Merit Medical Systems, Inc. (NASDAQ: MMSI), a leading manufacturer and marketer of proprietary disposable medical devices used in interventional, diagnostic and therapeutic procedures, particularly in cardiology, radiology, oncology, critical care and endoscopy, today announced revenue of $244.0 million for the quarter ended September 30, 2020, an increase of 0.4% compared to revenue of $243.0 million for the quarter ended September 30, 2019. Core revenue on a constant currency basis* for the third quarter of 2020 was down (0.1)% compared to the third quarter of 2019.

Merit’s GAAP gross margin for the third quarter of 2020 was 41.8%, compared to GAAP gross margin of 42.8% for the third quarter of 2019. Merit’s non-GAAP gross margin* for the third quarter of 2020 was 47.0%, compared to non-GAAP gross margin* of 48.1% for the third quarter of 2019.

Merit’s GAAP operating margin for the third quarter of 2020 was 0.0%, compared to GAAP operating margin of (1.2)% for the third quarter of 2019. Merit’s non-GAAP operating margin* for the third quarter of 2020 was 15.0%, compared to non-GAAP operating margin* of 9.2% for the third quarter of 2019.

Merit’s GAAP net loss for the third quarter of 2020 was $(3.0) million, or $(0.05) per share, compared to a GAAP net loss of $(3.4) million, or $(0.06) per share, for the third quarter of 2019. Merit’s non-GAAP net income* for the third quarter of 2020 was $24.0 million, or $0.42 per share, compared to non-GAAP net income* of $15.7 million, or $0.28 per share, for the third quarter of 2019.

Merit’s revenue by category for the three and nine-month periods ended September 30, 2020, compared to the corresponding periods in 2019, was as follows (unaudited, in thousands, except for percentages):

                                 
           Three Months Ended September 30,        Nine Months Ended September 30, 
       % Change      2020      2019      % Change      2020      2019
Cardiovascular                                
Peripheral Intervention   3.0 %   $ 86,778   $ 84,265   (4.4 )%   $ 246,488   $ 257,744
Cardiac Intervention   (7.7 )%     69,089     74,859   (8.5 )%     207,685     227,042
Custom Procedural Solutions   22.0 %     56,429     46,258   7.2 %     149,369     139,335
OEM   (17.0 )%     24,117     29,044   (7.8 )%     80,592     87,449
Total   0.8 %     236,413     234,426   (3.9 )%     684,134     711,570
                                 
Endoscopy                                
Endoscopy devices   (12.3 )%     7,562     8,623   (14.3 )%     21,737     25,360
                                 
Total   0.4 %   $ 243,975   $ 243,049   (4.2 )%   $ 705,871   $ 736,930

“Our third quarter revenue results reflect better than expected performance driven by strong execution and discipline despite a fluctuating global recovery,” said Fred P. Lampropoulos, Merit’s Chairman and Chief Executive Officer. “We are particularly proud of our profitability performance in the third quarter as we leveraged strong operating expense control to drive impressive growth in our non-GAAP operating profit and our non-GAAP EPS, which increased 65% and 50%, respectively, year over year.”

“We remain focused on executing our plan to enhance the efficiency of our business in order to be better positioned for profitable growth going forward,” Lampropoulos said. “We are encouraged by the success we have achieved early in this process as evidenced by the notable improvement in our free cash flow generation this year, which has nearly doubled over our free cash flow generation in the two prior years combined. As promised, we are on track to complete the movement of more than 14 production lines and consolidate several facilities before year end.”

“We look forward to sharing more about our plans for growth and profitability in the coming years at our Foundations for Growth virtual investor event scheduled on November 10,” Lampropoulos added.

As of September 30, 2020, Merit had cash on hand of approximately $44.6 million, long term debt obligations of approximately $358 million, and available borrowing capacity of $327 million, compared to cash on hand of approximately $44.3 million, long term debt obligations of approximately $440 million, and available borrowing capacity of $134 million as of December 31, 2019.

Fiscal Year 2020 Financial Guidance:

The Company is updating its fiscal year 2020 revenue guidance, originally issued on February 24, 2020.

Based upon information currently available to Merit’s management, Merit estimates for the year ending December 31, 2020, absent material acquisitions, non-recurring transactions or other factors beyond Merit’s control, the following:

  • Net revenue in the range of $950.0 million to $959.0 million, representing a decrease of approximately 3.5% to 4.5% year over year, as compared to net revenue of $994.9 million for the twelve months ended December 31, 2019. The fiscal year 2020 revenue guidance range assumes:
    • Net revenue from the cardiovascular segment of between $921.0 million and $930.0 million, representing a decrease of approximately 3% to 4% year-over-year as compared to net revenue of $961.0 million for the twelve months ended December 31, 2019.
    • Net revenue from the endoscopy segment of between $28.6 million and $28.9 million, representing a decrease of approximately 14.5% to 15.5% year-over-year as compared to net revenue of $33.9 million for the twelve months ended December 31, 2019.
  • GAAP net loss in the range of $(11.8) million to $(15.0) million, or $(0.21) to $(0.27) per diluted share, compared to GAAP net income of $5.5 million, or $0.10 per diluted share, for the twelve months ended December 31, 2019.
  • Non-GAAP net income in the range of $85.5 million to $88.5 million, or $1.52 to $1.57 per diluted share, compared to non-GAAP net income of $82.1 million, or $1.46 per diluted share, for the twelve months ended December 31, 2019.

Merit’s financial guidance for the year ending December 31, 2020 is subject to risks and uncertainties identified in this release and Merit’s public filings.

CONFERENCE CALL

Merit will hold its investor conference call (conference ID 3195654) today, Wednesday, October 28, 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

             
       September 30,        
    2020   December 31, 
       (unaudited)      2019
ASSETS          
Current Assets            
Cash and cash equivalents   $ 44,551     $ 44,320  
Trade receivables, net     141,957       155,365  
Other receivables     8,073       10,016  
Inventories     209,109       225,698  
Prepaid expenses and other current assets     15,579       12,497  
Prepaid income taxes     3,545       3,491  
Income tax refund receivables     11,812       3,151  
Total current assets     434,626       454,538  
             
Property and equipment, net     383,804       378,785  
Intangible assets, net     382,815       445,312  
Goodwill     353,622       353,193  
Deferred income tax assets     3,857       3,788  
Right-of-use operating lease assets     76,775       80,244  
Other assets     35,011       41,461  
Total Assets     1,670,510       1,757,321  
             
LIABILITIES AND STOCKHOLDERS’ EQUITY            
Current Liabilities            
Trade payables   $ 46,634     $ 54,623  
Accrued expenses     116,927       105,184  
Current portion of long-term debt     7,500       7,500  
Short-term operating lease liabilities     12,981       11,550  
Income taxes payable     2,005       2,799  
Total current liabilities     186,047       181,656  
             
Long-term debt     349,813       431,984  
Deferred income tax liabilities     45,439       45,236  
Long-term income taxes payable     347       347  
Liabilities related to unrecognized tax benefits     1,990       1,990  
Deferred compensation payable     15,396       14,855  
Deferred credits     1,948       2,122  
Long-term operating lease liabilities     69,407       72,714  
Other long-term obligations     66,286       56,473  
Total Liabilities     736,673       807,377  
             
Stockholders' Equity            
Common stock     600,737       587,017  
Retained earnings     342,425       368,221  
Accumulated other comprehensive loss     (9,325 )     (5,294 )
Total Stockholders' Equity     933,837       949,944  
Total Liabilities and Stockholders' Equity   $ 1,670,510     $ 1,757,321  

CONSOLIDATED STATEMENTS OF INCOME (LOSS)(Unaudited, in thousands except per share amounts)

                         
       Three Months Ended September 30,       Nine Months Ended September 30, 
       2020      2019      2020      2019
NET SALES   $ 243,975     $ 243,049     $ 705,871     $ 736,930  
                         
COST OF SALES     141,961       138,913       415,857       416,194  
                         
GROSS PROFIT     102,014       104,136       290,014       320,736  
                         
OPERATING EXPENSES:                        
Selling, general and administrative     72,215       86,936       217,790       245,183  
Research and development     13,506       16,987       42,404       49,361  
Legal settlement                 18,200        
Impairment charges     20,585       2,702       28,305       3,250  
Contingent consideration expense (benefit)     (4,356 )     392       884       3,573  
Acquired in-process research and development                       525  
                         
Total operating expenses     101,950       107,017       307,583       301,892  
                         
INCOME (LOSS) FROM OPERATIONS     64       (2,881 )     (17,569 )     18,844  
                         
OTHER INCOME (EXPENSE):                        
Interest income     67       328       234       1,027  
Interest expense     (2,197 )     (3,415 )     (8,056 )     (9,295 )
Other income (expense) - net     (118 )     278       (1,085 )     (421 )
                         
Total other expense — net     (2,248 )     (2,809 )     (8,907 )     (8,689 )
                         
INCOME (LOSS) BEFORE INCOME TAXES     (2,184 )     (5,690 )     (26,476 )     10,155  
                         
INCOME TAX (BENEFIT) EXPENSE     825       (2,292 )     (1,255 )     499  
                         
NET INCOME (LOSS)   $ (3,009 )   $ (3,398 )   $ (25,221 )   $ 9,656  
                         
EARNINGS (LOSS) PER COMMON SHARE:                        
Basic   $ (0.05 )   $ (0.06 )   $ (0.46 )   $ 0.18  
                         
Diluted   $ (0.05 )   $ (0.06 )   $ (0.46 )   $ 0.17  
                         
AVERAGE COMMON SHARES:                        
Basic     55,505       55,152       55,386       55,029  
                         
Diluted     55,505       55,152       55,386       56,393  

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 or administrative proceedings and resulting settlements, corporate transformation expenses, governmental proceedings or changes in tax or industry regulations, gains or losses on disposal of certain assets, 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 adjustments of $(1.2) million and $4.3 million to reported revenue and to core revenue for the three and nine-month periods ended September 30, 2020, respectively, were calculated using the applicable average foreign exchange rates for the three and nine-month periods ended September 30, 2019, respectively.

Core Revenue and Core Revenue on a Constant Currency Basis

Merit’s core revenue is defined, with respect to prior fiscal year periods, as GAAP revenue less revenue from certain dispositions. For the three and nine-month periods ended September 30, 2019, Merit’s core revenue excludes revenues attributable to the disposition of the assets related to the manufacturing of Merit’s Hypotube product in August 2020 (excluded September 2019 only).

With respect to current fiscal year periods, core revenue is defined as GAAP revenue, less revenue from certain acquisitions. For the three and nine-month periods ended September 30, 2020, Merit’s core revenue excludes revenues attributable to the acquisition of (1) Brightwater Medical, Inc. in June 2019 (excluded through May 2020 only) and (2) Fibrovein Holdings Limited in August 2019 (excluded through July 2020 only). Core revenue on a constant currency basis is defined as core revenue (as described above) adjusted to eliminate the foreign exchange impact related to that core revenue 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 (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, performance-based stock compensation expenses, corporate transformation expenses, expenses resulting from non-ordinary course litigation or administrative proceedings and resulting settlements, 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, gains or losses on disposal of certain assets, changes in tax regulations, and 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 calculated in accordance with GAAP less capital expenditures calculated in accordance with GAAP, as set forth 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 and nine-month periods ended September 30, 2020 and 2019. The non-GAAP income adjustments referenced in the following tables do not reflect non-performance-based stock compensation expense of approximately $3.0 million and $2.6 million for the three-month periods ended September 30, 2020 and 2019, respectively, and approximately $7.6 million and $6.9 million for the nine-month periods ended September 30, 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 September 30, 2020
    Pre-Tax   Tax Impact   After-Tax   Per Share Impact
GAAP net loss   $ (2,184 )   $ (825 )   $ (3,009 )   $ (0.05 )
                         
Non-GAAP adjustments:                        
Cost of Sales                        
Amortization of intangibles     12,529       (3,229 )     9,300       0.16  
Inventory mark-up related to acquisitions     41       (11 )     30       0.00  
Operating Expenses                        
Contingent consideration benefit     (4,356 )     492       (3,864 )     (0.07 )
Impairment charges     20,585       (3,170 )     17,415       0.31  
Amortization of intangibles     1,893       (508 )     1,385       0.02  
Performance-based share-based compensation (a)     1,112       (141 )     971       0.02  
Corporate transformation and restructuring (b)     2,833       (743 )     2,090       0.04  
Acquisition-related     189       (49 )     140       0.00  
Medical Device Regulation expenses (c)     411       (106 )     305       0.01  
Other (d)     1,401       (1,933 )     (532 )     (0.01 )
Other (Income) Expense                        
Amortization of long-term debt issuance costs     151       (39 )     112       0.00  
(Gain) loss on disposal of business unit     (508 )     131       (377 )     (0.01 )
                         
Non-GAAP net income   $ 34,097     $ (10,131 )   $ 23,966     $ 0.42  
                         
Diluted shares (e)                       56,456  
                         
    Three Months Ended September 30, 2019
    Pre-Tax   Tax Impact   After-Tax   Per Share Impact
GAAP net 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                        
Contingent consideration expense     392       (91 )     301       0.01  
Impairment charges     2,702       (696 )     2,006       0.04  
Amortization of intangibles     2,783       (732 )     2,051       0.04  
Corporate transformation and restructuring (b)     2,721       (700 )     2,021       0.03  
Acquisition-related     1,156       (154 )     1,002       0.02  
Medical Device Regulation expenses (c)     83       (21 )     62       0.00  
Other (d)     2,558       (658 )     1,900       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  

_____________________________

Note: Certain per share impacts may not sum to totals due to rounding

Reconciliation of GAAP Net Income (Loss) to Non-GAAP Net Income(Unaudited, in thousands except per share amounts)

                         
    Nine Months Ended September 30, 2020
    Pre-Tax   Tax Impact   After-Tax   Per Share Impact
GAAP net loss   $ (26,476 )   $ 1,255     $ (25,221 )   $ (0.45 )
                         
Non-GAAP adjustments:                        
Cost of Sales                        
Amortization of intangibles     38,154       (9,833 )     28,321       0.50  
Inventory write-off (f)     1,776       (472 )     1,304       0.02  
Inventory mark-up related to acquisitions     187       (48 )     139       0.00  
Operating Expenses                        
Contingent consideration expense     884       559       1,443       0.03  
Impairment charges     28,305       (4,363 )     23,942       0.43  
Amortization of intangibles     6,049       (1,632 )     4,417       0.08  
Performance-based share-based compensation (a)     2,623       (334 )     2,289       0.04  
Corporate transformation and restructuring (b)     6,215       (1,642 )     4,573       0.08  
Acquisition-related     906       (233 )     673       0.01  
Medical Device Regulation expenses (c)     1,013       (261 )     752       0.01  
Other (d)     23,477       (3,567 )     19,910       0.35  
Other (Income) Expense                        
Amortization of long-term debt issuance costs     453       (117 )     336       0.01  
(Gain) loss on disposal of business unit     (508 )     131       (377 )     (0.01 )
                         
Non-GAAP net income   $ 83,058     $ (20,557 )   $ 62,501     $ 1.11  
                         
Diluted shares (e)                       56,241  
                         
    Nine Months Ended September 30, 2019
    Pre-Tax   Tax Impact   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                        
Contingent consideration expense     3,573     (275 )     3,298     0.06
Impairment charges     3,250     (837 )     2,413     0.04
Amortization of intangibles     8,289     (2,182 )     6,107     0.11
Corporate transformation and restructuring (b)     4,131     (1,063 )     3,068     0.05
Acquisition-related     2,897     (589 )     2,308     0.04
Medical Device Regulation expenses (c)     196     (50 )     146     0.00
Other (d)     5,806     (1,494 )     4,312     0.09
Other (Income) Expense                        
Amortization of long-term debt issuance costs     670     (172 )     498     0.01
Tax expense related to restructuring (g)         92       92     0.00
                         
Non-GAAP net income   $ 76,788   $ (16,754 )   $ 60,034   $ 1.06
                         
Diluted shares                       56,393

_____________________________

Note: Certain per share impacts may not sum to totals due to rounding

Reconciliation of Reported Operating Income (Loss) to Non-GAAP Operating Income(Unaudited, in thousands except percentages)

                                           
    Three Months Ended   Three Months Ended   Nine Months Ended   Nine Months Ended
    September 30, 2020   September 30, 2019   September 30, 2020   September 30, 2019
    Amounts   % Sales   Amounts   % Sales   Amounts   % Sales   Amounts   % Sales
Net Sales as Reported   $ 243,975         $ 243,049         $ 705,871         $ 736,930      
                                           
GAAP Operating Income (Loss)     64     0.0 %     (2,881 )   (1.2 )%     (17,569 )   (2.5 )%     18,844   2.6 %
Cost of Sales                                          
Amortization of intangibles     12,529     5.1 %     12,725     5.2 %     38,154     5.4 %     36,882   5.0 %
Inventory write-off (f)                         1,776     0.3 %        
Inventory mark-up related to acquisitions     41     0.0 %     55     0.0 %     187     0.0 %     939   0.1 %
Operating Expenses                                          
Contingent consideration expense (benefit)     (4,356 )   (1.8 )%     392     0.2 %     884     0.1 %     3,573   0.5 %
Impairment charges     20,585     8.4 %     2,702     1.1 %     28,305     4.0 %     3,250   0.4 %
Amortization of intangibles     1,893     0.8 %     2,783     1.1 %     6,049     0.9 %     8,289   1.1 %
Performance-based share-based compensation (a)     1,112     0.5 %               2,623     0.4 %        
Corporate transformation and restructuring (b)     2,833     1.2 %     2,721     1.1 %     6,215     0.9 %     4,131   0.6 %
Acquisition-related     189     0.1 %     1,156     0.5 %     906     0.1 %     2,897   0.4 %
Medical Device Regulation expenses (c)     411     0.2 %     83     0.0 %     1,013     0.1 %     196   0.0 %
Other (d)     1,401     0.6 %     2,558     1.1 %     23,477     3.3 %     5,806   0.8 %
                                           
Non-GAAP Operating Income   $ 36,702     15.0 %   $ 22,294     9.2 %   $ 92,020     13.0 %   $ 84,807   11.5 %

_____________________________

Note: Certain percentages may not sum to totals due to rounding

a) Represents performance-based share-based compensation expense, including stock-settled and cash-settled awards. b) Includes severance related to corporate initiatives, write-offs and valuation adjustments of other long-term assets associated with restructuring activities, and other transformation costs.c) Represents incremental expenses incurred to comply with the Medical Device Regulation (MDR) in Europe.d) Represents costs incurred in responding to an inquiry from the U.S. Department of Justice, amounts to be paid in settlement of that inquiry of $18.2 million accrued in the nine-month period ended September 30, 2020, fees associated with settlement of a shareholder dispute, acquired in-process research and development, and charges related to abandoned patents.e) For the three and nine-month periods ended September 30, 2020 the non-GAAP net income per diluted share calculation includes approximately 951,000 and 855,000 shares, respectively, that were excluded from the GAAP net income (loss) per diluted share calculation.f) Represents write-off of inventory related to the closure of the ITL Healthcare Pty Ltd. (“ITL”) procedure pack operations in Australia in Q2 2020 and suspension of Merit’s distribution agreement with NinePoint Medical, Inc. in Q1 2020.g) 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   2020   2019   % Change   2020   2019
Reported Revenue   0.4 %   $ 243,975     $ 243,049   (4.2 )%   $ 705,871   $ 736,930
                                 
Add: Impact of foreign exchange (a)         (1,207 )             4,289    
                                 
Constant Currency Revenue   (0.1 )%    $  242,768     $  243,049    (3.6 )%    $  710,160   $  736,930
                                 
        Three Months Ended       Nine Months Ended
        September 30,       September 30,
    % Change   2020   2019   % Change   2020   2019
Reported Revenue   0.4 %   $ 243,975     $ 243,049     (4.2 )%   $ 705,871     $ 736,930  
                                 
Less: Revenue from certain acquisitions and dispositions (b)         (45 )     (135 )         (1,216 )     (135 )
                                 
Core Revenue   0.4 %   $  243,930     $  242,914     (4.4 )%   $  704,655     $  736,795  
                                 
Add: Impact of foreign exchange (a)         (1,207 )               4,289        
                                 
Core Revenue on a Constant Currency Basis   (0.1 )%    $  242,723     $  242,914     (3.8 )%    $  708,944     $  736,795  

_____________________________

(a) The constant currency revenue adjustments of $(1.2) million and $4.3 million to reported revenue and to core revenue for the three and nine months ended September 30, 2020, respectively, were calculated using the applicable average foreign exchange rates for the three and nine months ended September 30, 2019, respectively.

(b) Merit’s core revenue is defined with respect to prior fiscal year periods, as GAAP revenue, less revenue from certain dispositions. For the three and nine-month period ended September 30, 2019, Merit’s core revenue excludes revenues attributable to the disposition of assets related to the manufacturing of Merit’s Hypotube products in August 2020 (excluded September 2019 only). With respect to current fiscal year periods, core revenue is defined as GAAP revenue, less revenue from certain acquisitions. For the three and nine-month periods ended September 30, 2020, Merit’s core revenue excludes revenues attributable to the acquisition of (1) Brightwater Medical, Inc. in June 2019 (excluded through May 2020 only) and (2) Fibrovein Holdings Limited in August 2019 (excluded through July 2020 only). Core revenue on a constant currency basis is defined as core revenue (as described above) adjusted to eliminate the foreign exchange impact related to that core revenue 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,  
    2020   2019   2020   2019  
Reported Gross Margin   41.8 % 42.8 % 41.1 % 43.5 %
                   
Add back impact of:                  
Amortization of intangibles   5.1 % 5.2 % 5.4 % 5.0 %
Inventory write-off (a)   %   0.3 %  
Inventory mark-up related to acquisitions   0.0 % 0.1 % 0.0 % 0.2 %
                   
Non-GAAP Gross Margin    47.0 %    48.1 %    46.8 %    48.7 %

_____________________________

Note: Certain percentages may not sum to totals due to rounding

(a) Represents write-off of inventory related to the closure of the ITL procedure pack operations in Australia in Q2 2020 and suspension of Merit’s distribution agreement with NinePoint Medical, Inc in Q1 2020.

ABOUT MERIT

Founded in 1987, Merit Medical Systems, Inc. is a leading manufacturer and marketer 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 500 individuals. Merit employs approximately 6,000 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.

CAUTIONARY STATEMENT REGARDING 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 or loss (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, 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, future growth and profit expectations, or improvements in economic conditions, are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, 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 (as amended by Amendment No. 1 to Annual Report on Form 10-K/A, the “2019 Annual Report”), Merit’s subsequent Quarterly Reports on Form 10-Q and other filings with the Securities and Exchange Commission (the “SEC”). 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 and Merit’s response thereto; 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; 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; 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 the 2019 Annual Report and other materials filed with the SEC. 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. Those estimates and all other forward-looking statements included in this document are made only as of the date of this document, and except as otherwise required by applicable law, Merit assumes no obligation to update or disclose revisions to estimates and all other forward-looking statements.

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.

   
Contacts:  
PR/Media Inquiries:Teresa Johnson Merit Medical Investor Inquiries:Mike Piccinino, CFA, IRCWestwicke - ICR
+1-801-208-4295 +1-443-213-0509
tjohnson@merit.com Mike.piccinino@westwicke.com

 

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