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 $243.0 million for the quarter ended
September 30, 2019, an increase of 9.6% over revenue of
$221.7 million for the quarter ended September 30, 2018.
Core revenue on a comparable, constant currency basis* for the
third quarter of 2019 increased 4.3% compared to the third quarter
of 2018. Additional products, which generated revenue of
approximately $4.6 million, were shipped during the third quarter
of 2019, however, due to revenue recognition requirements, revenue
attributable to those products will not be recognized until the
fourth quarter of 2019.
Merit’s GAAP net loss for the third quarter of
2019 was $(3.4) million, or $(0.06) per share, compared to GAAP net
income of $16.6 million, or $0.30 per share, for the third quarter
of 2018. Merit’s non-GAAP net income* for the quarter ended
September 30, 2019 was $15.7 million, or $0.28 per share,
compared to $26.0 million, or $0.47 per share, for the quarter
ended September 30, 2018.
Merit’s GAAP gross margin for the third quarter
of 2019 was 42.8%, compared to GAAP gross margin of 46.0% for the
third quarter of 2018. Merit’s non-GAAP gross margin* for the third
quarter of 2019 was 48.1%, compared to non-GAAP gross margin* of
49.8% for the third quarter of 2018.
Merit’s revenue by category for the three and
nine-month periods ended September 30, 2019, compared to the
corresponding periods in 2018, was as follows (unaudited, in
thousands, except for percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30, |
|
|
|
Nine Months Ended
September 30, |
|
|
% Change |
|
2019 |
|
2018 |
|
% Change |
|
2019 |
|
2018 |
Cardiovascular |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stand-alone devices |
|
5.9 |
|
% |
$ |
96,326 |
|
$ |
90,975 |
|
10.7 |
|
% |
$ |
295,275 |
|
$ |
266,717 |
Cianna Medical |
|
n/a |
|
|
|
11,638 |
|
|
— |
|
n/a |
|
|
|
35,723 |
|
|
— |
Custom kits and procedure trays |
|
2.6 |
|
% |
|
33,972 |
|
|
33,095 |
|
0.9 |
|
% |
|
101,257 |
|
|
100,359 |
Inflation devices |
|
(3.1 |
) |
% |
|
22,183 |
|
|
22,893 |
|
(1.6 |
) |
% |
|
68,515 |
|
|
69,617 |
Catheters |
|
9.4 |
|
% |
|
44,426 |
|
|
40,591 |
|
16.7 |
|
% |
|
132,809 |
|
|
113,830 |
Embolization devices |
|
(0.5 |
) |
% |
|
12,333 |
|
|
12,395 |
|
1.2 |
|
% |
|
38,168 |
|
|
37,706 |
CRM/EP |
|
11.0 |
|
% |
|
13,548 |
|
|
12,201 |
|
10.1 |
|
% |
|
39,823 |
|
|
36,163 |
Total |
|
10.5 |
|
% |
|
234,426 |
|
|
212,150 |
|
14.0 |
|
% |
|
711,570 |
|
|
624,392 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Endoscopy |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Endoscopy devices |
|
(9.3 |
) |
% |
|
8,623 |
|
|
9,509 |
|
1.0 |
|
% |
|
25,360 |
|
|
25,112 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
9.6 |
|
% |
$ |
243,049 |
|
$ |
221,659 |
|
13.5 |
|
% |
$ |
736,930 |
|
$ |
649,504 |
“Historically, the summer quarter has generally
been the slowest quarter of the year for us, as sales to hospitals,
physicians, and even countries delivering health care slowed
substantially,” said Fred P. Lampropoulos, Merit’s Chairman and
Chief Executive Officer. “This year was no exception, especially
compared to the summer quarter of last year, during which we
experienced a $4-5 million bump in sales due to a shortage of
inventory experienced by a competitor. Our third quarter results
this year were also hampered by our decline in gross margin growth
as a result of product sales mix, increased cost, foreign exchange,
trade concerns, tariffs and Brexit.”
“Consequently, we have adjusted our 2019 full
year guidance to $986 – $995 million in revenue, 43.2% –
43.6% in GAAP gross margins, 48.4% – 48.7% in non-GAAP gross
margins and $0.27 – $0.33 in GAAP earnings per share, and $1.40 –
$1.46 in non-GAAP earnings per share,” Lampropoulos continued. “We
are also pulling 2020 guidance off the table at this time so that
we can provide more accurate forecasting as we continue to assess
the anticipated impact of our recently-executed Premier GPO
opportunity, our negotiation of preferred provider status with a
major medical device distributor, which is now in effect, our
initiatives to reduce costs and improve operational efficiencies,
geopolitical developments and other factors. Our new GPO
distribution agreements provide substantial opportunities, however
it must be understood that there is a lag between commencement and
conversion which can take several months to utilize existing
inventories, conduct proper training and fill the product pipeline.
As we look forward to the balance of 2019, we see sales
improvements underway. We currently plan to provide 2020 guidance
when we report 2019 fourth quarter and year-end results.”
“During the third quarter of 2019 we initiated a
number of initiatives to increase efficiency and lower costs,”
Lampropoulos said. “We have already completed a headcount reduction
of 2% of our total workforce, with a substantial portion coming
from our SG&A category. We closed our research and
development facility in San Jose, and absorbed the essential
operations conducted in that facility into our Utah facility. We
are also exploring the consolidation of additional satellite
facilities to our Mexico and Texas facilities during the next
several months. All in all, there is substantial effort to reduce
costs and increase efficiency throughout the entire
organization.”
“We believe we have been through the trough and
are now emerging as a leaner, more efficient growth company,”
Lampropoulos said. “We are adapting to global conditions, which
have been significant, and as previously mentioned, our customers,
dealers and vendors are adapting as well. Our goals of improving
free cash flow and reducing capital expenditures by at least $20
million from 2019 levels are significant elements of our budget
planning process.”
“Our new product pipeline continues to be robust
with a number of new products particularly directed towards
electrophysiology and vascular access,” Lampropoulos continued. “We
have completed our “First in Man” trials of our Wrapsody™ Stent
Graft and have filed for Breakthrough Device Designation with the
FDA. Additionally, dialogue is underway with the FDA for our
pivotal study of the Wrapsody. We also completed the transfer of
all activities of the biopsy business we acquired from Becton
Dickinson to our facility in Mexico, which was an enormous project
completed on time and on budget.”
“We expect future growth to benefit from the
10-15 new products we plan to release over the next six months, as
well as continued focus on the areas we excel in,” Lampropoulos
said. “We believe new products such as our Arcadia™ Kyphoplasty
System, which features advantages exclusive to Merit; the Sync Evo™
and Synch™ Vascular Closure Devices; the new ReSolve® Mini Pigtail
Drainage Catheter, which complements our entire drainage product
offering; the new Fountain® Infusion Catheter; the GO2™ Wire; and
the ConcierGE® Catalyst Specialty Catheter will lead the way.”
“We have been asked about our status regarding
sterilization capacity and availability,” Lampropoulos said.
“Currently, Merit has in place or is qualifying multiple
sterilization sites for each of our manufacturing sites. We expect
sterilization capacity will continue to tighten, but Merit has a
primary and back-up sterilization site for all of our
facilities.”
REVISED 2019 GUIDANCE
Based upon information currently available to
Merit’s management, Merit estimates for the year ending
December 31, 2019, absent material acquisitions, non-recurring
transactions or other factors beyond Merit’s control, the
following:
|
|
|
|
|
Financial Measure |
|
Prior Guidance |
|
Revised Guidance |
|
|
|
|
|
Net Sales |
|
$1,007 - $1,029 million |
|
$986 - $995 million |
|
|
|
|
|
GAAP |
|
|
|
|
Earnings per share |
|
$0.62 - $0.84 |
|
$0.27 - $0.33 |
Gross Margin |
|
44.1% - 44.8% |
|
43.2% - 43.6% |
|
|
|
|
|
Non-GAAP |
|
|
|
|
Earnings per share |
|
$1.74 - $1.97 |
|
$1.40 - $1.46 |
Gross Margin |
|
49.2% - 49.9% |
|
48.4% - 48.7% |
Merit’s financial guidance for the year
ending December 31, 2019 is subject to risks and
uncertainties identified in Merit’s public filings.
CONFERENCE CALL
Merit will hold its investor conference call
(conference ID 9188823) today, Wednesday, October 30, 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)
|
|
|
|
|
|
|
|
|
September 30, |
|
|
|
|
2019 |
|
December 31, |
|
|
(unaudited) |
|
2018 |
ASSETS |
|
|
|
|
|
Current Assets |
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
37,315 |
|
|
$ |
67,359 |
|
Trade receivables, net |
|
|
144,683 |
|
|
|
137,174 |
|
Other receivables |
|
|
11,751 |
|
|
|
11,879 |
|
Inventories |
|
|
216,766 |
|
|
|
197,536 |
|
Prepaid expenses and current other assets |
|
|
17,610 |
|
|
|
11,326 |
|
Prepaid income taxes |
|
|
3,611 |
|
|
|
3,627 |
|
Income tax refund receivables |
|
|
9,566 |
|
|
|
933 |
|
Total current assets |
|
|
441,302 |
|
|
|
429,834 |
|
|
|
|
|
|
|
|
Property and equipment,
net |
|
|
366,901 |
|
|
|
331,452 |
|
Intangible assets, net |
|
|
458,907 |
|
|
|
462,713 |
|
Goodwill |
|
|
352,158 |
|
|
|
335,433 |
|
Deferred income tax
assets |
|
|
2,944 |
|
|
|
3,001 |
|
Right-of-use operating lease
assets |
|
|
79,757 |
|
|
|
— |
|
Other assets |
|
|
59,735 |
|
|
|
57,579 |
|
Total Assets |
|
|
1,761,704 |
|
|
|
1,620,012 |
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
Current Liabilities |
|
|
|
|
|
|
Trade payables |
|
$ |
52,387 |
|
|
$ |
54,024 |
|
Accrued expenses |
|
|
80,486 |
|
|
|
96,173 |
|
Current portion of long-term debt |
|
|
7,500 |
|
|
|
22,000 |
|
Short-term operating lease liabilities |
|
|
11,652 |
|
|
|
— |
|
Income taxes payable |
|
|
1,188 |
|
|
|
3,146 |
|
Total current liabilities |
|
|
153,213 |
|
|
|
175,343 |
|
|
|
|
|
|
|
|
Long-term debt |
|
|
432,456 |
|
|
|
373,152 |
|
Deferred income tax
liabilities |
|
|
58,290 |
|
|
|
56,363 |
|
Long-term income taxes
payable |
|
|
392 |
|
|
|
392 |
|
Liabilities related to
unrecognized tax benefits |
|
|
3,013 |
|
|
|
3,013 |
|
Deferred compensation
payable |
|
|
13,497 |
|
|
|
11,219 |
|
Deferred credits |
|
|
2,157 |
|
|
|
2,261 |
|
Long-term operating lease
liabilities |
|
|
72,056 |
|
|
|
— |
|
Other long-term
obligations |
|
|
77,389 |
|
|
|
65,494 |
|
Total Liabilities |
|
|
812,463 |
|
|
|
687,237 |
|
|
|
|
|
|
|
|
Stockholders' Equity |
|
|
|
|
|
|
Common stock |
|
|
584,161 |
|
|
|
571,383 |
|
Retained earnings |
|
|
373,174 |
|
|
|
363,425 |
|
Accumulated other comprehensive loss |
|
|
(8,094 |
) |
|
|
(2,033 |
) |
Total Liabilities and
Stockholders' Equity |
|
$ |
1,761,704 |
|
|
$ |
1,620,012 |
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED STATEMENTS OF
INCOME(Unaudited,
in thousands except per share
amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30, |
|
Nine Months Ended
September 30, |
|
|
2019 |
|
2018 |
|
2019 |
|
2018 |
NET SALES |
|
$ |
243,049 |
|
|
$ |
221,659 |
|
|
$ |
736,930 |
|
|
$ |
649,504 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COST OF SALES |
|
|
138,913 |
|
|
|
119,620 |
|
|
|
416,194 |
|
|
|
359,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GROSS PROFIT |
|
|
104,136 |
|
|
|
102,039 |
|
|
|
320,736 |
|
|
|
290,104 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES: |
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative |
|
|
86,936 |
|
|
|
66,382 |
|
|
|
245,183 |
|
|
|
200,389 |
|
Research and development |
|
|
16,987 |
|
|
|
14,525 |
|
|
|
49,361 |
|
|
|
44,163 |
|
Intangible asset impairment charge |
|
|
2,702 |
|
|
|
657 |
|
|
|
3,250 |
|
|
|
657 |
|
Contingent consideration expense |
|
|
392 |
|
|
|
(661 |
) |
|
|
3,573 |
|
|
|
(442 |
) |
Acquired in-process research and development |
|
|
— |
|
|
|
75 |
|
|
|
525 |
|
|
|
382 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
107,017 |
|
|
|
80,978 |
|
|
|
301,892 |
|
|
|
245,149 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) FROM
OPERATIONS |
|
|
(2,881 |
) |
|
|
21,061 |
|
|
|
18,844 |
|
|
|
44,955 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE): |
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
328 |
|
|
|
359 |
|
|
|
1,027 |
|
|
|
847 |
|
Interest expense |
|
|
(3,415 |
) |
|
|
(2,329 |
) |
|
|
(9,295 |
) |
|
|
(8,064 |
) |
Other expense - net |
|
|
278 |
|
|
|
294 |
|
|
|
(421 |
) |
|
|
(429 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense — net |
|
|
(2,809 |
) |
|
|
(1,676 |
) |
|
|
(8,689 |
) |
|
|
(7,646 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) BEFORE INCOME
TAXES |
|
|
(5,690 |
) |
|
|
19,385 |
|
|
|
10,155 |
|
|
|
37,309 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME TAX EXPENSE
(BENEFIT) |
|
|
(2,292 |
) |
|
|
2,766 |
|
|
|
499 |
|
|
|
4,481 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS) |
|
$ |
(3,398 |
) |
|
$ |
16,619 |
|
|
$ |
9,656 |
|
|
$ |
32,828 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EARNINGS (LOSS) PER COMMON
SHARE: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
(0.06 |
) |
|
$ |
0.31 |
|
|
$ |
0.18 |
|
|
$ |
0.64 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
$ |
(0.06 |
) |
|
$ |
0.30 |
|
|
$ |
0.17 |
|
|
$ |
0.62 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AVERAGE COMMON SHARES: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
55,152 |
|
|
|
53,431 |
|
|
|
55,029 |
|
|
|
51,434 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
55,152 |
|
|
|
55,103 |
|
|
|
56,393 |
|
|
|
53,096 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP Financial Measures
Although 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
referenced 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 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 tables
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 acquisition transactions, 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 or industry 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 Revenue
Merit’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 $2.4 million and $11.8 million for the three and
nine-month periods ended September 30, 2019, respectively,
were calculated using the applicable average foreign exchange rates
for the three and nine-month periods ended September 30,
2018, respectively.
Core Revenue and Core Revenue on a Constant Currency Basis
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 nine-month periods ended
September 30, 2019, Merit’s core revenue excludes revenues
attributable to (i) the acquisition of (1) certain
divested assets of Becton, Dickinson and Company in
February 2018 (excluded January 2019 only), (2) the
assets of DirectACCESS Medical, LLC in May 2018 (excluded
through April 2019 only), (3) Cianna Medical, Inc.
in November 2018, (4) the assets of Vascular Insights,
LLC in December 2018, (5) Brightwater Medical, Inc.
in June 2019, and (6) Fibrovein Holdings Limited in August
2019 and (ii) distribution arrangements executed with
NinePoint Medical, Inc. in April 2018 (excluded through
April 2019 only) and QXMedical, LLC in May 2018 (excluded
through May 2019 only). Core revenue on a constant currency
basis is defined as core revenue (as described in the first
sentence of this paragraph) adjusted to eliminate the foreign
exchange impact related to those core revenues for the relevant
period, using the applicable average foreign exchange rates in
effect for the comparable prior-year periods presented.
Non-GAAP Gross Margin
Non-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 Income
Non-GAAP net income is calculated by adjusting
GAAP net income (loss) 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 or industry
regulations, and debt issuance costs, as well as other items set
forth in the tables below.
Non-GAAP EPS
Non-GAAP EPS is defined as non-GAAP net income
divided by the diluted shares outstanding for the corresponding
period.
Other Non-GAAP Financial Measure Reconciliation
The 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 nine-month periods ended September 30, 2019 and 2018.
The non-GAAP income adjustments referenced in the following table
do not reflect stock-based compensation expense of approximately
$2.6 million and $1.7 million for the three-month periods ended
September 30, 2019 and 2018, respectively, and approximately $6.9
million and $4.5 million for the nine-month periods ended September
30, 2019 and 2018, respectively.
Reconciliation of GAAP Net Income
(Loss) to Non-GAAP Net Income(Unaudited, in
thousands except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
September 30, 2019 |
|
|
Pre-Tax |
|
Tax Impact (a) |
|
After-Tax |
|
Per Share Impact |
GAAP net income (loss) |
|
$ |
(5,690 |
) |
|
$ |
2,292 |
|
|
$ |
(3,398 |
) |
|
$ |
(0.06 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Sales |
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of intangibles |
|
|
12,725 |
|
|
|
(3,259 |
) |
|
|
9,466 |
|
|
|
0.17 |
|
Inventory mark-up related to acquisitions |
|
|
55 |
|
|
|
(14 |
) |
|
|
41 |
|
|
|
0.00 |
|
Operating Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Severance |
|
|
2,721 |
|
|
|
(700 |
) |
|
|
2,021 |
|
|
|
0.03 |
|
Acquisition-related (b) |
|
|
1,156 |
|
|
|
(154 |
) |
|
|
1,002 |
|
|
|
0.02 |
|
Medical Device Regulation expenses (c) |
|
|
83 |
|
|
|
(21 |
) |
|
|
62 |
|
|
|
0.00 |
|
Fair value adjustments to contingent consideration (d) |
|
|
392 |
|
|
|
(91 |
) |
|
|
301 |
|
|
|
0.01 |
|
Long-term asset impairment charges (e) |
|
|
196 |
|
|
|
(50 |
) |
|
|
146 |
|
|
|
0.00 |
|
Intangible asset impairment charges (f) |
|
|
2,702 |
|
|
|
(696 |
) |
|
|
2,006 |
|
|
|
0.04 |
|
Amortization of intangibles |
|
|
2,783 |
|
|
|
(732 |
) |
|
|
2,051 |
|
|
|
0.04 |
|
Special legal expense (g) |
|
|
2,362 |
|
|
|
(608 |
) |
|
|
1,754 |
|
|
|
0.03 |
|
Other (Income) Expense |
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of long-term debt issuance costs |
|
|
268 |
|
|
|
(69 |
) |
|
|
199 |
|
|
|
0.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP net income |
|
$ |
19,753 |
|
|
$ |
(4,102 |
) |
|
$ |
15,651 |
|
|
$ |
0.28 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted shares |
|
|
|
|
|
|
|
|
|
|
|
55,152 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
September 30, 2018 |
|
|
Pre-Tax |
|
Tax Impact (a) |
|
After-Tax |
|
Per Share Impact |
GAAP net income |
|
$ |
19,385 |
|
|
$ |
(2,766 |
) |
|
$ |
16,619 |
|
|
$ |
0.30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Sales |
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of intangibles |
|
|
8,150 |
|
|
|
(2,083 |
) |
|
|
6,067 |
|
|
|
0.12 |
|
Inventory mark-up related to acquisitions |
|
|
216 |
|
|
|
(56 |
) |
|
|
160 |
|
|
|
0.00 |
|
Operating Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Severance |
|
|
318 |
|
|
|
(49 |
) |
|
|
269 |
|
|
|
0.00 |
|
Acquisition-related (b) |
|
|
529 |
|
|
|
(136 |
) |
|
|
393 |
|
|
|
0.01 |
|
Fair value adjustments to contingent consideration (d) |
|
|
(661 |
) |
|
|
(32 |
) |
|
|
(693 |
) |
|
|
(0.01 |
) |
Acquired in-process research and development |
|
|
75 |
|
|
|
(19 |
) |
|
|
56 |
|
|
|
0.00 |
|
Intangible asset impairment charges (f) |
|
|
658 |
|
|
|
(169 |
) |
|
|
489 |
|
|
|
0.01 |
|
Amortization of intangibles |
|
|
2,399 |
|
|
|
(636 |
) |
|
|
1,763 |
|
|
|
0.03 |
|
Special legal expense (g) |
|
|
946 |
|
|
|
(243 |
) |
|
|
703 |
|
|
|
0.01 |
|
Other (Income) Expense |
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of long-term debt issuance costs |
|
|
201 |
|
|
|
(52 |
) |
|
|
149 |
|
|
|
0.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP net income |
|
$ |
32,216 |
|
|
$ |
(6,241 |
) |
|
$ |
25,975 |
|
|
$ |
0.47 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted shares |
|
|
|
|
|
|
|
|
|
|
|
55,103 |
|
Reconciliation of GAAP Net Income to
Non-GAAP Net Income(Unaudited, in
thousands except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
September 30, 2019 |
|
|
Pre-Tax |
|
Tax Impact (a) |
|
After-Tax |
|
Per Share Impact |
GAAP net income |
|
$ |
10,155 |
|
$ |
(499 |
) |
|
$ |
9,656 |
|
$ |
0.17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Sales |
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of intangibles |
|
|
36,882 |
|
|
(9,444 |
) |
|
|
27,438 |
|
|
0.48 |
Inventory mark-up related to acquisitions |
|
|
939 |
|
|
(241 |
) |
|
|
698 |
|
|
0.01 |
Operating Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Severance |
|
|
3,543 |
|
|
(912 |
) |
|
|
2,631 |
|
|
0.05 |
Acquisition-related (b) |
|
|
2,897 |
|
|
(589 |
) |
|
|
2,308 |
|
|
0.04 |
Medical Device Regulation expenses (c) |
|
|
196 |
|
|
(50 |
) |
|
|
146 |
|
|
0.00 |
Fair value adjustments to contingent consideration (d) |
|
|
3,573 |
|
|
(275 |
) |
|
|
3,298 |
|
|
0.06 |
Long-term asset impairment charges (e) |
|
|
829 |
|
|
(213 |
) |
|
|
616 |
|
|
0.01 |
Acquired in-process research and development |
|
|
525 |
|
|
(135 |
) |
|
|
390 |
|
|
0.01 |
Intangible asset impairment charges (f) |
|
|
3,250 |
|
|
(837 |
) |
|
|
2,413 |
|
|
0.04 |
Amortization of intangibles |
|
|
8,289 |
|
|
(2,182 |
) |
|
|
6,107 |
|
|
0.11 |
Special legal expense (g) |
|
|
5,040 |
|
|
(1,297 |
) |
|
|
3,743 |
|
|
0.07 |
Other (Income) Expense |
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of long-term debt issuance costs |
|
|
670 |
|
|
(172 |
) |
|
|
498 |
|
|
0.01 |
Tax expense related to restructuring (h) |
|
|
— |
|
|
92 |
|
|
|
92 |
|
|
0.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP net income |
|
$ |
76,788 |
|
$ |
(16,754 |
) |
|
$ |
60,034 |
|
$ |
1.06 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted shares |
|
|
|
|
|
|
|
|
|
|
|
56,393 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
September 30, 2018 |
|
|
Pre-Tax |
|
Tax Impact (a) |
|
After-Tax |
|
Per Share Impact |
GAAP net income |
|
$ |
37,309 |
|
|
$ |
(4,481 |
) |
|
$ |
32,828 |
|
|
$ |
0.62 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Sales |
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of intangibles |
|
|
22,550 |
|
|
|
(5,759 |
) |
|
|
16,791 |
|
|
|
0.31 |
|
Inventory mark-up related to acquisitions |
|
|
3,978 |
|
|
|
(1,024 |
) |
|
|
2,954 |
|
|
|
0.06 |
|
Operating Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Severance |
|
|
480 |
|
|
|
(91 |
) |
|
|
389 |
|
|
|
0.01 |
|
Acquisition-related (b) |
|
|
3,119 |
|
|
|
(803 |
) |
|
|
2,316 |
|
|
|
0.04 |
|
Fair value adjustment to contingent consideration (d) |
|
|
(442 |
) |
|
|
(88 |
) |
|
|
(530 |
) |
|
|
(0.01 |
) |
Long-term asset impairment charges (e) |
|
|
86 |
|
|
|
(22 |
) |
|
|
64 |
|
|
|
— |
|
Acquired in-process research and development |
|
|
381 |
|
|
|
(98 |
) |
|
|
283 |
|
|
|
0.01 |
|
Intangible asset impairment charges (f) |
|
|
657 |
|
|
|
(169 |
) |
|
|
488 |
|
|
|
0.01 |
|
Amortization of intangibles |
|
|
6,864 |
|
|
|
(1,824 |
) |
|
|
5,040 |
|
|
|
0.09 |
|
Special legal expense (g) |
|
|
4,283 |
|
|
|
(1,102 |
) |
|
|
3,181 |
|
|
|
0.06 |
|
Other (Income) Expense |
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of long-term debt issuance costs |
|
|
603 |
|
|
|
(155 |
) |
|
|
448 |
|
|
|
0.01 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP net income |
|
$ |
79,868 |
|
|
$ |
(15,616 |
) |
|
$ |
64,252 |
|
|
$ |
1.21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted shares |
|
|
|
|
|
|
|
|
|
|
|
53,096 |
|
_________________________
(a) Reflects the tax effect associated with
pre-tax income and the non-GAAP adjustments.(b) Represents
transaction costs and certain integration costs, including travel,
related to acquisitions.(c) Represents incremental expenses
incurred to comply with the Medical Device Regulation (MDR) in
Europe.(d) Represents changes in the fair value of contingent
consideration liabilities and contingent receivables as a result of
acquisitions.(e) Represents abandoned patents and other long-term
assets.(f) Represents impairment charges related to certain
acquired intangible assets.(g) Costs incurred in responding to an
inquiry from the U.S. Department of Justice.(h) Net tax expense
related to non-recurring tax withholdings in connection with
restructuring of certain international subsidiaries.
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 |
|
|
|
Nine Months Ended |
|
|
|
|
September 30, |
|
|
|
September 30, |
|
|
% Change |
|
2019 |
|
2018 |
|
% Change |
|
2019 |
|
2018 |
Reported Revenue |
|
9.6 |
% |
$ |
243,049 |
|
$ |
221,659 |
|
13.5 |
% |
$ |
736,930 |
|
$ |
649,504 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Add: Impact of foreign
exchange (a) |
|
|
|
|
2,365 |
|
|
— |
|
|
|
|
11,826 |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Constant
Currency Revenue |
|
10.7 |
% |
$ |
245,414 |
|
$ |
221,659 |
|
15.3 |
% |
$ |
748,756 |
|
$ |
649,504 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
Nine Months Ended |
|
|
|
|
September 30, |
|
|
|
September 30, |
|
|
% Change |
|
2019 |
|
2018 |
|
% Change |
|
2019 |
|
2018 |
Reported Revenue |
|
9.6 |
% |
$ |
243,049 |
|
|
$ |
221,659 |
|
13.5 |
% |
$ |
736,930 |
|
|
$ |
649,504 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Revenue from certain
acquisitions (b) |
|
|
|
|
(14,145 |
) |
|
|
— |
|
|
|
|
(47,664 |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core
Revenue |
|
3.3 |
% |
$ |
228,904 |
|
|
$ |
221,659 |
|
6.1 |
% |
$ |
689,266 |
|
|
$ |
649,504 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Add: Impact of foreign
exchange (a) |
|
|
|
|
2,365 |
|
|
|
— |
|
|
|
|
11,826 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core Revenue
on a Constant Currency Basis |
|
4.3 |
% |
$ |
231,269 |
|
|
$ |
221,659 |
|
7.9 |
% |
$ |
701,092 |
|
|
$ |
649,504 |
___________________________
(a) The constant currency revenue adjustments of
$2.4 million and $11.8 million to reported revenue and to core
revenue, for the three and nine months ended September 30,
2019, respectively, were calculated using the applicable average
foreign exchange rates for the three and nine months ended
September 30, 2018.
(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 nine-month periods
ended September 30, 2019, Merit’s core revenue excludes
revenues attributable to (i) the acquisition of
(1) certain divested assets of Becton, Dickinson and Company
in February 2018 (excluded January 2019 only),
(2) the assets of DirectACCESS Medical, LLC in May 2018
(excluded through April 2019 only), (3) Cianna
Medical, Inc. in November 2018, (4) the assets of
Vascular Insights, LLC in December 2018, (5) Brightwater
Medical, Inc. in June 2019, and (6) Fibrovein Holdings
Limited in August 2019, and (ii) distribution arrangements
executed with NinePoint Medical, Inc. in April 2018
(excluded through April 2019 only) and QXMedical, LLC in
May 2018 (excluded through May 2019 only). Core revenue
on a constant currency basis is defined as core revenue (as
described in the first sentence of this paragraph) adjusted to
eliminate the foreign exchange impact related to those core
revenues for the relevant period, using the applicable average
foreign exchange rates in effect for the comparable prior-year
periods presented.
Reconciliation of Reported Gross Margin
to Non-GAAP Gross Margin
(Non-GAAP)(Unaudited, as
a percentage of reported revenue)
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
|
September 30, |
|
September 30, |
|
|
|
2019 |
|
2018 |
|
2019 |
|
2018 |
|
Reported Gross Margin |
|
42.8 |
% |
46.0 |
% |
43.5 |
% |
44.7 |
% |
|
|
|
|
|
|
|
|
|
|
Add back impact of: |
|
|
|
|
|
|
|
|
|
Amortization of intangibles |
|
5.2 |
% |
3.7 |
% |
5.0 |
% |
3.4 |
% |
Inventory mark-up related to acquisitions |
|
0.1 |
% |
0.1 |
% |
0.2 |
% |
0.6 |
% |
|
|
|
|
|
|
|
|
|
|
Non-GAAP Gross Margin |
|
48.1 |
% |
49.8 |
% |
48.7 |
% |
48.7 |
% |
|
|
|
|
|
|
|
|
|
|
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, 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 6,300 people worldwide with facilities in South
Jordan, Utah; Pearland, Texas; Richmond, Virginia; Malvern,
Pennsylvania; Rockland, Massachusetts; 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 STATEMENTS
Statements 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, 2018 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 expected
discontinuation 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, 2018 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.
TRADEMARKS
Unless 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 Communications |
Phone: |
(801) 208‑4167 e-mail:
awright@merit.com Fax: (801) 253‑1688 |
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