SYNOVIS LIFE REPORTS 39% REVENUE GROWTH FOR 3RD FISCAL QTR.

Synovis Life Technologies, Inc. (Nasdaq:SYNO), St. Paul, Minn., has reported financial results for the third fiscal quarter ended July 31, 2007.

Third-quarter consolidated net revenue rose to $18.2 million, a 39 percent increase over $13.1 million in the year-ago period and a 10 percent sequential gain over fiscal second-quarter revenue of $16.6 million. Surgical business revenue reached $9.9 million in the third quarter, the fifth consecutive record-revenue quarter for this segment, and a 35 percent increase from $7.3 million in the year-ago period. Interventional business revenue rose to $8.3 million in the quarter, 45 percent higher than revenue of $5.7 million a year earlier. The company reported third-quarter net income of $1.2 million, or $0.10 per diluted share, compared with a net loss of $526,000, or $0.04 per share, in the year-earlier period.

We are very pleased that both business units delivered robust revenue growth and solid operating performance, resulting in much higher profits in this fiscal third quarter," said Richard Kramp, Synovis Life Technologies president and chief executive officer. "In the surgical business, our strategic move to a direct sales force has been thoroughly validated -- all product areas showed significant growth from a year ago. In the interventional business, we saw higher revenue contributions from the cardiac rhythm management (CRM) market, as well as increased growth in other medical specialties, resulting in sizeable operating income which is a significant turnaround from the year-ago operating loss.

Consolidated gross margin in the quarter was 46 percent, a 7 percentage point gain over the third quarter of fiscal 2006, due to much improved margins in both business units. Operating expenses rose 10 percent primarily due to increased marketing and medical education activities to support the surgical direct sales force and higher spending on surgical research and development projects.

Stronger revenue levels and gross margins led to consolidated third-quarter operating income of $1.4 million, versus an operating loss of $1.3 million a year earlier, and up 124 percent from the operating income of $609,000 reported in the 2007 second fiscal quarter. Synovis had $49.8 million in cash, cash equivalents and short-term investments as of July 31, 2007, compared to $47.0 million at the fiscal 2006 year-end. Cash provided by operating activities was $5.6 million year to date, and was $4.1 million in the third quarter.

In the first nine months of fiscal 2007, consolidated net revenue increased to $49.0 million, up 19 percent from $41.3 million in the first nine months of the prior fiscal year. Consolidated net income improved significantly to $2.3 million, or $0.18 per diluted share, versus a net loss of $1.6 million, or $0.13 per share, in the first nine months of fiscal 2006.

Surgical Business

Synovis' surgical business achieved record net revenue of $9.9 million in the third quarter, increasing 35 percent over $7.3 million in the year-ago period and 9 percent sequentially over the fiscal 2007 second quarter. The third-quarter gross margin was 65 percent, up from 58 percent in the third quarter of fiscal 2006. Gross margin gains primarily came from better overhead utilization, direct customer pricing and a favorable product mix.

Operating income increased to $1.6 million, a significant turnaround from an operating loss of $27,000 in the year-earlier quarter, and a 25 percent sequential improvement over operating income of $1.3 million in the fiscal 2007 second quarter.

"Late in the fiscal first quarter, we launched our Veritas" product for complex ventral hernia repair, and we are beginning to gain traction. Third-quarter sales in this market doubled sequentially from the second quarter and we have achieved an annualized run rate in excess of $1 million only six months after product launch," stated Kramp. "Market introduction is progressing as our sales people call on general surgeons and educate them about the benefits of tissue remodeling and the qualities of our Veritas hernia patch material. To direct more resources toward this significant opportunity, and maintain momentum in the bariatric market, we are in the process of adding 10 to 12 direct sales representatives to our current staff of 24 by the end of fiscal 2007."

Revenue from Peri-Strips (PSD) rose to $3.5 million in the third quarter, up 33 percent over $2.6 million a year ago. Peri-Strips, including PSD Apex, PSD Veritas and PSD Veritas Circular, represent a comprehensive line of buttressing products for bariatric surgeons. Surgeon preference for our remodelable linear buttress (PSD Veritas) grew in the quarter; 69 percent of domestic units sold in the third quarter were PSD Veritas versus approximately 38 percent in the prior-year quarter. The circular stapler buttress also contributed significantly to revenue growth with a four-fold increase year over year. In the third quarter, Synovis received CE Mark approval to market PSD Veritas in Europe, extending Peri-Strips' availability to European surgeons who favor a non-permanent buttress. Third-quarter sales of Synovis' Tissue-Guard products rose to $3.4 million, a 33 percent gain over the prior-year quarter, driven by domestic unit growth of 22 percent. Tissue-Guard products are used to repair and replace damaged tissue in cardiac, vascular, neuro, thoracic and other surgeries, and have been used in more than 600,000 procedures since their introduction.

Sales of the company's microsurgery products increased 43 percent in the third quarter, reaching $1.4 million compared to $1.0 million in the previous year's third quarter. Sales of the Microvascular Anastomotic Coupler, the primary microsurgery product and a device for connecting small blood vessels without sutures, were up 60 percent over the same quarter last year, driven by growth in unit volume.

In the fiscal third quarter, Synovis and Cook Biotech entered into a settlement agreement resolving a patent infringement suit brought by Synovis against Cook Biotech. In the suit, Synovis asserted that Cook Biotech was infringing certain claims in its patent related to an apparatus and method for producing a reinforced surgical fastener line (patent #5,752,965). Under the agreement, Cook Biotech will pay a royalty to Synovis regarding the "965" patent. The agreement further addresses settlement of future patent issues which may arise in the staple line reinforcement field, providing for the payment of royalties by either party for infringement of valid claims of issued patents and the resolution of future disputes through arbitration.

Interventional Business

Interventional business net revenue was $8.3 million in the third fiscal quarter, an encouraging 45 percent increase from $5.7 million in the year-ago period and a 10 percent sequential gain from $7.5 million in the second quarter. According to Kramp, "The interventional division is beginning to reap the rewards of the efficiency steps taken to benefit from the anticipated CRM market recovery and from new business generated in non-CRM markets. The ICD market has stabilized and appears to be returning to growth."

The interventional business gross margin was 25 percent in the third quarter of fiscal 2007, up from 15 percent in the same period of fiscal 2006. Higher production volumes, stable overhead expenses and favorable product mix accounted for the increase. Third-quarter operating income increased to $374,000 versus an operating loss of $717,000 in the year-ago period.

Kramp added, "Sales to our core CRM customers were strong in the third quarter and we are optimistic that the CRM market is starting to rebound. We are also pleased that sales to non-CRM customers grew at an even faster rate than sales to our CRM customers, and that our strategy to diversify the interventional customer base is paying off. We are excited about the opportunities in the pipeline, among both CRM and non-CRM customers."

About Synovis Life Technologies

Synovis Life Technologies, Inc., based in St. Paul, Minn., is a diversified medical device company engaged in developing, manufacturing and bringing to market medical devices for the surgical and interventional treatment of disease.

For more information, visit http://www.synovislife.com or call 651/796-7300.