease.

Tim: And ultimately achieve clinical outcomes consistent with the market, leading in pact Admiral device, which carries a 75% higher drive the mood of the cytotoxic drugs.

Tim: This represents a compelling clinical advantage for physicians seeking to optimize treatment of peripheral artery disease.

Gary R. Maharaj: Our Transcend Randomized Controlled Trial, which demonstrated the excellent safety and effectiveness of our Surveilled DCV at 12, 24, and 36 months post-procedure, represents important clinical evidence for the Abbott team that can leverage these to articulate the compelling advantages while engaging potential physician users. We look forward to Abbott's continued efforts in the market as they work to facilitate adoption and navigate the approval and contracting process associated with each account. Aside from the strong demand for our surveilled BCB from our commercial partner, direct sales of our pounced thrombectomy products were the most important driver of the 40% or $3.2 million of product sales growth we achieved in the medical device segment in the second quarter. The size of our direct sales team has remained consistent throughout the first half of the year, with 23 territory managers at the end of the second quarter.

Tim: Our transcend randomized controlled trial, which demonstrated excellent safety and effectiveness of our <unk> at 12, 24, and 36 months post procedure represents important clinical evidence for the Abbott team that can leverage needs to articulate the compelling advantages while engaging potential position.

Tim: Users will look forward to Abbott's continued efforts in the market as they work to facilitate the adoption of the surveil DCD by raising awareness among key accounts education.

And navigating the approval and contracting process associated with each of them.

Tim: Aside from the strong demand for <unk> from a commercial partner direct sales of our pounds thrombectomy products with the most important driver of the 40% or $3 $2 million of product sales growth, we achieved in medical device segment in the second quarter.

Tim: The size of our direct sales team has remained consistent throughout the first half of the year with 23 territory managers at the end of the second quarter.

Gary R. Maharaj: As a result of our team's efforts to develop existing accounts and expand our active customer base, our Pounds Thrombectomy and Sublime Radial Access products both continue to gain traction in the marketplace. Sales of both products exceeded our expectations during the quarter, driven by strong commercial uptake from new and existing customers. Specifically, we saw strong growth in both our active customer base and in the average revenue per existing customer.

Tim: As a result of our team's efforts to develop existing accounts expand our active customer base our pounds from back to me and sublime radial access products, both continued to gain traction in the marketplace.

Tim: Sales of both products exceeded all expectations during the quarter driven by strong commercial uptake from new and existing customers.

Tim: Specifically, we saw strong growth in both of our active customer base and in the average revenue per existing customer. In addition, we also saw contributions from our new products, which I'll discuss now.

Gary R. Maharaj: In addition, we also saw contributions from our new products, which I'll discuss now. In addition to driving adoption and utilization of our existing Pounds and Sublime products, our team continues to advance limited market valuations for new additions to our vascular interventions portfolio, including both Pounds Venus for the venous vasculature and Pounds Low Profile for the arterial vasculature. These efforts enabled us to achieve considerable progress with respect to our second strategic objective for Fiscal 24, which is to facilitate our long-term growth by developing and introducing new products and line extensions to enhance our existing Pounds, Sublime, and Medical Device Performance Codings portfolio.

Tim: In addition to driving adoption and utilization of our existing pounds in some blame products at <unk>.

Tim: <unk> continued to advance the limited market valuations for new additions to our vascular interventions portfolio, including both pounds venous for the venous vasculature and pounds low profile for the arterial vascular tissue.

Tim: These efforts enabled us to achieve considerable progress with respect to our second strategic objective for fiscal 'twenty, four which is to facilitate our long term growth by developing and introducing new products and line extensions to enhance existing pounds sublime and medical device.

Tim: <unk> coatings portfolio.

Gary R. Maharaj: Begun on an update on Pounds Venus, During our second quarter, we completed our Limited Market Evaluation, or LME, for the Pounds Venus device. Pounds Venus is a 10 French mechanical thrombectomy system designed for mechanical de-clotting in the peripheral vasculature without the need for capital equipment. During the LME, we were able to evaluate clinical performance in over 75 VENUS procedures, representing a considerable variety of clinical cases across a broad range of clot morphologies and with a large number of physician operators. Pounce Venus has been used throughout the peripheral anatomy, ranging from the iliac, iliofemoral, femoral popliteal, and subclavian vein.

Tim: Turning to an update on pounds fetus during our second quarter, we completed our limited the market devaluation or L. M E for the Pound's fitness device bonds Phoenix as a 10 French mechanical thrombectomy system designed for mechanical D clotting into peripheral peripheral vasculature.

Gary R. Maharaj: The device's low profile has enabled flexibility in access sites ranging from popliteal, internal jugular, and brachial veins to as far as the patient's cough. Clinically, the dual-action design of Pound's venous has shown the ability to remove large volumes of acute and subacute thrombus via its Archimedes screw technology, while the device's basket is designed to remove chronic clots. Physician feedback has been invaluable as we work to better understand a broad array of clinical user and product dynamics.

Tim: Without the need for capital equipment during the L. M. We will you will see valid clinical performance and over 75, Venus procedures, representing a considerable variety of clinical cases across a broad range of clock morphologies.

Tim: With a large number of physician operators.

Tim: Phoenix has been used throughout the peripheral anatomy, ranging from iliac iliofemoral femoral popliteal and subclavian veins. The devices low profile has enabled flexibility and access sites ranging from popliteal internal jugular brachial veins to as far as the patients cough.

Tim: Clinically the dual action design of ponds Venus has shown the ability to remove large volumes of acute <unk>.

Tim: And sub acute thrombus via its archimedes screw technology, while the device since basket is designed to remove chronic class.

Tim: Physician feedback has been invaluable as we work to better understand a broad array of clinical use and product dynamics. Our <unk> physician users have highlighted some key differentiating features which make this product unique in the venous thrombectomy space for example, the devices dynamically adjustable basket.

Gary R. Maharaj: Our LME physician users have highlighted some key differentiating features which make this product unique in the venous thrombectomy space. For example, the device's dynamically adjustable basket automatically adapts to changes in vessel size while applying consistent radial force, even within smaller vessels.

Tim: It automatically adapt to changes in vessel size, while applying consistent radial force even within smaller vessels.

Gary R. Maharaj: Given the goal of minimizing vessel trauma, physicians have appreciated the ability to expand and retract the basket to spot treat only the areas of need versus repeatedly dragging a mechanical device through the entire vasculature between every pass. Pounds can be resheeted, re-advanced, and deployed within the clock region if the physician decides, and the basket is retracted during removal in non-target treatment zones. In addition to this positive feedback, on March 4th, we were pleased to see the publication in the Journal of Vascular Surgery by Dr. Steven Black, et al., which evaluated the safety and performance of Pound's venous in 19 patients with acute iliofemoral deep vein thrombosis.

Tim: Given the goal of minimizing vessel trauma physicians have appreciated the ability to expand and retract basket to spot to treat all need to areas of need foodstuffs repeatedly dragging in mechanical device through the entire vasculature.

Tim: Between every pass.

Tim: <unk> can be re seated re advanced and deployed within the clock region. If the physician decides and the basket is retracted during removal and non target treatment zones. In addition to this positive feedback with March at four we were pleased to see the publication of a multi center study in the journal of vascular surgery.

Tim: Dr. Steven Black et al which evaluated the safety and performance ponds fetus in 19 patients with acute iliofemoral deep vein thrombosis.

Gary R. Maharaj: The study met its primary endpoint of complete or near-complete thrombus removal achieved in all patients, with a median treatment time of 23 minutes. All safety endpoints were achieved as well, with no major bleeding nor device-related events. Based on these findings, the research has concluded that Pounce Venus is both safe and effective for the removal of thrombus in patients with acute iliofemoral deep vein thrombosis.

Tim: The study met its primary endpoint of complete or near complete thrombus removal achieved in all patients.

With a median treatment time was 23 minutes.

Tim: All safety endpoints were achieved as well with no major bleeding no device related events.

Tim: Based on these findings the researchers concluded that pounds Venus is both safe and effective for the removal of thrombus and patients with acute iliofemoral deep vein thrombosis.

Gary R. Maharaj: While our FDA 510K clearance for pounds venous currently does not include a specific clinical indication for the treatment of deep vein thrombosis, we are pleased to see the results of this study. More broadly, the study in our LME further demonstrated Pounds Venus is safe and effective for removing a variety of different types of thrombus, including chronic clots, in a single treatment session, one that can enable physicians to enhance their efficiency and versatility while minimizing vessel trauma during use.

Speaker Change: While our FDA 510 key clearance for Pons fetus. Currently does not include a specific clinical indication for the treatment of deep vein thrombosis. We are pleased to see the results of this study.

Speaker Change: More broadly the study you know let me further demonstrate that <unk> is safe and effective for removing a variety of different types of thrombus, including chronic clots in a single treatment session. One that can enable physicians to enhance the efficiency and versatility, while minimizing vessel trauma during use.

Gary R. Maharaj: The device's low-profile dual-action technology, combined with the physician-controllable basket, ease of use, and incredibly low learning curves are likely to be key drivers of product adoption. Like the rest of Pound's thrombectomy platform, Pound's Penis also provides additional compelling advantages for physicians, and it requires no capital equipment and helps to minimize the need for overnight thrombolytic therapy.

Speaker Change: The devices low profile dual action technology combined with the physician controllable basket ease of use and incredibly low learning curve are likely to be key drivers of product adoption.

Speaker Change: Like the rest of the pounds thrombectomy platform pounds. Peanuts also provides additional compelling advantages for physicians and that requires no capital equipment and helps to minimize the need for overnight thrombolytic therapy.

Gary R. Maharaj: On the heels of this important progress, we are excited to announce in our earnings release this morning that Pounds Venus has now transitioned to a full commercial launch in March. Given the attractive features and advantages I just outlined, our team is energized and ready to bring this new treatment option to all physician customers, providing a new tool to enhance the capabilities and outcomes for these patients. Turning to our Pounce Low-Profile Thrombectomy System. As a reminder, Pounce Low-Profile, or LP, features the same mechanism of action as our original Pounce Mid-Profile Thrombectomy System.

Speaker Change: On the heels of this important progress were excited to announce in our earnings release. This morning. The Pound's Venus trends has now transitioned to a full commercial launch in March.

Speaker Change: Given the attractive features and advantages I just outlined our team is energized and ready to bring this new treatment option to our physician customers, providing with new tools to enhance the capabilities and outcomes for these patients.

Speaker Change: Turning to our pumps low profile thrombectomy system as a reminder, pumps low profile or L. P features the same mechanism of action is our original pounds mid profile thrombectomy system.

Gary R. Maharaj: Pounce LP expands the capabilities of our existing offering with a specific clinical indication to treat smaller diameter peripheral arterial vessels ranging from 2 to 4 mm, such as those found below the knee. On our earnings call in February, I mentioned that the clinical outcomes and feedback from our initial 10 LME cases were overwhelmingly positive. I'm now pleased to report that the LME continued to surpass our expectations with simply impressive clinical and product performance as we progressed through the quarter, and we were equally pleased with the strong positive feedback we received.

Speaker Change: Pumps LTE expands the capabilities of our existing offering with a specific clinical indication to treat smaller diameter peripheral arterial vessels ranging from two to four millimeters such as those found below the knee.

Speaker Change: On our earnings call in February I mentioned that the clinical outcomes and feedback from our initial 10 lemme cases have been overwhelmingly positive.

Speaker Change: I'm now pleased to report that the <unk> continue to surpass our expectations, but simply impressive clinical and product performance as we progressed through the quarter and we were equally pleased with a strong positive feedback we obtained.

Gary R. Maharaj: As a reminder, the vasculature below the knee tends to be narrow and delicate. Physicians currently have really limited options for removing clots and debris in below-the-knee vessels, which greatly heightens the level of concern for embolic events that can occur during any endovascular procedure. While hospitalized treatment likely will include overnight thrombolytic therapy, and it may have some usefulness in treating soft to acute clots, it's a costly option. Thrombolytic therapy is also often contraindicated in patients with an elevated risk of bleeding.

As a reminder, vascular.

Speaker Change: <unk> <unk> below the knee tends to be narrow and delegate physicians currently have really limited options for removing clot and debris and below the knee vessels, which greatly heightened the level of concern for embolic events that can occur during any an endovascular procedure.

Gary R. Maharaj: Similarly, the performance of aspiration-based technology is quite limited, given that aspiration can be less effective, especially in smaller diameter, harder-to-reach vessels. In addition, aspiration technology runs the risk of inadvertently driving clots further down the vessel, further complicating the procedure. The stakes are quite high, and Vascular Interventionists often struggle to address harder subacute and chronic clots in this area without resorting to open surgery. However, performing surgery on tibial arteries is typically quite challenging, and it is often seen as an approach to avoid for patients in poor health.

Speaker Change: While hospitalized treatment likely will include overnight thrombolytic therapy, and it may have some usefulness in treating softer acute clot.

Speaker Change: Costly option Thrombolytic therapies also Austin country indicated in patients with elevated risk of bleeding. Similarly, the performance of aspiration based technology is quite limited given that aspiration can be less effective, especially in the smaller diameter harder to reach vessels in.

Speaker Change: In addition, aspiration technology runs the risk of inadvertently driving costs further down the vessel further complicating the procedure.

Speaker Change: The stakes are quite high.

Speaker Change: In vascular intervention, so often have struggled to address harder sub acute and chronic clots in this area without resorting to put surgery performing surgery and tibial arteries is typically quite challenging and often season as an approach to avoid for patients and for health with this in mind.

Gary R. Maharaj: With this in mind, a single session on the table endovascular approach like POUNCE-LP can completely transform how below the knee and small arterial vessel clots are viewed and treated. I like to repeat that it can completely transform how below the knee vessels are treated. So this is a backdrop.

Speaker Change: Single session on the table Endovascular approach like pounds L. P.

Speaker Change: To completely transform how below the knee and small arterial vessel clot is viewed and treated.

I'd like to repeat that it can completely transform our below the knee vessels are treated.

Gary R. Maharaj: It's difficult to overstate the level of positive feedback the Pounds LP has received from physicians involved in our LME. In contrast to the challenges I just described with expensive overnight thrombolytic therapy, aspiration, and open surgery, our early physician users have found that Pounds LP can be deployed past clots all the way down into the ankle with relative ease. Pounds LP's baskets are then expanded, and the device is retracted to quickly pull out clots regardless of their morphology, restoring flow to the patient's limb. In view of the success of these cases and the consistency of the feedback received, I'm excited to announce today that we have also initiated the full commercial Pounds-to-Pounds LP, which began in April.

Speaker Change: This is a backdrop, it's difficult to overstate the level of positive feedback pounds out. He has received from physicians involved in O N E.

Speaker Change: In contrast to the challenges I, just described with expensive overnight thrombolytic therapy.

Speaker Change: Parisian and open surgery.

Speaker Change: Early physician users found that <unk> can be deployed past clots, all the way down into the ankle with relative ease.

Speaker Change: <unk> baskets that have expanded and the devices retracted to quickly pullout clots, regardless of their morphology. We saw includes the patients living with the entire process, taking just a few minutes.

Speaker Change: In view of the success of these cases and the consistency.

Speaker Change: <unk> received.

Speaker Change: I'm excited to announce today that we have also initiated the full commercial pumps pounds L. P, which began in April we began we began we're looking forward to providing physicians with new non surgical solution that fills an important critical gap in existing thrombectomy toolkits.

Gary R. Maharaj: We're looking forward to providing physicians this new non-surgical solution that fills an important critical gap in existing thrombectomy toolkits. In addition to this progress with respect to our thrombectomy platform, we continue to be pleased with the market's response to Presence the latest and most advanced hydrophilic coating technology in our medical device performance coatings business. As we discussed in detail in our last coding school, preside hydrophilic coatings impact both industry-leading lubricity and enhance coating durability on coated devices.

Speaker Change: In addition to this progress we expect to come back to me platform. We continue to be pleased with the market's response to preside the latest and most advanced hydrophilic coating technology in all medical device performance coatings business.

Speaker Change: As we discussed in detail on Alaska, leading school preside hydrophilic coatings impact both industry, leading lubricity and enhance coding durability Dakota devices.

Gary R. Maharaj: After securing early 510k clearances and initiating the commercial launch of PreSide hydrophilic coatings during our first quarter, we have seen significant interest from both new and existing customers interested in integrating PreSide into their next generation of neurovascular, coronary, and peripheral vascular devices. Per our typical process, we are actively working with our customers to conduct feasibility studies for each device and the coating application so they can proceed to securing necessary regulatory approval.

After securing early five thinkgeek clearances and initiating the commercial loans preside hydrophilic coatings during our first quarter we.

Speaker Change: We have seen significant interest from both new and existing customers interested in integrating preside.

Speaker Change: The next generation of neurovascular coronary and peripheral vascular devices.

Speaker Change: Typical process, we are actively working with our customers to conduct feasibility studies for each device and the coating application. So they can proceed to securing necessary regulatory approvals.

Gary R. Maharaj: With both our PreZyde and Serene hydrophilic coatings on the market, we will continue to enhance and strengthen our position as the industry-leading provider of performance coating technologies. Lastly, we continue to deliver on our third and final strategic objective by driving durable revenue growth and cash flow generation across our core medical device, performance coatings offerings, and IVD businesses. Revenue from these two areas of our business increased 8% year-over-year on a combined basis

Speaker Change: With both our preside an serene hydrophilic coatings in the market.

Speaker Change: We will continue to enhance and strengthen our position as the industry leading provider of performance coating technologies.

Lastly, we continue to deliver on our food and final strategic objective by deliver driving durable revenue growth and cash flow generation across our core medical device performance coatings offerings at IBD businesses.

Speaker Change: Revenue from these two areas of our business increased 8% year over year on a combined basis.

Gary R. Maharaj: This performance is driven by strong growth in medical device performance coatings, where we saw a lot of royalty and license fee revenue that exceeded our expectations, benefiting from the 1.4 million dollars in catch-up payments reported by our customers and continued growth in customer utilization of our serene hydrophilic coating. This performance more than offsets the performance in our diagnostics business, where we saw revenue decrease 5% against our largest fiscal quarter of 2023, driven primarily by lower sales of substrate products. As I mentioned earlier, the performance of IVD was consistent with our expectations for the quarter.

This performance was driven by strong growth in medical device performance coatings, where we saw a lot royalty and license fee revenue that exceeded our expectations benefiting from the $1 4 million in catch up payments reported by our customers and continued growth in customer utilization of our serene hydrophilic coatings.

Speaker Change: This performance more than offset the performance in our diagnostics business, where we saw revenue decreased 5% against our largest fiscal quarter of 2023, driven primarily by lower sales of substrates products.

Speaker Change: As I mentioned earlier the performance of IV EBIT was consistent with our expectations for the quarter.

Gary R. Maharaj: Incremental revenue generated by these two core businesses on a combined basis yielded significant contributions to our adjusted EBITDA growth on a year-over-year basis, enhancing our profitability profile. So, stepping back.

Speaker Change: Incremental revenue generated by these two core business on a combined basis yielded significant.

Speaker Change: Contributions to.

Speaker Change: Adjusted EBITDA growth on a year over year basis and.

Speaker Change: <unk> enhancing our profitability profile.

Speaker Change: So stepping back we're quite proud of our recent piece of execution in fiscal 2024, and this has translated to strong financial performance in the first half of the year and meaningful progress with respect to all of our stated objectives.

Gary R. Maharaj: We're quite proud of our recent pace of execution in fiscal 2024. This has translated to strong financial performance in the first half of the year and meaningful progress with respect to all of our stated objectives. Looking at our year-over-year results in the first half of our fiscal year, our team's execution enabled us to achieve product sales growth of 41% in our medical device segment. In combination with a strong contribution from our core businesses, this performance accelerated our total revenue growth to 20% on a year-over-year basis in the first half of fiscal 24, 22% growth excluding the survey licensee revenue.

Speaker Change: Looking at our year over year results in the first half of our fiscal year. Our team's execution has enabled us to achieve product sales growth of 41% and our medical device segment in combination with a strong contribution from our core businesses. This performance accelerated our total revenue growth to 20%.

Speaker Change: On a year over year basis in the first half of fiscal 'twenty four.

Speaker Change: 22% growth, excluding the suite the license fee revenue.

Gary R. Maharaj: In combination with our continued focus on controlling our expenses, our strong revenue performance enabled us to achieve significant year-over-year enhancements to our profitability profile. For example, in the first half of fiscal 2024, we were essentially break-even on a GAP net income basis.

Speaker Change: In combination with our continued focus on controlling our expenses our strong revenue performance enabled us to achieve significant year over year enhancements to our profitability profile.

Speaker Change: In the first half of fiscal 2024, we were essentially breakeven on a GAAP net income basis, we generated $8 7 million of adjusted EBITDA and reported $1 $4 million in cash used in operating activities.

Gary R. Maharaj: We generated $8.7 million of adjusted EBITDA and reported $1.4 million in cash used in operating activities. With $41 million in cash and investments on our balance sheet, and access to approximately $65 million of additional debt capital at quarter end, we are well positioned to support our operations and future growth objectives. Lastly... Let me thank every SurModics team member for what you have made possible in the first half of this fiscal year.

Speaker Change: With $41 million in cash and investments on our balance sheet and access to approximately $65 million of additional debt capital at quarter end we.

Speaker Change: We are well capitalized to support our operations and future growth objectives.

Speaker Change: Lastly.

Speaker Change: Let me think every <unk> team member for what you have made possible in the first half of this fiscal year.

Gary R. Maharaj: The commercialization of four major new products to date, our Surveil DCB, Pounds Venus, Pounds LP, and our Prezide coating. It is your dedication, perseverance, and belief that makes a difference in the lives of patients through the commercial availability of these innovative devices and technologies. We look forward to capitalizing on these important growth catalysts as we tap into the significant incremental opportunity that they collectively address. With that said, I'll turn it over to Tim. I know you've been excited to wait for what Tim has to say here. He will discuss our second quarter financial results and Fiscal 24 guidance in detail. Tim?

Speaker Change: The commercialization of four major new products to date, our Seville, BCB pounds Venus pounds L P and I will preside coating.

Speaker Change: It is your dedication perseverance and belief that makes a difference in the lives of patients with the commercial availability of these innovative devices and technologies.

Speaker Change: We look forward to capitalizing on these important growth catalysts as we tap into significant incremental cost opportunity.

Speaker Change: They collectively address.

Speaker Change: With that said I'll turn it over to Tim I know you've been excited to wait for to what Tim has to say here. He will discuss our second quarter financial results of fiscal 2000 and for guidance in detail Tim. Thank you Gary unless noted all references to second quarter results on a GAAP and year over year basis.

Timothy J. Arens: Thank you, Gary. Unless noted, all references to second quarter results are on a gap and year-over-year basis. Total revenue for the second quarter of Fiscal 2024 increased $4.8 million, or 18%, to $32 million. Excluding the surveilled DCB license fee revenue, total revenue increased $5 million, or 19%, to $30.9 million. Our earnings press release includes detailed reconciliations of total revenue excluding surveilled DCB license fee revenue. Product revenue increased $2.7 million, or 18%, to $18.1 million.

Timothy J. Arens: Medical device product revenue increased $3.2 million, or 40%, to $11.1 million, the second consecutive quarter of 40% or higher growth in our medical device business. Medical device revenue growth was primarily driven by monthly shipments of our Surveil drug-coated balloon to Abbott and increased sales of our Pounce thrombectomy device platform. IVD product revenue decreased 440,000, or 6%, to $7 million, primarily driven by lower sales of our substrate product. However, we were pleased with this performance as the prior year quarter was the highest revenue quarter during fiscal 2023 for our IBD business. Royalty and license fee revenue increased $2 million, or 21%, to $11.4 million.

Tim: Total revenue for the second quarter of fiscal 2024 increased $4 8 million or 18% to $32 million exclude.

Tim: Excluding survey of DCD license fee revenue total revenue increased $5 million or 19% to $30 9 million.

Tim: Our earnings press release includes detailed reconciliations of total revenue, excluding <unk> license fee revenue.

Tim: Product revenue increased $2 7 million or 18% to $18 1 million.

Tim: Medical device product revenue increased $3 2 million or 40% to $11 1 million.

Tim: <unk> consecutive quarter of 40% or higher growth in our medical device business.

Tim: Medical device product revenue growth was primarily driven by monthly shipments of our surveil drug coated balloon to Abbott and increased sales of our pumps thrombectomy device platform.

Tim: IBD product revenue decreased 440000, or 6% to $7 million, primarily driven by lower sales of wire substrate products.

Tim: We were pleased with this performance as the prior year quarter was our highest revenue quarter during fiscal 2023 for IBD business.

Tim: Royalty and license fee revenue increased $2 million or 21% to $11 4 million.

Timothy J. Arens: Performance Coding Royalty and License Fee revenue increased $2.2 million, or 27%, to $10.3 million. Royalty revenue benefited from $1.4 million in catch-up payments in the normal course of our customers reporting sales-based royalties. Royalty revenue growth was also driven by customer-reported royalties in excess of estimated royalties, as well as continued growth and customer utilization of our serene hydrophilic coating. Surveil DCV license fee revenue decreased $240,000, or 18%, to $1.1 million, corresponding to the decrease in transient clinical study costs incurred.

Tim: Performance coating royalty and license fee revenue increased $2 2 million or 27% to $10 3 million.

Tim: Royalty revenue benefited from $1 4 million in catch up payments in the normal course of our customers reporting sales based royalties.

Tim: Royalty revenue growth was also driven by customer reported royalties in excess of estimated royalty.

Tim: As well as continued growth in customer utilization of our serene hydrophilic coating.

Tim: Surveil DCD license fee revenue decreased 240000, or 18% to $1 1 million.

Tim: Corresponding to the decrease in transcend clinical study costs incurred.

Timothy J. Arens: R&D services revenue was $2.4 million and was consistent with the prior year period. Moving down the P&L, product gross margin was 60.8% compared to 62.6% in the prior year period. As we shared last quarter, sales of our near-term growth catalysts, our surveilled drug-coated balloon, pounce, and sublime products, are increasing as a proportion of total company product sales. However, these device products are not yet at scale, and product gross margins are impacted by the associated underabsorption and production inefficiencies.

Tim: R&D services revenue was $2 4 million and was consistent with the prior year period.

Tim: Moving down the P&L product gross margin of 68% compared to 62, 6% in the prior year period.

Tim: As we shared last quarter sales of our near term growth catalysts, our surveil drug coated balloon counts and supply products are increasing as a proportion of total company product sales.

Tim: These device products are not yet at scale and product gross margins are impacted by the associated under absorption and production inefficiencies.

Timothy J. Arens: R&D expense decreased $2.7 million, or 21% to $10.2 million. This was primarily driven by lower monitored DCB-related costs, the timing of development and commercialization of our thrombectomy devices, and the benefits from the spending reduction plan we implemented during the second quarter of fiscal 2023. SG&A expense increased $130,000, or 1%, to $13.1 million.

Tim: R&D expense decreased $2 7 million or 21% to $10 2 million.

Tim: This was primarily driven by lower surveil DCP related costs, the timing of development and commercialization of our thrombectomy devices and the benefits from the spending reduction plan, we implemented during the second quarter of fiscal 2023.

Tim: SG&A expense increased 130000, or 1% to $13 1 million.

Timothy J. Arens: Lastly, in the prior year quarter, we reported $1.3 million in severance-related restructuring expense from the workforce restructuring implemented last year. We were pleased to generate GAAP operating income in both our medical device and IBD businesses during the quarter. Our medical device business reported operating income of $300,000, compared to a loss of $7.1 million in the prior year period, primarily reflecting our strong revenue growth and lower R&D expenses. Two items I discussed earlier, the $1.4 million in royalty revenue catch-up payments recognized this quarter, and the $1.3 million restructuring expense in the prior year, provided tailwinds to our performance as well.

Tim: Lastly in the prior year quarter, we reported $1 3 million in severance related restructuring expense from the workforce restructuring implemented last year.

Timothy J. Arens: Our IBD business reported operating income of $3.4 million, or 47% of IBD revenue, compared to $3.6 million, or 49% of IBD revenue in the prior year period, reflecting this increase in IBD revenue. Turning to income taxes, we reported an income tax benefit of $80,000 compared to income tax expense of $370,000 in the prior year period. Gap net income was $250,000, or $0.02 per diluted share, compared to a net loss of $7.7 million, or a loss of $0.55 per diluted share, in the prior year period.

Tim: We were pleased to generate GAAP operating income in both our medical device and IBD businesses during the quarter.

Tim: Our medical device business reported operating income of 300000.

Tim: Compared to a loss of $7 1 million in the prior year period, primarily reflecting our strong revenue growth and lower R&D expenses.

Tim: Two items I discussed earlier, the $1 4 million in royalty revenue catch up payments recognized this quarter and a $1 3 million restructuring expense in the prior year provided a tailwind to our performance as well.

Tim: Our IBD business reported operating income of $3 4 million or 47% of <unk> revenue compared to $3 6 million or 49% of IBD revenue in the prior year period, reflecting the decrease in IBD revenue.

Tim: Turning to income taxes, we reported income tax benefit of 80000 compared to income tax expense of 370000 in the prior year period.

GAAP net income was 250000 or <unk> <unk> per diluted share compared to a net loss of $7 7 million or a loss of <unk> 55 per diluted share in the prior year period.

Timothy J. Arens: Non-GAAP net income was $1.1 million, or $0.07 per diluted share, compared to a net loss of $5.6 million, or a loss of $0.40 per diluted share in the prior year period. Non-GAAP adjusted EBITDA was $4.8 million, compared to an adjusted EBITDA loss of $1.5 million in the prior year period. Our earnings press release includes detailed reconciliations of GAAP to non-GAAP measures. Moving to the balance sheet, during the second quarter, we reported cash provided by operating activities of $7.4 million and capital expenditures of $1.3 million.

non-GAAP net income was $1 1 million or <unk> <unk> per diluted share compared to a net loss of $5 6 million or a loss of <unk> 40 per diluted share in the prior year period.

Tim: non-GAAP adjusted EBITDA was $4 8 million compared to adjusted EBITDA loss of $1 5 million in the prior year period.

Tim: Our earnings press release includes detailed reconciliations of GAAP to non-GAAP measures.

Tim: Moving to the balance sheet during the second quarter, we reported cash provided by operating activities of $7 4 million and capital expenditures of $1 3 million.

Timothy J. Arens: Cash provided by operating activities in the second quarter benefited from the receipt of a $3.4 million cash tax refund from the IRS associated with the CARES Act Employee Retention Credit, which we have discussed in our prior earnings calls and which we were pleased to receive during this period. We ended the second quarter with $40.9 million in total cash and cash equivalents and investments and available for security investments, an increase of $5.8 million during the quarter. Long-term debt of $29.5 million was unchanged during the quarter.

Tim: Cash provided by operating activities in the second quarter benefited from the receipt of about $3 $4 million cash tax refund from the IRS associated with the cares Act employee retention credit, which we have discussed in our prior earnings calls.

Tim: And which we were pleased to receive during this period.

Tim: We ended the second quarter with $40 9 million in total cash and cash equivalents and investments and available for security investments an increase of $5 $8 million during the quarter.

Tim: Long term debt of $29 5 million was unchanged during the quarter at.

Timothy J. Arens: At quarter end, we had access to approximately $65 million in additional borrowing capacity under our existing credit agreement. Turning now to fiscal 2024 guidance, which we updated in our earnings release today to reflect both our outperformance in the second quarter, as well as our improved outlook for the remainder of fiscal 2024. We now expect fiscal 2024 total revenue to range from $122 million to $124 million, representing a decrease of 8% to 6%.

Tim: At quarter end, we had access to approximately $65 million in additional additional borrowing capacity under our existing credit agreement.

Tim: Sure.

Timothy J. Arens: Excluding the DCB license fee revenue, we expect revenue to range from $118 to $120 million, representing an increase of 15% to 17%. This compares to our prior range of $113 to $117 million, or an increase of 10% to 14% over the prior year. Surveil DCV licensee revenue is expected to be approximately $4 million in fiscal 2024 compared to $29.6 million in fiscal 2023. We now expect fiscal 2024 gap loss per diluted share to range from a loss of 90 cents to a loss of 70 cents, compared to our prior range of a loss of $1.40 to a loss of $1.10. Non-GAAP loss per diluted share is expected to range from a loss of $0.67 to $0.47 per share, compared to our prior range of a loss of $1.17 to a loss of 87 cents per share.

Tim: Turning now to fiscal 2024 guidance, which we updated in our earnings release today to reflect both our outperformance in the second quarter as well as our improved outlook for the remainder of fiscal 2024.

Tim: We now expect fiscal 2020 for total revenue to range from $122 million to $124 million, representing a decrease of 8% to 6%.

Tim: Excluding surveil GCB license fee revenue, we expect revenue to range from $118 million to $120 million, representing an increase of 15% to 17%.

Tim: This compares to our prior range of $113 million to $117 million or an increase of 10% to 14% over the prior year.

Tim: Surveil DCD license fee revenue is expected to be approximately $4 million in fiscal 2024 compared to $29 6 million in fiscal 2023.

Tim: We now expect fiscal 2024, GAAP loss per diluted share to range from a loss of <unk> 92.

Tim: To a loss of <unk> 70.

Tim: Compared to our prior range of a loss of $1 40 to a loss of $1 10.

Tim: non-GAAP loss per diluted share is expected to range from a loss of 67 to <unk> 47 per share.

Tim: Compared to our prior range of a loss of $1 17 to a loss of <unk> 87 per share.

Timothy J. Arens: I'll now share a few additional considerations for modeling purposes with respect to our fiscal 2024 total revenue guidance. Product revenue is expected to be approximately 60% of total revenue, driven largely by contributions from our product growth catalysts. Specifically, we now expect combined product revenue from our Surveil, Pounce, and Sublime products to be at least $15.5 million, an increase from the $14 million we communicated last quarter. Revenue associated with our medical device performance coding offerings and IVD business is expected to grow in the low to mid-single digits from the $88.3 million of combined revenue generated in fiscal 2023.

Tim: I'll now share a few additional considerations for modeling purposes with respect to our fiscal 2024 total revenue guidance product revenue is expected to be approximately 60% of total revenue driven largely by contributions from our product growth catalysts.

Tim: Specifically, we now expect combined product revenue from our surveil pounds in supplying products of at least $15 5 million an increase from the $14 million, we communicated last quarter.

Tim: Revenue associated with our medical device performance coating offerings and IV business is expected to grow on a low to mid single digits from the $88 3 million of combined revenue generated in fiscal 2023.

Timothy J. Arens: Our fiscal 2024 diluted loss per share guidance reflects the following assumptions for the full fiscal year. Product gross margin is expected to be in the mid to high 50s. We expect operating expenses, excluding product costs, to decrease in the mid single digits.

Tim: Our fiscal 2024 diluted loss per share guidance reflects the following assumptions for the full fiscal year.

Tim: Gross margin is expected to be in the mid to high Fifty's.

Tim: We expect operating expenses, excluding product costs to decrease in the mid single digits.

Timothy J. Arens: We expect R&D expense to range from $39.5 to $40.5 million, representing a decrease of 15% to 13%. We expect SG&A expense to range from $53 to $54 million, representing an increase of 2% to 4% as we invest in our commercial organization. Interest expense is expected to be approximately $3.5 million, consistent with the prior year.

Tim: We expect R&D expense to range from 39, five to $40 5 million, representing a decrease of 15% to 13%.

Tim: We expect SG&A expense to range from 53 to 54 million, representing an increase of 2% to 4% as we invest in our commercial organization.

Tim: Interest expense is expected to be approximately $3 5 million consistent with the prior year.

Timothy J. Arens: Finally, our EPS guidance reflects full-year tax expense of $3.5 to $4.5 million. With respect to our revenue growth in the third quarter, we expect third-quarter total revenue to range from approximately $29.5 to $30.5 million, representing a decrease of approximately 44% to 42%. Excluding surveilled drug-coded balloon license fee revenue, we expect third quarter revenue to range from $28.5 to $29.5 million, representing an increase of 7% to 11%. As a reminder, in the third quarter of fiscal 2023, we recognized $25.9 million of surveilled drug coded balloon license fee revenue, the majority of which was related to the PMA milestone payment achieved in the period. Lastly, with respect to cash utilization, at the end of fiscal 2023, we had $45.4 million of cash and investments, which included $3.9 million of available-for-sale securities.

Tim: Finally, our EPS guidance reflects full year tax expense of three five to $4 5 million.

Tim: With respect to our revenue growth in the third quarter, we expect third quarter total revenue to range from approximately 29 $5 million to $35 million, representing a decrease of approximately 44% to 42%.

Tim: Excluding surveil drug coated balloon license fee revenue, we expect third quarter revenue to range from 28, 5% to $29 5 million, representing an increase of 7% to 11% as a reminder, in the third quarter of fiscal 2023, we recognized $25 9 million of <unk>.

Tim: <unk> drug coated balloon and license fee revenue the majority of which was related to the PMA milestone payments achieved in the period.

Tim: Lastly, with respect to cash utilization at the end of fiscal 2023, we had $45 4 million of cash and investments, which included $3 $9 million of available for sale Securities.

Timothy J. Arens: We now expect to finish fiscal 2024 with approximately $35 to $38 million in cash and investments, representing a year-over-year decrease of 10 to 7 million. Our updated expectation represents an improvement of $6-7 million compared to the expectation shared on our first quarter earnings call, driven by improved operating performance. As we have discussed in detail in recent earnings calls, during fiscal 2023, cash and investments increased $26 million, reflecting an influx of cash from the $27 million milestone payment on receiving PMA for the monitored Drakota balloon, as well as $19.3 million in net debt proceeds from our term loan and revolving credit facility. Setting aside these items, cash and investments decreased by approximately $20 million in fiscal 2023.

Tim: We now expect to finish fiscal 2024, with approximately 35% to $38 million in cash and investments representing a year over year decrease of 10% to 710% to $7 million.

Tim: Our updated expectation represents an improvement of 6% to $7 million compared to the expectations shared on our first quarter earnings call.

Tim: Driven by improved operating performance.

Tim: As we have discussed in detail on recent earnings calls during fiscal 2023 cash and investments increased $26 million, reflecting an influx of cash from the $27 million milestone payment upon receiving PMA for the surveil drug coated balloon as well as $19 3 million in net debt proceeds from our <unk>.

Tim: Term loan and revolving credit facility.

Tim: Setting aside these items cash and investments decreased by approximately $20 million in fiscal 2023.

Timothy J. Arens: With this in mind, our updated expectations for fiscal 2024 year-end cash and investments reflect an improvement in cash use of $10 to $13 million, compared to the $20 million in fiscal 2023 I just mentioned. Our expectations for fiscal 2024 year-end cash and investments continue to reflect the following assumptions. Capital expenditures of up to $5 million, compared to $2.9 million in fiscal 2023, which includes certain investments postponed last year as part of our spending reduction plan, and payments totaling $2.7 million to satisfy obligations related to previous acquisitions, of which $930,000 was paid during the second quarter.

Tim: With this in mind, our updated expectation expectations for fiscal 2020 for year end cash and investments reflection of an improvement in cash use of 10% to $13 million compared to the $20 million in fiscal 2023, I just mentioned.

Tim: Our expectations for fiscal 2020 for year end cash and investments continue to reflect the following assumptions.

Tim: Capital expenditures of up to $5 million compared to $2 9 million in fiscal 2023, which includes certain investments postponed last year as part of our spending reduction plan and.

Tim: And payments totaling $2 7 million to satisfy obligations related to previous acquisitions of which 930000 was paid during the second quarter.

Timothy J. Arens: We remain focused on disciplined expense management and optimization of working capital, and importantly, our fiscal 2024 guidance continues to assume no borrowings under our credit agreement. With that, I'll turn the call back to Gary for closing remarks. Thanks, Tim.

Tim: We remain focused on disciplined expense management and optimization of working capital and importantly, our fiscal 2024 guidance continues to assume no borrowings under our credit agreement.

Tim: With that I'll turn the call back to Gary for closing remarks, Thanks, Tim.

Gary R. Maharaj: As Tim mentioned, we're pleased to raise our financial guidance today for the second time this year, which reflects both our recent outperformance and our increased outlook for the balance of the year. Importantly, I want to emphasize that the low end of our guidance range now calls for total revenue growth of at least 15% year-over-year, excluding the headwinds related to the surveilled ECB license fee revenue. We expect this growth to be fuelled by revenue from our vascular interventional products of at least $15.5 million compared with our initial expectation of $13.5 million.

Gary R. Maharaj: As Tim mentioned, we're pleased to resolve financial guidance today for the second time this year, which reflects both our recent outperformance.

Gary R. Maharaj: And our increased outlook for the balance of the year.

Gary R. Maharaj: Importantly, I want to emphasize that the low end of our guidance range now calls for total revenue growth of at least 15% year over year, excluding the headwinds related to the <unk> license fee revenue.

Gary R. Maharaj: We expect this growth to be fueled by revenue from our vascular interventional products of at least $15 5 million compared with our initial expectation of $15 $5 million looks.

Gary R. Maharaj: Looking ahead, our team is energized by our recent success and remains focused on executing our growth strategy to continue our recent momentum as we enter the second half of fiscal 2024, with steady growth and cash flow generation from our core businesses, demonstrated commercial traction from our existing products, and an expanded portfolio of innovative vascular interventional devices addressing large and under-penetrated markets. We believe SurModics is exceptionally well-positioned to deliver strong, sustained revenue growth.

Gary R. Maharaj: Looking ahead, our team is energized by our recent success and remains focused on executing our growth strategy to continue our recent momentum as we enter the second half of fiscal 2024.

Gary R. Maharaj: With steady growth and cash flow generation from our core businesses demonstrated commercial traction from our existing products and an expanded portfolio of innovative vascular interventional devices addressing large and underpenetrated markets. We believe <unk> is exceptionally well positioned to do.

Gary R. Maharaj: With a strong sustained revenue growth.

Gary R. Maharaj: By accelerating our growth while continuing to control our expenses and allocate capital dynamically and strategically, we remain committed to delivering sustained improvements in our underlying profitability profile. SurModics is focused on delivering value for the benefit of our patients, our customers, our employees, and investors.

Gary R. Maharaj: By accelerating our growth, while continuing to control our expenses and allocate capital dynamically and strategically we remain committed to delivering sustained improvements in our underlying profitability profile.

Gary R. Maharaj: <unk> is focused on delivering value for the benefit of our patients customers employees and investors.

Gary R. Maharaj: And it's important that you know we have the courage and the commitment to continue to pursue your mission to improve the detection and treatment of disease. I'd like to conclude my prepared remarks today by thanking all of these important stakeholders for their support of our company and our continued pursuit of this mission. We really need more companies like SurModics. Operator, we will now open the floor to questions. Thank you. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment.

Gary R. Maharaj: And it's important that you know we have the courage and commitment to continue to push the old mission to improve the detection and treatment of disease.

Gary R. Maharaj: I'd like to continue to conclude my prepared remarks today by thanking all of these important stakeholders for their support of our company and our continued pursuit of this mission.

Speaker Change: We really need more companies like zoom optics, operator, we will now open the wall call for questions.

Speaker Change: Thank you.

Speaker Change: To ask a question. Please signal by pressing star one on your telephone keypad. If you are using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment we.

Speaker Change: We do ask that you limit yourself to one question and one follow up.

If you would like to ask additional questions. We invite you to add yourself to the queue again by pressing star one.

Operator: We do ask that you limit yourself to one question and one follow-up. If you would like to ask additional questions, we invite you to add yourself to the queue again by pressing star 1. And our first question will come from Brooks O'Neill from Lake Street Capital Markets. Please proceed. Good morning.

Speaker Change: And our first question will come from Brooks O'neil from Lake Street Capital markets. Please proceed.

Brooks O'Neill: As usual, you guys offer a very thorough and complete overview, but I think it's offensive that you talk about all this detail and then you say we can ask one question and one follow-up, but I'll try my best to stick to your requirements here. So, first, I'm just curious. If you could help us to calibrate the cam for surveillance today, MFD.

Brooks O'neil: Good morning, as usual you guys offer a very thorough and complete overview.

Brooks O'neil: But I think it's offensive that you talk about all the detail and then you say we can ask one question and one follow up but I'll try my best.

Brooks O'neil: It could be.

Brooks O'neil: To your requirements here so first.

Speaker Change: I'm just curious.

Speaker Change: If you could help us too.

Speaker Change: Calibrate.

Speaker Change: The Tam for surveil today.

Speaker Change: And then D.

Brooks O'Neill: Second part of question one. Could you give us a sense for whether the level of revenue the product is beginning to generate is sufficient to maintain Abbott's long-term interest in this product in this market? I'll start with the second part there.

Speaker Change: Second part of question one.

Speaker Change: Could you give us a sense for what is the level of revenue.

<unk> is beginning to generate is sufficient to maintain abbott's long term interest in this product and this is mark.

Gary R. Maharaj: I don't want us to speculate about what Abbott needs, but I can tell you that the partnership is strong and they're excited about getting going, and it's in the very early innings. As far as their portfolio and their strategy and numbers and stuff, I don't have the information to speculate, nor would I want to. I'll turn over some of the TAM component to Tim here, but think of it; it's a bit of a dynamic TAM.

Mark: Yes Brooks.

Speaker Change: Start with the second the second part there.

Mark: I don't want us to speculate about what abbott needs, but I can tell you that the partnership is strong.

Mark: And they are excited about getting going and it's very early innings as.

Mark: As far as.

Their portfolio and their strategy and numbers and stuff.

Speaker Change: I don't have the information to speculate now what I want to.

Gary R. Maharaj: Since the FDA unwound the label warning on PaxoTaxel a year ago, I guess it was the last year. Anyone who's going to be treated with a balloon angioplasty procedure in the periphery, in my opinion, is a candidate for a drug-coated balloon.

I'll turn over some of the Tam component to Tim here, but I think.

Tim: Think of it.

Tim: A bit of a dynamic Tam since the FDA unwound the label warning on Paclitaxel a year ago. I guess is what was left there.

Tim: Every patient.

Who is going to be treated with balloon angioplasty procedure in the periphery and in my opinion is a candidate for a drug coated balloon.

Gary R. Maharaj: I mean, with so many randomized trials, I don't know. We have seven randomized controlled trials culminating with the Transcend trial, which I will say is the best one, the best ever run trial in this space because of head-to-head, but really clearly demonstrates the durability and importance of anti-resonatic drugs on a balloon. And that durability, as I said, the data is quite compelling. So if you want to prevent resonosis rates from playing on a balloon, the mandate should be that you always use a drug-coated balloon, not just for difficult lesions.

Tim: With so many randomized I don't know we have seven randomized control trials, culminating with the transcend trial, which I will say is the best ones best ever run trial in this space as it because it was head to head, but really clearly demonstrates the durability and important of anti wish synodic drug on a balloon.

Tim: And that durability as I said the data is quite compelling. So if you want to prevent restenosis rates from plain old balloon.

Mandates should be you always use of drug coated not just the difficult lesions.

Gary R. Maharaj: So I would say the TAM is much, much larger than the current market. But I know, Tim, we've been tracking the IMS data and seeing the rebound of the markets. That's right. The TAM really hasn't changed, Brooks. You know, there are over 500,000 above-the-knee cases that are performed in the U.S. annually. Given the kind of cases leverage multiple balloons, I've heard anywhere from 1.3, north of 1.3 balloons per procedure, you're looking at ASPs from a list perspective that are greater than 1,500.

I would say the Tam is much much larger than the current market, but I know, Tim you've been tracking the IMS data and seeing the rebound of the market sell through.

Tim: Tim really hasnt changed Brooks, there's over 500000 above the knee cases performed in the U S annually.

Given kind of the.

Cases leverage multiple balloons I've heard anywhere from one three north of $1 three balloons per procedure. You are looking at Asps from a lift perspective that are greater than 500, obviously theres some discounts, but that gets you to about $1 billion Tam.

Timothy J. Arens: Obviously, there are some discounts, but that gets you to about a billion dollars. I think, you know, one of the reasons Abbott was interested in negotiating an agreement for distribution rights back in 2018 was because of the TAM and how they viewed, as Gary mentioned, a technology that could really provide a lot of benefit to patients that were suffering from peripheral vascular disease. But to be clear, it's very early in Abbott's launch. They launched in late January. We're here on May 1st.

One of the reasons Abbott was interested in negotiating an agreement for distribution rights back in 2018 was because of the Tam and how they viewed as Gary mentioned, a technology that can really provide a lot of benefit to patients have are suffering from peripheral vascular disease, but to be clear, it's very early and abbott's watch they launched.

Tim: In late January where here on May 1st we're three months into it.

Timothy J. Arens: We're three months into it. I'll just refer you back to our prepared remarks. Every month, we've been receiving orders from Abbott. Every month, Brooks.

Tim: I'll just I'll just refer you back to our prepared remarks every month, we've been receiving orders from Abbott every month Brooks as Gary mentioned they've been consistent.

Timothy J. Arens: As Gary mentioned, they've been consistent. We're pleased with the orders. We're manufacturing. We're shifting.

We're pleased with the orders were manufacturing we're shifting we're recognizing revenue so.

Timothy J. Arens: We're recognizing revenue. So, you know, let's make sure we don't forget to ask the question again next quarter and maybe even the quarter after, but we're pleased with what we're seeing right now. Just the one question, though. I love that one.

Tim: Let's make sure we don't forget to ask that question again next quarter and maybe even the quarter after.

Tim: But we're pleased with what we're seeing right now so just the one question though.

Speaker Change: That was just as a follow up.

Brooks O'Neill: Now, just as a follow-up to that related to Abbott. I saw an announcement the other day that they got approval for a dissolving drug-coated stent for below the knee. It's very clear that they probably can't put that in unless they have a catheter to open the vessel a little bit. Are they showing any new or renewed interest in your products that are developed for below the knee? We haven't had any discussions with them about that, but the Esprit stent is an Olimus stent that's bioresorbable, and I believe it specifically got PMA approval this week, specifically for below-the-knee vessels.

Speaker Change: Jordan to that related to Abbott I saw an announcement the other day that they got approval for dissolving.

Speaker Change: Drug coated stent for below the knee.

Speaker Change: Great.

Speaker Change: Put that in.

Speaker Change: They have.

Speaker Change: Our catheter to open the vessel little bit are they showing any new or renew.

Speaker Change: Renewed interest in your products that are developed for below the knee.

Speaker Change: We haven't had any discussions with them about that but the <unk> stent is alignments standards by resolving <unk>.

Speaker Change: And I believe it's specifically got PMA approval this week, specifically for below the knee vessels.

Gary R. Maharaj: So, as far as our Sundance project is concerned, we have made progress in looking for parties of interest, and we'll have conversations with multiple parties there. Sundance requires... some investment, an allocation of capital to get it to an IDE level. At this point, we would choose not to move much more on that without a partner helping the funding of that. But we are in the sky.

Speaker Change: So.

Speaker Change: As far as our Sundance we have.

Speaker Change: We continue to make progress on looking for parties of interest and we have conversations with multiple parties the Sundance requires.

Speaker Change: Some investment and allocation of capital to get it done I'd level at this point, we would choose not to move much more than that without a partner, helping the funding of that.

Speaker Change: But we are in.

Gary R. Maharaj: Yeah. No, no. Okay. We're in discussion. Okay, I'm just going to ask one more, which is, obviously, you know, over the past five years, R&D spending has been in the range of 50% of revenue. It's been a very productive investment and it shows tremendous promise. Do you expect to continue spending at that dollar level or that percent of revenue level now that we're, let's say, breaking into the clear

Speaker Change: Yes, no no okay.

Speaker Change: We are in discussions.

Speaker Change: Okay, just going to add.

Speaker Change: One more which is obviously the.

Speaker Change: At five years.

Speaker Change: R&D spending has been in the range of 50% of revenue.

Speaker Change: It's been a very productive investments and it shows tremendous promise.

Speaker Change: Do you expect to continue spending at that level or that percent of revenue level.

Speaker Change: Now that were.

Speaker Change: Okay.

Speaker Change: Taking into the clear here.

Brooks O'Neill: Right, and I'll give you a little bit of the strategy there, and Tim will follow up with some of the actual hot edges. So, if you don't have a pipeline, you have to develop a pipeline, right? And so pipelines require, as you know, accelerated R&D investment. Eventually, the pipeline gets into equilibrium. What's going in and what's coming out generating cash are in equilibrium, and those help offset each other.

Speaker Change: Right and I'll give you a little bit of the strategy and Tim will follow up with some of the actual hard edges. So if you don't have a pipeline you have to develop that pipeline right and so pipeline pressing requires as you know accelerated R&D investments eventually the pipeline gets into equipment.

Tim: Olivia what's going into what's coming out generating cash or an equilibrium and those help offset each other so.

Gary R. Maharaj: So, the clinical trial costs are coming out. We have a multiple-year follow-up. We have a couple more years of follow-up on some of them. Revenue is going up, but the level of R&D spending that we are contemplating right now is really, A, on the Vascular Inventions Portfolio, making sure the platforms we have..., thrombectomy and radial access, venous and arterial thrombectomy, and radial access, that we fill out those platforms with the complete product line so that we That's still in the process.

Speaker Change: The clinical trial costs are coming out we have multiple year follow up we have a couple more years of follow up and some of them.

Tim: Revenues going up but the level of R&D spending that we are contemplating right now are really.

Tim: E.

Tim: On the vascular interventions portfolio, making sure the platforms, we have thrombectomy and radio access venous and arterial thrombectomy and radial axis that we fill out those platforms with the complete product line. So that we can be compelling Lee.

Tim: Compelling competitive advantage that is still in process, we still have pound SXL, we still have things like pumps over the wire with many things in that pipeline within that that box.

Gary R. Maharaj: We still have Pounds XL, we still have things like Pounds Over the Wire, we have many things in that pipeline within that box of current platforms. We also want to make sure that on the performance coatings business, we have PreSide, and our team is just a remarkably talented chemical engineering team of how we further advance that technology so we can make the game over. I mean, SurModics is going to lead this field, and we're not ceding that leadership advantage in our performance coatings business. Apart from that, Tim, I'll turn it over to you. I would expect to see some changes. Thank you, Brooks.

Tim: Current.

Tim: Platforms.

Tim: We also want to make sure on the performance coatings business.

Tim: We have preside and our teams just remarkably south as chemical engineering team of how we further advance the technology. So we can make the game overall I mean <unk> is going to lead this field and we're not seeding that leadership advantage in our performance coatings business apart some of that turmoil.

Speaker Change: Turn it over to you I would expect.

Speaker Change: Thank you Brooks.

Timothy J. Arens: We're really pleased that we're starting to see product revenue grow the way it has been growing. As Gary and I have mentioned in the prepared remarks, we're expecting at least $15.5 million in revenue this year, and we keep increasing our guidance every quarter with regard to these products. This is the culmination of those investments in R&D over several years. As you mentioned, 50% of our revenue in the past had been invested in R&D.

Speaker Change: We're really pleased that we're starting to see the product revenue grow the way. It has been growing is as Gary and I had mentioned in the prepared remarks, we expect to at least $15 5 million of revenue this year and we keep increasing our guidance every quarter with regard to these products.

Speaker Change: The combination of that those investments in R&D over several years as you mentioned, 50% of our revenue in the past had been invested in R&D. There is clearly this year you heard in my remarks in terms of some of the modeling considerations were having a lower spend in R&D this fiscal year.

Timothy J. Arens: Notably this year, you heard in my remarks in terms of some of the modeling considerations, we're having a lower spend on R&D this fiscal year versus the prior fiscal year. That's really attributable to the R&D spend that has gone into surveilling other drug-coated balloon platforms. That's really what the driver is.

Speaker Change: The prior fiscal year.

Speaker Change: And that's really attributable to the R&D spend that had gone into surveil and other drug coated balloon platforms.

Speaker Change: That's really what the driver is we've continued to invest obviously in some of the vascular intervention products with regard to pound since the blind.

Timothy J. Arens: We've continued to invest, obviously, in some of the vascular intervention products with regard to Pounce and Sublime, of which notably we've launched a few and commercialized a few here just within the last quarter. But I wouldn't lead you or guide you to think that we'd get back to 50% of revenue being spent on R&D. At least we don't see that in the near and intermediate term by any means. Certainly, as our revenue continues to jump, and Brooks, if you go back several years ago, we were in the mid-70s in terms of millions of dollars of revenue generated annually.

Speaker Change: Of which notably we've launched a few and commercialized a few here just within the last quarter. So.

Speaker Change: Don't drive you are.

Speaker Change: Guy do to thinking that we'd get back to 50% of revenue would be spent on R&D at least we don't see that in the near and intermediate term by any means.

Speaker Change: And certainly as our revenue continues to jump and Brooks you go back several years ago. We were in the mid Seventy's in terms of millions of dollars of revenue generated annually here. We are talking about 122 to 124. So it is there is it would be very unlikely that we'd get back to 50%, but we feel very confident that we're making the appropriate.

Timothy J. Arens: Here we are talking about $122 to $124. It'd be very unlikely that we'd get back to 50%, but we feel very confident that we're making the appropriate level of investments in R&D at this point. Perfect. That's very helpful. Congratulations on all you've accomplished. Thank you, Brooke.

Speaker Change: Level of investments in R&D at this point.

Brooks O'neil: Perfect Thats very helpful. Congratulations on all you've accomplished.

Speaker Change: Thank you Brooks.

Operator: Our next question comes from Mike Matson from Needham & Company. Please proceed. Hey guys, this is Joseph on behalf of Mike, just a couple from us.

Speaker Change: Our next question comes from Mike Matson from Needham <unk> Company. Please proceed.

Speaker Change: Okay.

Speaker Change: Hey, guys. This is Joseph on for Mike.

Joseph: Well from us.

Joseph Scott Conway: The 14, or I guess 15 and a half a million guide for, you know, Pound Surveill, Sublime, you know, I was just wondering if we could maybe get a little bit more color on those numbers, you know, not necessarily asking for a split, but, you know, if there is any more upside to that, any raises, wondering if you could call out, you know, where you think that those would come from, whether it be a specific product, and then, I don't know if you said it in the prepared remarks, but the raise today, is that driven by the launches of LP and, you know, Pound's LP and Pound's Venus, or, yeah, just a little bit more color on that would be great. Sure, it's a great question and I'm sure a lot of people are thinking and wanting to ask the same question.

Joseph: The 14th or I guess, 15, and a half a million dollars guide for <unk>.

Speaker Change: Pound surveil sublime.

Joseph: I was just wondering if we could maybe get a little bit more color on those numbers.

Joseph: Not necessarily asking for split but.

Joseph: If there is any more upside to that any raises wondering if you could call out.

Joseph: Where do you think that those who come from whether it be a specific product and then I don't know if you said that.

Joseph: In the prepared remarks, but the raised today is that driven by the launches of LP in there.

Joseph: Yes.

Joseph: Pounds LP in Pennsylvania's fair.

Speaker Change: Yes, just a little bit more color on that would be great.

Joseph: Sure.

Speaker Change: Great question and I'm sure a lot of people are thinking I wanted to ask the same question. So thanks for putting it out there.

Joseph Scott Conway: So thanks for putting it out there. Yes, I would tell you that, you know, our view today on the at least 15.5 is at least 15.5. Justin, let's be real clear on the question with regard to the rays and what's coming from Pounce LP and Pounce Venus.

Speaker Change: Yes, I would tell you that.

Speaker Change: Our view today and at least $15 five as it is at least 15 five.

Speaker Change: Justin let's be real clear on the question with regard to the raise.

Speaker Change: Whats come in.

Speaker Change: Or what's coming from <unk> to LTE and <unk>, we're very measured on that its very early stages. We've completed the limited market evaluations. They went very well, but as you can imagine we're going to be appropriately conservative in terms of including in our guidance any real significant revenue.

Timothy J. Arens: We're very measured on that. It's in the very early stages. We've completed the limited market evaluations, and they went very well.

Timothy J. Arens: But, as you can imagine, we're going to be appropriately conservative in terms of including in our guidance any real significant revenue increases until we validate and get traction. So the 15.5, although it does include some revenue from these recent product launches, it's not what's driving it entirely. It's a portion of the increase.

Speaker Change: New increases until we validate and get traction so the $15 five although it does include.

Speaker Change: Some revenue from these recent product launches, it's not what's driving it entirely it's a portion of the increase.

Timothy J. Arens: You asked if we could provide a bit more context and color between the products, and we're not in a position here, nor do we believe it's all that helpful for investors to be getting a lot of product-level detail on revenue. At the current stage of these products, they're pretty modest still, even though we're guiding to 15.5, there is noise. And I don't think it is very helpful from a modeling perspective or helping provide any real perspective that will be of use.

Speaker Change: You had asked about it because we provide a bit more context and color between the products and we're not we're not in a position here in <unk>.

Speaker Change: Do we believe it's all that helpful for investors to be getting a lot of product level detail on revenue at the current stage of these products are pretty modest still even now we're guiding to 15 five there is noise and I don't think it is very helpful from a modeling perspective or.

Speaker Change: Helping provide any real perspective that will be of use but what I will say is.

Timothy J. Arens: But what I will say is we have communicated that Surveil, if you go back to the prepared remarks, was a significant contributor along with Pounce. And as you know, there was no Pounce or no Surveil product revenue in fiscal 23.

Speaker Change: We have communicated that surveil. If you go back to the prepared remarks was a important contributor significant contributor along with talent and as you know there was no pump or an all surveil product revenue in fiscal 'twenty. Three so you can imagine there is a lot of that growth over.

Timothy J. Arens: So you can imagine that a lot of that growth, over $3 million of product revenue growth in the medical device business, we did see some of that coming from Surveil and a fair amount coming from Pounce. But we're going to provide some color and context, but we're just not going to be providing specificity in terms of the numbers at this point. So hopefully that's helpful. The prepared remarks are intended to help give you what you're looking for.

Speaker Change: $3 million of product revenue growth in med device business.

Speaker Change: We did see some of that coming from surveil and a fair amount coming from parts, but we're going to provide some color and context, but we're just not going to be providing spec.

Speaker Change: Specificity in terms of the numbers at this point. So hopefully that's helpful. The prepared remarks are intended to help give you what youre looking for.

Speaker Change: And I'm sure we'll have more to say as we kind of go through the coming quarters in terms of the.

Timothy J. Arens: And I'm sure we'll have more to say as we kind of go through the coming quarters in terms of the performance from these recently launched products and the continued performance from Surveil as well. And Tim has very long legs, so he can kick me under the table, but I'll give you one nugget that will help.

Speaker Change: Performance from these recently launched products and the continued performance from surveil as well and.

Speaker Change: Tim has very long legs. So he can kick me under the table, but I'll give you one nugget that will help it wasn't too long ago, we were talking about the direct sales of vascular intervention product is without the available.

Gary R. Maharaj: It wasn't too long ago we were talking about the direct sales of vascular interventions products. Without Surveil, we're getting to over a million dollars a quarter consistently. What I will share, and just this one nugget, is that Pounce Arterial by itself is over a million dollars a quarter.

Speaker Change: Getting to a $1 million over $1 million a quarter consistently what I will share in just this one nugget is.

Speaker Change: Pumps arterial.

Speaker Change: By itself.

Speaker Change: Over $1 million a quarter.

Gary R. Maharaj: So I can't give you any more than that, but I just wanted to make sure people understood the magnitude of the growth we are experiencing in some of these areas. Okay, yeah, no, all of that is really helpful and much appreciated. I guess, maybe.

Speaker Change: I can't give you any more than that but I just.

Speaker Change: I wanted to make sure people understood the magnitude of the growth.

Speaker Change: Experiencing in some of these areas.

Speaker Change: Okay, Yeah, no all of that is really helpful. Much appreciate it.

Speaker Change:

Speaker Change: I guess, maybe let's see maybe one on on Abbott and Surveil, just maybe wondering.

Joseph Scott Conway: See, maybe one on Abbott and Surveil. Just maybe wondering how long, you know, maybe a rough timeline or something when you guys believe you can get to kind of a... a reasonable medical device gross margin, you know, somewhere 60, 80%, you know, with the relationship. I guess, you know, yeah, how high did the transfer payments seem to get to really realize that? I guess adding two questions on that, do you expect any capacity increase in the future and, excluding this milestone payment last year, do you guys expect any gross margin benefit or improvement this year? I'll turn over to Tim for the finer points, but just, you know, and this will apply to all of our VI Practical Inventions products as well.

Speaker Change: How long.

Speaker Change: Maybe rough timeline or something when you guys believe you can get to kind of.

Speaker Change: A reasonable medical device gross margin somewhere 60% to 80%.

Speaker Change: With the relationship.

Speaker Change: Yes.

Speaker Change: I guess, how high did the transfer payments seem to get to really realize that.

Speaker Change: Just I guess, adding to kind.

Speaker Change: Kind of.

Speaker Change: Some questions on that.

Speaker Change: So do you expect any capacity increase in the future and excluding this milestone payment last year.

Speaker Change: Do you guys expect any gross margin benefit or.

Speaker Change: Our improvement this year.

Speaker Change: I'll turn over to Tim for the finer points, but just.

Tim: And this will apply to all of our.

Tim: The pricing intervention products as well so when you launch a product. The first thing you wanted to know as you get a stable product performing in the marketplace at any product is small tweaks and engineering change orders. So until we have a stable product. We don't we don't like to committed to.

Gary R. Maharaj: So when you launch a product, the first thing you want to know is that you get a stable product performing in the marketplace. And any product is subject to small tweaks and engineering change orders. So until we have a stable product, we don't like to commit it to a low-cost environment that makes thousands of them in one operation. So some of these products are achieving stability right now, like the first version of Pounds Arterial.

Tim: Our low cost environment that makes thousands of them in one just in a specific operation. So so these products are achieving stability right now like the first version of pumps arterial then when the product is stable and we satisfy at stable then we can really drive cost out and there are two things helping us.

Gary R. Maharaj: Then when the product is stable and we're satisfied it's stable, then we can really drive costs out. And there are two things helping us there. One is the cost-volume-profit relationship that helps absorb overhead. That really does that.

Tim: One is the cost volume profit relationship that helps absorb overhead.

Tim: That really does that and then the second one is we can lean out those lines, specifically, because we know we're making at that exact varian forever more.

Gary R. Maharaj: And then the second one is we can lean out those lines specifically because we know we're making it in that exact variant forevermore. As far as Surveil goes, as Tim has mentioned in the past, in all of these products, we built the fixed infrastructure to scale. So we don't see the need for huge capital equipment when we scale. And so Tim will talk about that. But in the early days, overhead is not our friend.

Tim: As far as <unk> goes as Tim has mentioned in the past and all of these products.

Tim: We built the fixed infrastructure to scale. So we don't we don't see need for huge capital equipment. When we do scale and so Tim will talk about that but in the early days. We just overhead is not upfront volume is our friend to overcome that overhead absorption.

Gary R. Maharaj: Volume is our friend to overcome that overhead absorption. I really like the question. And if you go back and take a look at what the product gross margin was for the quarter, it was just under 61%. And I'm quite sure and convinced that it's significantly higher than the consent assessment.

Speaker Change: I really like that question and.

Speaker Change: If you go back and take a look at what the product gross margin was for the quarter was just under 61% and quite sure and convinced said, it's significantly higher than the consensus estimate.

Timothy J. Arens: But you'll have heard me comment during the modeling considerations portion of the script that we now expect product gross margins to range from mid-50s to high-50s. If you go back and compare it to what we said during the February poll, we said mid-50s. So there's a reason why we're migrating favorably on product gross margins, and that's because we're seeing the benefits of scale. Clearly, we had a really strong Q2. Product revenue outperformed our expectations and consensus. We're pushing that through the rest of the year. Justin, as you mentioned, you highlighted that there are a couple new products. Obviously, we've got that reflected on a modest level. But scale helps.

Speaker Change: But.

Speaker Change: You will have heard me comment during the modeling considerations portion of the script that we now expect product gross margins to range from mid fifties to high fifties. If you go back and compare to what we said during the February call. We said mid fifties. So there is a reason why we are migrating.

Tim: Favorably on the product gross margins and that's because we're seeing the benefits of scale clearly we had a really strong Q2 product revenue.

Tim: Performed our expectations and consensus we're pushing that through the rest of the year.

Speaker Change: Definitely as you mentioned you highlighted that there is a couple of new products. Obviously, we've got that reflected in at a modest level, but scale helps and we're also becoming more efficient and the manufacturing as Gary mentioned, it's one thing to have a small number of products that you're manufacturing and a monthly basis or quarterly basis and that <unk>.

Timothy J. Arens: And we're also becoming more efficient in manufacturing. As Gary mentioned, it's one thing to have a small number of products that you're manufacturing on a monthly basis or quarterly basis, and that grows. But our teams are becoming more efficient in the manufacturing environment, and so we're getting the benefit of improved yields and being able to manufacture these products more effectively and efficiently.

Speaker Change: Rose, but our teams are becoming more efficient in the manufacturing environment and so we're getting the benefit of improved yields.

Speaker Change: And being able to manufacture these products more effectively and efficiently and that's what's driving the guidance. There in terms of when we can get to med tech like on gross margins I would say.

Timothy J. Arens: And that's what's driving the guidance there. In terms of when we can get to MedTech-like gross margins, I would say we've made a substantial stepwise function higher improvement in product gross margins for the likes of Surveil and Pounce over the last quarter. And we continue to have scale. I think we'll continue to do that. We'll continue to be more efficient, but I won't be so bold to tell you precisely when we think we'll get there.

Speaker Change: We've made a substantial step wise function higher improvement in product gross margins for the likes of surveil in pounds over the last quarter and we continue to have scale. I think we will continue to do that we will continue to be more efficient, but I won't be so bold to tell you.

Speaker Change: Precisely when we think we'll get there.

Timothy J. Arens: But I will tell you that if we continue to grow at the rate that we're growing, it should probably be a couple of years, if not even. But again, we're very pleased with the performance, and a lot of the credit goes to the operations teams. Yeah, I mean, there are scenarios where we can get there in calendar 25, but we don't want to provide guidance for 25 quite yet. Sure, sure. Alright, well, thank you very much for all the details, super helpful, and congrats on the quarter. Thank you.

Speaker Change: But I will tell you that if we continue to grow at the rate that we're growing.

Speaker Change: It should probably would be a couple of years, but.

Speaker Change: If even but.

Speaker Change: Again, we're very pleased with the performance and allows the credit goes to the ops teams. Yes, there are scenarios, where we can get there in calendar 'twenty five, but we don't want to we don't want to give we don't want to provide guidance for 95.

Speaker Change: Not yet.

Speaker Change: Sure sure Alright, Thank you very much for all the details super helpful and congrats on the quarter.

Speaker Change: Thank you.

Speaker Change: Sure.

Operator: Our next question comes from Jim Sidoti from Sidoti and Company. Please proceed. All right, good morning, and thanks for taking the questions.

Speaker Change: Our next question comes from Jim Sidoti from Sidoti <unk> Company. Please proceed.

James Philip Sidoti: Hi, good morning, and thanks for taking the questions first one real quick one other than that $1 4 million of catch up revenue was there anything in the quarter you would consider one time that added to revenue.

James Philip Sidoti: First one, a quick one, other than that $1.4 million of catch-up revenue, was there anything in the quarter you would consider a one-time thing that added to revenue? No, that $1.4 million catch-up payment is really the one thing that was unique to the quarter that could be considered to be more of a one-time thing. Okay, and I know you're reluctant to give any product-specific guidance, but I'm sure you have internal projections, first of all.

James Philip Sidoti: Now that that $1 4 million catch up payment is really the one thing that was unique to the quarter that would be considered to be more of a onetime.

Speaker Change: Okay, and I know youre reluctant to give any product specific guidance, but I am sure you have internal projections for <unk> can you just give us a sense are you.

James Philip Sidoti: Can you just give us a sense, you know, are you exceeding those internal projections and by approximately how much on a percentage basis? I'd like the question, Jim. I'll restrain myself from giving you an answer other than to say it's obviously we had a really strong quarter in Q2, exceeded our expectations, and exceeded consensus. You saw that we rose past the beat, which implies that we have confidence in the second half of the year.

James Philip Sidoti: Exceeding those internal projections and approximately how much on a percentage basis.

Speaker Change: I like the question, Jim I'll restrain myself from giving you an answer other than to say it.

Speaker Change: Obviously, we had a really strong quarter in Q2 exceeded our expectations exceeded consensus you saw that we raised passed the beat which implies that we have confidence in the second half of the year, we have not changed our guidance with regard to the IBD and coatings business. So I think that probably gives you the insight that I want you to take.

James Philip Sidoti: We have not changed our guidance with regard to the IBD encoding business, so I think that probably gives you the insight that I want you to take away. We are very pleased with the performance of Surveil, Pounce, and Sublime.

James Philip Sidoti: Away.

James Philip Sidoti: Our.

James Philip Sidoti: We're very pleased with the performance with surveil pumps in some lines.

Timothy J. Arens: Okay, and then just a question about the sales team. You know, I know you've made some changes to that last year. You know, is it time to expand again? And can you talk a little bit about international sales? You don't have any sales there now.

Speaker Change: Okay, and then just a question on the sales team.

Speaker Change: You've made some changes to that last year.

Speaker Change: Is it time to expand again and can you talk a little bit about international you don't have any any sales near now have you considered distribution with sales outside the United States.

James Philip Sidoti: Have you considered distribution for sales outside the United States? Um, you know, we, we... The short answer is we have considered our options internationally, but you know, like the Roman Empire, we want to be able to secure the U.S. market first, and we're trying to be quite disciplined on where we allocate investment and capital, especially given the show returns over the short-term horizon here versus too many long-term deep passes. So the short answer is no, not at this point, but it is not off the table.

Speaker Change: We.

Speaker Change: The short answer is we have considered all options internationally, but like enrollment and five we want to be able to make sure. We secure the U S market first then.

Speaker Change: We're trying to be quite disciplined on where we allocate the investments and capital.

Speaker Change: Especially given the need to show.

Speaker Change: Turns over the short term horizon here versus too many long term deep passes so the short answer is no not at this point, but it is.

Speaker Change: It is not off the table it will only be on the table if it if it's.

Gary R. Maharaj: It will only be on the table if it doesn't impact our cash utilization. We don't want to spend more cash at this point to go to other geographies. But if there's a partner and a capability where we can demonstrate it's not a use of cash, we'll consider it. And the first part of the question was, was that it? I think that was it.

Speaker Change: It doesn't impact our cash utilization.

Speaker Change: We don't want to spend more cash at this point.

Speaker Change: To go to other geographies, but if there is a partner and the capability, where we can demonstrate its another use of cash.

Speaker Change: We will consider it.

Speaker Change: And the first part of the question was is that I think that was it.

James Philip Sidoti: On the U.S. sales force, are you happy with that? Oh, the U.S. sales force, yeah. So look, I'll tell you, we have concentrated and curated an amazing sales team here. And they continue to impress me.

Speaker Change: On the U S sales force are you happy with Salesforce, Yes. So look we I'll tell you we are concentrated and curated.

Speaker Change: <unk> sales team here and they continue to impress me.

Gary R. Maharaj: You know, they're building territories from scratch, and that's never easy. Finally, people are not just saying, SurModics, who? People are realizing us. We made a Morgan Stanley report recently on a KOL in pounds, and Morgan Stanley doesn't even cover us. But the short answer is we will continue to look for opportunities to grow. But it's not just a sprinkling of territories.

Speaker Change: They are building territories from scratch and it's never easy.

Speaker Change: Finally people are not just seeing thermotics who've pepo, realizing us we made a Morgan Stanley report that recently Kols Poundstone Morgan Stanley does.

Speaker Change: Cover us but.

Speaker Change: The short answer is we will continue to look for opportunities to grow but it's not just a mass sprinkling of territories, we're really being quite selective with our sales leadership.

Gary R. Maharaj: We're really being quite selective with our sales leadership where the heat maps are and where the opportunities lie. Now, Pounds Venus and how that goes in the next couple quarters could change our allocation of that because, you know, to cover a territory's expenses, which are salaries, commissions, and expenses, Pounds Venus is a very high ASD product, as is Pounds Arterial as well.

Speaker Change: The heat map, so where the opportunities lie now pumps Venus and how that goes in the next couple of quarters.

Speaker Change: Change our allocation of that because.

Speaker Change: To cover territories expenses, which will salaries commissions and expenses.

Speaker Change: Pumps Venus.

Gary R. Maharaj: And so if that allows us to start covering territory expenses in an accelerated fashion, then we still use the term go as we grow or grow as we go. We can seed the territories we want so we're not too far ahead on cash utilization. Cash is very important to us, as you can tell. Right, right? And it doesn't appear that you're going to need to raise cash anytime soon, that the cash you have on the balance sheet is more than enough to fund the growth. Yeah, and I hope investors get the point of what we're seeing in this quarter is how we have managed cash looking forward and also how we've got it. Yes. All right, thank you. Thanks, Jim.

Speaker Change: A very high ASP as a sponsor arterial as well and so if that allows us to start covering territory expenses at an accelerated fashion. Then we will we still use the term goal as we grow we'll grow as we go we can see the territories. We won so we're not too far ahead of cash utilization cash is very.

Speaker Change: As you can tell.

Speaker Change: Alright, alright, and it doesn't appear that youre going to need to raise cash anytime soon.

Speaker Change: Do you have on the balance sheet is more than enough to.

Speaker Change: To fund the growth.

Speaker Change: And I hope investors get get the point of what we're seeing in this quarter is how we have managed cash looking forward and also how we've done yes.

Speaker Change: Yes.

Speaker Change: Alright, thank you.

Speaker Change: Thanks, Jim.

Operator: Our next question comes from Mike Petusky from Barrington Research. Please proceed. Good morning, guys.

Speaker Change: Our next question comes from Mike Pitofsky from Barrington Research. Please proceed.

Michael John Petusky: Tim, I may have missed this. Did you say whether the profit-sharing piece for Surveil has started? Are you guys participating in that at this point, or has that not been calculated yet on these first orders? Yes. Thank you for the question, Mike. Yes, we've communicated on this topic in the past. We probably weren't very clear on it here during our prepared remarks, but yes, the way the profit-sharing works, it's not unlike what we have to do with our royalties.

Michael John Petusky: Hey, Good morning, guys, Tim I may have missed this did you say, whether the profit sharing piece for surveil.

Michael John Petusky: Has that started or are you guys participating in that at this point or is that not not.

Tim: Calculated yet on these first orders yep. Thank you for the question Mike Yes, we've communicated on this topic in the past probably werent very clear on it here during our prepared remarks, but yes. The way the profit sharing works its not unlike what we have to do with our royalties for those of you who followed the story for a while.

Michael John Petusky: For those of you who have followed the story for a while, you will appreciate that, given the accounting standards, we have to make an estimation of what our customers sell and what our royalty will be on the coding part of the business. It's not unlike that with regard to the profit-sharing with Surveil. So when we ship product to Abbott, we calculate, based upon the unit ship, what the profit-sharing will be based upon a number of assumptions, including the selling price and the number of units that are actually sold.

Tim: I appreciate that given the accounting standards, we have to make an estimation of what our customer sell in what our royalty will be on the coatings part of the business. It's not unlike that with regard to the profit sharing with surveil. So when we ship product to Abbott, we calculate based upon the units shipped.

Tim: What the profit sharing will be based upon a number of assumptions, including the selling price and including the number of units that are actually sold so we have to take into consideration units that are used for promotional or samples that arent charged.

Timothy J. Arens: So we have to take into consideration units that are used for promotional or samples that aren't charged, as well as units that might expire. Recall, we have a two-year shelf life. So we're pretty conservative in these assumptions at the moment. We have yet to receive the first profit-sharing report from Abbott.

Michael John Petusky: As well as units that might expire.

Michael John Petusky: Recall, we have a two year shelf life. So we're pretty conservative in these assumptions at the moment, we have yet to receive the first profit share and report from Abbott, we will have a little bit more insight on the first one when we get together for the August call.

Timothy J. Arens: We'll have a little bit more insight on the first one when we get together for the August call. But there is an amount that's included in the product revenue, which obviously impacts the product gross margins. But we've not made any changes to our assumptions from what we included in Q1 relative to what we booked in Q2 and how we forecast for the full year. So, no changes there. Okay, so, essentially, you're saying you could come back and say, okay, well, we did a reconciliation with Abbott, and there's a disagreement, so we have to sort of back off. You know, although it sounds like you're being conservative, you're trying to be conservative with it.

Michael John Petusky: There is a.

Michael John Petusky: An amount that is included in the product revenue and which obviously impacts the product gross margins, but we've not made any changes to our assumptions from what we included in Q1 relative to.

Michael John Petusky: What we booked.

Michael John Petusky: In Q2, and how we forecast for the full year, so no changes there.

Speaker Change: Okay. So so essentially youre, saying you.

Speaker Change: You could come back and say, okay, well, we did a reconciliation with Abbott and there is a disagreement so we have to sort of back off.

Speaker Change: Although it sounds like Youre being concerned youre trying to be conservative with it.

Michael John Petusky: Yeah, I'd say the probability of that risk, without having perfect clarity, would be low. I think that the probability, in my view, would be that it would be favorable versus unfavorable, but I'm sitting here today on May 1st, not having received any reports from Abbott with regard to the key assumptions that we've modeled. We've gotten a little feedback and some insights that we use, and some market data, but I feel comfortable with regard to what we've included in our assumptions to derive or come up with our estimated profit sharing.

Speaker Change: I'd say the probability of that risk.

Speaker Change: Without having perfect clarity would be low I think that there is the probability in my view would be that it would be favorable versus unfavorable but.

Speaker Change: Im sitting here today on may 1st not having received any.

Speaker Change: Reports from Abbott with regard to the key assumptions that we've modeled we have gotten a little feedback and some insights that we've used in some market data but.

Speaker Change: Feel comfortable with regard to what we've included in our assumptions to derive or come up with our estimated profit sharing Mike.

Michael John Petusky: Okay, all right, very good. And then I haven't heard this talked about in a while. In terms of Abbott's plans for Surveil-OUS, have they communicated anything there as far as timing or even plans to do it? There's no change.

Mike: Okay, Alright, very good and then.

Speaker Change: I haven't heard of her this talked about I don't think in a while.

Mike: Terms of Abbott's plans for Surveil O U S and they communicated any anything there as far as timing or or even plans to do it.

Gary R. Maharaj: What they have communicated is that they want to really make sure they fill out this U.S. market first. And at some point, if they get to that, we'll have that discussion. And at an appropriate point, if it's reportable, we will. But so far, no.

Mike: There's no change in what they have communicated that they wanted to really make sure that fill out this U S market first.

Mike: And at some point if they get to that we'll have that discussion and then appropriate point of its reportable, we will but so far no.

Michael John Petusky: Okay, so not even like sort of like, hey, you know, we sort of run this business for six quarters in the US, and then we start like, there's no, there's nothing on the drawing board in terms of longer-term plans there. Yeah, we have not had those discussions. We wouldn't have visibility into that. At this point, Mike, they've not commented on that, nor have we asked, quite frankly, but we're, I think we're all focused on making sure that we're able to supply not only product but technical data information that's useful for their marketing and sales and training purposes.

Speaker Change: Okay, so not even like sort of like Hey, you know.

Speaker Change: We sort of run this business for six quarters in the U S. And then we start like Theres no theres nothing on the drawing board in terms of longer term plan there.

Speaker Change: We have not had those discussions I mean, it wouldn't have visibility of that at this point, Mike They have not commented on that.

Speaker Change: Nor have we ask quite frankly, but we're I think we're all focused on making sure that we're able to supply not only product, but technical data information, that's useful for their marketing and selling and training purposes.

Michael John Petusky: We certainly would welcome the opportunity to produce more units for Abbott for sale in other international markets, but that's not what we're manufacturing today. It's solely for the US. And just a last question. Obviously, the first couple of quarters of this fiscal year have come in really strongly.

Speaker Change: We certainly would welcome the opportunity to produce more units for Abbott for sale and other international markets, but thats not what were manufacturing today, it's solely U S.

Speaker Change: Okay.

Speaker Change: Last question, obviously, the first couple of quarters of this fiscal.

Speaker Change: Cutting really strongly I think a lot of people people, we've talked to are sort of interested in what 25 could look like.

Michael John Petusky: I think a lot of people, at least people we've talked to, are sort of interested in what 25 could look like. And I'm just curious, is there any chance that you guys may give sort of a little bit of a preview of that, say, before the fourth quarter conference call? Like, is there a chance that maybe after the third quarter or something towards the end of this?

Speaker Change: And I'm just curious I mean is there any chance that you guys may give.

Speaker Change: Sort of a little bit of a preview on that side.

Speaker Change: For the fourth quarter conference call I guess is there a chance that maybe after the third quarter or something towards the.

Michael John Petusky: Sorry, go ahead. I want to say, more than likely, not, and not because we're trying to be coy only. We have multiple hypotheses and assumptions that we're validating. And some of those data points, again, we're just launching a couple products right now. So the way we look at fiscal 25 is we have hypotheses of where those products will get to. If it's above or below, then we then change our assumptions before that.

Speaker Change: Yes.

Speaker Change: Sorry, I want to say more than likely not and not because we're trying to be coy only.

Speaker Change: We have multiple hypotheses and assumptions of where validating and some of those data points again, we just we just launching a couple of products right now so the way we look at.

Speaker Change: Fiscal 'twenty five as we have hypothesis of where those products get to if it's above below and then we didn't change our assumptions before that and given the fact that we're so close to the end of the fiscal year. Even then we wouldn't have as many data points. So that would typically like to have.

Gary R. Maharaj: And given the fact that we're so close to the end of the fiscal year, even then, we wouldn't have as many data points as I would typically like to have. So I would stay tuned until the November 4th quarterly earnings call. Okay, fair enough. All right, thank you guys. I appreciate it. Thank you, Mike. Thank you. We are currently seeing no remaining questions at this time.

Speaker Change: I would stay tuned until the November 4th quarter earnings call.

Speaker Change: Okay Fair enough alright. Thanks, Thank you guys I appreciate it.

Speaker Change: Appreciate it Mike Thank you.

Speaker Change: We are currently seeing no remaining questions at this time that does conclude our conference for today. Thank you for your participation.

Operator: That does conclude our conference for today. Thank you for your participation. ??? [inaudible] ?? ?? ?? ?? Copyright © 2020 Mooji Media Ltd. All Rights Reserved. No part of this recording may be reproduced without Mooji Media Ltd.'s express consent. ? ? ? ? ? ? ? ? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? Copyright © 2020 Mooji Media Ltd. All Rights Reserved. No part of this recording may be reproduced without Mooji Media Ltd.'s express consent. ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ??

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