Merit Medical Systems, Inc. (NASDAQ: MMSI), a leading manufacturer
and marketer of proprietary disposable devices used in
interventional, diagnostic and therapeutic procedures, particularly
in cardiology, radiology, oncology, critical care and endoscopy,
today announced that it has completed the acquisition of Cianna
Medical, Inc. headquartered in Aliso Viejo, California, in a merger
transaction through which Cianna Medical has become a wholly-owned
subsidiary of Merit.
The purchase consideration was an upfront
payment of $135 million in cash with potential earn-out payments of
an additional $15 million for achievement of supply chain and
scalability metrics, and up to an additional $50 million for
achievement of sales milestones.
Cianna Medical is a leader in wire-free breast
localization and has been focused on breast conservation for 11
years. Cianna Medical develops, manufactures and markets
innovative medical products designed to reduce costs, improve
quality and reduce the anxiety and stress breast cancer treatments
place on women and their families. Its research, development
and commercialization teams developed the first non-radioactive,
wire-free breast localization system and the world’s only
technology that utilizes RADAR in human tissue. Its SCOUT® and
SAVI® Brachy technologies are FDA-cleared and address unmet needs
in the delivery of radiation therapy, tumor localization and
surgical guidance.
“We are delighted to have Cianna Medical join
the Merit family,” said Fred P. Lampropoulos, Merit’s Chairman and
Chief Executive Officer. “We are looking forward to
continuing Cianna’s momentum, expanding internationally, and
associating with Cianna Medical’s domestic sales and marketing
team.”
2018 GUIDANCEThe effect of the Cianna Medical
acquisition on Merit’s earnings for 2018 is expected to be
non-accretive to Merit earnings per share on a GAAP basis in the
range of ($0.09-$0.11) per common share and neutral to accretive to
Merit earnings per share on a non-GAAP basis in the range of
$0.00–$0.02 per common share, with anticipated GAAP gross margins
of 55-65% and non-GAAP gross margins of 70-75% on the Cianna
Medical products, accretive to both Merit’s GAAP gross margin and
non-GAAP gross margin in the range of 10-20 basis points, and add
revenues in the range of $5-$7 million. NOTE: Non-GAAP
earnings per share accretion and non-GAAP gross margin are non-GAAP
financial measures. Information about how Merit uses non-GAAP
measures in its business, and an explanation of how these measures
relate to their most directly comparable GAAP financial measures,
is included under the heading “Non-GAAP Financial Measures”
below.
2019 GUIDANCEThe effect of the Cianna Medical
acquisition on Merit’s earnings for 2019 is expected to be
non-accretive to Merit earnings per share on a GAAP basis in the
range of ($0.06-$0.10) per common share and accretive to Merit
earnings per share on a non-GAAP basis in the range of $0.08–$0.13
per common share, with anticipated GAAP gross margins of 55-65% and
non-GAAP gross margins of 70-75% on the Cianna Medical products,
accretive to both Merit’s GAAP gross margin and non-GAAP gross
margin in the range of 55-130 basis points, and add revenues in the
range of $50-$56 million. NOTE: Non-GAAP earnings per share
accretion and non-GAAP gross margin are non-GAAP financial
measures. Information about how Merit uses non-GAAP measures
in its business, and an explanation of how these measures relate to
their most directly comparable GAAP financial measures, is included
under the heading “Non-GAAP Financial Measures” below.
Piper Jaffray & Co. and Raymond James &
Associates acted as financial advisors to Merit, and J.P. Morgan
Securities LLC acted as financial advisor to Cianna Medical.
Parr Brown Gee & Loveless P.C. served as the legal advisor to
Merit. Wilson Sonsini Goodrich & Rosati, P.C. served as legal
advisor to Cianna Medical.
ABOUT MERITFounded in 1987, Merit Medical
Systems, Inc. is engaged in the development, manufacture and
distribution of proprietary disposable medical devices used in
interventional, diagnostic and therapeutic procedures, particularly
in cardiology, radiology, oncology, critical care and
endoscopy. Merit serves client hospitals worldwide with a
domestic and international sales force and clinical support team
totaling in excess of 300 individuals. Merit employs
approximately 5,600 people worldwide with facilities in South
Jordan, Utah; Pearland, Texas; Richmond, Virginia; Malvern,
Pennsylvania; Rockland, Massachusetts; San Jose and Aliso Viejo,
California; Maastricht and Venlo, The Netherlands; Paris, France;
Galway, Ireland; Beijing, China; Tijuana, Mexico; Joinville,
Brazil; Markham, Ontario, Canada; Melbourne, Australia; Tokyo,
Japan; and Singapore.
FORWARD-LOOKING STATEMENTSStatements contained
in this release which are not purely historical, including, without
limitation, statements regarding Merit's forecasted plans,
revenues, earnings per share, gross margins or financial results
(on a GAAP and non-GAAP basis) or anticipated or completed
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,
2017 and subsequent filings with the Securities and Exchange
Commission. Such risks and uncertainties include the
following: Merit's potential inability to successfully manage the
integration of Cianna Medical and achieve anticipated financial
results, product development and other anticipated benefits;
uncertainties as to whether Merit will achieve sales, gross margin,
cost of goods sold, cash flow and other results from the Cianna
Medical acquisition which are comparable to the experience of
Cianna Medical; unknown costs and risks associated with the
business and operations of Cianna Medical, Merit’s internal models
or the projections in this release; governmental scrutiny and
regulation of the medical device industry, including governmental
inquiries, investigations and proceedings involving Merit or the
business and operations conducted by Cianna Medical; how the
occurrence of any unanticipated event or cost in connection with
the integration of Cianna Medical may affect Merit’s projected
ability to comply with debt covenants; infringement of acquired
technology or the assertion that acquired technology infringes the
rights of other parties; the potential of fines, penalties or other
adverse consequences if Merit's or Cianna Medical’s employees or
agents violate the U.S. Foreign Corrupt Practices Act or other laws
or regulations; laws and regulations targeting fraud and abuse in
the healthcare industry; potential for significant adverse changes
in governing regulations; 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 or other countries; termination or
interruption of relationships with Merit's or Cianna Medical’s
suppliers, or failure of such suppliers to perform; the effects of
fluctuations in exchange rates on projected financial results;
development of new products and technology that could render
Merit's or Cianna Medical’s products obsolete; changes in
healthcare policies or markets related to healthcare reform
initiatives; failure to comply with applicable environmental laws;
changes in key personnel; work stoppage or transportation risks;
price and product competition; availability of labor and materials;
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, 2017 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.
NON-GAAP FINANCIAL MEASURESAlthough Merit’s
financial statements are prepared in accordance with accounting
principles generally accepted in the United States of America
(“GAAP”), Merit’s management believes that certain non-GAAP
financial measures referred to in this release 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. Non-GAAP
financial measures used in this release include:
- non-GAAP gross margin; and
- non-GAAP earnings per share.
Merit’s management team uses these non-GAAP
financial measures to evaluate Merit’s profitability and
efficiency, to compare operating results to prior periods, to
evaluate changes in the operating results of its operating
segments, and to measure and allocate financial resources
internally. However, Merit’s management does not consider such
non-GAAP measures in isolation or as an alternative to such
measures determined in accordance with GAAP.
Readers should consider non-GAAP measures used
in this release in addition to, not as a substitute for, financial
reporting measures prepared in accordance with GAAP. These non-GAAP
financial measures generally exclude some, but not all, items that
may affect Merit's net income. In addition, they are subject to
inherent limitations as they reflect the exercise of judgment by
management about which items are excluded. Merit believes it is
useful to exclude such items in the calculation of non-GAAP
earnings per share and non-GAAP gross margin because such amounts
in any specific period may not directly correlate to the underlying
performance of Merit’s business operations and can vary
significantly between periods as a result of factors such as new
acquisitions, non-cash expenses related to amortization of
previously acquired tangible and intangible assets, unusual
compensation expenses or expenses resulting from non-ordinary
course litigation, governmental proceedings or changes in tax
regulations. Merit may incur similar types of expenses in the
future, and the non-GAAP financial information included in this
release should not be viewed as a statement or indication that
these types of expenses will not recur. Additionally, the non-GAAP
financial measures used in this release may not be comparable with
similarly titled measures of other companies. Merit urges
investors and potential investors to review the explanations below
addressing how its non-GAAP financial measures relate to their most
directly comparable GAAP financial measures, and not to rely on any
single financial measure to evaluate Merit’s business or results of
operations.
Non-GAAP Gross MarginNon-GAAP gross margin is
calculated by reducing GAAP cost of sales by amounts recorded for
amortization of intangible assets and inventory mark-up related to
acquisitions.
Non-GAAP Net IncomeNon-GAAP net income is
calculated by adjusting GAAP net income for certain items which are
deemed by Merit’s management to be outside of core operations and
vary in amount and frequency among periods, such as expenses
related to new acquisitions, non-cash expenses related to
amortization of acquired tangible and intangible assets, unusual
compensation expenses or expenses resulting from non-ordinary
course litigation, governmental proceedings or changes in tax
regulations, as well as other items.
Non-GAAP Earnings Per ShareNon-GAAP earnings per
share is defined as non-GAAP net income divided by the diluted
shares outstanding for the corresponding period.
Contact: Anne-Marie
Wright, Vice President, Corporate
CommunicationsPhone: (801) 208-4167
e-mail: awright@merit.com Fax: (801) 253-1688
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