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Synovis Reports Q1 Fiscal 2009 Results

Synovis Life Technologies, Inc. (Synovis), a US Based medical device company, has reported net revenue of $13.4 million for the first quarter of fiscal 2009, up 19%, compared with the net revenue of $11.3 million in the year-ago quarter. It has also reported a net income of $1.7 million, or $0.14 per diluted share, for the first quarter of fiscal 2009, compared with a net income of $6.5 million, or $0.51 per diluted share, in the year-ago quarter.

Richard W. Kramp, Synovis Life Technologies’ president and chief executive officer, commented on the quarter: “We are pleased to post very strong revenue overall, most notably in our Peri-Strips® and Veritas® product lines, which rose 25% and 86%, respectively, over the same quarter a year ago. We remain enthusiastic about the rapid market adoption of the Veritas product line. We believe expanding clinical experience with Veritas, combined with strong sales focus, are responsible for the year-over-year growth. To position Synovis for sustained growth going forward, we are committed to investing in both R&D studies that compare competitive product performance versus Veritas, as well as clinical studies to build the product’s published record of clinical performance. Also important is that we have a strong balance sheet with $65.1 million of cash and investments and no debt, giving us the resources to prudently pursue strategic acquisitions to leverage the growing strength of our sales force and augment organic growth.”

Gross margin rose to 70% in the first quarter, a three-percentage point gain over the first quarter of fiscal 2008. Factors driving the improvement include: increased sales of higher-margin Veritas and Peri-Strips products; improved labor and material utilization; and higher average net sales prices. SG&A expenses increased 12% due to higher clinical, new business development and legal costs, as well as greater sales and marketing costs associated with the expansion of Synovis’ sales force. The company added six new sales representatives in the first quarter as planned: four sales people were added to the surgical sales force and two sales people joined the microsurgical sales team. Further, Synovis plans to hire eight more sales professionals by the fiscal year-end. Research and development expenses rose 25% over the year-ago period, primarily due to project activities supporting the development of the Flow Coupler, in addition to current and future indications for Veritas. Operating income for the first quarter totaled $2.2 million, up 75% from operating income of $1.3 million a year earlier.

As previously announced, the company completed the sale of substantially all of the assets of its interventional business on January 31, 2008. Operating results for the interventional business are reflected as discontinued operations for all periods presented. The company recorded a net gain of $5.3 million on the transaction in the first quarter of fiscal 2008.

Balance sheet and cash flow

Synovis had $29.0 million in cash and cash equivalents, as well as $3.0 million in restricted cash and $33.1 million in short- and long-term investments (inclusive of $5.3 million of auction rate securities), for a total of $65.1 million as of January 31, 2009, down from $74.8 million at the fiscal 2008 year-end. During the first quarter, the company used cash of $8.1 million to repurchase 496,000 shares of its stock at an average price per share of $16.39. The company has now completed the repurchase of all 1 million shares that its board authorized in May 2008 at a total cost of $16.7 million. Operating activities used cash of approximately $200,000 in the first quarter of fiscal 2009, consistent with prior years, as year-end accruals for stock repurchases, sales commissions and incentive compensation were paid in the first quarter.

The estimated fair value of the company’s $9.0 million investment in auction rate securities was $5.3 million as of the end of the first quarter, compared to $6.6 million as of the end of fiscal 2008. Based on the facts and circumstances as of January 31, 2009, the company believes fair value adjustment to be temporary and has recorded the loss as “accumulated other comprehensive loss” in the equity section of the balance sheet. As such, the fair value adjustment had no impact on net income or earnings per share in the quarter.