- Q4 2018 worldwide revenue of $233.2 million, up 22.2% as
reported over Q4 2017
- Q4 2018 core revenue on a comparable, constant currency basis*
up 13.1% over Q4 2017
- Q4 2018 GAAP EPS was $0.16, compared to $0.13 in Q4 2017
- Q4 2018 non-GAAP EPS* was $0.48, compared to $0.33 in Q4
2017
* Core revenue on a constant currency basis,
non-GAAP EPS, non-GAAP net income and non-GAAP gross margin are
non-GAAP financial measures. A reconciliation of these and other
non-GAAP financial measures used in this release to their most
directly comparable GAAP financial measures is included under the
heading “Non-GAAP Financial Measures” below.
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 revenue of $233.2 million for the quarter ended
December 31, 2018, an increase of 22.2% over revenue of $190.9
million for the quarter ended December 31, 2017. Core revenue
on a comparable, constant currency basis* for the fourth quarter of
2018 would have been up 13.1% over revenue for the comparable
quarter of 2017. For the year ended December 31, 2018, Merit's
revenue was $882.8 million, up 21.3% compared to revenue of $727.9
million for the year ended December 31, 2017. Core revenue on a
comparable, constant currency basis* for the year ended December
31, 2018 would have been up 11.4% when compared to 2017.
Merit’s GAAP net income for the fourth quarter
of 2018 was $9.2 million, or $0.16 per share, compared to GAAP net
income of $6.8 million, or $0.13 per share, for the fourth quarter
of 2017. Merit’s non-GAAP net income* for the quarter ended
December 31, 2018 was $27.0 million, or $0.48 per share,
compared to $16.8 million, or $0.33 per share, for the quarter
ended December 31, 2017.
For the year ended December 31, 2018, Merit's
GAAP net income was $42.0 million, or $0.78 per share, compared to
$27.5 million, or $0.55 per share, for 2017. Merit's non-GAAP net
income* for the year ended December 31, 2018 was $91.3 million, or
$1.69, compared to $64.3 million, or $1.28 per share, for 2017.
Merit's GAAP gross margin for the fourth quarter
of 2018 was 44.9%, compared to GAAP gross margin of 44.9% for the
fourth quarter of 2017. Merit's non-GAAP gross margin* for the
fourth quarter of 2018 was 49.4%, compared to non-GAAP gross
margin* of 47.9% for the fourth quarter of 2017. Merit's GAAP gross
margin for the year ended December 31, 2018 was 44.7%, compared to
44.8% for 2017. Merit's non-GAAP gross margin* for the year ended
December 31, 2018 was 48.9% compared to 48.1% for 2017.
Merit’s revenue by category for the three and
twelve months ended December 31, 2018, compared to the
corresponding periods in 2017, was as follows (unaudited, in
thousands, except for percentages):
|
|
|
Three Months Ended |
|
|
|
|
Twelve Months Ended |
|
|
|
December 31, |
|
|
|
|
December 31, |
|
% Change |
|
2018 |
|
2017 |
|
|
% Change |
|
2018 |
|
2017 |
Cardiovascular |
|
|
|
|
|
|
|
|
|
|
|
|
Stand-alone devices |
40.5 |
% |
|
$ |
101,188 |
|
|
$ |
71,997 |
|
|
|
33.6 |
% |
|
$ |
367,905 |
|
|
$ |
275,456 |
|
Custom
kits and procedure trays |
(1.7 |
)% |
|
34,397 |
|
|
35,007 |
|
|
|
6.9 |
% |
|
134,756 |
|
|
126,089 |
|
Inflation
devices |
11.0 |
% |
|
22,802 |
|
|
20,546 |
|
|
|
15.7 |
% |
|
92,419 |
|
|
79,875 |
|
Catheters |
24.9 |
% |
|
41,695 |
|
|
33,390 |
|
|
|
21.7 |
% |
|
155,525 |
|
|
127,747 |
|
Embolization devices |
(2.1 |
)% |
|
12,332 |
|
|
12,596 |
|
|
|
1.0 |
% |
|
50,038 |
|
|
49,532 |
|
CRM/EP |
27.5 |
% |
|
12,672 |
|
|
9,936 |
|
|
|
16.5 |
% |
|
48,834 |
|
|
41,914 |
|
Total |
22.7 |
% |
|
225,086 |
|
|
183,472 |
|
|
|
21.2 |
% |
|
849,477 |
|
|
700,613 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Endoscopy |
|
|
|
|
|
|
|
|
|
|
|
|
Endoscopy
devices |
9.9 |
% |
|
8,163 |
|
|
7,425 |
|
|
|
22.2 |
% |
|
33,276 |
|
|
27,239 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grand Total |
22.2 |
% |
|
$ |
233,249 |
|
|
$ |
190,897 |
|
|
|
21.3 |
% |
|
$ |
882,753 |
|
|
$ |
727,852 |
|
Note: Certain revenue categories for 2017 have
been adjusted from prior disclosures to reflect changes in product
classifications to be consistent with updates in Merit's management
of its product portfolios during 2018.
“2018 was an important and very positive year
for the company and included the closing of the Becton Dickinson
deal, the acquisitions of Cianna Medical and Vascular Insights, and
the execution of our global growth and profitability plan,” said
Fred P. Lampropoulos, Merit’s Chairman and Chief Executive Officer.
“Integration of these new businesses and sales of our core products
continue to drive growth to the point where we are confident
forecasting an expansion of our 2019 core revenue growth to a range
of 8 - 10%.”
“We believe our forecasted growth will be
facilitated by recently introduced products such as the EmboCube™
Embolization Gelatin, the basixTAU™ Inflation Device, the Prelude
Prestige™ Splittable Sheath Introducer, the Prelude Ideal™ Sheath
Introducer, the PreludeSYNC™ Radial Hemostasis Device, as well as
the momentum of our legacy products,” Lampropoulos continued.
“As we look forward, we are also comfortable adding a forecast for
2020, which we currently believe will be in the range of 8 - 10%
core revenue growth, an addition of 100 - 150 basis points to gross
margin, and net income improvement of approximately 14 - 19%.
Please note that we believe this will be in addition to our 2019
range of 45.6 - 46.5% (GAAP) and 50.6 - 51.3% gross margin
projection (non-GAAP).”
“Recently we opened a new distribution center in
Reading, England in an effort to hedge against potential Brexit
disruption, as well as a direct sales and distribution center in
Johannesburg, South Africa,” Lampropoulos said. “We believe the
ability to provide essentially same-day service to our customers in
those regions will enhance customer confidence and increase our
growth prospects.”
“Additionally, our new product pipeline is
full,” Lampropoulos continued. “We expect to introduce 10 - 15 new
products this year that will continue to support our overall
business strategy. Our business measurements of top-line
improvement, discipline of the SG&A and R&D expenses, and
bottom-line improvement continue to support our business thesis.
Finally, the healthcare market continues to consolidate, and we
intend to continue to pursue opportunities that fit our overall
strategy and financial metrics.”
2019 GUIDANCEBased upon information currently
available to Merit's management, Merit estimates for the year
ending December 31, 2019, absent material acquisitions or
non-recurring transactions, the following:
|
Financial Measure |
Range |
|
|
Net Sales |
$1,011
million |
- |
$1,030
million |
|
|
|
|
|
|
|
|
GAAP |
|
|
|
|
|
Earnings
per share |
$1.02 |
- |
$1.13 |
|
|
Gross
Margin |
45.6% |
- |
46.5% |
|
|
|
|
|
|
|
|
Non-GAAP |
|
|
|
|
|
Earnings
per share |
$1.97 |
- |
$2.08 |
|
|
Gross
Margin |
50.6% |
- |
51.3% |
|
|
|
|
|
|
|
|
Effective Tax Rate |
22.5% |
- |
24.5% |
|
Merit’s financial guidance for the year ending
December 31, 2019 is subject to risks and uncertainties
identified in Merit’s public filings.
CONFERENCE CALLMerit will hold its investor
conference call (conference ID 9186535) today, Tuesday, February
26, 2019, at 5:00 p.m. Eastern (4:00 p.m. Central, 3:00 p.m.
Mountain, and 2:00 p.m. Pacific). The domestic telephone number is
(844) 578-9672 and the international number is (508) 637-5656. A
live webcast and slide deck will also be available at
merit.com.
CONSOLIDATED
BALANCE SHEETS |
|
|
|
(In
thousands) |
|
|
|
|
December 31, |
|
December 31, |
|
2018 |
|
2017 |
|
(Unaudited) |
|
|
ASSETS |
|
|
|
Current Assets |
|
|
|
Cash and cash
equivalents |
$ |
67,359 |
|
|
$ |
32,336 |
|
Trade
receivables, net |
137,174 |
|
|
105,536 |
|
Other
receivables |
11,879 |
|
|
9,429 |
|
Inventories |
197,536 |
|
|
155,288 |
|
Prepaid
expenses and other assets |
11,326 |
|
|
9,096 |
|
Prepaid
income taxes |
3,627 |
|
|
3,225 |
|
Income
tax refund receivables |
933 |
|
|
1,211 |
|
Total
current assets |
429,834 |
|
|
316,121 |
|
|
|
|
|
Property and equipment,
net |
331,452 |
|
|
292,820 |
|
Intangible assets,
net |
462,713 |
|
|
227,324 |
|
Goodwill |
335,433 |
|
|
238,147 |
|
Deferred income tax
assets |
3,001 |
|
|
2,359 |
|
Other assets |
57,579 |
|
|
35,040 |
|
Total Assets |
$ |
1,620,012 |
|
|
$ |
1,111,811 |
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS' EQUITY |
|
|
|
Current
Liabilities |
|
|
|
Trade
payables |
$ |
54,024 |
|
|
$ |
34,931 |
|
Accrued
expenses |
96,173 |
|
|
58,932 |
|
Current
portion of long-term debt |
22,000 |
|
|
19,459 |
|
Income
taxes payable |
3,146 |
|
|
2,298 |
|
Total
current liabilities |
175,343 |
|
|
115,620 |
|
|
|
|
|
Long-term debt |
373,152 |
|
|
259,013 |
|
Deferred income tax
liabilities |
56,363 |
|
|
23,289 |
|
Long-term income taxes
payable |
392 |
|
|
4,846 |
|
Liabilities related to
unrecognized tax benefits |
3,013 |
|
|
2,746 |
|
Deferred compensation
payable |
11,219 |
|
|
11,181 |
|
Deferred credits |
2,261 |
|
|
2,403 |
|
Other long-term
obligations |
65,494 |
|
|
16,379 |
|
Total
liabilities |
687,237 |
|
|
435,477 |
|
|
|
|
|
Stockholders'
Equity |
|
|
|
Common
stock |
571,383 |
|
|
353,392 |
|
Retained
earnings |
363,425 |
|
|
321,408 |
|
Accumulated other comprehensive income (loss) |
(2,033 |
) |
|
1,534 |
|
Total
stockholders' equity |
932,775 |
|
|
676,334 |
|
Total Liabilities and
Stockholders' Equity |
$ |
1,620,012 |
|
|
$ |
1,111,811 |
|
|
|
|
|
|
|
|
|
CONSOLIDATED
STATEMENTS OF INCOME |
|
|
|
|
|
|
|
(Unaudited, in thousands except per share
amounts) |
|
|
|
|
|
|
|
Three Months Ended |
|
Year Ended |
|
December 31, |
|
December 31, |
|
2018 |
|
2017 |
|
2018 |
|
2017 |
|
|
|
|
|
|
|
|
NET SALES |
$ |
233,249 |
|
|
$ |
190,897 |
|
|
$ |
882,753 |
|
|
$ |
727,852 |
|
|
|
|
|
|
|
|
|
COST OF SALES |
128,583 |
|
|
105,241 |
|
|
$ |
487,983 |
|
|
$ |
401,599 |
|
|
|
|
|
|
|
|
|
GROSS PROFIT |
104,666 |
|
|
85,656 |
|
|
394,770 |
|
|
326,253 |
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES |
|
|
|
|
|
|
|
Selling,
general and administrative |
75,629 |
|
|
59,239 |
|
|
276,018 |
|
|
229,134 |
|
Research
and development |
15,368 |
|
|
12,727 |
|
|
59,532 |
|
|
51,403 |
|
Acquired
in-process research and development |
263 |
|
|
— |
|
|
644 |
|
|
12,136 |
|
Intangible asset impairment charge |
— |
|
|
809 |
|
|
657 |
|
|
809 |
|
Contingent consideration expense |
(256 |
) |
|
(338 |
) |
|
(698 |
) |
|
(298 |
) |
Total |
91,004 |
|
|
72,437 |
|
|
336,153 |
|
|
293,184 |
|
|
|
|
|
|
|
|
|
INCOME FROM
OPERATIONS |
13,662 |
|
|
13,219 |
|
|
58,617 |
|
|
33,069 |
|
|
|
|
|
|
|
|
|
OTHER INCOME
(EXPENSE) |
|
|
|
|
|
|
|
Interest
income |
352 |
|
|
115 |
|
|
1,199 |
|
|
381 |
|
Interest
expense |
(2,296 |
) |
|
(1,801 |
) |
|
(10,360 |
) |
|
(7,736 |
) |
Gain on
bargain purchase |
— |
|
|
243 |
|
|
— |
|
|
11,039 |
|
Other
income (expense) - net |
492 |
|
|
(496 |
) |
|
63 |
|
|
(872 |
) |
Total
other income (expense) - net |
(1,452 |
) |
|
(1,939 |
) |
|
(9,098 |
) |
|
2,812 |
|
|
|
|
|
|
|
|
|
INCOME BEFORE INCOME
TAXES |
12,210 |
|
|
11,280 |
|
|
49,519 |
|
|
35,881 |
|
|
|
|
|
|
|
|
|
INCOME TAX EXPENSE |
3,022 |
|
|
4,474 |
|
|
7,502 |
|
|
8,358 |
|
|
|
|
|
|
|
|
|
NET INCOME |
$ |
9,188 |
|
|
$ |
6,806 |
|
|
$ |
42,017 |
|
|
$ |
27,523 |
|
|
|
|
|
|
|
|
|
EARNINGS PER COMMON
SHARE: |
|
|
|
|
|
|
|
Basic |
$ |
0.17 |
|
|
$ |
0.14 |
|
|
$ |
0.80 |
|
|
$ |
0.56 |
|
|
|
|
|
|
|
|
|
Diluted |
$ |
0.16 |
|
|
$ |
0.13 |
|
|
$ |
0.78 |
|
|
$ |
0.55 |
|
|
|
|
|
|
|
|
|
AVERAGE COMMON
SHARES: |
|
|
|
|
|
|
|
Basic |
54,850 |
|
|
50,208 |
|
|
52,268 |
|
|
48,805 |
|
|
|
|
|
|
|
|
|
Diluted |
56,514 |
|
|
51,722 |
|
|
53,931 |
|
|
50,101 |
|
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:
- constant currency revenue;
- core revenue;
- core revenue on a constant currency basis;
- non-GAAP gross margin;
- non-GAAP net income; 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, non-GAAP gross margin and non-GAAP net income
(in each case, as further illustrated in the reconciliation table
below) 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 or write-off of previously acquired tangible and
intangible assets, severance expenses, expenses resulting from
non-ordinary course litigation, governmental proceedings or changes
in tax regulations, and debt issuance costs. 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 reconciliations of its non-GAAP financial measures to
the comparable GAAP financial measures, and not to rely on any
single financial measure to evaluate Merit’s business or results of
operations.
Constant Currency RevenueMerit’s revenue on a
constant currency basis is prepared by translating the
current-period reported revenue of subsidiaries whose functional
currency is other than the U.S. dollar at the applicable foreign
exchange rates in effect during the comparable prior-year period.
The constant currency revenue adjustments of $2.2 million and
$(5.2) million for the three and twelve-month periods ended
December 31, 2018, respectively, were calculated using the
applicable average foreign exchange rates for the three and
twelve-month periods ended December 31, 2017,
respectively.
Core Revenue and Core Revenue on a Constant
Currency BasisMerit’s core revenue is defined (a) with respect to
prior fiscal year periods, as GAAP revenue, and (b) with respect to
current fiscal year periods, as GAAP revenue, less revenue from
certain acquisitions and strategic transactions. For the three and
twelve-month periods ended December 31, 2018, Merit’s core
revenue excludes revenues from (i) the acquisition of (1) the
assets of Catheter Connections, Inc. in January 2017 (excluded
January 2018 only), (2) the critical care division of Argon Medical
Devices, Inc. in January 2017 (excluded January 2018 only), (3)
Osseon LLC in July 2017 (excluded through June 2018 only), (4)
Laurane Medical S.A.S. in August 2017 (excluded through July 2018
only), (5) ITL Healthcare Pty. Ltd. in October 2017 (excluded
through September 2018 only), (6) certain divested assets of
Becton, Dickinson and Company in February 2018, (7) the assets of
DirectACCESS Medical, LLC in May 2018, (8) Cianna Medical, Inc. in
November 2018, (9) certain assets of Vascular Insights, LLC in
December 2018, and (ii) revenues from (1) the distribution
arrangement with NinePoint Medical, Inc. executed in April 2018 and
(2) the distribution arrangement with QXMedical, LLC executed in
May 2018. Core revenue on a constant currency basis is defined as
core revenue (as described in the first sentence of this paragraph)
plus the foreign exchange impact related to those core sales, using
the applicable foreign exchange rates in effect for the comparable
prior-year periods presented.
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 or write-off of previously acquired tangible and
intangible assets, severance expenses, expenses resulting from
non-ordinary course litigation, governmental proceedings or changes
in tax regulations, and debt issuance costs, as well as other items
set forth in the table below.
Non-GAAP EPSNon-GAAP EPS is defined as non-GAAP
net income divided by the diluted shares outstanding for the
corresponding period.
Other Non-GAAP Financial Measure
ReconciliationThe tables in this release set forth supplemental
financial data and corresponding reconciliations of non-GAAP net
income and non-GAAP earnings per share to Merit’s net income and
earnings per share prepared in accordance with GAAP for the three
and twelve-month periods ended December 31, 2018 and 2017. The
non-GAAP income adjustments referenced in these table do not
reflect stock-based compensation expense of approximately $1.6
million and $1.2 million for the three-month periods ended December
31, 2018 and 2017, respectively, and approximately $6.1 million and
$4.1 million for the years ended December 31, 2018 and 2017,
respectively.
Reconciliation of GAAP Net Income to Non-GAAP Net Income |
|
|
|
(Unaudited,
in thousands except per share amounts) |
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
December 31, 2018 |
|
Pre-Tax |
Tax Impact (a) |
After-Tax |
Per Share Impact |
GAAP net income |
$ |
12,210 |
|
$ |
(3,022 |
) |
$ |
9,188 |
|
$ |
0.16 |
|
|
|
|
|
|
Non-GAAP
adjustments: |
|
|
|
|
Cost of
Sales |
|
|
|
|
Amortization of intangibles |
9,245 |
|
(2,365 |
) |
6,880 |
|
0.13 |
|
Inventory
mark-up related to acquisitions |
1,255 |
|
(323 |
) |
932 |
|
0.02 |
|
Operating
Expenses |
|
|
|
|
Severance |
440 |
|
(114 |
) |
326 |
|
0.01 |
|
Acquisition-related (b) |
4,465 |
|
(876 |
) |
3,589 |
|
0.06 |
|
Fair
value adjustment to contingent consideration (c) |
(256 |
) |
68 |
|
(188 |
) |
0.00 |
|
Long-term
asset impairment charge (d) |
70 |
|
(18 |
) |
52 |
|
0.00 |
|
Acquired
in-process research and development |
263 |
|
(67 |
) |
196 |
|
0.00 |
|
Amortization of intangibles |
2,574 |
|
(679 |
) |
1,895 |
|
0.03 |
|
Special
legal expense (f) |
1,363 |
|
(351 |
) |
1,012 |
|
0.02 |
|
Other (Income)
Expense |
|
|
|
|
Amortization of long-term debt issuance costs |
201 |
|
(52 |
) |
149 |
|
0.00 |
|
Tax expense related to
tax reform (h) |
— |
|
3,005 |
|
3,005 |
|
0.05 |
|
|
|
|
|
|
Non-GAAP net
income |
$ |
31,830 |
|
$ |
(4,794 |
) |
$ |
27,036 |
|
$ |
0.48 |
|
|
|
|
|
|
Diluted shares |
|
|
|
56,514 |
|
|
|
|
|
|
|
Three Months Ended |
|
December 31, 2017 |
|
Pre-Tax |
Tax Impact (a) |
After-Tax |
Per Share Impact |
GAAP net income |
$ |
11,280 |
|
$ |
(4,474 |
) |
$ |
6,806 |
|
$ |
0.13 |
|
|
|
|
|
|
Non-GAAP
adjustments: |
|
|
|
|
Cost of
Sales |
|
|
|
|
Amortization of intangibles |
5,490 |
|
(1,848 |
) |
3,642 |
|
0.07 |
|
Inventory
mark-up related to acquisitions |
279 |
|
(39 |
) |
240 |
|
0.00 |
|
Operating
Expenses |
|
|
|
|
Severance |
446 |
|
(171 |
) |
275 |
|
0.01 |
|
Acquisition-related (b) |
1,593 |
|
(532 |
) |
1,061 |
|
0.02 |
|
Fair
value adjustment to contingent consideration (c) |
(338 |
) |
131 |
|
(207 |
) |
0.00 |
|
Long-term
asset impairment charge (d) |
93 |
|
(36 |
) |
57 |
|
0.00 |
|
Intangible asset impairment charge (e) |
809 |
|
— |
|
809 |
|
0.02 |
|
Amortization of intangibles |
1,908 |
|
(703 |
) |
1,205 |
|
0.02 |
|
Special
legal expense (f) |
2,001 |
|
(779 |
) |
1,222 |
|
0.02 |
|
Other
(Income) Expense |
|
|
|
|
Gain on
bargain purchase (g) |
(243 |
) |
— |
|
(243 |
) |
0.00 |
|
Amortization of long-term debt issuance costs |
171 |
|
(67 |
) |
104 |
|
0.00 |
|
Tax expense related to
tax reform (h) |
— |
|
1,855 |
|
1,855 |
|
0.04 |
|
|
|
|
|
|
Non-GAAP net
income |
$ |
23,489 |
|
$ |
(6,663 |
) |
$ |
16,826 |
|
$ |
0.33 |
|
|
|
|
|
|
Diluted shares |
|
|
|
51,722 |
|
Reconciliation of GAAP Net Income to Non-GAAP Net Income |
|
|
|
(Unaudited,
in thousands except per share amounts) |
|
|
|
|
|
|
|
|
|
Year Ended |
|
December 31, 2018 |
|
Pre-Tax |
Tax Impact (a) |
After-Tax |
Per Share Impact |
GAAP net income |
$ |
49,519 |
|
$ |
(7,502 |
) |
$ |
42,017 |
|
$ |
0.78 |
|
|
|
|
|
|
Non-GAAP
adjustments: |
|
|
|
|
Cost of
Sales |
|
|
|
|
Amortization of intangibles |
31,795 |
|
(8,123 |
) |
23,672 |
|
0.43 |
|
Inventory
mark-up related to acquisitions |
5,233 |
|
(1,347 |
) |
3,886 |
|
0.07 |
|
Operating
expenses |
|
|
|
|
Severance |
920 |
|
(205 |
) |
715 |
|
0.01 |
|
Acquisition-related (b) |
7,584 |
|
(1,679 |
) |
5,905 |
|
0.11 |
|
Fair
value adjustment to contingent consideration (c) |
(698 |
) |
(21 |
) |
(719 |
) |
(0.01 |
) |
Long-term
asset impairment charge (d) |
156 |
|
(40 |
) |
116 |
|
0.00 |
|
Acquired
in-process research and development |
644 |
|
(166 |
) |
478 |
|
0.01 |
|
Intangible asset impairment charge (e) |
657 |
|
(169 |
) |
488 |
|
0.01 |
|
Amortization of intangibles |
9,438 |
|
(2,503 |
) |
6,935 |
|
0.12 |
|
Special
legal expense (f) |
5,645 |
|
(1,453 |
) |
4,192 |
|
0.08 |
|
Other
(Income) Expense |
|
|
|
|
Amortization of long-term debt issuance costs |
804 |
|
(207 |
) |
597 |
|
0.01 |
|
Tax expense related to
tax reform (h) |
— |
|
3,005 |
|
3,005 |
|
0.06 |
|
|
|
|
|
|
Non-GAAP net
income |
$ |
111,697 |
|
$ |
(20,410 |
) |
$ |
91,287 |
|
$ |
1.69 |
|
|
|
|
|
|
Diluted shares |
|
|
|
53,931 |
|
|
|
|
|
|
|
Year Ended |
|
December 31, 2017 |
|
Pre-Tax |
Tax Impact (a) |
After-Tax |
Per Share Impact |
GAAP net income |
$ |
35,881 |
|
$ |
(8,358 |
) |
$ |
27,523 |
|
$ |
0.55 |
|
|
|
|
|
|
Non-GAAP
adjustments: |
|
|
|
|
Cost of
Sales |
|
|
|
|
Amortization of intangibles |
20,705 |
|
(7,550 |
) |
13,155 |
|
0.26 |
|
Inventory
mark-up related to acquisitions |
3,400 |
|
(1,253 |
) |
2,147 |
|
0.04 |
|
Operating
Expenses |
|
|
|
|
Severance |
2,185 |
|
(847 |
) |
1,338 |
|
0.03 |
|
Acquisition-related (b) |
6,648 |
|
(2,048 |
) |
4,600 |
|
0.09 |
|
Fair
value adjustment to contingent consideration (c) |
(298 |
) |
116 |
|
(182 |
) |
0.00 |
|
Long-term
asset impairment charge (d) |
179 |
|
(70 |
) |
109 |
|
0.00 |
|
Acquired
in-process research and development |
12,136 |
|
(97 |
) |
12,039 |
|
0.24 |
|
Intangible asset impairment charge (e) |
809 |
|
— |
|
809 |
|
0.02 |
|
Amortization of intangibles |
6,111 |
|
(2,324 |
) |
3,787 |
|
0.07 |
|
Special
legal expense (f) |
12,616 |
|
(4,908 |
) |
7,708 |
|
0.15 |
|
Other
(Income) Expense |
|
|
|
|
Gain on
bargain purchase (g) |
(11,039 |
) |
— |
|
(11,039 |
) |
(0.22 |
) |
Amortization of long-term debt issuance costs |
685 |
|
(267 |
) |
418 |
|
0.01 |
|
Tax expense related to
tax reform (h) |
— |
|
1,855 |
|
1,855 |
|
0.04 |
|
|
|
|
|
|
Non-GAAP net
income |
$ |
90,018 |
|
$ |
(25,751 |
) |
$ |
64,267 |
|
$ |
1.28 |
|
|
|
|
|
|
Diluted shares |
|
|
|
50,101 |
|
|
|
|
|
|
|
(a) Reflects the tax effect associated with pre-tax income and
the tax effect of non-GAAP adjustments based on statutory tax rates
within the applicable markets with adjustments.(b) Represents
transaction and certain direct integration costs, including travel,
related to acquisitions.(c) Represents changes in the fair value of
contingent consideration liabilities and contingent receivables
associated with prior acquisitions.(d) Represents abandoned
patents.(e) Represents impairment charges related to certain
acquired intangible assets.(f) Costs incurred in responding to an
inquiry from the U.S. Department of Justice.(g) Represents the gain
on bargain purchase realized from the acquisition of the critical
care division of Argon Medical Devices, Inc.(h) Net tax impact
related to the enactment of the Tax Cuts and Jobs Act
Reconciliation of Reported Revenue to Core Revenue
(Non-GAAP), Constant Currency Revenue (Non-GAAP), and Core Revenue
on a Constant Currency Basis (Non-GAAP) |
|
|
(Unaudited; in
thousands except percentages) |
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Year Ended |
|
|
December 31, |
|
|
December 31, |
|
% Change |
2018 |
2017 |
|
% Change |
2018 |
2017 |
Reported Revenue |
22.2 |
% |
$ |
233,249 |
|
$ |
190,897 |
|
|
21.3 |
% |
$ |
882,753 |
|
$ |
727,852 |
|
|
|
|
|
|
|
|
|
Add: Impact of foreign
exchange (a) |
|
2,217 |
|
— |
|
|
|
(5,163 |
) |
— |
|
|
|
|
|
|
|
|
|
Constant
Currency Revenue |
23.3 |
% |
$ |
235,466 |
|
$ |
190,897 |
|
|
20.6 |
% |
$ |
877,590 |
|
$ |
727,852 |
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Year Ended |
|
|
December 31, |
|
|
December 31, |
|
% Change |
2018 |
2017 |
|
% Change |
2018 |
2017 |
Reported Revenue |
22.2 |
% |
$ |
233,249 |
|
$ |
190,897 |
|
|
21.3 |
% |
$ |
882,753 |
|
$ |
727,852 |
|
|
|
|
|
|
|
|
|
Less: Revenue from
certain acquisitions (b) |
|
(19,470 |
) |
— |
|
|
|
(66,564 |
) |
— |
|
|
|
|
|
|
|
|
|
Core
Revenue |
12.0 |
% |
$ |
213,779 |
|
$ |
190,897 |
|
|
12.1 |
% |
$ |
816,189 |
|
$ |
727,852 |
|
|
|
|
|
|
|
|
|
Add: Impact of foreign
exchange (a) |
|
2,217 |
|
— |
|
|
|
(5,163 |
) |
— |
|
|
|
|
|
|
|
|
|
Core Revenue on
a Constant Currency Basis |
13.1 |
% |
$ |
215,996 |
|
$ |
190,897 |
|
|
11.4 |
% |
$ |
811,026 |
|
$ |
727,852 |
|
(a) The constant currency revenue adjustments of
$2.2 million and $(5.2) million to reported revenue and to core
revenue, for the three and twelve months ended December 31,
2018, respectively, were calculated using the applicable average
foreign exchange rates for the three and twelve months ended
December 31, 2017, respectively.
(b) Merit’s core revenue is defined (a) with
respect to prior fiscal year periods, as GAAP revenue, and (b) with
respect to current fiscal year periods, as GAAP revenue, less
revenue from certain acquisitions and strategic transactions. For
the three and twelve-month periods ended December 31, 2018, Merit’s
core revenue excludes revenues from (i) the acquisitions of (1) the
assets of Catheter Connections, Inc. in January 2017 (excluded
January 2018 only), (2) the critical care division of Argon Medical
Devices, Inc. in January 2017 (excluded January 2018 only), (3)
Osseon LLC in July 2017 (excluded through June 2018 only), (4)
Laurane Medical S.A.S. in August 2017 (excluded through July 2018
only), (5) ITL Healthcare Pty. Ltd. in October 2017 (excluded
through September 2018 only), (6) certain divested assets of
Becton, Dickinson and Company in February 2018, (7) the assets of
DirectACCESS Medical, LLC in May 2018, (8) Cianna Medical, Inc. in
November 2018, (9) certain assets of Vascular Insights, LLC in
December 2018, and (ii) revenues from (1) the distribution
arrangement with NinePoint Medical, Inc. executed in April 2018 and
(2) the distribution arrangement with QXMedical, LLC executed in
May 2018.
Reconciliation of Reported Gross Margin to Non-GAAP Gross
Margin (Non-GAAP) |
|
|
(Unaudited,
as a percentage of reported revenue) |
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
Year Ended |
|
December 31, |
|
December 31, |
|
2018 |
2017 |
|
2018 |
2017 |
Reported Gross
Margin |
44.9 |
% |
44.9 |
% |
|
44.7 |
% |
44.8 |
% |
|
|
|
|
|
|
Add back impact
of: |
|
|
|
|
|
Amortization of intangibles |
4.0 |
% |
2.9 |
% |
|
3.6 |
% |
2.8 |
% |
Inventory
mark-up related to acquisitions |
0.5 |
% |
0.1 |
% |
|
0.6 |
% |
0.5 |
% |
|
|
|
|
|
|
Non-GAAP Gross
Margin |
49.4 |
% |
47.9 |
% |
|
48.9 |
% |
48.1 |
% |
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 6,000 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; Reading, United Kingdom; Johannesburg, South Africa; and
Singapore.
FORWARD-LOOKING STATEMENTSStatements contained
in this release which are not purely historical, including, without
limitation, statements regarding Merit's forecasted plans, net
sales, net income (GAAP and non-GAAP), gross margin (GAAP and
non-GAAP), earnings per share (GAAP and non-GAAP), effective tax
rate and other financial results, anticipated or completed
acquisitions, or the introduction of new products, 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 inherent risks and uncertainties
relating to Merit’s internal models or the projections in this
release; risks relating to Merit's potential inability to
successfully manage growth through acquisitions generally,
including the inability to effectively integrate acquired
operations or products or commercialize technology acquired through
completed, proposed or future transactions; 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;
governmental scrutiny and regulation of the medical device
industry, including governmental inquiries, investigations and
proceedings involving Merit; restrictions on Merit's
liquidity or business operations resulting from its debt
agreements; infringement of Merit's technology or the assertion
that Merit's technology infringes the rights of other parties;
product recalls and product liability claims; changes in customer
purchasing patterns or the mix of products Merit sells; risks and
uncertainties associated with Merit’s information technology
systems, including the potential for breaches of security and
evolving regulations regarding privacy and data protection; 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 or regulations; the pending exit of the
United Kingdom from the European Union and uncertainties about
when, how or if such exit will occur; laws and regulations
targeting fraud and abuse in the healthcare industry; potential for
significant adverse changes in governing regulations, including
reforms to the procedures for approval or clearance of Merit's
products by the U.S. Food & Drug Administration or comparable
regulatory authorities in other jurisdictions; 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
suppliers, or failure of such suppliers to perform; fluctuations in
exchange rates; uncertainties relating to the LIBOR calculation
method and the potential phasing out of LIBOR; concentration of a
substantial portion 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 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; introduction of products in a
timely fashion; 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.
TRADEMARKSUnless noted otherwise, trademarks and
registered trademarks used in this release are the property of
Merit Medical Systems, Inc. and its subsidiaries in the United
States and other jurisdictions.
Contact: Anne-Marie
Wright, Vice President, Corporate
CommunicationsPhone: (801)
208-4167 e-mail: awright@merit.com Fax: (801)
253-1688
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