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 $243.5 million for the quarter ended
March 31, 2020, an increase of 2.2% over revenue of
$238.3 million for the quarter ended March 31, 2019. Core
revenue on a constant currency basis* for the first quarter of 2020
was up 3.0% over revenue for the comparable quarter of 2019.
Merit’s GAAP gross margin for the first quarter
of 2020 was 42.6%, compared to GAAP gross margin of 43.9% for the
first quarter of 2019. Merit’s non-GAAP gross margin* for the first
quarter of 2020 was 48.5%, compared to non-GAAP gross margin* of
49.2% for the first quarter of 2019.
Merit’s GAAP operating margin for the first
quarter of 2020 was 0.6%, compared to GAAP operating margin of 4.0%
for the first quarter of 2019. Merit’s non-GAAP operating margin*
for the first quarter of 2020 was 12.7%, compared to non-GAAP
operating margin* of 12.0% for the first quarter of 2019.
Merit’s GAAP net loss for the first quarter of
2020 was $(3.2) million, or $(0.06) per share, compared to GAAP net
income of $6.2 million, or $0.11 per share, for the first quarter
of 2019. Merit’s non-GAAP net income* for the quarter ended
March 31, 2020 was $21.1 million, or $0.38 per share,
compared to non-GAAP net income* of $20.6 million, or $0.37 per
share, for the quarter ended March 31, 2019.
“The COVID-19 pandemic has been a historic shock
to the economy, our industry and our country,” said Fred P.
Lampropoulos, Merit’s Chairman and CEO. “I have been very impressed
with how my colleagues at Merit have come together to support our
customers, our patients and our company. While we anticipate
headwinds in several of our business lines, I am confident that the
diversity of the business, the strength of our people and our
strong balance sheet position us well for recovery when that
becomes more clear.”
In Q1, sales in many of Merit’s end markets have
declined due, in large part, to the imposed limitations of
procedures required for the focus on COVID-19 treatment. At the
same time, Merit has seen increased demand for many of its critical
care products, such as hemodynamic monitoring, peritoneal dialysis
catheters and insertion tools, as well as its infection control
products.
Merit’s revenue by category for the three months
ended March 31, 2020, compared to the corresponding periods in
2019, was as follows (unaudited, in thousands, except
for percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31, |
|
|
% Change |
|
2020 |
|
2019 |
Cardiovascular |
|
|
|
|
|
|
|
|
Peripheral Intervention |
|
2.9 |
% |
$ |
87,075 |
|
$ |
84,633 |
Cardiac Intervention |
|
0.1 |
% |
|
72,591 |
|
|
72,540 |
Custom Procedural Solutions |
|
3.8 |
% |
|
47,621 |
|
|
45,861 |
OEM |
|
3.0 |
% |
|
28,257 |
|
|
27,446 |
Total |
|
2.2 |
% |
|
235,544 |
|
|
230,480 |
|
|
|
|
|
|
|
|
|
Endoscopy |
|
|
|
|
|
|
|
|
Endoscopy devices |
|
1.4 |
% |
|
7,981 |
|
|
7,869 |
|
|
|
|
|
|
|
|
|
Total |
|
2.2 |
% |
$ |
243,525 |
|
$ |
238,349 |
“As we look forward to a prospective recovery,
we feel we have a strong pipeline of new products that would be
viable upon a return to historical procedure volume,” Lampropoulos
said. “In anticipation of a recovery, we have used the last several
months to increase training of our sales force as well as to
conduct training of more than 100 physicians online.”
Merit continued to improve its operating
efficiency during the first quarter of 2020, furthering initiatives
it has been working on for several months. Merit continues to
implement those initiatives and is in the process of moving 14
products to its Mexico facility, as well as consolidating four
satellite facilities. In addition, in consideration of the COVID-19
dynamics, Merit has been actively sizing the business based on
scenarios of recovery to minimize unnecessary inventory builds.
Merit has also reduced executive management and other employee
salaries, limited discretionary spending and delayed capital
spending.
As of March 31, 2020, Merit had cash on hand of
approximately $50 million and net borrowing capacity of
approximately $147 million, which was undrawn as of March 31, 2020.
Merit also generated free cash flow of approximately $15 million in
the first quarter of 2020.
2020 GUIDANCE
Due to the general uncertainty and rapidly
changing global environment related to the coronavirus pandemic and
corresponding economic downturn, Merit’s management has concluded
that it cannot issue financial guidance for the remainder of 2020.
As such, Merit’s previously issued 2020 guidance is withdrawn until
further notice.
CONFERENCE CALL
Merit will hold its investor conference call
(conference ID 3738279) today, Thursday, April 23, 2020, 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
|
|
|
|
|
|
|
|
|
March 31, |
|
|
(In thousands) |
|
2020 |
|
December 31, |
|
|
(unaudited) |
|
2019 |
ASSETS |
|
|
|
|
|
Current Assets |
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
50,080 |
|
|
$ |
44,320 |
|
Trade receivables, net |
|
|
150,050 |
|
|
|
155,365 |
|
Other receivables |
|
|
9,246 |
|
|
|
10,016 |
|
Inventories |
|
|
227,776 |
|
|
|
225,698 |
|
Prepaid expenses and other current assets |
|
|
16,284 |
|
|
|
12,497 |
|
Prepaid income taxes |
|
|
3,486 |
|
|
|
3,491 |
|
Income tax refund receivables |
|
|
5,586 |
|
|
|
3,151 |
|
Total current assets |
|
|
462,508 |
|
|
|
454,538 |
|
|
|
|
|
|
|
|
Property and equipment,
net |
|
|
384,860 |
|
|
|
378,785 |
|
Intangible assets, net |
|
|
430,244 |
|
|
|
445,312 |
|
Goodwill |
|
|
352,242 |
|
|
|
353,193 |
|
Deferred income tax
assets |
|
|
3,716 |
|
|
|
3,788 |
|
Right-of-use operating lease
assets |
|
|
79,133 |
|
|
|
80,244 |
|
Other assets |
|
|
36,569 |
|
|
|
41,461 |
|
Total Assets |
|
|
1,749,272 |
|
|
|
1,757,321 |
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
Current Liabilities |
|
|
|
|
|
|
Trade payables |
|
$ |
56,012 |
|
|
$ |
54,623 |
|
Accrued expenses |
|
|
87,095 |
|
|
|
105,184 |
|
Current portion of long-term debt |
|
|
7,500 |
|
|
|
7,500 |
|
Short-term operating lease liabilities |
|
|
11,670 |
|
|
|
11,550 |
|
Income taxes payable |
|
|
3,014 |
|
|
|
2,799 |
|
Total current liabilities |
|
|
165,291 |
|
|
|
181,656 |
|
|
|
|
|
|
|
|
Long-term debt |
|
|
438,137 |
|
|
|
431,984 |
|
Deferred income tax
liabilities |
|
|
45,027 |
|
|
|
45,236 |
|
Long-term income taxes
payable |
|
|
347 |
|
|
|
347 |
|
Liabilities related to
unrecognized tax benefits |
|
|
1,990 |
|
|
|
1,990 |
|
Deferred compensation
payable |
|
|
14,066 |
|
|
|
14,855 |
|
Deferred credits |
|
|
2,088 |
|
|
|
2,122 |
|
Long-term operating lease
liabilities |
|
|
71,642 |
|
|
|
72,714 |
|
Other long-term
obligations |
|
|
70,886 |
|
|
|
56,473 |
|
Total Liabilities |
|
|
809,474 |
|
|
|
807,377 |
|
|
|
|
|
|
|
|
Stockholders' Equity |
|
|
|
|
|
|
Common stock |
|
|
590,065 |
|
|
|
587,017 |
|
Retained earnings |
|
|
364,492 |
|
|
|
368,221 |
|
Accumulated other comprehensive loss |
|
|
(14,759 |
) |
|
|
(5,294 |
) |
Total Liabilities and
Stockholders' Equity |
|
$ |
1,749,272 |
|
|
$ |
1,757,321 |
|
CONSOLIDATED STATEMENTS OF
INCOME(Unaudited, in thousands except
per share amounts)
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31, |
|
|
2020 |
|
2019 |
NET SALES |
|
$ |
243,525 |
|
|
$ |
238,349 |
|
|
|
|
|
|
|
|
COST OF SALES |
|
|
139,741 |
|
|
|
133,713 |
|
|
|
|
|
|
|
|
GROSS PROFIT |
|
|
103,784 |
|
|
|
104,636 |
|
|
|
|
|
|
|
|
OPERATING EXPENSES: |
|
|
|
|
|
|
Selling, general and administrative |
|
|
78,808 |
|
|
|
78,270 |
|
Research and development |
|
|
14,872 |
|
|
|
16,043 |
|
Impairment and other charges |
|
|
3,845 |
|
|
|
— |
|
Contingent consideration expense |
|
|
4,897 |
|
|
|
775 |
|
Acquired in-process research and development |
|
|
— |
|
|
|
25 |
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
102,422 |
|
|
|
95,113 |
|
|
|
|
|
|
|
|
INCOME FROM OPERATIONS |
|
|
1,362 |
|
|
|
9,523 |
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE): |
|
|
|
|
|
|
Interest income |
|
|
79 |
|
|
|
357 |
|
Interest expense |
|
|
(3,144 |
) |
|
|
(2,764 |
) |
Other expense - net |
|
|
(289 |
) |
|
|
(270 |
) |
|
|
|
|
|
|
|
Total other expense — net |
|
|
(3,354 |
) |
|
|
(2,677 |
) |
|
|
|
|
|
|
|
INCOME (LOSS) BEFORE INCOME
TAXES |
|
|
(1,992 |
) |
|
|
6,846 |
|
|
|
|
|
|
|
|
INCOME TAX EXPENSE |
|
|
1,162 |
|
|
|
651 |
|
|
|
|
|
|
|
|
NET INCOME (LOSS) |
|
$ |
(3,154 |
) |
|
$ |
6,195 |
|
|
|
|
|
|
|
|
EARNINGS (LOSS) PER COMMON
SHARE: |
|
|
|
|
|
|
Basic |
|
$ |
(0.06 |
) |
|
$ |
0.11 |
|
|
|
|
|
|
|
|
Diluted |
|
$ |
(0.06 |
) |
|
$ |
0.11 |
|
|
|
|
|
|
|
|
AVERAGE COMMON SHARES: |
|
|
|
|
|
|
Basic |
|
|
55,246 |
|
|
|
54,917 |
|
|
|
|
|
|
|
|
Diluted |
|
|
55,246 |
|
|
|
56,490 |
|
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 operating margin,
- non-GAAP net income,
- non-GAAP earnings per share, and
- free cash flow.
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, non-GAAP operating
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 a currency other than the
U.S. dollar at the applicable foreign exchange rates in effect
during the comparable prior-year period. The constant currency
revenue adjustment of $2.8 million to reported revenue and to core
revenue for the three months ended March 31, 2020 was calculated
using the applicable average foreign exchange rates for the three
months ended March 31, 2019.
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-month period ended March 31, 2020, Merit’s core revenue
excludes revenues attributable to the acquisition of (1)
Brightwater Medical, Inc. in June 2019, and (2) Fibrovein Holdings
Limited in August 2019. 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, certain inventory write-offs and inventory
mark-up related to acquisitions.
Non-GAAP Operating Margin
Non-GAAP operating margin is calculated by
adjusting GAAP operating 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, performance-based stock compensation expenses,
expenses resulting from non-ordinary course litigation,
governmental proceedings or changes in industry regulations, as
well as other items set forth in the tables below.
Non-GAAP Net Income
Non-GAAP net income is calculated by adjusting
GAAP net income (loss) for the items set forth in the definition of
non-GAAP operating margin above, as well as for expenses related to
debt issuance costs and changes in tax regulations, 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.
Free Cash Flow
Free cash flow is defined as cash flow from
operations less capital expenditures as defined by GAAP in the
consolidated statement of cash flows.
Other Non-GAAP Financial Measure Reconciliation
The following tables 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, in each case,
for the three-month periods ended March 31, 2020 and 2019. The
non-GAAP income adjustments referenced in the following tables do
not reflect non-performance-based stock compensation expense of
approximately $2.3 million and $1.8 million for the three-month
periods ended March 31, 2020 and 2019, respectively.
Reconciliation of GAAP Net Income
(Loss) to Non-GAAP Net Income(Unaudited, in
thousands except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2020 |
|
|
Pre-Tax |
|
Tax Impact (a) |
|
After-Tax |
|
Per Share Impact |
GAAP net income (loss) |
|
$ |
(1,992 |
) |
|
$ |
(1,162 |
) |
|
$ |
(3,154 |
) |
|
$ |
(0.06 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Sales |
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of intangibles |
|
|
12,818 |
|
|
|
(3,303 |
) |
|
|
9,515 |
|
|
|
0.17 |
|
Inventory write-off (b) |
|
|
1,431 |
|
|
|
(368 |
) |
|
|
1,063 |
|
|
|
0.02 |
|
Operating Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Severance |
|
|
1,410 |
|
|
|
(363 |
) |
|
|
1,047 |
|
|
|
0.02 |
|
Acquisition-related (c) |
|
|
673 |
|
|
|
(211 |
) |
|
|
462 |
|
|
|
0.01 |
|
Medical Device Regulation expenses (d) |
|
|
299 |
|
|
|
(77 |
) |
|
|
222 |
|
|
|
0.00 |
|
Fair value adjustments to contingent consideration (e) |
|
|
4,897 |
|
|
|
73 |
|
|
|
4,970 |
|
|
|
0.09 |
|
Impairment and other charges (f) |
|
|
3,925 |
|
|
|
(113 |
) |
|
|
3,812 |
|
|
|
0.07 |
|
Amortization of intangibles |
|
|
2,182 |
|
|
|
(592 |
) |
|
|
1,590 |
|
|
|
0.03 |
|
Special legal expense (g) |
|
|
1,502 |
|
|
|
(387 |
) |
|
|
1,115 |
|
|
|
0.02 |
|
Performance-based share-based compensation (h) |
|
|
447 |
|
|
|
(52 |
) |
|
|
395 |
|
|
|
0.01 |
|
Other (Income) Expense |
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of long-term debt issuance costs |
|
|
151 |
|
|
|
(39 |
) |
|
|
112 |
|
|
|
0.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP net income |
|
$ |
27,743 |
|
|
$ |
(6,594 |
) |
|
$ |
21,149 |
|
|
$ |
0.38 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted shares (i) |
|
|
|
|
|
|
|
|
|
|
|
56,015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2019 |
|
|
Pre-Tax |
|
Tax Impact (a) |
|
After-Tax |
|
Per Share Impact |
GAAP net income |
|
$ |
6,846 |
|
$ |
(651 |
) |
|
$ |
6,195 |
|
$ |
0.11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Sales |
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of intangibles |
|
|
11,978 |
|
|
(3,067 |
) |
|
|
8,911 |
|
|
0.16 |
Inventory mark-up related to acquisitions |
|
|
672 |
|
|
(173 |
) |
|
|
499 |
|
|
0.01 |
Operating Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Severance |
|
|
327 |
|
|
(84 |
) |
|
|
243 |
|
|
0.00 |
Acquisition-related (c) |
|
|
565 |
|
|
(145 |
) |
|
|
420 |
|
|
0.01 |
Fair value adjustments to contingent consideration (e) |
|
|
775 |
|
|
(141 |
) |
|
|
634 |
|
|
0.01 |
Acquired in-process research and development |
|
|
25 |
|
|
(7 |
) |
|
|
18 |
|
|
0.00 |
Impairment and other charges (f) |
|
|
211 |
|
|
(54 |
) |
|
|
157 |
|
|
0.00 |
Amortization of intangibles |
|
|
2,809 |
|
|
(739 |
) |
|
|
2,070 |
|
|
0.04 |
Special legal expense (g) |
|
|
1,663 |
|
|
(428 |
) |
|
|
1,235 |
|
|
0.02 |
Other (Income) Expense |
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of long-term debt issuance costs |
|
|
201 |
|
|
(52 |
) |
|
|
149 |
|
|
0.00 |
Tax expense related to restructuring (j) |
|
|
— |
|
|
91 |
|
|
|
91 |
|
|
0.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP net income |
|
$ |
26,072 |
|
$ |
(5,450 |
) |
|
$ |
20,622 |
|
$ |
0.37 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted shares |
|
|
|
|
|
|
|
|
|
|
|
56,490 |
Reconciliation of Reported Operating
Income to Non-GAAP Operating
Income(Unaudited, in thousands except
percentages)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Three Months Ended |
|
|
March 31, 2020 |
|
March 31, 2019 |
|
|
Amounts |
|
% Sales |
|
Amounts |
|
% Sales |
Net Sales as Reported |
|
$ |
243,525 |
|
|
|
|
$ |
238,349 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP Operating Income |
|
|
1,362 |
|
0.6 |
% |
|
|
9,523 |
|
4.0 |
% |
Cost of Sales |
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of intangibles |
|
|
12,818 |
|
5.3 |
% |
|
|
11,978 |
|
5.0 |
% |
Inventory write-off (b) |
|
|
1,431 |
|
0.6 |
% |
|
|
— |
|
— |
|
Inventory mark-up related to acquisitions |
|
|
— |
|
— |
|
|
|
672 |
|
0.3 |
% |
Operating Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Severance |
|
|
1,410 |
|
0.6 |
% |
|
|
327 |
|
0.1 |
% |
Acquisition-related (c) |
|
|
673 |
|
0.3 |
% |
|
|
565 |
|
0.2 |
% |
Medical Device Regulation expenses (d) |
|
|
299 |
|
0.1 |
% |
|
|
— |
|
— |
|
Fair value adjustment to contingent consideration (e) |
|
|
4,897 |
|
2.0 |
% |
|
|
775 |
|
0.3 |
% |
Acquired in-process research & development |
|
|
— |
|
— |
|
|
|
25 |
|
0.0 |
% |
Impairment and other charges (f) |
|
|
3,925 |
|
1.6 |
% |
|
|
211 |
|
0.1 |
% |
Amortization of intangibles |
|
|
2,182 |
|
0.8 |
% |
|
|
2,809 |
|
1.3 |
% |
Special legal expense (g) |
|
|
1,502 |
|
0.6 |
% |
|
|
1,663 |
|
0.7 |
% |
Performance-based share-based compensation (h) |
|
|
447 |
|
0.2 |
% |
|
|
— |
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP Operating Income |
|
$ |
30,946 |
|
12.7 |
% |
|
$ |
28,548 |
|
12.0 |
% |
______________(a) Reflects the tax effect
associated with pre-tax income (loss) and the non-GAAP adjustments.
(b) Represents write-off of inventory related to our distribution
agreement with NinePoint Medical, Inc.(c) Represents transaction
costs and certain integration costs, including travel, related to
acquisitions and certain restructuring costs.(d) Represents
incremental expenses incurred to comply with the Medical Device
Regulation (MDR) in Europe.(e) Represents changes in the fair value
of contingent consideration liabilities and contingent receivables
as a result of acquisitions.(f) Represents impairment charges
related to abandoned patents, other long-term assets, certain
acquired intangible assets, and in 2020 the option to purchase
Bluegrass Vascular Technologies, Inc.(g) Costs incurred in
responding to an inquiry from the U.S. Department of Justice.(h)
Represents performance-based compensation expense including stock
compensation and share-based liability awards. (i) For the three
months ended March 31, 2020 the non-GAAP net income per diluted
share calculation includes 769 shares that were excluded from the
GAAP net income per diluted share calculation.(j) 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 |
|
|
|
|
March 31, |
|
|
% Change |
|
2020 |
|
2019 |
Reported Revenue |
|
2.2 |
% |
$ |
243,525 |
|
$ |
238,349 |
|
|
|
|
|
|
|
|
|
Add: Impact of foreign
exchange (a) |
|
|
|
|
2,802 |
|
|
— |
|
|
|
|
|
|
|
|
|
Constant
Currency Revenue |
|
3.3 |
% |
$ |
246,327 |
|
$ |
238,349 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
March 31, |
|
|
% Change |
|
2020 |
|
|
2019 |
Reported Revenue |
|
2.2 |
% |
$ |
243,525 |
|
|
$ |
238,349 |
|
|
|
|
|
|
|
|
|
Less: Revenue from certain
acquisitions (b) |
|
|
|
|
(770 |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
Core
Revenue |
|
1.8 |
% |
$ |
242,755 |
|
|
$ |
238,349 |
|
|
|
|
|
|
|
|
|
Add: Impact of foreign
exchange (a) |
|
|
|
|
2,802 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
Core Revenue
on a Constant Currency Basis |
|
3.0 |
% |
$ |
245,557 |
|
|
$ |
238,349 |
______________(a) The constant currency revenue
adjustment of $2.8 million to reported revenue and to core revenue
for the three months ended March 31, 2020 was calculated using the
applicable average foreign exchange rates for the three months
ended March 31, 2019.
(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-month period ended March 31, 2020, Merit’s core revenue
excludes revenues attributable to the acquisition of (1)
Brightwater Medical, Inc. in June 2019, and (2) Fibrovein Holdings
Limited in August 2019. 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 |
|
|
|
March 31, |
|
|
|
2020 |
|
2019 |
|
Reported Gross Margin |
|
42.6 |
% |
43.9 |
% |
|
|
|
|
|
|
Add back impact of: |
|
|
|
|
|
Amortization of intangibles |
|
5.3 |
% |
5.0 |
% |
Inventory write-off |
|
0.6 |
% |
— |
|
Inventory mark-up related to acquisitions |
|
— |
|
0.3 |
% |
|
|
|
|
|
|
Non-GAAP Gross Margin |
|
48.5 |
% |
49.2 |
% |
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 6,100 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;
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 and operating margins (GAAP and non-GAAP),
earnings per share (GAAP and non-GAAP), free cash flow, effective
tax rate and other financial results, anticipated or completed
acquisitions, the development and commercialization of new
products, the potential impact, scope and duration of, and Merit’s
response to, the coronavirus (COVID-19) pandemic and the potential
for recovery from that pandemic, consolidation of Merit’s
facilities or other expense reduction initiatives or the
consequences of existing or future regulatory approvals, 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, 2019 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
and uncertainties associated with the COVID-19 pandemic; 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 developed internally or acquired through
completed, proposed or future transactions; negative changes in
economic and industry conditions in the United States or other
countries; 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; litigation and
other judicial proceedings affecting 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;
actions of activist shareholders, including a potential proxy
contest; 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; increases in the prices of commodity components; 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; 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;
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 or future 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 referenced in Merit’s
Annual Report on Form 10-K for the year ended December 31, 2019 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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