Merit Medical Systems, Inc. (Nasdaq:MMSI), a leading manufacturer
and marketer of proprietary disposable medical devices used in
interventional and diagnostic procedures, particularly in
cardiology, radiology and endoscopy, today announced record
revenues of $128.9 million for the quarter ended June 30, 2014, an
increase of 17% over revenues of $109.9 million for the quarter
ended June 30, 2013. Revenues for the six-month period ended June
30, 2014 were a record $248.1 million, compared with $213.8 million
for the corresponding period in 2013, an increase of 16%.
Merit's non-GAAP net income for the quarter ended June 30, 2014
was $6.4 million, or $0.15 per share, compared to $6.3 million, or
$0.15 per share, for the quarter ended June 30, 2013.
Merit's non-GAAP net income for the six months ended June 30,
2014 was $11.8 million, or $0.27 per share, compared to $10.5
million, or $0.25 per share, for the corresponding period of
2013.
GAAP net income for the quarter ended June 30, 2014 was $3.7
million, or $0.09 per share, compared to $3.8 million, or $0.09 per
share, for the comparable quarter of 2013.
GAAP net income for the six-month period ended June 30, 2014 was
$6.5 million, or $0.15 per share, compared to $4.4 million, or
$0.10 per share, for the corresponding period of 2013.
"We believe the plan for product and sales force focus is
clearly working, and we anticipate continued growth going forward,"
said Fred P. Lampropoulos, Merit's Chairman and Chief Executive
Officer. "Although we have incurred some short-term
expenses associated with the splitting of our U.S. sales
force, thus far we have exceeded our initial sales
estimates and we are optimistic that this trend will continue into
the future as the subsidies expire. We believe these efforts
will allow us to sell deeper into our product offering, provide
better in-service and training opportunities, and build our overall
branding efforts."
"Our embolic business (BioSphere) continues to grow as our
products are being rolled out and gain acceptance by physicians,
especially in international markets," Lampropoulos said. "We
plan to introduce a new embolic product early next year
which we expect to further enhance our product offering."
"While our sales in China grew at 37% from the first six months
of 2013 to the first six months of 2014 and our European direct and
distributor business increased 30% during the same period, our
sales in the United States rose 11%," Lampropoulos
continued. "We believe this is further indication of the
success of our sales force split that commenced in January."
"Our operational plans are proceeding with our move to our new
facility in Pearland, Texas, which we expect to be completed by
September 1," Lampropoulos said. "We have frozen hiring
throughout the company with the exception of some replacements, and
we have directed our 2015 R&D spending to be limited to
the base 2014 budget. Although we still have expenses
associated with litigation and other subsidies to support the sales
split, we are proceeding with great optimism as we prepare for
2015."
"Recently we introduced several new products, including the
PreludeEASE™ hydrophilic sheath introducer, the PhD™ hemostasis
valve, the ReSolve® biliary catheter and the HeartSpan® steerable
sheath introducer in Europe," Lampropoulos said.
"We are in the process of converting several new radial
customers in Great Britain," Lampropoulos added. "We expect
most of our new radial products to be approved for sale in the
United States by year end."
"As we work to control our expenses while growing sales,
recognizing that many of the expenses for product launches, the
sales force split, and the new facility startup are anticipated to
be short-term, we see great opportunity for earnings growth in the
future," Lampropoulos said. "We have substantial manufacturing
capacity and additional products in the pipeline which we believe
will support growth without major capital expense."
In the second quarter of 2014, compared to the second quarter of
2013, BioSphere sales grew 47%; stand-alone device sales were up
20%; inflation device sales increased 18%; catheter sales rose 14%;
Malvern sales grew 13%; custom kit and tray sales increased 10%;
and Endotek sales rose 7%. Excluding sales to an OEM
customer, inflation device sales were up 12%.
For the six-month period ended June 30, 2014, compared to the
six-month period ended June 30, 2013, BioSphere sales increased
38%; Malvern sales rose 29%; stand-alone device sales grew 19%;
catheter sales were up 15%; inflation device sales rose 14%; custom
kit and tray sales grew 7%; and Endotek sales rose
5%. Excluding sales to an OEM customer, inflation device sales
were up 9%.
Merit's non-GAAP gross profit was 45.3% of sales for the quarter
ended June 30, 2014, compared to 44.9% of sales for the quarter
ended June 30, 2013. Non-GAAP gross profit was 45.6% of sales
for the six months ended June 30, 2014, compared to 44.6% of sales
for the six months ended June 30, 2013. GAAP gross profit was 43.2%
of sales for the quarter ended June 30, 2014, compared to 42.8% of
sales for the quarter ended June 30, 2013. GAAP gross profit
for the six months ended June 30, 2014 was 43.4% of sales, compared
to 42.1% of sales for the six months ended June 30, 2013. The
increase in gross profit for both periods was primarily related to
lower average fixed overhead unit costs as the result of higher
production volumes.
Merit's non-GAAP selling, general and administrative expenses
for the second quarter of 2014 were 29.1% of sales, compared to
27.4% of sales for the second quarter of 2013. Non-GAAP
SG&A expenses for the six months ended June 30, 2014 were
29.5%, compared to 27.9% of sales for the six months ended June 30,
2013. GAAP selling, general and administrative expenses for
the second quarter of 2014 were 30.0% of sales, compared to 28.7%
of sales for the second quarter of 2013, and down from 30.8% of
sales for the first quarter of 2014. For the six-month period
ended June 30, 2014, SG&A expenses were 30.4% of sales,
compared with 29.8% of sales for the first six months of 2013.
The increase in SG&A expenses for both periods was
primarily related to headcount additions and the costs to support
Merit's domestic sales force reorganization, as well as
international sales expansion and costs associated with Merit's new
facility in Pearland, Texas, which are currently being recorded as
SG&A expenses during a transition period of approximately six
months as Merit completes the movement and qualification of
production equipment from the old facility to the new facility.
Research and development costs during the second quarter of 2014
were 7.5% of sales, compared to 7.9% of sales for the second
quarter of 2013. R&D costs were 7.4% of sales for the
first six months of 2014, compared to 8.3% of sales for the
corresponding period of 2013. The decrease in R&D
expenses as a percentage of sales for both periods was primarily
the result of a higher rate of sales growth, while slowing
increases in R&D expenses for the three and six-month periods
ended June 30, 2014, when compared to the same periods in
2013. For both periods in 2014, R&D expenses were higher
than the corresponding periods in 2013, primarily as a result of
headcount additions to support new product launches.
Merit's effective tax rate for the second quarter of 2014 was
26.9%, compared with 25.0% for the second quarter of 2013. For
the six-month period ended June 30, 2014, Merit's effective tax
rate was 27.1%, compared to 15.2% for the same period of
2013. Excluding the reinstatement in 2013 of the 2012 R&D
tax credit of approximately $500,000, which was recorded in the
first quarter of 2013, Merit's effective tax rate would have been
approximately 24.8% for the six months ended June 30, 2013.
The increase in the effective tax rate for both periods, when
compared to the prior year periods, was primarily the result of a
higher mix of earnings from Merit's U.S. operations, which are
taxed at a higher rate than Merit's foreign operations.
REVISED 2014 GUIDANCE
Based upon information currently available to Merit's
management, Merit estimates that for the year ending December 31,
2014, absent extraordinary transactions, Merit's revenues will be
in the range of $511-$515 million, an increase of approximately
14-15%, compared to revenues of $449.0 million for the year ended
December 31, 2013. Also, based on information currently
available to Merit's management, Merit estimates that, absent
non-recurring transactions, Merit's GAAP earnings per share for
2014 will be in the range of $0.39-$0.43, compared to GAAP earnings
per share of $0.39 for the year ended December 31, 2013, and
non-GAAP earnings per share will be in the range of $0.61-$0.65,
compared to non-GAAP earnings per share of $0.71 for the year ended
December 31, 2013.
CONFERENCE CALL
Merit invites all interested parties to participate in its
conference call today, July 29th, at 5:00 p.m. Eastern (4:00 p.m.
Central, 3:00 p.m. Mountain, and 2:00 p.m. Pacific). The
domestic phone number is (888) 397-5352, and the international
number is (719) 325-2177. A live webcast as well as a
rebroadcast of the call can be accessed at www.merit.com.
BALANCE SHEET |
|
|
(In thousands) |
June 30, |
|
|
2014 |
December 31, |
|
(Unaudited) |
2013 |
ASSETS |
|
|
Current Assets |
|
|
Cash and cash equivalents |
$ 9,401 |
$ 7,459 |
Trade receivables, net |
67,345 |
60,186 |
Employee receivables |
180 |
224 |
Other receivables |
4,033 |
3,279 |
Inventories |
86,471 |
82,378 |
Prepaid expenses |
5,477 |
5,121 |
Prepaid income taxes |
1,230 |
1,232 |
Deferred income tax assets |
5,619 |
5,638 |
Income tax refunds receivable |
297 |
398 |
Total Current Assets |
180,053 |
165,915 |
|
|
|
Property and equipment, net |
250,873 |
243,270 |
Intangibles, net |
113,345 |
119,987 |
Goodwill |
184,505 |
184,505 |
Deferred income tax assets |
800 |
800 |
Other assets |
14,544 |
13,806 |
Total Assets |
$ 744,120 |
$ 728,283 |
|
|
|
LIABILITIES AND STOCKHOLDERS'
EQUITY |
|
|
Current Liabilities |
|
|
Trade payables |
28,180 |
26,511 |
Accrued expenses |
31,141 |
27,702 |
Current portion of long-term debt |
10,000 |
10,000 |
Advances from employees |
660 |
292 |
Income taxes payable |
1,161 |
1,089 |
Total Current Liabilities |
71,142 |
65,594 |
|
|
|
|
|
|
Deferred income tax liabilities |
2,533 |
2,548 |
Liabilities related to unrecognized tax
benefits |
1,767 |
2,031 |
Deferred compensation payable |
8,365 |
7,833 |
Deferred credits |
2,977 |
3,065 |
Long-term debt |
238,375 |
238,854 |
Other long-term obligation |
3,060 |
2,652 |
Total Liabilities |
328,219 |
322,577 |
|
|
|
Stockholders' Equity |
|
|
Common stock |
181,983 |
177,775 |
Retained earnings |
233,527 |
226,988 |
Accumulated other comprehensive
income |
391 |
943 |
Total stockholders' equity |
415,901 |
405,706 |
Total Liabilities and Stockholders'
Equity |
$ 744,120 |
$ 728,283 |
|
|
|
|
|
|
|
|
|
|
INCOME STATEMENT |
|
|
|
|
(Unaudited, in thousands
except per share amounts) |
|
|
|
|
Three Months
Ended |
Six Months
Ended |
|
June
30, |
June
30, |
|
2014 |
2013 |
2014 |
2013 |
|
|
|
|
|
SALES |
$ 128,865 |
$ 109,875 |
$ 248,101 |
$ 213,823 |
|
|
|
|
|
COST OF SALES |
73,241 |
62,890 |
140,434 |
123,845 |
|
|
|
|
|
GROSS PROFIT |
55,624 |
46,985 |
107,667 |
89,978 |
|
|
|
|
|
OPERATING EXPENSES |
|
|
|
|
Selling, general and administrative |
38,599 |
31,557 |
75,373 |
63,685 |
Research and development |
9,641 |
8,648 |
18,421 |
17,756 |
Total |
48,240 |
40,205 |
93,794 |
81,441 |
|
|
|
|
|
INCOME FROM OPERATIONS |
7,384 |
6,780 |
13,873 |
8,537 |
|
|
|
|
|
OTHER INCOME (EXPENSE) |
|
|
|
|
Interest income |
79 |
74 |
146 |
131 |
Interest (expense) |
(2,353) |
(1,842) |
(4,959) |
(3,381) |
Other income |
(28) |
(7) |
(92) |
(70) |
Total other income (expense) - net |
(2,302) |
(1,775) |
(4,905) |
(3,320) |
|
|
|
|
|
INCOME BEFORE INCOME TAX EXPENSE |
5,082 |
5,005 |
8,968 |
5,217 |
|
|
|
|
|
INCOME TAX EXPENSE |
1,366 |
1,253 |
2,429 |
794 |
|
|
|
|
|
NET INCOME |
$ 3,716 |
$ 3,752 |
$ 6,539 |
$ 4,423 |
|
|
|
|
|
EARNINGS PER SHARE-- |
|
|
|
|
Basic |
$ 0.09 |
$ 0.09 |
$ 0.15 |
$ 0.10 |
|
|
|
|
|
Diluted |
$ 0.09 |
$ 0.09 |
$ 0.15 |
$ 0.10 |
|
|
|
|
|
AVERAGE COMMON SHARES-- |
|
|
|
|
Basic |
43,061 |
42,562 |
42,963 |
42,541 |
|
|
|
|
|
Diluted |
43,310 |
42,670 |
43,272 |
42,753 |
Although Merit's financial statements are prepared in accordance
with accounting principles which are generally accepted in the
United States of America ("GAAP"), Merit's management believes that
certain non-GAAP financial measures provide investors with useful
information regarding the underlying business trends and
performance of Merit's ongoing operations and can be useful for
period-over-period comparisons of such operations. The
following table sets forth supplemental financial data and
corresponding reconciliations to GAAP financial statements for the
three- and six-month periods ended June 30, 2014 and 2013. Readers
should consider these non-GAAP measures in addition to, not as a
substitute for, financial reporting measures prepared in accordance
with GAAP. These non-GAAP financial measures exclude some,
but not all, items that affect Merit's net income.
Additionally, these calculations may not be comparable with
similarly-titled measures of other companies.
|
Three Months
Ended |
Six Months
Ended |
|
June
30, |
June
30, |
|
2014 |
2013 |
2014 |
2013 |
Non-GAAP
ADJUSTMENTS |
|
|
|
|
GAAP net income |
$ 3,716 |
$ 3,752 |
$ 6,539 |
$ 4,423 |
|
|
|
|
|
Acquisition costs |
56 |
27 |
86 |
494 |
Mark-up on finished goods (a) |
|
|
|
580 |
Severance |
39 |
266 |
121 |
1,346 |
Long-term asset impairment charges |
287 |
53 |
321 |
53 |
Amortization of long-term debt issuance
costs |
247 |
199 |
494 |
398 |
Amortization of intangible assets |
|
|
|
|
Cost of sales |
2,784 |
2,363 |
5,521 |
4,726 |
SG&A expense |
934 |
1,128 |
1,891 |
2,246 |
Contingent consideration expense (b) |
8 |
17 |
19 |
33 |
Income tax effect of reconciling items
(c) |
(1,655) |
(1,540) |
(3,212) |
(3,753) |
|
|
|
|
|
Non-GAAP net income |
$ 6,416 |
$ 6,265 |
$ 11,780 |
$ 10,546 |
|
|
|
|
|
Non-GAAP net income per share |
$ 0.15 |
$ 0.15 |
$ 0.27 |
$ 0.25 |
|
|
|
|
|
Diluted shares used to compute Non-GAAP net
income per share |
43,310 |
42,670 |
43,272 |
42,753 |
The non-GAAP income for adjustments referenced in the preceding
table does not reflect stock-based compensation expense of
approximately $324,000 for each of the three-month periods ended
June 30, 2014 and 2013, respectively, and stock-based compensation
of approximately $663,000 and approximately $783,000 for the
six-month periods ended June 30, 2014 and 2013, respectively.
(a) Increase in cost of goods sold related to the mark-up of
finished goods associated with Merit's acquisition of Thomas
Medical Products, Inc. (b) Represents changes in the fair
value of contingent consideration liabilities for recent
acquisitions. (c) Reflects an estimated annual income tax
rate of 38% on a non-GAAP basis.
ABOUT MERIT
Founded in 1987, Merit Medical Systems, Inc. is engaged in the
development, manufacture and distribution of proprietary disposable
medical devices used in interventional and diagnostic procedures,
particularly in cardiology, radiology and endoscopy. Merit
serves client hospitals worldwide with a domestic and international
sales force totaling approximately 200 individuals. Merit employs
approximately 3,000 people worldwide, with facilities in South
Jordan, Utah; Angleton, Texas; Pearland, Texas, Richmond, Virginia;
Malvern, Pennsylvania; Maastricht and Venlo, The Netherlands;
Paris, France; Galway, Ireland; Beijing, China; and Rockland,
Massachusetts.
Statements contained in this release which are not purely
historical, including, without limitation, statements regarding
Merit's forecasted revenues, net income, financial results or
anticipated acquisitions, are forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995 and
are subject to risks and uncertainties such as those described in
Merit's Annual Report on Form 10-K for the year ended December 31,
2013. Such risks and uncertainties include risks relating to
Merit's potential inability to successfully manage growth through
acquisitions, including the inability to commercialize technology
acquired through completed, proposed or future transactions;
product recalls and product liability claims; expenditures relating
to research, development, testing and regulatory approval or
clearance of Merit's products and risks that such products may not
be developed successfully or approved for commercial use; greater
governmental scrutiny and regulation of the medical device
industry; reforms to the 510(k) process administered by the U.S.
Food and Drug Administration; compliance with governmental
regulations and administrative procedures; potential restrictions
on Merit's liquidity or its ability to operate its business by its
current debt agreements; possible infringement of Merit's
technology or the assertion that Merit's technology infringes the
rights of other parties; the potential of fines, penalties or other
adverse consequences if Merit's employees or agents violate the
U.S. Foreign Corrupt Practices Act or other laws and regulations;
laws targeting fraud and abuse in the healthcare industry;
potential for significant adverse changes in, or failure to comply
with, governing regulations; the effect of changes in tax laws and
regulations in the United States or other countries; increases in
the prices of commodity components; negative changes in economic
and industry conditions in the United States and other countries;
termination or interruption of relationships with Merit's
suppliers, or failure of such suppliers to perform; fluctuations in
Euro and GBP exchange rates; Merit's need to generate sufficient
cash flow to fund its debt obligations, capital expenditures, and
ongoing operations; concentration of Merit's revenues among a few
products and procedures; development of new products and technology
that could render Merit's existing products obsolete; market
acceptance of new products; volatility in the market price of
Merit's common stock; modification or limitation of governmental or
private insurance reimbursement policies; changes in health care
markets related to health care reform initiatives; failure to
comply with applicable environmental laws; changes in key
personnel; work stoppage or transportation risks; uncertainties
associated with potential healthcare policy changes which may have
a material adverse effect on Merit; introduction of products in a
timely fashion; price and product competition; availability of
labor and materials; cost increases; fluctuations in and
obsolescence of inventory; and other factors referred to in Merit's
Annual Report on Form 10-K for the year ended December 31, 2013 and
other materials filed with the Securities and Exchange Commission.
All subsequent forward-looking statements attributable to Merit or
persons acting on its behalf are expressly qualified in their
entirety by these cautionary statements. Actual results will likely
differ, and may differ materially, from anticipated results.
Financial estimates are subject to change and are not intended to
be relied upon as predictions of future operating results, and
Merit assumes no obligation to update or disclose revisions to
those estimates.
CONTACT: Anne-Marie Wright, Vice President, Corporate Communications
(801) 208-4167 e-mail: awright@merit.com Fax: (801) 253-1688
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