10-Q

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2025

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 0-23837

Surmodics, Inc.

(Exact name of registrant as specified in its charter)


Minnesota	41-1356149
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

9924 West 74th Street, Eden Prairie, Minnesota 55344

(Address of principal executive offices) (Zip Code)

(952) 500-7000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, $0.05 par value	SRDX	Nasdaq Global Select Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☐	Emerging Growth Company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of shares of the registrant’s Common Stock, $0.05 par value per share, as of April 25, 2025 was 14,299,266.

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TABLE OF CONTENTS


PART I. FINANCIAL INFORMATION
Item 1.	Unaudited Condensed Consolidated Financial Statements	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	32
Item 4.	Controls and Procedures	32
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	33
Item 1A.	Risk Factors	33
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	35
Item 3.	Defaults Upon Senior Securities	35
Item 4.	Mine Safety Disclosures	35
Item 5.	Other Information	35
Item 6.	Exhibits	36
SIGNATURES		37

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PART I. FINANCIAL INFORMATION

Item 1. Unaudited Condensed Consolidated Financial Statements

Surmodics, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets


	March 31,			September 30,
	2025			2024
(In thousands, except per share data)	(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents	$	29,183		$	36,115
Available-for-sale securities		1,965			3,997
Accounts receivable, net of allowances of $193 and $144 as of March 31, 2025 and September 30, 2024, respectively		11,589			13,292
Contract assets		9,697			9,872
Inventories		16,060			15,168
Prepaids and other		3,253			2,860
Total Current Assets		71,747			81,304
Property and equipment, net		23,281			24,956
Intangible assets, net		21,088			23,569
Goodwill		43,660			44,640
Other assets		3,438			4,093
Total Assets	$	163,214		$	178,562
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	3,387		$	2,786
Accrued liabilities:
Compensation		6,259			11,099
Accrued other		3,966			3,795
Deferred revenue		338			1,619
Income tax payable		—			1,244
Total Current Liabilities		13,950			20,543
Long-term debt, net		29,628			29,554
Deferred income taxes		1,607			1,785
Other long-term liabilities		7,783			7,783
Total Liabilities		52,968			59,665
Commitments and Contingencies (Note 11)
Stockholders’ Equity:
Series A Preferred stock — $.05 par value, 450 shares authorized; no shares issued and outstanding		—			—
Common stock — $.05 par value, 45,000 shares authorized; 14,299 and 14,325 shares issued and outstanding as of March 31, 2025 and September 30, 2024, respectively		715			716
Additional paid-in capital		46,547			44,594
Accumulated other comprehensive loss		(3,869	)		(2,126	)
Retained earnings		66,853			75,713
Total Stockholders’ Equity		110,246			118,897
Total Liabilities and Stockholders’ Equity	$	163,214		$	178,562

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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Surmodics, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations


	Three Months Ended March 31,							Six Months Ended March 31,
	2025			2024				2025			2024
(In thousands, except per share data)	(Unaudited)						(Unaudited)
Revenue:
Product sales	$	14,993		$	18,099			$	31,541		$	36,926
Royalties and license fees		9,907			11,411				20,541			20,590
Research, development and other		3,185			2,448				5,925			4,994
Total revenue		28,085			31,958				58,007			62,510
Operating costs and expenses:
Product costs		7,830			7,101				15,255			15,904
Research and development		8,367			10,229				17,308			18,893
Selling, general and administrative		15,045			13,093				30,219			25,630
Acquired intangible asset amortization		853			876				1,716			1,746
Total operating costs and expenses		32,095			31,299				64,498			62,173
Operating (loss) income		(4,010	)		659				(6,491	)		337
Other expense, net:
Interest expense, net		(855	)		(881	)			(1,737	)		(1,777	)
Foreign exchange loss		(70	)		(72	)			(38	)		(117	)
Investment income, net		253			460				640			999
Other expense, net		(672	)		(493	)			(1,135	)		(895	)
(Loss) income before income taxes		(4,682	)		166				(7,626	)		(558	)
Income tax benefit (expense)		(527	)		81				(1,234	)		19
Net (loss) income	$	(5,209	)	$	247			$	(8,860	)	$	(539	)

Basic net (loss) income per share	$	(0.36	)	$	0.02			$	(0.62	)	$	(0.04	)
Diluted net (loss) income per share	$	(0.36	)	$	0.02			$	(0.62	)	$	(0.04	)

Weighted average number of shares outstanding:
Basic		14,278			14,152				14,255			14,127
Diluted		14,278			14,182				14,255			14,127

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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Surmodics, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive (Loss) Income


	Three Months Ended March 31,							Six Months Ended March 31,
	2025			2024				2025			2024
(In thousands)	(Unaudited)						(Unaudited)
Net (loss) income	$	(5,209	)	$	247			$	(8,860	)	$	(539	)
Other comprehensive (loss) income:
Derivative instruments:
Unrealized net (loss) gain		(194	)		426				312			(194	)
Net gain (loss) reclassified to earnings		3			(62	)			(26	)		(124	)
Net changes related to available-for-sale securities, net of tax		(4	)		2				(4	)		(6	)
Foreign currency translation adjustments		2,469			(1,464	)			(2,025	)		1,333
Other comprehensive (loss) income		2,274			(1,098	)			(1,743	)		1,009
Comprehensive (loss) income	$	(2,935	)	$	(851	)		$	(10,603	)	$	470

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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Surmodics, Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders’ Equity


	Three Months Ended March 31, 2025 and 2024
	(Unaudited)									Accumulated
							Additional			Other						Total
	Common Stock						Paid-In			Comprehensive			Retained			Stockholders’
(In thousands)	Shares			Amount			Capital			Loss			Earnings			Equity
Balance at December 31, 2024		14,294		$	715		$	45,135		$	(6,143	)	$	72,062		$	111,769
Net loss		—			—			—			—			(5,209	)		(5,209	)
Other comprehensive income, net of tax		—			—			—			2,274			—			2,274
Issuance of common stock		(2	)		—			—			—			—			—
Common stock options exercised, net		7			—			62			—			—			62
Purchase of common stock to pay employee taxes		—			—			(14	)		—			—			(14	)
Stock-based compensation		—			—			1,364			—			—			1,364
Balance at March 31, 2025		14,299		$	715		$	46,547		$	(3,869	)	$	66,853		$	110,246

Balance at December 31, 2023		14,235		$	712		$	37,621		$	(2,652	)	$	86,469		$	122,150
Net income		—			—			—			—			247			247
Other comprehensive loss, net of tax		—			—			—			(1,098	)		—			(1,098	)
Issuance of common stock		19			1			449			—			—			450
Common stock options exercised, net		6			1			80			—			—			81
Purchase of common stock to pay employee taxes		—			(1	)		(5	)		—			—			(6	)
Stock-based compensation		—			—			2,126			—			—			2,126
Balance at March 31, 2024		14,260		$	713		$	40,271		$	(3,750	)	$	86,716		$	123,950


	Six Months Ended March 31, 2025 and 2024
	(Unaudited)									Accumulated
							Additional			Other						Total
	Common Stock						Paid-In			Comprehensive			Retained			Stockholders’
(In thousands)	Shares			Amount			Capital			Loss			Earnings			Equity
Balance at September 30, 2024		14,325		$	716		$	44,594		$	(2,126	)	$	75,713		$	118,897
Net loss		—			—			—			—			(8,860	)		(8,860	)
Other comprehensive loss, net of tax		—			—			—			(1,743	)		—			(1,743	)
Issuance of common stock		(3	)		—			—			—			—			—
Common stock options exercised, net		10			1			168			—			—			169
Purchase of common stock to pay employee taxes		(33	)		(2	)		(1,322	)		—			—			(1,324	)
Stock-based compensation		—			—			3,107			—			—			3,107
Balance at March 31, 2025		14,299		$	715		$	46,547		$	(3,869	)	$	66,853		$	110,246

Balance at September 30, 2023		14,155		$	708		$	36,706		$	(4,759	)	$	87,255		$	119,910
Net loss		—			—			—			—			(539	)		(539	)
Other comprehensive income, net of tax		—			—			—			1,009			—			1,009
Issuance of common stock		121			6			444			—			—			450
Common stock options exercised, net		13			1			119			—			—			120
Purchase of common stock to pay employee taxes		(29	)		(2	)		(1,092	)		—			—			(1,094	)
Stock-based compensation		—			—			4,094			—			—			4,094
Balance at March 31, 2024		14,260		$	713		$	40,271		$	(3,750	)	$	86,716		$	123,950

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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Surmodics, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows


	Six Months Ended March 31,
	2025			2024
(In thousands)	(Unaudited)
Operating Activities:
Net loss	$	(8,860	)	$	(539	)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization		4,222			4,429
Stock-based compensation		3,107			4,094
Noncash lease expense		420			397
Amortization of debt issuance costs		151			144
Provision for credit losses		49			27
Deferred taxes		(121	)		(189	)
Other		5			(268	)
Change in operating assets and liabilities:
Accounts receivable and contract assets		2,009			(4,337	)
Inventories		(892	)		(565	)
Prepaids and other		793			2,740
Accounts payable		329			4
Accrued liabilities		(5,801	)		(5,007	)
Income taxes		(1,075	)		(279	)
Deferred revenue		(1,281	)		(2,028	)
Net cash (used in) provided by operating activities		(6,945	)		(1,377	)
Investing Activities:
Purchases of property and equipment		(621	)		(1,991	)
Purchases of available-for-sale securities		(1,961	)		(13,682	)
Maturities of available-for-sale securities		4,000			10,000
Net cash (used in) provided by investing activities		1,418			(5,673	)
Financing Activities:
Issuance of common stock		169			570
Payments for taxes related to net share settlement of equity awards		(1,324	)		(1,093	)
Payments for acquisition of in-process research and development		—			(931	)
Net cash (used in) provided by financing activities		(1,155	)		(1,454	)
Effect of exchange rate changes on cash and cash equivalents		(250	)		115
Net change in cash and cash equivalents		(6,932	)		(8,389	)
Cash and Cash Equivalents:
Beginning of period		36,115			41,419
End of period	$	29,183		$	33,030
Supplemental Information:
Cash paid for income taxes	$	2,331		$	338
Cash paid for interest		1,471			1,518
Noncash investing and financing activities:
Acquisition of property and equipment		330			227
Right-of-use assets obtained in exchange for operating lease liabilities		—			845

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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Surmodics, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

Period Ended March 31, 2025

(Unaudited)

1. Organization

Description of Business

Surmodics, Inc. and subsidiaries (referred to as “Surmodics,” the “Company,” “we,” “us,” “our” and other like terms) is a leading provider of performance coating technologies for intravascular medical devices and chemical and biological components for in vitro diagnostic (“IVD”) immunoassay tests and microarrays. Surmodics develops and commercializes highly differentiated vascular intervention medical devices that are designed to address unmet clinical needs and engineered to the most demanding requirements. This key growth strategy leverages the combination of the Company’s expertise in proprietary surface modification and drug-delivery coating technologies, along with its device design, development and manufacturing capabilities. The Company’s mission is to improve the detection and treatment of disease. Surmodics is headquartered in Eden Prairie, Minnesota.

On May 28, 2024, Surmodics entered into a Merger Agreement (the “Merger Agreement”) with BCE Parent, LLC, a Delaware limited liability company (“Parent”), and BCE Merger Sub, Inc., a Minnesota corporation and a wholly owned Subsidiary of Parent (“Merger Sub”), pursuant to which Surmodics will, subject to the terms and conditions thereof, be acquired by Parent for $43.00 per share in cash through the merger of Merger Sub with and into the Company (the “Merger”), with the Company as the surviving corporation and a wholly owned subsidiary of Parent. See Note 13 Merger Agreement for additional information about the Merger Agreement and Note 14 Federal Trade Commission Legal Proceedings for additional information about litigation related to the Merger.

Basis of Presentation and Principles of Consolidation

The accompanying unaudited condensed consolidated financial statements include all accounts and wholly-owned subsidiaries and have been prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”). All intercompany transactions have been eliminated. The Company operates on a fiscal year ending on September 30. In accordance with the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”), the Company has omitted footnote disclosures that would substantially duplicate the disclosures contained in the audited consolidated financial statements of the Company. These unaudited condensed consolidated financial statements should be read together with the audited consolidated financial statements for the fiscal year ended September 30, 2024, and notes thereto included in our Annual Report on Form 10-K as filed with the SEC.

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Ultimate results could differ from those estimates. The results of operations for the three and six months ended March 31, 2025 are not necessarily indicative of the results that may be expected for the entire 2025 fiscal year.

New Accounting Pronouncements

Not Yet Adopted

In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2023-07, Segment Reporting: Improvements to Reportable Segment Disclosures. This guidance requires disclosure of incremental segment information on an annual and interim basis. This amendment is effective for our fiscal year ending September 30, 2025 and interim periods within our fiscal year ending September 30, 2026. We are currently assessing the impact of this guidance on our disclosures.

In December 2023, the FASB issued ASU No. 2023-09, Income Taxes: Improvements to Income Tax Disclosures. This guidance requires consistent categories and greater disaggregation of information in the rate reconciliation and disclosures of income taxes paid by jurisdiction. This amendment is effective for our fiscal year ending September 30, 2026 and interim periods within our fiscal year ending September 30, 2027. We are currently assessing the impact of this guidance on our disclosures.

No other new accounting pronouncement issued or effective during our fiscal year ending September 30, 2025, or is expected to have, a material impact on the Company’s condensed consolidated financial statements.

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2. Revenue

The following table is a disaggregation of revenue within each reportable segment.


	Three Months Ended March 31,				Six Months Ended March 31,
(In thousands)	2025		2024		2025		2024
Medical Device
Product sales	$	7,714	$	11,100	$	17,830	$	23,050
Royalties & license fees – performance coatings		9,642		10,323		19,025		18,531
License fees – SurVeil DCB		265		1,088		1,516		2,059
Research, development and other		3,088		2,315		5,619		4,731
Medical Device Revenue		20,709		24,826		43,990		48,371
In Vitro Diagnostics
Product sales		7,279		6,999		13,711		13,876
Research, development and other		97		133		306		263
In Vitro Diagnostics Revenue		7,376		7,132		14,017		14,139
Total Revenue	$	28,085	$	31,958	$	58,007	$	62,510

Contract assets totaled $10.2 million and $10.6 million as of March 31, 2025 and September 30, 2024, respectively, and were reported in contract assets, current and other assets, noncurrent (Note 5) on the condensed consolidated balance sheets. Fluctuations in the balance of contract assets result primarily from (i) fluctuations in the sales volume of performance coating royalties and license fees earned, but not collected, at each balance sheet date due to payment timing and contractual changes in the normal course of business; and (ii) starting in fiscal 2024, sales-based profit-sharing earned, but not collected, related to a collaborative arrangement (Note 3).

Deferred revenue totaled $0.3 million and $1.6 million as of March 31, 2025 and September 30, 2024, respectively, on the condensed consolidated balance sheets and was primarily related to a collaborative arrangement (Note 3). For the six months ended March 31, 2025 and 2024, the total amount of revenue recognized that was included in the respective beginning of fiscal year balances of deferred revenue on the condensed consolidated balance sheets totaled $1.5 million and $2.2 million, respectively.

3. Collaborative Arrangement

On February 26, 2018, the Company entered into an agreement with Abbott Vascular, Inc. (“Abbott”) with respect to one of the device products in our Medical Device reportable segment, the SurVeil™ drug-coated balloon (“DCB”) for treatment of the superficial femoral artery (the “Abbott Agreement”). In June 2023, the SurVeil DCB received U.S. Food and Drug Administration (“FDA”) premarket approval (“PMA”) and may now be marketed and sold in the U.S. by Abbott.

SurVeil DCB License Fees

Under the Abbott Agreement, Surmodics is responsible for conducting all necessary clinical trials, including completion of the ongoing, five-year TRANSCEND pivotal clinical trial of the SurVeil DCB. The Company has received payments totaling $87.8 million for achievement of clinical and regulatory milestones under the Abbott Agreement, which consisted of the following: (i) $25 million upfront fee in fiscal 2018, (ii) $10 million milestone payment in fiscal 2019, (iii) $10.8 million milestone payment in fiscal 2020, (iv) $15 million milestone payment in fiscal 2021, and (v) $27 million milestone payment in the third quarter of fiscal 2023 upon receipt of PMA for the SurVeil DCB from the FDA. There are no remaining contingent or other milestone payments under the Abbott Agreement.

License fee revenue on milestone payments received under the Abbott Agreement was recognized using the cost-to-cost method based on total costs incurred relative to total expected costs for the TRANSCEND pivotal clinical trial. See Note 2 Revenue for SurVeil DCB license fee revenue recognized in our Medical Device reportable segment.

As of March 31, 2025, the Company did not have deferred revenue on the condensed consolidated balance sheets, from upfront and milestone payments received under the Abbott Agreement. The Company completed its remaining performance obligations and recognized the remaining deferred revenue in the second quarter of fiscal 2025 as services, principally the TRANSCEND pivotal clinical trial, were completed.

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SurVeil DCB Product Sales

Under the Abbott Agreement, we supply commercial units of the SurVeil DCB to Abbott, and Abbott has exclusive worldwide distribution rights. During the first quarter of fiscal 2024, we commenced shipment of commercial units of the SurVeil DCB to Abbott. We recognize revenue from the sale of commercial units of the SurVeil DCB to Abbott at the time of shipment in product sales on the condensed consolidated statements of operations. The amount of SurVeil DCB product sales revenue recognized includes (i) the contractual transfer price per unit and (ii) an estimate of Surmodics’ share of net profits resulting from product sales by Abbott to third parties pursuant to the Abbott Agreement (“estimated SurVeil DCB profit-sharing”). On a quarterly basis, Abbott (i) reports to us its third-party sales of the SurVeil DCB the quarter after those sales occur, which may occur within two years following shipment based on the product’s current shelf life; and (ii) reports to us and pays the actual amount of profit-sharing. Estimated SurVeil DCB profit-sharing represents variable consideration and is recorded in contract assets, current and other assets, noncurrent on the condensed consolidated balance sheets. We estimate variable consideration as the most-likely amount to which we expect to be entitled, and we include estimated amounts in the transaction price to the extent it is probable that a significant reversal of cumulative revenue will not occur when the uncertainty associated with the variable consideration is resolved. Significant judgment is required in estimating the amount of variable consideration to recognize when assessing factors outside of Surmodics’ influence, such as limited availability of third-party information, expected duration of time until resolution, and limited relevant past experience.

4. Fair Value Measurements

Assets and liabilities measured at fair value on a recurring basis by level of the fair value hierarchy were as follows:


	March 31, 2025
(In thousands)	Quoted Prices in Active Markets for Identical Instruments (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Fair Value
Assets
Cash equivalents (1)	$	—	$	22,251	$	—	$	22,251
Available-for-sale securities (1)		—		1,965		—		1,965
Total assets	$	—	$	24,216	$	—	$	24,216

Liabilities
Interest rate swap (2)		—		387		—		387
Total liabilities	$	—	$	387	$	—	$	387


	September 30, 2024
(In thousands)	Quoted Prices in Active Markets for Identical Instruments (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Fair Value
Assets
Cash equivalents (1)	$	—	$	29,334	$	—	$	29,334
Available-for-sale securities (1)		—		3,997		—		3,997
Total assets	$	—	$	33,331	$	—	$	33,331

Liabilities
Interest rate swap (2)	$	—	$	673	$	—	$	673
Total liabilities	$	—	$	673	$	—	$	673

(1)

Fair value of cash equivalents (money market funds) and available-for-sale securities (commercial paper and corporate bond securities) was based on quoted vendor prices and broker pricing where all significant inputs are observable.

(2)

Fair value of interest rate swap is based on forward-looking, one-month term secured overnight financing rate (“Term SOFR”) spot rates and interest rate curves (Note 7).

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5. Supplemental Balance Sheet Information

Investments — Available-for-sale Securities

The amortized cost, unrealized holding gains and losses, and fair value of available-for-sale securities were as follows:


	March 31, 2025
(In thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
Commercial paper and corporate bonds	$	1,966	$	—	$	(1	)	$	1,965
Available-for-sale securities	$	1,966	$	—	$	(1	)	$	1,965


	September 30, 2024
(In thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
Commercial paper and corporate bonds	$	3,997	$	—	$	—	$	3,997
Available-for-sale securities	$	3,997	$	—	$	—	$	3,997

Inventories

Inventories consisted of the following components:


	March 31,		September 30,
(In thousands)	2025		2024
Raw materials	$	8,407	$	8,505
Work-in process		2,213		2,476
Finished products		5,440		4,187
Inventories	$	16,060	$	15,168

Prepaids and Other Assets, Current

Prepaids and other current assets consisted of the following:


	March 31,		September 30,
(In thousands)	2025		2024
Prepaid expenses and other	$	3,148	$	2,752
Irish research and development credits receivable		105		108
Prepaids and other	$	3,253	$	2,860

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Intangible Assets

Intangible assets consisted of the following:


	March 31, 2025
(Dollars in thousands)	Weighted Average Original Life (Years)		Gross Carrying Amount		Accumulated Amortization			Net
Definite-lived intangible assets:
Customer lists and relationships		9.3	$	11,517	$	(10,959	)	$	558
Developed technology		11.9		34,563		(15,280	)		19,283
Patents and other		14.9		2,338		(1,671	)		667
Total definite-lived intangible assets				48,418		(27,910	)		20,508
Unamortized intangible assets:
Trademarks and trade names				580		—			580
Intangible assets, net			$	48,998	$	(27,910	)	$	21,088


	September 30, 2024
(Dollars in thousands)	Weighted Average Original Life (Years)		Gross Carrying Amount		Accumulated Amortization			Net
Definite-lived intangible assets:
Customer lists and relationships		9.3	$	11,870	$	(10,844	)	$	1,026
Developed technology		11.9		35,433		(14,222	)		21,211
Patents and other		14.9		2,338		(1,586	)		752
Total definite-lived intangible assets				49,641		(26,652	)		22,989
Unamortized intangible assets:
Trademarks and trade names				580		—			580
Intangible assets, net			$	50,221	$	(26,652	)	$	23,569

Intangible asset amortization expense was $0.9 million for each of the three months ended March 31, 2025 and 2024 and $1.8 million and $1.9 million for the six months ended March 31, 2025 and 2024, respectively. Based on the intangible assets in service as of March 31, 2025, estimated amortization expense for future fiscal years was as follows:


(In thousands)
Remainder of 2025	$	1,854
2026		2,832
2027		2,582
2028		2,572
2029		2,572
2030		2,346
Thereafter		5,750
Definite-lived intangible assets	$	20,508

Future amortization amounts presented above are estimates. Actual future amortization expense may be different as a result of future acquisitions, impairments, changes in amortization periods, foreign currency translation rates, or other factors.

Goodwill

Changes in the carrying amount of goodwill by segment were as follows:


(In thousands)	In Vitro Diagnostics		Medical Device			Total
Goodwill as of September 30, 2024	$	8,010	$	36,630		$	44,640
Currency translation adjustment				(980	)		(980	)
Goodwill as of March 31, 2025	$	8,010	$	35,650		$	43,660

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Other Assets, Noncurrent

Other noncurrent assets consisted of the following:


	March 31,		September 30,
(In thousands)	2025		2024
Operating lease right-of-use assets	$	2,608	$	3,028
Contract asset (1)		465		689
Other		365		376
Other assets	$	3,438	$	4,093

(1)

As of March 31, 2025 and September 30, 2024, the noncurrent portion of the contract asset associated with estimated SurVeil DCB profit-sharing (Note 3).

Accrued Other Liabilities

Accrued other liabilities consisted of the following:


	March 31,		September 30,
(In thousands)	2025		2024
Accrued professional fees	$	938	$	563
Accrued clinical study expense		—		499
Accrued purchases		962		1,023
Operating lease liabilities, current portion		1,036		1,040
Other		1,030		670
Total accrued other liabilities	$	3,966	$	3,795

Other Long-term Liabilities

Other long-term liabilities consisted of the following:


	March 31,		September 30,
(In thousands)	2025		2024
Deferred consideration (1)	$	1,677	$	1,661
Unrecognized tax benefits (2)		3,355		3,176
Operating lease liabilities, less current portion		2,144		2,648
Other		607		298
Other long-term liabilities	$	7,783	$	7,783

(1)

Deferred consideration consisted of the present value of a guaranteed payment to be made in connection with the fiscal 2021 Vetex acquisition (Note 11).

(2)

Balance of unrecognized tax benefits includes accrued interest and penalties, if applicable (Note 10).

6. Debt

Debt consisted of the following:


	March 31,			September 30,
(In thousands)	2025			2024
Revolving Credit Facility, Term SOFR + 3.00%, maturing October 1, 2027	$	5,000		$	5,000
Tranche 1 Term Loans, Term SOFR +5.75%, maturing October 1, 2027		25,000			25,000
Long-term debt, gross		30,000			30,000
Less: Unamortized debt issuance costs		(372	)		(446	)
Long-term debt, net	$	29,628		$	29,554

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On October 14, 2022, the Company entered into a secured revolving credit facility and secured term loan facilities pursuant to a Credit, Security and Guaranty Agreement (the “MidCap Credit Agreement”) with Mid Cap Funding IV Trust, as agent, and MidCap Financial Trust, as term loan servicer and the lenders from time to time party thereto. The MidCap Credit Agreement provides for availability under a secured revolving line of credit of up to $25.0 million (the “Revolving Credit Facility”). Availability under the Revolving Credit Facility is subject to a borrowing base.

The MidCap Credit Agreement also provided for up to $75 million in term loans (the “Term Loans”), consisting of a $25.0 million Tranche 1 (“Tranche 1”) and a $50.0 million Tranche 2 (“Tranche 2”), which was available until December 31, 2024. The Company did not draw any amounts under Tranche 2 and the Tranche 2 commitment expired on December 31, 2024. Upon closing, the Company borrowed $25.0 million of Tranche 1, borrowed $5.0 million on the Revolving Credit Facility, and used approximately $10.0 million of the proceeds to repay borrowings under the revolving credit facility with Bridgewater Bank. The Company intends to use the remaining proceeds to fund working capital needs and for other general corporate purposes, as permitted under the MidCap Credit Agreement.

Pursuant to the MidCap Credit Agreement, the Company provided a first priority security interest in all existing and future acquired assets, including intellectual property and real estate, owned by the Company. The MidCap Credit Agreement contains certain covenants that limit the Company’s ability to engage in certain transactions. Subject to certain limited exceptions, these covenants limit the Company’s ability to, among other things:

•

create, incur, assume or permit to exist any additional indebtedness, or create, incur, allow or permit to exist any additional liens;

•

enter into any amendment or other modification of certain agreements;

•

effect certain changes in the Company’s business, fiscal year, management, entity name or business locations;

•

liquidate or dissolve, merge with or into, or consolidate with, any other company;

•

pay cash dividends on, make any other distributions in respect of, or redeem, retire or repurchase, any shares of the Company’s capital stock;

•

make certain investments, other than limited permitted acquisitions; and

•

enter into transactions with the Company’s affiliates.

The MidCap Credit Agreement also contains customary indemnification obligations and customary events of default, including, among other things, (i) non-payment, (ii) breach of warranty, (iii) non-performance of covenants and obligations, (iv) default on other indebtedness, (v) judgments, (vi) change of control, (vii) bankruptcy and insolvency, (viii) impairment of security, (ix) termination of a pension plan, (x) regulatory matters, and (xi) material adverse effect.

In the event of default under the MidCap Credit Agreement, the Company would be required to pay interest on principal and all other due and unpaid obligations at the current rate in effect plus 2%.

Borrowings under the MidCap Credit Agreement bear interest at Term SOFR as published by CME Group Benchmark Administration Limited plus 0.10% (“Adjusted Term SOFR”). The Revolving Credit Facility bears interest at an annual rate equal to 3.00% plus the greater of Adjusted Term SOFR or 1.50%, and the Term Loans bear interest at an annual rate equal to 5.75% plus the greater of Adjusted Term SOFR or 1.50%. The Company is required to make monthly interest payments on the Revolving Credit Facility with the entire principal payment due at maturity. The Company is required to make 48 monthly interest payments on the Term Loans beginning on November 1, 2022 (the “Interest-Only Period”). If the Company is in covenant compliance at the end of the Interest-Only Period, the Company will have the option to extend the Interest-Only Period through maturity with the entire principal payment due at maturity. If the Company is not in covenant compliance at the end of the Interest-Only Period, the Company is required to make 12 months of straight-line amortization payments with the entire principal amount due at maturity.

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Subject to certain limitations, the Term Loans have a prepayment fee for payments made prior to the maturity date equal to 1.0% of the prepaid principal amount for the third year following the closing date and thereafter. In addition, if the Revolving Credit Facility is terminated in whole or in part prior to the maturity date, the Company must pay a prepayment fee equal to 1.0% of the terminated commitment amount for the third year following the closing date of the MidCap Credit Agreement and thereafter. The Company is also required to pay a full exit fee at the time of maturity or full prepayment event equal to 2.5% of the aggregate principal amount of the Term Loans made pursuant to the MidCap Credit Agreement and a partial exit fee at the time of any partial prepayment event equal to 2.5% of the amount prepaid. This exit fee is accreted over the remaining term of the Term Loans. The Company also is obligated to pay customary origination fees at the time of each funding of the Term Loans and a customary annual administrative fee based on the amount borrowed under the Term Loan, due on an annual basis. The customary fees on the Revolving Credit Facility include (i) an origination fee based on the commitment amount, which was paid on the closing date, (ii) an annual collateral management fee of 0.50% per annum based on the outstanding balance of the Revolving Credit Facility, payable monthly in arrears and (iii) an unused line fee of 0.50% per annum based on the average unused portion of the Revolving Credit Facility, payable monthly in arrears. The Company must also maintain a minimum balance of no less than 20% of availability under the Revolving Credit Facility or a minimum balance fee applies of 0.50% per annum. Expenses recognized for fees for the Revolving Credit Facility and Term Loans are reported in interest expense, net on the condensed consolidated statements of operations.

7. Derivative Financial Instruments

As of March 31, 2025 and September 30, 2024, derivative financial instruments on the condensed consolidated balance sheets consisted of a fixed-to-variable interest rate swap to mitigate exposure to interest rate increases related to our Term Loans (“interest rate swap”). The interest rate swap has been designated as a cash flow hedge. See Note 6 Debt for further information on our financing arrangements. The net fair value of designated hedge derivatives subject to master netting arrangements reported on the condensed consolidated balance sheets was as follows:


	Asset (Liability)
(In thousands)	Gross Recognized Amount			Gross Offset Amount		Net Amount Presented			Cash Collateral Receivable		Net Amount Reported			Balance Sheet Location
March 31, 2025
Interest rate swap	$	(387	)	$	—	$	(387	)	$	94	$	(293	)	Other long-term liabilities
September 30, 2024
Interest rate swap	$	(673	)	$	—	$	(673	)	$	625	$	(48	)	Other long-term liabilities

The pretax amounts recognized in accumulated other comprehensive loss (“AOCL”) for designated hedge derivative instruments were as follows:


	Three Months Ended March 31,						Six Months Ended March 31,
(In thousands)	2025			2024			2025			2024
Beginning unrealized net (loss) gain in AOCL	$	(196	)	$	(499	)	$	(673	)	$	183
Net gain (loss) recognized in other comprehensive (loss) income		(194	)		426			312			(194	)
Net gain (loss) reclassified into interest expense		3			(62	)		(26	)		(124	)
Ending unrealized (loss) gain in AOCL	$	(387	)	$	(135	)	$	(387	)	$	(135	)

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8. Stock-based Compensation Plans

The Company has stock-based compensation plans approved by its shareholders under which it grants stock options, restricted stock awards, restricted stock units and deferred stock units to officers, directors and key employees. Stock-based compensation expense was reported as follows in the condensed consolidated statements of operations:


	Three Months Ended March 31,				Six Months Ended March 31,
(In thousands)	2025		2024		2025		2024
Product costs	$	44	$	70	$	103	$	142
Research and development		247		389		548		759
Selling, general and administrative		1,073		1,667		2,456		3,193
Total	$	1,364	$	2,126	$	3,107	$	4,094

As of March 31, 2025, unrecognized compensation costs related to non-vested awards totaled approximately $7.7 million, which is expected to be recognized over a weighted average period of approximately 1.8 years.

Stock Option Awards

The Company awards stock options to officers, directors and key employees and uses the Black-Scholes option pricing model to determine the fair value of stock options as of the date of each grant. Stock option grant activity was as follows:


	Six Months Ended March 31,
	2025		2024
Stock option grant activity:
Stock options granted		-		281,000
Weighted average grant date fair value	$	-	$	15.70
Weighted average exercise price	$	-	$	33.40

Restricted Stock Awards

During the six months ended March 31, 2025, the Company did not award any shares of restricted stock. During the six months ended March 31, 2024 the Company awarded 102,000 restricted stock shares to certain key employees and directors with a weighted average grant date fair value per share of $33.53. Restricted Stock is valued based on the market value of the shares as of the date of grant.

Restricted Stock Unit Awards

During the six months ended March 31, 2025, the Company did not award any restricted stocks (“RSU’s”). During the six months ended March 31, 2024, the Company awarded 14,000 RSU’s to directors and key employees in foreign jurisdictions with a weighted average grant date fair value per unit of $32.49. RSUs are valued based on the market value of the shares as of the date of grant.

Employee Stock Purchase Plan

Our U.S. employees are eligible to participate in the amended 1999 Employee Stock Purchase Plan (“ESPP”) approved by our shareholders. New ESPP purchase periods have been suspended under the Merger Agreement since the date of that agreement. During each of the six months ended March 31, 2025 no shares were issued under the ESPP. During the six months ended March 31, 2024, 16,000 shares were issued under the ESPP program.

9. Net Income (Loss) Per Share Data

Basic net income (loss) per common share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of common and common equivalent shares outstanding during the period. The Company’s potentially dilutive common shares are those that result from dilutive common stock options and non-vested stock relating to restricted stock awards and restricted stock units.

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The calculation of diluted loss per share excluded 0.1 million or less in weighted-average shares for the three months ended March 31, 2025 and 0.1 million or less in weighted average shares for each of the six months ended March 31, 2025 and 2024, as their effect was anti-dilutive. Basic and diluted weighted average shares outstanding were as follows:


	Three Months Ended March 31,				Six Months Ended March 31,
(In thousands)	2025		2024		2025		2024
Basic weighted average shares outstanding		14,278		14,152		14,255		14,127
Dilutive effect of outstanding stock options, non-vested restricted stock, and non-vested restricted stock units		—		30		—		—
Diluted weighted average shares outstanding		14,278		14,182		14,255		14,127

10. Income Taxes

For interim income tax reporting, the Company estimates its full-year effective tax rate and applies it to fiscal year-to-date pretax income (loss), excluding unusual or infrequently occurring discrete items. Tax jurisdictions with losses for which tax benefits cannot be realized are excluded. The Company reported income tax expense of $(0.5) million and income tax benefit of $0.1 million for the three months ended March 31, 2025 and 2024, respectively, and income tax expense of $(1.2) million and income tax benefit of less than $0.1 million for the six months ended March 31, 2025 and 2024, respectively.

•

Beginning in our fiscal 2023, certain research and development (“R&D”) costs are required to be capitalized and amortized over a five-year period under the Tax Cuts and Jobs Act enacted in December 2017. This change impacts the expected U.S. federal and state income tax expense and cash taxes paid and to be paid for our fiscal 2025 and 2024.

•

Since September 30, 2022, we have maintained a full valuation allowance against U.S. net deferred tax assets. As a result, we are no longer recording a tax benefit associated with U.S. pretax losses and incremental deferred tax assets.

•

Recurring items cause our effective tax rate to differ from the U.S. federal statutory rate of 21%, including foreign-derived intangible income (“FDII”) deductions in the U.S., U.S. federal and Irish R&D credits, Irish and U.S. state tax rates, excess tax benefits associated with stock-based compensation, and non-deductible merger-related charges (Note 13).

A valuation allowance is required to be recognized against deferred tax assets if, based on the available evidence, it is more likely than not (defined as a likelihood of more than 50%) that all or a portion of such assets will not be realized. We apply judgment to consider the relative impact of negative and positive evidence, and the weight given to negative and positive evidence is commensurate with the extent to which such evidence can be objectively verified. Objective historical evidence, such as cumulative three-year pre-tax losses adjusted for permanent adjustments, is given greater weight than subjective positive evidence, such as forecasts of future earnings. The more objective negative evidence that exists limits our ability to consider other, potentially positive, subjective evidence, such as our future earnings projections. Based on our evaluation of all available positive and negative evidence, and by placing greater weight on the objectively verifiable evidence, we determined, as of March 31, 2025 and September 30, 2024, that it is more likely than not that our net U.S. deferred tax assets will not be realized. Due to significant estimates used to establish the valuation allowance and the potential for changes in facts and circumstances, it is reasonably possible that we will be required to record additional adjustments to the valuation allowance in future reporting periods that could have a material effect on our results of operations.

Discrete tax benefits related to stock-based compensation awards vested, expired, canceled and exercised was $0.1 million or less for each of the three months ended March 31, 2025 and 2024 and $0.1 million or less for each of the six months ended March 31, 2025 and 2024. The total amount of unrecognized tax benefits, excluding interest and penalties that, if recognized, would affect the effective tax rate was $3.2 million and $2.8 million as of March 31, 2025 and September 30, 2024, respectively. Interest and penalties related to unrecognized tax benefits are recorded in income tax benefit (expense).

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The Company files income tax returns, including returns for its subsidiaries, in the U.S. federal jurisdiction and in various state jurisdictions, as well as several non-U.S. jurisdictions. Uncertain tax positions are related to tax years that remain subject to examination. The Internal Revenue Service commenced an examination of the Company’s fiscal 2019 U.S. federal tax return in fiscal 2022; the examination has been completed. U.S. federal income tax returns for years prior to fiscal 2020 are no longer subject to examination by federal tax authorities. For tax returns for U.S. state and local jurisdictions, the Company is no longer subject to examination for tax years generally before fiscal 2015. For tax returns for non-U.S. jurisdictions, the Company is no longer subject to income tax examination for years prior to 2020. Additionally, the Company has been indemnified of liability for any taxes relating to the fiscal 2021 acquisition of Vetex Medical Limited (“Vetex”) and the fiscal 2016 acquisitions of Creagh Medical, Ltd and NorMedix, Inc. for periods prior to the respective acquisition dates, pursuant to the terms of the related share purchase agreements. There were no undistributed earnings in foreign subsidiaries as of March 31, 2025 and September 30, 2024.

11. Commitments and Contingencies

Asset Acquisition. In fiscal 2018, the Company acquired certain intellectual property assets of Embolitech, LLC (the “Embolitech Transaction”). As part of the Embolitech Transaction, the Company paid the sellers $5.0 million in fiscal 2018, $1.0 million in fiscal 2020, $1.0 million in fiscal 2021, $0.5 million in fiscal 2022, $1.0 million in fiscal 2023, and $0.9 million in fiscal 2024. An additional $1.0 million payment is contingent upon the achievement of a certain regulatory milestone within a contingency period ending in 2033.

Vetex Acquisition. In fiscal 2021, Surmodics acquired all of the outstanding shares of Vetex with an upfront cash payment of $39.9 million. The Company paid the sellers $1.8 million in the fourth quarter of fiscal 2024. The Company is obligated to pay an additional installment of $1.8 million in fiscal 2027. An additional $3.5 million in payments is contingent upon the achievement of certain product development and regulatory milestones within a contingency period ending in fiscal 2027.

12. Segment Information

Segment revenue, operating income (loss), and depreciation and amortization were as follows:


	Three Months Ended March 31,						Six Months Ended March 31,
(In thousands)	2025			2024			2025			2024
Revenue:
Medical Device	$	20,709		$	24,826		$	43,990		$	48,371
In Vitro Diagnostics		7,376			7,132			14,017			14,139
Total revenue	$	28,085		$	31,958		$	58,007		$	62,510

Operating (loss) income:
Medical Device	$	(1,865	)	$	302		$	(1,704	)	$	78
In Vitro Diagnostics		3,337			3,356			6,259			6,480
Total segment operating income		1,472			3,658			4,555			6,558
Corporate		(5,482	)		(2,999	)		(11,046	)		(6,221	)
Total operating (loss) income	$	(4,010	)	$	659		$	(6,491	)	$	337

Depreciation and amortization:
Medical Device	$	1,925		$	1,916		$	3,849		$	3,970
In Vitro Diagnostics		103			96			194			193
Corporate		111			84			179			266
Total depreciation and amortization	$	2,139		$	2,096		$	4,222		$	4,429

The Corporate category includes expenses that are not fully allocated to the Medical Device and In Vitro Diagnostics segments. These Corporate costs are related to administrative corporate functions, such as executive management, corporate accounting, information technology, legal, human resources and Board of Directors. Corporate may also include expenses, such as acquisition-related costs and litigation, which are not specific to a segment and thus not allocated to the reportable segments.

Asset information by segment is not presented because the Company does not provide its chief operating decision maker assets by segment, as the data is not readily available.

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13. Merger Agreement

On May 28, 2024, Surmodics entered into the Merger Agreement with Parent and Merger Sub (Note 1). Pursuant to the Merger Agreement, and subject to the terms and conditions thereof, Merger Sub will merge (the “Merger”) with and into the Company, with the Company as the surviving corporation and a wholly owned subsidiary of Parent. At the effective time of the Merger (the “Effective Time”), each share of common stock of the Company then outstanding (other than (1) those shares owned by Merger Sub, Parent, the Company, or any direct or indirect wholly owned subsidiary of Parent or the Company (which will be cancelled without any consideration), (2) any shares outstanding immediately prior to the Effective Time and held of record or beneficially by a Person who has not voted in favor of approval of the Agreement and who is entitled to demand and properly demands and perfects such holder’s dissenter’s rights with respect to such shares, and (3) any shares that have been issued as a restricted stock award pursuant to any of the Stock Incentive Plans (as defined in the Merger Agreement) and that remains unvested and subject to forfeiture thereunder (“Restricted Shares”) (which will be treated as described below)) will be converted into the right to receive $43.00 in cash, without interest (the “Merger Consideration”). The Merger is not subject to a financing condition. If the Merger is consummated, shares of our common stock will be delisted from The Nasdaq Stock Market and deregistered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

During the three and six months ended March 31, 2025, we incurred a total of $2.5 million and $4.8 million, respectively, in charges related to the Merger and the litigation described in Note 14 below, which we reported within selling, general and administrative expenses on the condensed consolidated statements of operations.

Merger Consideration

The Merger Agreement provides that, at the Effective Time, each of the Company’s then outstanding equity awards will be treated as follows: (1) each restricted stock unit or deferred stock unit that has been issued pursuant to any of the Stock Incentive Plans will be cancelled in exchange for an amount in cash equal to the Merger Consideration net of any taxes withheld pursuant to the Merger Agreement; (2) each Restricted Share will be cancelled in exchange for an amount in cash equal to the Merger Consideration, net of any taxes withheld pursuant to the Merger Agreement; and (3) each unexercised option to acquire Company common stock will be (i) if the Merger Consideration for such option is equal to or greater than the exercise price per share of Company common stock subject to such option, cancelled in exchange for an amount in cash equal to the excess, if any, of the Merger Consideration over the exercise price per share of Company common stock subject to such option multiplied by the number of shares of Company common stock subject to such option, and (ii) if the Merger Consideration for such option is less than the exercise price per share of Company common stock subject to such option, cancelled for no consideration.

Conditions

The obligations of the parties to consummate the Merger are subject to the satisfaction or waiver of closing conditions set forth in the Merger Agreement, including (1) the approval of the Company’s shareholders, (2) the expiration or termination of any waiting period applicable under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”), (3) the absence of a “Company Material Adverse Effect” (as defined in the Merger Agreement) with respect to the Company and (4) other customary closing conditions, including the absence of any injunction or other legal restraint or prohibition that would prevent or prohibit the consummation of the Merger.

The Merger was approved by Surmodics’ shareholders at a special meeting on August 13, 2024. On March 6, 2025, the U.S. Federal Trade Commission (“FTC”) voted to issue an administrative complaint and authorized its staff to seek to block the Merger in federal court (collectively, the “FTC Litigation”). See Note 14, below for a further description of the FTC Litigation.

Termination Rights & Fees

The Merger Agreement may be terminated with the mutual written consent of Parent and the Company and also contains termination rights for each of Parent and the Company, including, among others, (1) if the Merger has not been consummated by February 28, 2025 (which date may be extended one or more times, for up to nine additional months in total, under specified circumstances), (2) if a final and non-appealable judgment or law makes consummation of the Merger illegal or prevents the consummation of the Merger, (3) if the required approval of the Company’s shareholders is not obtained, or (4) in the case of a material uncured breach by the other party, in each case as further described in, and subject to the terms and conditions of, the Merger Agreement. Parent may terminate the Merger Agreement in certain circumstances generally related to an adverse change in the Company’s board of directors’ recommendation in favor of the Merger and, as further described below, the Company may terminate the Merger Agreement to accept a Superior Proposal, as further described in, and subject to the terms and conditions of, the Merger Agreement.

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Upon termination of the Merger Agreement under specified circumstances, generally relating to alternative acquisition proposals or an adverse change in the Company’s board of directors’ recommendation in favor of the Merger, the Company would be required to pay Parent a termination fee of $20.4 million. Upon termination of the Merger Agreement under specified circumstances, generally relating to a failure of the Merger to be completed due to certain regulatory impediments, Parent would be required to pay the Company a reverse termination fee of $50.2 million. In certain other circumstances, generally related to a failure by Parent to consummate the Merger when required to do so pursuant to the terms of the Merger Agreement, Parent would be required to pay the Company a reverse termination fee of $47.0 million. The Merger Agreement also contains restrictions on the Company’s ability to seek specific performance of Parent’s obligation to consummate the Merger and generally limits the aggregate liability of Parent for a breach of the Merger Agreement to the amount of the termination fee payable by Parent to the Company.

The foregoing description of the Merger and the Merger Agreement does not purport to be and is not complete and is subject to and qualified in its entirety by reference to the full text of the Merger Agreement.

14. Federal Trade Commission Legal Proceedings

On March 6, 2025, the U.S. Federal Trade Commission (“FTC”) filed an administrative complaint, styled In the Matter of GTCR BC Holdings, LLC and Surmodics, Inc. (the “Administrative Complaint”), seeking to block the Merger and alleging that the Merger if fully consummated, may substantially lessen competition in the purported market for outsourced hydrophilic coatings throughout the country in violation of Section 7 of the Clayton Act, and Section 5 of the Federal Trade Commission Act (the “FTC Act”). On the same day, the FTC filed a parallel complaint against GTCR BC Holdings, LLC (“Holdings”) and the Company in the United States District Court for the Northern District of Illinois (the “Federal Complaint”) seeking a temporary restraining order and a preliminary injunction enjoining the Merger pursuant to Section 13(b) of the FTC Act.

On March 12, 2025, the District Court entered a Stipulated Order for a Temporary Restraining Order, mutually agreed upon by the parties to the Federal Complaint, that prevents Parent and the Company from consummating the Merger until 11:59 p.m. Eastern Time on (a) November 11, 2025, or (b) the third business day after the District Court rules on the FTC’s motion for a preliminary injunction pursuant to Section 13(b) of the FTC Act, whichever occurs earlier. On March 12, 2025 and March 18, 2025, Parent and the Company, respectively, each filed their Answer and Defenses to the Administrative Complaint generally denying the allegations and asserting several defenses. On March 27, 2025, Parent and the Company separately filed their Answers, Defenses, and Counterclaims to the Federal Complaint generally denying the allegations and asserting several defenses. Parent and the Company also asserted counterclaims against the FTC seeking declaratory and injunctive relief alleging violations of Parent’s and the Company’s constitutional rights. On April 16, 2025, the FTC, the State of Illinois and the State of Minnesota filed an amended Federal Complaint against GTCR, LLC, Holdings, and the Company reiterating the original Federal Complaint and adding the State of Illinois and the State of Minnesota as plaintiffs and GTCR, LLC as a defendant. The Company cannot predict the outcome of the FTC Litigation or whether or when the Company will be able to successfully consummate the Merger.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis provides information management believes is useful in understanding the operating results, cash flows and financial condition of Surmodics. The discussion should be read in conjunction with both the unaudited condensed consolidated financial statements and related notes included in this Quarterly Report on Form 10-Q and our audited consolidated financial statements and related notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations, each included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2024. This discussion contains various “Forward-Looking Statements” within the meaning of the Private Securities Litigation Reform Act of 1995. We refer readers to the statement entitled “Forward-Looking Statements” located at the end of this Item 2.

Overview

Surmodics, Inc. (referred to as “Surmodics,” the “Company,” “we,” “us,” “our” and other like terms) is a leading provider of performance coating technologies for intravascular medical devices and chemical and biological components for in vitro diagnostic (“IVD”) immunoassay tests and microarrays. Surmodics develops and commercializes highly differentiated vascular intervention medical devices that are designed to address unmet clinical needs and engineered to the most demanding requirements. This key growth strategy leverages the combination of the Company’s expertise in proprietary surface modification and drug-delivery coating technologies, along with its device design, development and manufacturing capabilities. The Company’s mission is to improve the detection and treatment of disease. Surmodics is headquartered in Eden Prairie, Minnesota.

Merger Agreement

As described more fully under Part I, Item 1, Note 13 Merger Agreement, on May 28, 2024, we entered into a Merger Agreement with BCE Parent, LLC, a Delaware limited liability company (“Parent”), and BCE Merger Sub, Inc., a Minnesota corporation and a wholly owned Subsidiary of Parent (“Merger Sub”), pursuant to which we will, subject to the terms and conditions of the Merger Agreement, be acquired by Parent for $43.00 per share in cash through the merger of Merger Sub with and into us (the “Merger”), with Surmodics as the surviving corporation and a wholly owned subsidiary of Parent. The Merger remains subject to the resolution of litigation with the U.S. Federal Trade Commission (the “FTC”) and customary closing conditions, including required regulatory approval. If the Merger is consummated, shares of our common stock will be delisted from The Nasdaq Stock Market and deregistered under the Exchange Act.

During the three and six months ended March 31, 2025, we incurred a total of $2.5 million and $4.8 million in merger-related charges, respectively, which we reported within selling, general and administrative expense on the condensed consolidated statements of operations.

Vascular Intervention Medical Device Platforms

Within our Medical Device segment, we develop and manufacture our own proprietary vascular intervention medical device products, which leverage our expertise in performance coating technologies, product design and engineering capabilities. We believe our strategy of developing our own medical device products has increased, and will continue to increase, our relevance in the medical device industry. This strategy is key to our future growth and profitability, providing us with the opportunity to capture more revenue and operating margin with vascular intervention device products than we would by licensing our device-enabling technologies.

Highlighted below are select medical device products within our development pipeline that are our focus for commercialization and development efforts. For our drug-coated balloon (“DCB") platform, we commercialized our SurVeil™ DCB through a distribution arrangement with Abbott Vascular, Inc. (“Abbott”). For both our thrombectomy and radial access platforms, we are pursuing commercialization via a direct sales strategy leveraging a small team of experienced sales professionals and clinical specialists.

Drug-coated Balloon Platform

Surmodics’ DCBs are designed for vascular interventions to treat peripheral arterial disease (“PAD”), a condition that causes a narrowing of the blood vessels supplying the extremities.

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SurVeil DCB is a paclitaxel-coated DCB to treat PAD in the upper leg (superficial femoral artery), which utilizes a proprietary paclitaxel drug-excipient formulation for a durable balloon coating and is manufactured using an innovative process to improve coating uniformity. In June 2023, the SurVeil DCB received U.S. Food and Drug Administration (“FDA”) premarket approval (“PMA”) and may now be marketed and sold in the U.S. by Abbott under our exclusive worldwide distribution agreement for the product (the “Abbott Agreement”). The SurVeil DCB also has the necessary regulatory approval for commercialization in the European Union.

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In the first quarter of fiscal 2024, we completed shipment of Abbott’s initial stocking order of commercial units of the SurVeil DCB, resulting in the initial recognition of sales revenue for the product. Beginning in January 2024, the SurVeil DCB is a commercial product available in the U.S. through Abbott. Throughout fiscal 2024 and the first six months of fiscal 2025, we continued to manufacture and ship commercial units to Abbott in support of Abbott’s commercialization of the product. Upon our sales of SurVeil DCB products to Abbott we recognize revenue that includes both (i) the contractual transfer pries, and (ii) an estimate of Surmodics’ share of net profits resulting from product sales by Abbott to third parties.

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SundanceTM DCB is a sirolimus-coated DCB used for the treatment of below-the-knee PAD. We completed six-month patient follow-up visits in the fourth quarter of fiscal 2021 for the SWING first-in-human, 35-patient clinical study of our Sundance DCB. SWING study data at 24 months have demonstrated an excellent safety profile and promising signals of potential performance. We continue to evaluate our strategy for further clinical investment in the Sundance DCB based on the experience we have gained from the PMA application process for the SurVeil DCB and market interest.

Thrombectomy Systems

We have successfully developed, internally and through acquisitions, multiple FDA 510(k)-cleared mechanical thrombectomy devices, which require no capital equipment, for the non-surgical removal of thrombi and emboli (clots) from the peripheral arterial and venous vasculatures, while minimizing the need for thrombolytics. We believe that the ease of use, intuitive design, and performance of our thrombectomy systems make these products attractive first-line treatment options for interventionalists.

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Pounce Thrombectomy Platform, indicated for the peripheral arterial vasculature, is a suite of mechanical thrombectomy systems designed for the capture and non-surgical removal of thrombi and emboli (clots) without the need for capital equipment or aspiration while minimizing the use of thrombolytics. Three different-sized systems are commercially available.

The original Pounce (mid profile) Thrombectomy System is indicated for use in peripheral arterial vessels 3.5 mm to 6 mm in diameter, such as those found above the knee. Commercial sales of the Pounce Thrombectomy System began in fiscal 2022.

The Pounce LP (Low Profile) Thrombectomy System is indicated for use in peripheral arterial vessels 2 mm to 4 mm in diameter, such as those found below the knee. The Pounce LP Thrombectomy System received FDA 510(k) regulatory clearance in fiscal 2023, and we began limited market evaluations of the product in the first quarter of fiscal 2024. In the third quarter of fiscal 2024, we completed limited market evaluations for the Pounce LP Thrombectomy System, and the product was commercially launched.

The Pounce XL Thrombectomy System is indicated for use in peripheral arterial vessels 5.5 mm to 10 mm in diameter, making it suitable for iliac, femoral, and other arteries within this range. The Pounce XL Thrombectomy System received FDA 510(k) regulatory clearance in the fourth quarter of fiscal 2024. We conducted limited market evaluations to obtain physician feedback of the product in the first half of fiscal 2025. Early in the third quarter of fiscal 2025 we commenced the commercial launch of the product.

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Pounce Venous Thrombectomy System is a mechanical thrombectomy system indicated for mechanical de-clotting and controlled and selective infusion of physician-specified fluids, including thrombolytics, in the peripheral vasculature. The Pounce Venous System is designed to remove mixed-morphology, wall-adherent venous clot in a single session, minimizing the need for thrombolytics and without the need for capital equipment. We conducted limited market evaluations of the Pounce Venous Thrombectomy System in fiscal 2023 and in the first half of fiscal 2024 to obtain physician feedback across a variety of cases and clinical conditions. In the second quarter of fiscal 2024, we completed limited market evaluations for the Pounce Venous Thrombectomy System, and the product was commercially launched.

Sublime Radial Access Platform

We have successfully developed and received FDA 510(k) regulatory clearance for a suite of devices designed to access and treat stenosed (narrowed) arteries from the thigh to the foot via radial (wrist) access. Our Sublime radial access platform provides a unique combination of length, profile and deliverability, allowing physicians to access and treat lesions previously inaccessible via radial access. Commercial sales of the Sublime guide sheath and RX PTA dilatation catheter devices began in fiscal 2022.

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Sublime guide sheath provides the conduit for peripheral intervention with an access point at the wrist that enables treatment all the way to the pedal loop of the foot.

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Sublime .014 RX PTA dilatation catheter treats lesions in peripheral arteries below the knee all the way to the patient’s foot and around the pedal loop.

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Sublime .018 RX PTA dilatation catheter treats lesions in peripheral arteries above and below the knee.

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Sublime microcatheters (.014, .018 and .035) facilitate guidewire placement for difficult to access and treat arterial lesions above and below the knee using radial, femoral, or alternate access sites. Limited market evaluations of our Sublime microcatheters began in the third quarter of fiscal 2023 and in the third quarter of fiscal 2024, we completed limited market evaluations for the Sublime microcatherter, and the product was commercially launched.

Performance Coatings – Preside™ Hydrophilic Coatings

In October 2023, we announced the commercial launch of our most advanced hydrophilic medical device coating technology, Preside hydrophilic coatings. Preside hydrophilic coatings complement our existing Serene™ hydrophilic coatings by providing customers with a unique low-friction and low-particulate generation coating to further enhance distal access for neuro-vascular applications, as well as improved crossing for challenging coronary lesions or chronic total occlusions. Preside hydrophilic coatings are specifically formulated to meet the challenge of achieving the right balance of enhanced lubricity (reduction in friction) and excellent coating durability (resulting in low particulates) for the next-generation of neurovascular, coronary and peripheral vascular devices. Our Preside and Serene hydrophilic coatings both allow customers to leverage their existing coating process to apply these innovative surface treatments.

For more information regarding our vascular intervention medical devices, see Part I, Item 1 of our Annual Report on Form 10-K for the fiscal year ended September 30, 2024.

Results of Operations

Three and Six Months Ended March 31, 2025 and 2024

Revenue. Revenue in the second quarter of fiscal 2025 was $28.1 million, a $(3.9) million or (12)% decrease compared to the prior-year quarter. Revenue in the first six months of fiscal 2025 was $58.0 million , a $(4.5) million or (7)% decrease compared to the same prior-year period. The following is a summary of revenue streams within each reportable segment.


	Three Months Ended March 31,									Six Months Ended March 31,
(Dollars in thousands)	2025		2024		Increase/(Decrease)					2025		2024		Increase/(Decrease)
Medical Device
Product sales	$	7,714	$	11,100	$	(3,386	)	(31	)%	$	17,830	$	23,050	$	(5,220	)	(23	)%
Royalties & license fees – performance coatings		9,642		10,323		(681	)	(7	)%		19,025		18,531		494		3	%
License fees – SurVeil DCB		265		1,088		(823	)	(76	)%		1,516		2,059		(543	)	(26	)%
R&D and other		3,088		2,315		773		33	%		5,619		4,731		888		19	%
Medical Device Revenue		20,709		24,826		(4,117	)	(17	)%		43,990		48,371		(4,381	)	(9	)%
In Vitro Diagnostics
Product sales		7,279		6,999		280		4	%		13,711		13,876		(165	)	(1	)%
R&D and other		97		133		(36	)	(27	)%		306		263		43		16	%
In Vitro Diagnostics Revenue		7,376		7,132		244		3	%		14,017		14,139		(122	)	(1	)%
Total Revenue	$	28,085	$	31,958	$	(3,873	)	(12	)%	$	58,007	$	62,510	$	(4,503	)	(7	)%

Medical Device. Revenue in our Medical Device segment was $20.7 million in the second quarter of fiscal 2025, a $(4.1) million decrease from $24.8 million in the prior-year quarter. For the first six months of fiscal 2025, revenue in our Medical Device segment was $44.0 million, a (9)% decrease from $48.4 million in the same prior-year period.

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Medical Device product sales decreased (31)% to $7.7 million in the second quarter of fiscal 2025, compared to $11.1 million in the prior-year quarter. Medical Device product sales decreased (23)% to $17.8 million in the first six months of fiscal 2025, compared to $23.1 million in the same prior-year period. The second quarter and first six months of fiscal 2025 the decrease in product sales was driven primarily by a decrease in SurVeil DCB product sales of $2.4 million and $4.7 million, respectively, as the prior year periods benefited from the initial stocking order shipments of the SurVeil DCB to Abbott, the Company’s exclusive distribution partner for the product and a decrease in sales of performance coating reagents, to a lesser extent, as a result of active management of inventory levels by certain customers. The decrease was partially offset by continued growth of the Pounce thrombectomy device platform.

Based on forecasts that we have received from Abbott for purchases of SurVeil DCB products, we expect product revenue for our SurVeil DCB products to decline by approximately $7.0 million in fiscal 2025 from their fiscal 2024 level. We do not expect any increases in sales from our Pounce thrombectomy device platform to fully offset that decrease.

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Performance coating royalties and license fee revenue decreased (7)% to $9.6 million in the second quarter of fiscal 2025, compared to $10.3 million in the prior-year quarter. For the first six months of fiscal 2025 performance coating royalties and license fee revenue increased 3% to $19.0 million, compared to $18.5 million the same prior-year period. In the second quarter and first six months of fiscal 2024, performance coating royalties and license fee revenue benefited from $1.4 million in catch-up payments in the normal course of our customers reporting sales-based royalties, in excess of estimated royalties. The Company continues to experience growth in customer utilization of our Serene™ hydrophilic coating.

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SurVeil DCB license fee revenue under the Abbott Agreement was $0.3 million and $1.1 million in the second quarter of fiscal 2025 and 2024, respectively, and $1.5 million and $2.1 million in the first six months of fiscal 2025 and 2024, respectively.

The TRANSCEND pivotal clinical trial was completed in the six months ended of fiscal 2025. Consequently, we expect SurVeil DCB license fee revenue to decline by $3.6 million in fiscal 2025, compared to fiscal 2024, with no further recognition of SurVeil DCB license fee revenue subsequent to March 31, 2025.

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Medical Device research and development (“R&D”) and other revenue increased 33% to $3.1 million in the second quarter of fiscal 2025 compared to $2.3 million in the prior-year quarter. For the first six months of fiscal 2025, Medical Device R&D and other revenue increased 19% to $5.6 million, compared to $4.7 million the same prior-year period. The growth in Medical Device R&D was driven by increased volume of performance coating services and commercial development projects.

In Vitro Diagnostics. Revenue in our In Vitro Diagnostics (“IVD”) segment was $7.4 million in second quarter of fiscal 2025, a 3% increase from $7.1 million in the prior-year quarter. For the first six months of fiscal 2025, revenue in our IVD segment was $14.0 million, a (1)% decrease from $14.1 million in the same prior-year period.

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IVD product sales increased 4% to $7.3 million in the second quarter of fiscal 2025, compared to $7.0 million in the prior-year quarter primarily driven by favorable order timing of our distributed antigen and colorimetric substrate products, offset by a decline in microarray slide/surface revenue. For the first six months of fiscal 2025, IVD product sales decreased (1)% to $13.7 million, compared to $13.9 million in the same prior-year period, primarily driven by slowing in customer demand for protein stabilization and microarray slide/surface products, partly offset by increased sales distributed antigen products and colorimetric substrate products.

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IVD R&D and other revenue was $0.1 million in the second quarter of fiscal 2025 and the second quarter of fiscal 2024. IVD R&D and other revenue was $0.3 million in the first six months of fiscal 2025, and the first six months of fiscal 2024.

Operating Costs and Expenses. Product sales, product costs, product gross profit, product gross margin, and operating costs were as follows:


	Three Months Ended March 31,												Six Months Ended March 31,
(Dollars in thousands)	2025			2024			Increase/(Decrease)						2025			2024			Increase/(Decrease)
Product sales	$	14,993		$	18,099		$	(3,106	)		(17	)%	$	31,541		$	36,926		$	(5,385	)		(15	)%
Product costs		7,830			7,101			729			10	%		15,255			15,904			(649	)		(4	)%
Product gross profit (1)		7,163			10,998			(3,835	)		(35	)%		16,286			21,022			(4,736	)		(23	)%
% Product gross margin (2)		47.8	%		60.8	%		(13.00	)	ppt				51.6	%		56.9	%		(5.30	)	ppt
R&D expense		8,367			10,229			(1,862	)		(18	)%		17,308			18,893			(1,585	)		(8	)%
% Total revenue		29.8	%		32.0	%								29.8	%		30.2	%
SG&A expense		15,045			13,093			1,952			15	%		30,219			25,630			4,589			18	%
% Total revenue		53.6	%		41.0	%								52.1	%		41.0	%
Acquired intangible asset amortization		853			876			(23	)		(3	)%		1,716			1,746			(30	)		(2	)%

(1)

Product gross profit is defined as product sales less related product costs.

(2)

Product gross margin is defined as product gross profit as a percentage of product sales.

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Product Gross Profit and Product Gross Margins. Product gross profit decreased $(3.8) million, or (35)%, in the second quarter of fiscal 2025, compared to the prior-year quarter, and decreased $(4.7) million, or (23)%, in the first six months of fiscal 2025, compared to the same prior-year period. Product gross margins were 47.8% and 60.8% in the second quarter of fiscal 2025 and 2024, respectively, and 51.6% and 56.9% in the first six months of fiscal 2025 and 2024, respectively. The decrease in product gross margins was primarily driven by declining SurVeil DCB gross profit of $2.8 million and $4.5 million in the second quarter and first six months of fiscal 2025, respectively, resulting in under absorption and production inefficiencies associated with below-scale production and the expiration and potential expiration of raw material inventory. The decrease in gross margins was also driven by a decrease in gross profit of performance coating reagents, to a lesser extent, as a result of active management of inventory levels by certain customers. The decrease was offset by continued gross margin growth of the Pounce thrombectomy device platform.

For the remainder of fiscal 2025, we expect product gross profit and product gross margin to decline, compared to their fiscal 2024 levels, primarily due to the expected decline in fiscal 2025 SurVeil DCB product revenue resulting in under-absorption and production inefficiencies associated with below-scale production, including potential expiration of inventory. We do not expect any increases in product gross profit from our Pounce thrombectomy device platform to fully offset that decrease.

R&D Expense. R&D expense declined (18)%, or $(1.9) million, in the second quarter of fiscal 2025, compared to the prior-year quarter. For the first six months of fiscal 2025, R&D expense declined (8)%, or $(1.6) million, compared to the same prior-year period. R&D expense as a percentage of revenue was 29.8% and 32.0% in the second quarter of fiscal 2025 and 2024, respectively, and 29.8% and 30.2% in the first six months of fiscal 2025 and 2024, respectively. The decrease in R&D expense was driven by reduced development costs associated with our Pounce thrombectomy and Sublime radial access platforms, and reduced clinical activity associated with the completion of the TRANSCEND pivotal clinical trial, offset by increases in performance coating commercial development projects.

Selling, General and Administrative (“SG&A”) Expense. SG&A expense increased 15%, or $2.0 million in the second quarter of fiscal 2025 compared to the prior-year quarter. For the first six months of fiscal 2025, SG&A expense increased 18% or $4.6 million, compared to the same prior-year period. SG&A expense as a percentage of revenue was 53.6% and 41.0% in the second quarter of fiscal 2025 and 2024, respectively, and 52.1% and 41.0% in the first six months of fiscal 2025 and 2024, respectively. The increase in SG&A expense was primarily driven by $2.5 million and $4.8 million in merger-related charges incurred during the second quarter and the six months ended March 31, 2025.

Acquired Intangible Asset Amortization. We have previously acquired certain intangible assets through business combinations, which are amortized over periods ranging from 7 to 14 years.

Other Expense. Major classifications of other expense were as follows:


	Three Months Ended March 31,											Six Months Ended March 31,
(In thousands)	2025			2024			Increase/(Decrease)					2025			2024			Increase/(Decrease)
Interest expense, net	$	(855	)	$	(881	)	$	26		(3	)%	$	(1,737	)	$	(1,777	)	$	40		(2	)%
Foreign exchange loss		(70	)		(72	)	$	2		(3	)%		(38	)		(117	)	$	79		(68	)%
Investment income, net		253			460		$	(207	)	(45	)%		640			999		$	(359	)	(36	)%
Other expense, net	$	(672	)	$	(493	)	$	(179	)	36	%	$	(1,135	)	$	(895	)	$	(240	)	27	%

Interest expense, net remained flat in the second quarter and the six months ended March 31, 2025, compared to the same prior-year periods. Refer to “Liquidity and Capital Resources” for further discussion of financing arrangements and expectations for fiscal 2025 interest expense. Foreign currency exchange losses result primarily from the impact of U.S. dollar to Euro exchange rate fluctuations on certain intercompany transactions and balances. Investment income, net decreased $(0.2) million and $(0.4) million in the second quarter and the six months ended March 31, 2025, respectively, compared to the same prior-year periods, due to decreased investments in available-for-sale securities and lower interest rates.

Income Taxes. Income taxes and our effective tax rate were as follows:


	Three Months Ended March 31,								Six Months Ended March 31,
(Dollars in thousands)	2025				2024				2025				2024
(Loss) income before income taxes	$	(4,682	)		$	166			$	(7,626	)		$	(558	)
Income tax benefit (expense)		(527	)			81				(1,234	)			19
Effective tax rate		(11	)	%		(49	)	%		(16	)	%		3		%

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Several factors impacted income taxes and our effective tax rate:

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Beginning in our fiscal 2023, certain R&D costs are required to be capitalized and amortized over a five-year period under the Tax Cuts and Jobs Act enacted in December 2017. This change impacts the expected U.S. federal and state income tax expense and cash taxes paid and to be paid for our fiscal 2025 and 2024.

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Since September 30, 2022, we have maintained a full valuation allowance against U.S. net deferred tax assets. As a result of the full valuation allowance, we are no longer recording a tax benefit associated with U.S. pre-tax losses and incremental deferred tax assets. A valuation allowance is required to be recognized against deferred tax assets if, based on the available evidence, it is more likely than not (defined as a likelihood of more than 50%) that all or a portion of such assets will not be realized. The relevant guidance weighs available evidence such as historical cumulative taxable losses more heavily than future profitability. The valuation allowance has no impact on the availability of U.S. net deferred tax assets to offset future tax liabilities.

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Recurring items cause our effective tax rate to differ from the U.S. federal statutory rate of 21%, including foreign-derived intangible income (“FDII”) deductions in the U.S., U.S. federal and Irish R&D credits, Irish and U.S. state tax rates, and excess tax benefits associated with stock-based compensation.

Segment Operating Results

Operating results for each of our reportable segments were as follows:


	Three Months Ended March 31,									Six Months Ended March 31,
(In thousands)	2025			2024			$ Change			2025			2024			$ Change
Operating (loss) income:
Medical Device	$	(1,865	)	$	302		$	(2,167	)	$	(1,704	)	$	78		$	(1,782	)
In Vitro Diagnostics		3,337			3,356			(19	)		6,259			6,480			(221	)
Total segment operating income		1,472			3,658			(2,186	)		4,555			6,558			(2,003	)
Corporate		(5,482	)		(2,999	)		(2,483	)		(11,046	)		(6,221	)		(4,825	)
Total operating (loss) income	$	(4,010	)	$	659		$	(4,669	)	$	(6,491	)	$	337		$	(6,828	)

Medical Device. Our Medical Device business reported an operating loss of $(1.9) million in the second quarter of fiscal 2025, compared to an operating income of $0.3 million in the prior-year quarter, representing (9)% and 1% of revenue, respectively. For the first six months of fiscal 2025, our Medical Device business reported an operating loss of $(1.7) million, compared to an operating income of $0.1 million in the same prior-year period, representing (4)% and 0% of revenue, respectively.

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Medical Device operating expenses, excluding product costs, decreased $(2.4) million and $(2.0) million year-over-year in the second quarter of fiscal 2025 and the six months ended March 31, 2025, respectively.

R&D expenditures in our Medical Device segment decreased $(2.0) million and $(1.9) million year-over-year in the second quarter of fiscal 2025 and in the six months ended March 31, 2025, respectively. The decrease in R&D expense was driven by reduced development costs associated with our Pounce thrombectomy and Sublime radial access platforms, reduced clinical activity associated with the completion of the TRANSCEND pivotal clinical trial, offset by increases in performance coating commercial development projects.

SG&A expense in our Medical Device segment decreased $(0.4) million and $(0.2) million year-over-year in the second quarter of fiscal 2025 and in the six months ended March 31, 2025, respectively. The decline in spending is primarily driven by lower compensation expenses.

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Performance coating royalties and license fee revenue decreased $(0.7) million and an increase of $0.5 million year-over-year in the second quarter and the six months ended March 31, 2025, respectively. In the second quarter and first six months of fiscal 2024, performance coating royalties and license fee revenue benefited from $1.4 million in catch-up payments in the normal course of our customers reporting sales-based royalties, in excess of estimated royalties. The Company continues to experience growth in customer utilization of our Serene™ hydrophilic coating.

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Medical Device product gross profit decreased $3.9 million to $2.6 million in the second quarter of fiscal 2025, compared to the prior-year quarter, and Medical Device product gross margins were 33.5% and 58.0% in the second quarter of fiscal 2025 and 2024, respectively. Medical Device product gross profit decreased $4.7 million to $7.6 million in the six months ended March 31, 2025 compared to the same prior-year-period, and Medical Device product gross margins were 42.5% and 53.1% in the six months ended March 31, 2025 and 2024, respectively. The decrease in product gross margins was primarily driven by declining SurVeil DCB gross profit of $2.8 million and $4.5 million in the second quarter and first six months of fiscal 2025, respectively, resulting in under absorption and production inefficiencies associated with below-scale production and the expiration and potential expiration of raw material inventory. The decrease in gross margins was also driven by a decrease in gross profit of performance coating reagents, to a lesser extent, as a result of active management of inventory levels by certain customers. The decrease was offset by continued gross margin growth of the Pounce thrombectomy device platform.

In Vitro Diagnostics. Our In Vitro Diagnostics business reported operating income of $3.3 million and $3.4 million in the second quarter of fiscal 2025 and 2024, respectively, representing 45.2% and 47.1% of revenue, respectively. For the six months ended March 31, 2025, our In Vitro Diagnostics business reported operating income of $6.3 million and $6.5 million in the six months ended March 31, 2025 and 2024, respectively, representing 44.7% and 45.8% of revenue, respectively.

•

IVD product gross profit remained flat at $4.6 million in the second quarter of fiscal 2025, compared to the prior-year quarter, and IVD product gross margins were 62.9% and 65.1% in the second quarter of fiscal 2025 and 2024, respectively. IVD product gross profit decreased $(0.1) million to $8.7 million in the six months ended March 31, 2025, compared to the same prior-year-period, and IVD product gross margins were 63.5% and 63.3% in the six months ended March 31, 2025 and 2024, respectively. The year-over-year gross margin decrease is primarily due to a slightly less favorable product mix.

Corporate. The Corporate category includes expenses for administrative corporate functions, such as executive management, corporate accounting, information technology, legal, human resources and Board of Directors related fees and expenses, which we do not fully allocate to the Medical Device and IVD segments. Corporate also includes expenses, such as acquisition-related costs and litigation, which are not specific to a segment and thus not allocated to our reportable segments. The unallocated Corporate expense operating loss was $(5.5) million and $(3.0) million in the three months ended March 31, 2025 and 2024, respectively, and $(11.0) million and $(6.2) million in the six months ended March 31, 2025 and 2024, respectively. The increase in Corporate operating loss was primarily driven by $2.5 million and $4.8 million in merger-related charges incurred during the second quarter and the six months ended March 31, 2025, respectively.

Cash Flow Operating Results

The following is a summary of cash flow results:


	Six Months Ended March 31,
(In thousands)	2025			2024
Cash (used in) provided by:
Operating activities	$	(6,945	)	$	(1,377	)
Investing activities		1,418			(5,673	)
Financing activities		(1,155	)		(1,454	)
Effect of exchange rate changes on cash and cash equivalents		(250	)		115
Net change in cash and cash equivalents	$	(6,932	)	$	(8,389	)

Operating Activities. Cash (used in) provided by operating activities was $(6.9) million in the six months ended March 31, 2025, compared to cash used of $(1.4) million in the same prior-year period. Net loss was $(8.9) million in the six months ended March 31, 2025, compared to $(0.5) million in the same prior-year period. Net changes in operating assets and liabilities reduced cash flows from operating activities by $(3.6) million in six months ended March 31, 2025. Significant changes in operating assets and liabilities affecting cash flows during these periods included:

•

Cash (used in) provided by accounts receivable and contract assets was $2.0 million in the six months ended March 31, 2025, compared to $(4.3) million in the same prior-year period. The year-over-year increase in cash used was primarily driven by a decline in Medical Device product sales, from the initial stocking order shipments of the SurVeil DCB to Abbott, and to a lesser extent, is also attributed to a decline in sales of performance coating reagents by active management of inventory levels by certain customers.

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•

Cash provided by prepaids and other assets was $1.0 million in the six months ended March 31, 2025, compared to cash provided of $2.7 million in the same prior-year period, driven primarily by the collection of a $3.4 million receivable in the second quarter of fiscal 2024, which had been recorded at the end of fiscal 2021, associated with the employee retention credit under the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”).

•

Cash used in income taxes was $(1.1) million in the six months ended March 31, 2025, compared to cash provided of $(0.3) million in the same prior-year period.

Investing Activities. Cash provided by investing activities totaled $1.4 million in the six months ended March 31, 2025, compared to cash used of $(5.7) million in the same prior-year period.

•

Net purchases and maturities of available-for-sale investments were a (use) source of cash totaling $2.0 million and $(3.7) million in the six months ended March 31, 2025 and 2024, respectively.

•

We invested $(0.6) million and $(2.0) million in property and equipment in the six months ended March 31, 2025 and 2024, respectively.

Financing Activities. Cash (used in) provided by financing activities totaled $(1.2) million and $(1.5) million in the six months ended March 31, 2025 and 2024, respectively.

•

In the six months ended March 31, 2025 the Company did not incur any cost related to acquisition of in-process R&D, compared to $(0.9) million, incurred in six months ended March 31, 2024 , related to in-process R&D acquisition under the terms of a fiscal 2018 asset acquisition.

•

In the six months ended March 31, 2025 and 2024, we paid $(1.3) million and $(1.1) million, respectively, to purchase common stock to pay employee taxes resulting from the vesting of stock awards and the exercise of stock options.

•

In the six months ended March 31, 2025 and 2024, we generated $0.2 million and $0.6 million, respectively, from the sale of common stock related to our stock-based compensation plans.

Liquidity and Capital Resources

As of March 31, 2025, working capital totaled $57.8 million, a decrease of $(3.0) million from $60.8 million as of September 30, 2024. We define working capital as current assets minus current liabilities. Cash and cash equivalents and available-for-sale investments totaled $31.1 million as of March 31, 2025, a decrease of $(9.0) million from $40.1 million as of September 30, 2024.

The Company proactively manages its access to capital to support liquidity and continued growth. On October 14, 2022, Surmodics entered into a new, five-year secured credit agreement with MidCap, which consisted of up to $100 million in term loans ($25 million of which was at the sole discretion of MidCap and $50 million of which was an additional loan commitment that expired undrawn by the Company on December 31, 2024) and a $25 million revolving credit facility. At close, the Company drew $25 million on the term loan and $5 million on the revolving credit facility. These proceeds were partially used to retire the Company’s then existing $25 million revolving credit facility with Bridgewater Bank, of which $10 million was outstanding. Upon closing in October 2022, the Company’s cash balance increased by $19.3 million. In fiscal 2025, the Company expects total interest expense under the credit agreement with MidCap to be approximately $3.5 million.

•

Revolving Credit Facility. Surmodics has access to a revolving credit facility, which provides for maximum availability of $25.0 million, subject to a borrowing base. As of March 31, 2025, the outstanding balance on the revolving credit facility was $5.0 million. As of March 31, 2025, additional, incremental availability on the revolving credit facility was approximately $13.7 million, based on borrowing base eligibility requirements consisting primarily of the Company’s inventory, accounts receivable and contract asset balances. The revolving credit facility has an annual interest rate equal to 3.00% plus the greater of Term SOFR (as defined in the credit agreement) or 1.50%, and has a maturity date of October 1, 2027.

•

Term Loan. As of March 31, 2025, the outstanding principal on the term loan was $25.0 million. The credit agreement with MidCap calls for interest-only payments on the term loan over the first four years, which can be extended to five years if certain criteria are met. The Company has entered into an interest rate swap arrangement with Wells Fargo Bank, N.A., whereby the $25 million borrowing on the term loan’s variable base rate was fixed at 10.205% per annum for the five-year loan term. The term loan has a maturity date of October 1, 2027.

As of March 31, 2025, the Company’s shelf registration statement with the SEC allows the Company to offer potentially up to $200 million in debt securities, common stock, preferred stock, warrants, and other securities or any such combination of such securities in amounts, at prices, and on terms announced if and when the securities are ever offered. This shelf registration statement expires in May 2026.

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In fiscal 2025, we anticipate SG&A and R&D expenses will continue to be significant, primarily related to medical device sales and product development, including continued investment in our Pounce and Sublime product platforms. We believe that our existing cash and cash equivalents and available-for-sale investments, which totaled $31.1 million as of March 31, 2025, together with cash flow from operations and our revolving credit facility, will provide liquidity sufficient to meet our cash needs and fund our operations and planned capital expenditures for fiscal 2025. There can be no assurance, however, that our business will continue to generate cash flows at historic levels.

Beyond fiscal 2025, our cash requirements will depend extensively on the timing of market introduction and extent of market acceptance of products in our medical device product portfolio, including the SurVeil DCB distributed by Abbott, our exclusive distribution partner for the product. Our long-term cash requirements also will be significantly impacted by the level of our investment in commercialization of our vascular intervention device products and whether we make future corporate transactions. We cannot accurately predict our long-term cash requirements at this time. We may seek additional sources of liquidity and capital resources, including through borrowing, debt or equity financing or corporate transactions to generate cashflow. There can be no assurance that such transactions will be available to us on favorable terms, if at all.

Customer Concentrations

We have agreements with a diverse base of customers and certain customers have multiple products using our technology. Abbott and Medtronic are our largest customers, comprising 16% and 12%, respectively, of our consolidated revenue for fiscal 2024. Abbott and Medtronic each comprised approximately 13% and 9%, respectively, of our consolidated revenue for the six months ended March 31, 2025.

Critical Accounting Policies and Significant Estimates

Critical accounting policies are those policies that require the application of management’s most challenging subjective or complex judgment, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Critical accounting policies involve judgments and uncertainties that are sufficiently likely to result in materially different results under different assumptions and conditions. For the six months ended March 31, 2025, there were no significant changes in our critical accounting policies. For a detailed description of our other critical accounting policies and significant estimates, see Management’s Discussion and Analysis of Financial Condition and Results of Operations under Item 7 in our Annual Report on Form 10-K for the fiscal year ended September 30, 2024.

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Forward-looking Statements

This Quarterly Report on Form 10-Q, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 2, contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements include, but are not limited to, our strategies for growth and profitability; statements about the Merger and its effects; promising signals of potential performance of our Sundance DCB; plans to evaluate our strategy for further clinical investment in the Sundance DCB; expected product revenue from SurVeil DCB products; growing revenue associated with the adoption, utilization and sales of our Pounce and Sublime platform products; any increase in Pounce thrombectomy platform product sales revenues or gross profits; future gross profits and gross margins and the reasons for their expected decline from fiscal 2024 to fiscal 2025; future revenue growth, our longer-term valuation-creation strategy, and our future potential; information about our product pipeline; future operating expenses, and capital expenditures; estimated future amortization expense; the period over which unrecognized compensation costs is expected to be recognized; the expected decline in SurVeil DCB license fee revenue from fiscal 2024 to 2025; that we will recognize no further deferred revenue related to the Abbott Agreement; that we will proactively manage our access to capital to support liquidity and continued growth; anticipated cash requirements; the intended use of remaining proceeds of our borrowing under the MidCap Credit Agreement; future cash flows and sources of funding, and their ability together with existing cash, and cash equivalents, to provide liquidity sufficient to meet our cash needs and fund our operations and planned capital expenditures for fiscal 2025; statements regarding cash requirements beyond fiscal 2025; expectations regarding capital available under our secured revolving credit facility; expectations regarding the maturity of debt; future impacts of our interest rate swap transactions; our expected interest expense in fiscal 2025 under the MidCap Credit Agreement; our ability to issue securities under our shelf registration statement; the impact of potential lawsuits or claims; the potential impact of interest rate fluctuations on our results of operations and cash flows; the impact of potential change in raw material prices; the potential impact on the Company of currency fluctuations; future income tax (expense) benefit; expected income tax expense and cash taxes to be paid; the likelihood that we will realize the benefits of our deferred tax assets; and the impact of the adoption of new accounting pronouncements. Without limiting the foregoing, words or phrases such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “forecast,” “intend,” “may,” “plan,” “possible,” “project,” “will” and similar terminology, generally identify forward-looking statements. Forward-looking statements may also represent challenging goals for us. These statements, which represent our expectations or beliefs concerning various future events, are based on current expectations that involve a number of risks and uncertainties that could cause actual results to differ materially from those of such forward-looking statements. We caution that undue reliance should not be placed on such forward-looking statements, which speak only as of the date made. Some of the factors which could cause results to differ from those expressed in any forward-looking statement are set forth under “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q and in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended September 30, 2024. We disclaim any intent or obligation to update publicly these forward-looking statements, whether because of new information, future events or otherwise.

Although it is not possible to create a comprehensive list of all factors that may cause actual results to differ from our forward-looking statements, such factors include, among others:

risks related to the Merger, including (1) risks related to the consummation of the Merger, including the risks that (a) the Merger may not be consummated within the anticipated time period, or at all, (b) the parties may fail to secure the termination or expiration of any waiting period applicable under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”), (c) other conditions to the consummation of the Merger under the Merger Agreement may not be satisfied, including the absence of any injunction or other legal restraint or prohibition that would prevent or prohibit the consummation of the Merger, such as the voluntary agreement being in effect with the U.S. Federal Trade Commission (d) all or part of Parent’s financing may not become available, and (e) the significant limitations on remedies contained in the Merger Agreement may limit or entirely prevent the Company from specifically enforcing Parent’s obligations under the Merger Agreement or recovering damages for any breach by Parent; (2) the effects that any termination of the Merger Agreement may have on the Company or its business, including the risks that (a) the Company’s stock price may decline significantly if the Merger is not completed, (b) the Merger Agreement may be terminated in circumstances requiring the Company to pay Parent a termination fee of $20,380,000, or (c) the circumstances of the termination, including the possible imposition of a 12-month tail period during which the termination fee could be payable upon certain subsequent transactions, may have a chilling effect on alternatives to the Merger; (3) the effects that the announcement or pendency of the Merger may have on the Company and its business, including the risks that as a result (a) the Company’s business, operating results or stock price may suffer, (b) the Company’s current plans and operations may be disrupted, (c) the Company’s ability to retain or recruit key employees may be adversely affected, (d) the Company’s business relationships (including, customers, franchisees and suppliers) may be adversely affected, or (e) the Company’s management’s or employees’ attention may be diverted from other important matters; (4) the effect of limitations that the Merger Agreement places on the Company’s ability to operate its business, return capital to shareholders or engage in alternative transactions; (5) the nature, cost and outcome of pending and future litigation and other legal proceedings, including any such proceedings related to the Merger and instituted against the Company and

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others; (6) the risk that the Merger and related transactions may involve unexpected costs, liabilities or delays; and (7) other risks, including our ability to sign new license agreements, conduct clinical evaluations, and bring new products to market;

ongoing operating losses, interest expense, and failure to generate cash flows from operations, which could impact expected expenditures and investments in growth initiatives;

our reliance on a small number of significant customers, including our largest customers, Abbott and Medtronic, which causes our financial results and stock price to be subject to factors affecting those significant customers and their products, the timing of market introduction of their or competing products, product safety or efficacy concerns and intellectual property litigation impacting such customers, which could adversely affect our growth strategy and the royalties revenue we derive;

our ability to successfully manufacture at commercial volumes our SurVeil DCB products;

our ability to successfully develop, obtain and maintain regulatory approval for, commercialize, and manufacture at commercial volumes our other DCB products;

general economic conditions that are beyond our control, such as the impacts of recessions, inflation, rising interest rates, customer mergers and acquisitions, business investment, changes in consumer confidence, and medical epidemics or pandemics such as the COVID-19 pandemic, which negatively impacted our business and results of operations;

our ability to successfully and profitably commercialize our vascular intervention products, including our Pounce Venous Thrombectomy System, through our direct salesforce, or otherwise;

our ability to comply with the terms of our secured revolving credit facility and secured term loan facilities;

the difficulties and uncertainties associated with the lengthy and costly new product development and foreign and domestic regulatory approval processes, such as delays, difficulties or failures in achieving acceptable clinical results or obtaining foreign or FDA marketing clearances or approvals, which may result in lost market opportunities, failure to bring new products to market or postpone or preclude product commercialization by licensees or ourselves;

10.

whether operating expenses that we incur related to the development and commercialization of new technologies and products are effective;

11.

our ability to successfully perform product development activities, the related research and development expense impact, and governmental and regulatory compliance activities, with which we do not have extensive experience;

12.

impairment of goodwill and intangible assets or the establishment of reserves against other assets on our balance sheets;

13.

changing conditions and uncertainty in global markets including the impact of tariffs, sanctions, quotas, import restrictions, and other trade actions; and

14.

other factors described under “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q and in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended September 30, 2024, which you are encouraged to read carefully.

Many of these factors are outside our control and knowledge and could result in increased volatility in period-to-period results. Investors are advised not to place undue reliance upon our forward-looking statements and to consult any further disclosures by us on this subject in our filings with the Securities and Exchange Commission.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

Our investment policy requires investments with high credit quality issuers and limits the amount of credit exposure to any one issuer. Our investments consist principally of interest-bearing corporate debt securities with varying maturity dates, which generally are less than one year. Because of the credit criteria of our investment policies, the primary market risk associated with these investments is interest rate risk. As of March 31, 2025, we held $2.0 million in available-for-sale securities. Therefore, interest rate fluctuations relating to investments would have an insignificant impact on our results of operations or cash flows. Our policy also allows the Company to hold a substantial portion of funds in cash and cash equivalents, which are defined as financial instruments with original maturities of three months or less and may include money market instruments, certificates of deposit, repurchase agreements and commercial paper instruments.

Loans under the Midcap Credit Agreement bear interest at floating rates tied to Term SOFR. As a result, changes in Term SOFR can affect our results of operations and cash flows to the extent we do not have effective interest rate swap arrangements in place. On October 14, 2022, we entered into a five-year interest rate swap transaction with Wells Fargo Bank, N.A. with respect to $25.0 million of notional value of the term loans funded under the MidCap Credit Agreement. The interest rate swap transaction fixes at 4.455% the one-month Term SOFR portion of interest rate under the $25.0 million term loan such that the interest rate on $25.0 million of the term loan will be 10.205% through its maturity. We have no other swap arrangements in place for any other loans under the Midcap Credit Agreement.

Management believes that a reasonable change in raw material prices would not have a material impact on future earnings or cash flows because the Company’s inventory exposure is not material.

We are exposed to increasing Euro currency risk with respect to our manufacturing operations in Ireland. In addition, the contractual transfer price paid by Abbott for commercial units of our SurVeil DCB product is denominated in Euros. In a period where the U.S. dollar is strengthening or weakening relative to the Euro, our revenue and expenses denominated in Euro currency are translated into U.S. dollars at a lower or higher value than they would be in an otherwise constant currency exchange rate environment. All sales transactions are denominated in U.S. dollars or Euros. We generate royalties revenue from the sale of customer products in foreign jurisdictions. Royalties generated in foreign jurisdictions by customers are converted and paid in U.S. dollars per contractual terms. Substantially all of our purchasing transactions are denominated in U.S. dollars or Euros. To date, we have not entered into any foreign currency forward exchange contracts or other derivative financial instruments to hedge the effects of adverse fluctuations in foreign currency exchange rates.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Company’s management, under the supervision and with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, referred to collectively herein as the “Certifying Officers,” carried out an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of March 31, 2025. Based on that evaluation, the Company’s Certifying Officers concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) were effective to ensure that information required to be disclosed by the Company in reports that it files under the Exchange Act is recorded, processed, summarized and reported within the time period specified in the Securities and Exchange Commission rules and forms, and to ensure that information required to be disclosed by the Company in the reports the Company files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its Certifying Officers, as appropriate, to allow timely decisions regarding required disclosures.

Changes in Internal Controls over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) during the three months ended March 31, 2025 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II — OTHER INFORMATION

Item 1. Legal Proceedings

See Note 14 Federal Trade Commission Legal Proceedings for information about litigation related to the pending acquisition of the Company by an affiliate of GTCR LLC.

From time to time, the Company has been involved in various legal actions involving its operations, products and technologies, including intellectual property and employment disputes.

Item 1A. Risk Factors

The information presented below updates, and should be read in conjunction with, the risk factors identified in our Annual Report on Form 10-K for the fiscal year ended September 30, 2024, filed with the Securities and Exchange Commission on November 20, 2024, under Part I, Item 1A, “Risk Factors.” Such risks could affect our financial performance and could cause our actual results for future periods to differ materially from our anticipated results or other expectations, including those expressed in any forward-looking statements made in this Quarterly Report on Form 10-Q. Except as presented below, there were no other significant changes in our risk factors during the quarter ended March 31, 2025.

The completion of the Merger is subject to the resolution of litigation initiated by the U.S. Federal Trade Commission (“FTC”) and a number of closing conditions, many of which are largely outside of the parties’ control, and, if such FTC Litigation is not successfully resolved, and such closing conditions are not satisfied or waived on a timely basis, the Merger Agreement may be terminated and the Merger may not be completed.

On March 6, 2025, the FTC issued an administrative complaint, styled In the Matter of GTCR BC Holdings, LLC and Surmodics, Inc. (the “Administrative Complaint”), seeking to block the Merger and alleging that the Merger if fully consummated, may substantially lessen competition in the purported market for outsourced hydrophilic coatings throughout the country in violation of Section 7 of the Clayton Act, and Section 5 of the Federal Trade Commission Act (the “FTC Act”). On the same day, the FTC filed a parallel complaint in the United States District Court for the Northern District of Illinois (the “Federal Complaint”) seeking a temporary restraining order and a preliminary injunction enjoining the Merger pursuant to Section 13(b) of the FTC Act.

In addition, the Merger is subject to various closing conditions that remain open, including:

the expiration or termination of the waiting period applicable to the consummation of the Merger under the HSR Act and no voluntary agreement being in effect with either the FTC or Antitrust Division of the Department of Justice not to consummate the transaction for any period of time;

the absence of any judgment, ruling, order, writ, injunction or decree of any governmental authority, nor any statute, code, decree, law, healthcare law, act, ordinance, rule, regulation or order of any governmental authority or other legal restraint or prohibition, that is in effect that would make the Merger illegal or otherwise prevent or prohibit its consummation;

subject to specific standards, the accuracy of the representations and warranties of the other party or parties;

the performance or compliance in all material respects by the other party or parties of such party’s or parties’ covenants, obligations, and agreements under the Merger Agreement;

with respect to Parent’s and Merger Sub’s obligations to consummate the merger, the absence of a material adverse effect (as defined in the Merger Agreement) and the absence of any changes having occurred that would reasonably be expected to have, individually or in the aggregate, a material adverse effect;

our having delivered to Parent a certificate, dated as of the closing date and signed by one of our executive officers, certifying to the satisfaction of the foregoing conditions; and

Parent and Merger Sub having delivered to us a certificate, dated as of the closing date and signed by an executive officer, certifying to the satisfaction of the foregoing conditions.

The failure to successfully resolve the FTC Litigation, or to satisfy all of the required conditions, could delay the completion of the Merger by a significant period of time or prevent it from closing. Any delay in completing the Merger could cause the parties to not realize some or all of the benefits that are expected to be achieved if the Merger is successfully completed within the expected timeframe. There can be no assurance that the FTC Litigation will be resolved successfully, or that the conditions to the closing of the Merger will be satisfied or waived or that the Merger will be completed within the expected timeframe, or at all.

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We have incurred and will continue to incur substantial transaction fees and costs in connection with the Merger that could adversely affect our business and operations if the Merger is not completed.

We have incurred and will incur significant non-recurring transaction fees, which include legal and advisory fees and substantial costs associated with completing the Merger, including costs related to the FTC Litigation and any divestitures required to obtain regulatory approvals, and which could adversely affect our business operations and cash position if the Merger is not completed.

Changing conditions and uncertainty in global markets including the impact of tariffs, sanctions, quotas, import restrictions, and other trade actions may adversely affect our operations and financial results.

A substantial portion of our business is impacted by international trade. Many customers for our performance coating business manufacture their products that utilize our coatings outside the U.S. and then ship those products for distribution within the U.S. and abroad. Other customers manufacture their products that utilize our coatings in the U.S. for domestic and international sale. A significant portion of our sales of In Vitro Diagnostics products are to international customers, including customers in China. In addition, we are the exclusive distributor in the U.S., Canada and Puerto Rico (and non-exclusive distributor in Japan) of the BBI Solutions’ DIARECT™ line of antigens and antibodies, which are imported from Germany. We manufacture medical device products and components at our facility in Ballinasloe, Ireland. Those products and components include (i) vascular intention products that we sell directly to physician in the U.S., and (ii) the balloon catheter component used in our SurVeil™ drug-coated balloons (“DCBs”).

Since February 1, 2025, the Trump administration, through executive order and other executive actions, has threatened, announced, or implemented a broad spectrum of tariffs on goods imported into the U.S. from a wide range of countries. From time to time, various of those tariffs have been paused, suspended, or rescinded. Limited exemptions have been announced to certain recent tariffs, although the scope of any exemption is not always clear. In response, other countries, including notably China, have threatened or imposed tariffs or other trade sanctions on products manufactured in the U.S. The system of U.S. and international tariffs, trade sanctions, quotas, import restrictions, and other trade actions and is fluid and unpredictable.

International trade actions announced, threatened or implemented by the U.S. or other countries, and uncertainty related to such trade actions, could have material adverse impacts on our operations and financial results, including the following, among others:

•

U.S. tariffs on medical device products utilizing our performance coating technologies that are manufactured outside the U.S. may increase the price of such products, reduce demand for them and adversely impact the royalty revenue we receive upon their sale;

•

Foreign tariffs, sanctions, quotas or other trade restrictions may adversely impact sales outside the U.S. of medical device products manufactured in the U.S. utilizing our performance coating technologies, reducing the royalty revenue we receive upon the sale of such products;

•

U.S. tariffs may increase the cost of the DIARECT™ line of antigens and antibodies that we distribute in the U.S., thereby reducing our gross profits for such products, and reducing demand for such products if we implement price increases, or both;

•

Foreign tariffs, sanctions, quotas or other trade restrictions may adversely impact sales and gross margins outside the U.S. for our In Vitro Diagnostic reagent products manufactured in the U.S. reducing the revenue we receive and gross profit received upon the sale of such products;

•

Customers may try to mitigate the impact of announced or threatened tariffs by making bulk purchases of our products well in advance of their need for such products or managing inventory levels. A result could be unevenness and unpredictability in our product sales;

•

Tariffs on medical device products and components at our facility in Ballinasloe, Ireland could reduce demand for those products. Such tariffs also could increase the cost of the vascular intention products that we sell directly to physician in the U.S. and of our SurVeil DCBs, thereby reducing our gross profits on such products; and

•

Uncertainty and apprehension regarding global trade may lead to reduced economic activity in the U.S. or globally, which could trigger a recession in the U.S. or globally and adversely affect our financial performance.

Given the uncertainty regarding the scope and duration of trade actions by the U.S. and other countries, their potential adverse impact on our operations and financial results is difficult to quantify, but could be material.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table presents the information with respect to purchases made by or on behalf of Surmodics, Inc. or any “affiliated purchaser” (as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934), of our common stock during the three months ended March 31, 2025.


	Total Number of Shares Purchased (1)		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Programs		Maximum Dollar Value of Shares that May Yet Be Purchased Under the Programs
Period:
January 1 – 31, 2025		—	$	—		—	$	25,300,000
February 1 – 28, 2025		445		34.05		—		25,300,000
March 1 – 31, 2025		—		—		—		25,300,000
Total		445		34.05		—

(1)

All shares reported were delivered by employees in connection with the satisfaction of tax withholding obligations related to the vesting of shares of restricted stock.

The Company has an aggregate of $25.3 million available for future common stock purchases under the current authorizations. The MidCap credit agreement restricts our ability to repurchase our common stock.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not Applicable.

Item 5. Other Information

During the six months ended March 31, 2025, none of our directors or officers (as defined in Rule 16a-1(f) of the Exchange Act) adopted, modified or terminated any contract, instruction or written plan for the purchase or sale of our securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) of the Exchange Act or any non-Rule 10b5-1 trading arrangement (as defined in Item 408(c) of Regulation S-K).

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Item 6. Exhibits		EXHIBIT INDEX
Exhibit		Description

2.1		Stock Purchase Agreement, dated January 8, 2016, among Surmodics, Inc. and the shareholders of NorMedix, Inc. and Gregg Sutton as Seller’s Agent — incorporated by reference to Exhibit 2.1 to the Company’s Form Current Report on Form 8-K filed on January 13, 2016.

2.2		Share Purchase Agreement by and among Surmodics, Inc., SurModics MD, LLC, and the shareholders of Vetex Medical Limited named therein dated as of July 2, 2021 — incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K dated July 2, 2021.

2.3		Put and Call Option Agreement by and among SurModics MD, LLC and the shareholders of Vetex Medical Limited named therein dated as of July 2, 2021 — incorporated by reference to Exhibit 2.2 to the Company’s Current Report on Form 8-K dated July 2, 2021.

2.4		Merger Agreement, dated as of May 28, 2024, by and among Surmodics, Inc., BCE Parent, LLC and BCE Merger Sub, Inc. — incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K dated May 28, 2024

3.1		Restated Articles of Incorporation, as amended — incorporated by reference to Exhibit 3.1 of the Company’s Quarterly Report on Form 10-Q filed on July 29, 2016.

3.2		Restated Bylaws of Surmodics, Inc., as amended August 27, 2024 – incorporated by reference to Exhibit 3.2 to the Company’s Quarterly Report on Form 10-Q filed on July 31, 2024.

31.1*		Certification of Chief Executive Officer pursuant to 18 U.S.C. Sec. 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*		Certification of Chief Financial Officer pursuant to 18 U.S.C. Sec. 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1*		Certification of Chief Executive Officer pursuant to 18 U.S.C. Sec. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2*		Certification of Chief Financial Officer pursuant to 18 U.S.C. Sec. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS*		Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File as its XBRL tags are embedded within the Inline XBRL document.

101.SCH*		Inline XBRL Taxonomy Extension Schema With Embedded Linkbase Documents.

104*		Cover page formatted as Inline XBRL and contained in Exhibit 101.

* Filed herewith

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


April 30, 2025	Surmodics, Inc.

	By:	/s/ Timothy J. Arens
		Timothy J. Arens
		Senior Vice President of Finance and Chief Financial Officer

		(duly authorized signatory and principal financial officer)