Merit Medical Systems, Inc. (NASDAQ: MMSI), a leading manufacturer
and marketer of proprietary medical devices used in interventional,
diagnostic and therapeutic procedures, particularly in cardiology,
radiology, oncology, critical care and endoscopy, today announced
revenue of $280.3 million for the quarter ended June 30, 2021, an
increase of 28.4% compared to the quarter ended June 30, 2020.
Constant currency revenue, organic* for the second quarter of 2021
was up 25.5% compared to the prior year period.
Merit’s GAAP gross margin for the second quarter
of 2021 was 44.3%, compared to GAAP gross margin of 38.6% for the
prior year period. Merit’s non-GAAP gross margin* for the second
quarter of 2021 was 48.7%, compared to non-GAAP gross margin* of
44.7% for the prior year period.
Merit’s GAAP net income for the second quarter
of 2021 was $4.9 million, or $0.09 per share, compared to a GAAP
net loss of ($19.1) million, or ($0.34) per share, for the second
quarter of 2020. Merit’s non-GAAP net income* for the second
quarter of 2021 was $35.3 million, or $0.62 per share, compared to
non-GAAP net income* of $17.4 million, or $0.31 per share, for the
prior year period.
Merit’s revenue by operating segment and product
category for the three and six-month periods ended June 30, 2021,
compared to the corresponding periods in 2020, was as follows
(unaudited; in thousands, except for percentages):
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Three Months Ended |
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Six Months Ended |
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|
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June 30, |
|
|
|
June 30, |
|
% Change |
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|
2021 |
|
2020 |
|
% Change |
|
2021 |
|
2020 |
Cardiovascular |
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Peripheral Intervention |
45.4 |
% |
|
$ |
105,600 |
|
$ |
72,635 |
|
24.3 |
% |
$ |
198,514 |
|
$ |
159,710 |
Cardiac Intervention |
29.8 |
% |
|
|
85,653 |
|
|
66,005 |
|
15.7 |
% |
|
160,390 |
|
|
138,596 |
Custom Procedural Solutions |
7.3 |
% |
|
|
48,636 |
|
|
45,319 |
|
1.2 |
% |
|
94,057 |
|
|
92,940 |
OEM |
14.8 |
% |
|
|
32,403 |
|
|
28,218 |
|
6.8 |
% |
|
60,337 |
|
|
56,475 |
Total |
28.3 |
% |
|
|
272,292 |
|
|
212,177 |
|
14.6 |
% |
|
513,298 |
|
|
447,721 |
|
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|
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Endoscopy |
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|
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|
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Endoscopy devices |
29.7 |
% |
|
|
8,033 |
|
|
6,194 |
|
12.5 |
% |
|
15,940 |
|
|
14,175 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
28.4 |
% |
|
$ |
280,325 |
|
$ |
218,371 |
|
14.6 |
% |
$ |
529,238 |
|
$ |
461,896 |
|
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|
“We delivered better-than-expected revenue
results for the second quarter, driven by strong execution and
improving customer demand trends as the global recovery continues
to progress,” said Fred P. Lampropoulos, Merit’s Chairman and Chief
Executive Officer. “Other financial results for the second quarter
were impressive as well; the combination of our strong top-line
growth, and contributions from our multi-year strategic initiatives
undertaken as part of our Foundations for Growth Program, resulted
in significant expansion in our non-GAAP margins* and growth in our
non-GAAP net income* and non-GAAP EPS* of 103% and 100%,
respectively, year-over-year.”
Mr. Lampropoulos continued: “We are pleased with
the strong financial results we have delivered over the first half
of 2021 and remain optimistic in our outlook for measured
improvement in the operating environment as we move through the
remainder of 2021. We have updated our 2021 guidance as a result of
our better-than-expected second quarter results and a more
favorable outlook for growth in the second half of 2021. We now
expect total revenue growth, on a constant currency basis*, of
approximately 9% to 10% year-over-year and, importantly, excluding
the impact of divestitures and product sales that uniquely
benefitted from pandemic-related demand trends in 2020, our
constant currency revenue guidance* now reflects growth of
approximately 12% to 13% in 2021. We also continue to expect
profitability improvement and notable free cash flow* generation
driven by strong execution and contributions from our multi-year
strategic initiatives undertaken as part of our Foundations for
Growth Program.”
As of June 30, 2021, Merit had cash on hand of
approximately $70.0 million, long term debt obligations of
approximately $293 million, and available borrowing capacity of
$444 million, compared to cash on hand of approximately $56.9
million, long term debt obligations of $352 million, and available
borrowing capacity of $389 million as of December 31, 2020.
Updated Fiscal Year 2021 Financial Guidance
Based upon information currently available to
Merit’s management, Merit is updating net revenue expectations for
the year ending December 31, 2021. Absent material
acquisitions, non-recurring transactions or other factors beyond
Merit’s control, Merit now forecasts the following:
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Financial Measure |
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Prior Guidance |
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Revised Guidance |
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Net Sales |
|
|
$994 - $1,014 million |
|
|
$1,060 - $1,070 million |
|
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GAAP |
|
|
|
|
|
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Net Income |
|
|
$47.3 - $55.9 million |
|
|
$43.2 - $51.8 million |
Earnings Per Share |
|
|
$0.83 - $0.98 |
|
|
$0.75 - $0.91 |
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Non-GAAP |
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Net Income |
|
|
$104.8 - $112.7 million |
|
|
$118.8 - $127.1 million |
Earnings Per Share |
|
|
$1.84 - $1.98 |
|
|
$2.07 - $2.22 |
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|
The updated net revenue range continues to
assume a benefit from the changes in foreign currency exchange
rates in the range of approximately $10.5 million to $11.5 million.
The prior guidance range assumed growth of approximately 3.1% to
5.2% year over year and a benefit from changes in foreign currency
exchange rates in the range of approximately $8.0 million to $8.5
million.
The updated fiscal year 2021 net revenue
guidance range assumes:
- Net revenue from the cardiovascular
segment of between $1,028 million and $1,038 million, representing
an increase of approximately 10% to 11% year-over-year as compared
to net revenue of $934.2 million for the twelve months ended
December 31, 2020. The prior guidance assumed growth of
approximately 3.1% to 5.2% year-over-year.
- Net revenue from the endoscopy
segment of between $32.5 million and $32.7 million, representing an
increase of approximately 9.6% to 10.2% year-over-year as compared
to net revenue of $29.7 million for the twelve months ended
December 31, 2020. The prior guidance assumed growth of
approximately 4% to 7% year-over-year.
Merit’s financial guidance for the year
ending December 31, 2021 is subject to risks and uncertainties
identified in this release and Merit’s filings with the U.S.
Securities and Exchange Commission (the “SEC”).
CONFERENCE CALL
Merit will hold its investor conference call
(conference ID 3993753) today, Thursday, July 29, 2021, 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)
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|
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|
June 30, |
|
|
|
|
2021 |
|
December 31, |
|
(Unaudited) |
|
2020 |
ASSETS |
|
|
|
|
|
Current Assets |
|
|
|
|
|
Cash and cash equivalents |
$ |
69,672 |
|
|
$ |
56,916 |
|
Trade receivables, net |
|
153,443 |
|
|
|
146,641 |
|
Other receivables |
|
8,376 |
|
|
|
7,774 |
|
Inventories |
|
194,524 |
|
|
|
198,019 |
|
Prepaid expenses and other assets |
|
16,541 |
|
|
|
13,120 |
|
Prepaid income taxes |
|
3,683 |
|
|
|
3,688 |
|
Income tax refund receivables |
|
3,543 |
|
|
|
3,549 |
|
Total current assets |
|
449,782 |
|
|
|
429,707 |
|
|
|
|
|
|
|
Property and equipment,
net |
|
373,801 |
|
|
|
382,728 |
|
Intangible assets, net |
|
342,792 |
|
|
|
367,915 |
|
Goodwill |
|
362,810 |
|
|
|
363,533 |
|
Deferred income tax
assets |
|
4,614 |
|
|
|
4,597 |
|
Operating lease right-of-use
assets |
|
70,767 |
|
|
|
78,240 |
|
Other assets |
|
37,827 |
|
|
|
37,676 |
|
Total Assets |
$ |
1,642,393 |
|
|
$ |
1,664,396 |
|
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS' EQUITY |
|
|
|
|
|
Current Liabilities |
|
|
|
|
|
Trade payables |
$ |
53,809 |
|
|
$ |
49,837 |
|
Accrued expenses |
|
135,013 |
|
|
|
111,944 |
|
Current portion of long-term debt |
|
7,500 |
|
|
|
7,500 |
|
Current operating lease liabilities |
|
11,721 |
|
|
|
12,903 |
|
Income taxes payable |
|
2,561 |
|
|
|
2,820 |
|
Total current liabilities |
|
210,604 |
|
|
|
185,004 |
|
|
|
|
|
|
|
Long-term debt |
|
284,900 |
|
|
|
343,722 |
|
Deferred income tax
liabilities |
|
33,271 |
|
|
|
33,312 |
|
Long-term income taxes
payable |
|
347 |
|
|
|
347 |
|
Liabilities related to
unrecognized tax benefits |
|
1,016 |
|
|
|
1,016 |
|
Deferred compensation
payable |
|
17,055 |
|
|
|
16,808 |
|
Deferred credits |
|
1,869 |
|
|
|
1,923 |
|
Long-term operating lease
liabilities |
|
65,841 |
|
|
|
70,941 |
|
Other long-term
obligations |
|
35,056 |
|
|
|
52,748 |
|
Total liabilities |
|
649,959 |
|
|
|
705,821 |
|
|
|
|
|
|
|
Stockholders' Equity |
|
|
|
|
|
Common stock |
|
623,591 |
|
|
|
606,224 |
|
Retained earnings |
|
373,677 |
|
|
|
357,803 |
|
Accumulated other comprehensive loss |
|
(4,834 |
) |
|
|
(5,452 |
) |
Total stockholders' equity |
|
992,434 |
|
|
|
958,575 |
|
Total Liabilities and
Stockholders' Equity |
$ |
1,642,393 |
|
|
$ |
1,664,396 |
|
|
|
|
|
|
|
|
|
CONSOLIDATED STATEMENTS OF INCOME
(LOSS)(Unaudited; in thousands except per share
amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
June 30, |
|
June 30, |
|
2021 |
|
2020 |
|
2021 |
|
2020 |
NET SALES |
$ |
280,325 |
|
|
$ |
218,371 |
|
|
$ |
529,238 |
|
|
$ |
461,896 |
|
|
|
|
|
|
|
|
|
|
|
|
|
COST OF SALES |
|
156,186 |
|
|
|
134,155 |
|
|
|
293,205 |
|
|
|
273,896 |
|
|
|
|
|
|
|
|
|
|
|
|
|
GROSS PROFIT |
|
124,139 |
|
|
|
84,216 |
|
|
|
236,033 |
|
|
|
188,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES: |
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative |
|
91,563 |
|
|
|
66,767 |
|
|
|
172,587 |
|
|
|
145,575 |
|
Research and development |
|
17,593 |
|
|
|
14,026 |
|
|
|
33,867 |
|
|
|
28,898 |
|
Legal settlement |
|
— |
|
|
|
18,200 |
|
|
|
— |
|
|
|
18,200 |
|
Impairment charges |
|
4,283 |
|
|
|
3,875 |
|
|
|
4,283 |
|
|
|
7,720 |
|
Contingent consideration expense |
|
1,805 |
|
|
|
343 |
|
|
|
2,207 |
|
|
|
5,240 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
115,244 |
|
|
|
103,211 |
|
|
|
212,944 |
|
|
|
205,633 |
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) FROM
OPERATIONS |
|
8,895 |
|
|
|
(18,995 |
) |
|
|
23,089 |
|
|
|
(17,633 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE): |
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
92 |
|
|
|
88 |
|
|
|
564 |
|
|
|
167 |
|
Interest expense |
|
(1,386 |
) |
|
|
(2,715 |
) |
|
|
(2,923 |
) |
|
|
(5,859 |
) |
Other expense - net |
|
(736 |
) |
|
|
(678 |
) |
|
|
(1,171 |
) |
|
|
(967 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense — net |
|
(2,030 |
) |
|
|
(3,305 |
) |
|
|
(3,530 |
) |
|
|
(6,659 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) BEFORE INCOME
TAXES |
|
6,865 |
|
|
|
(22,300 |
) |
|
|
19,559 |
|
|
|
(24,292 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
INCOME TAX EXPENSE
(BENEFIT) |
|
1,949 |
|
|
|
(3,242 |
) |
|
|
3,685 |
|
|
|
(2,080 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS) |
$ |
4,916 |
|
|
$ |
(19,058 |
) |
|
$ |
15,874 |
|
|
$ |
(22,212 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
EARNINGS (LOSS) PER COMMON
SHARE: |
|
|
|
|
|
|
|
|
|
|
|
Basic |
$ |
0.09 |
|
|
$ |
(0.34 |
) |
|
$ |
0.28 |
|
|
$ |
(0.40 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
$ |
0.09 |
|
|
$ |
(0.34 |
) |
|
$ |
0.28 |
|
|
$ |
(0.40 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE SHARES
OUTSTANDING: |
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
56,061 |
|
|
|
55,406 |
|
|
|
55,890 |
|
|
|
55,326 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
57,277 |
|
|
|
55,406 |
|
|
|
57,128 |
|
|
|
55,326 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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;
- constant
currency revenue, organic;
- core
revenue;
- non-GAAP gross
margin;
- non-GAAP
operating income and 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 and financial results to prior
periods, to evaluate changes in the 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
income and 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 or other extraordinary transactions, non-cash expenses
related to amortization or write-off of previously acquired
tangible and intangible assets, certain 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 readers 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 constant currency revenue is prepared by
converting 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, and adjusting for the effects of
hedging transactions on reported revenue, which are recorded in the
U.S. The constant currency revenue adjustments of ($6.2) million
and ($10.0) million to reported revenue for the three and six-month
periods ended June 30, 2021 were calculated using the
applicable average foreign exchange rates for the three and
six-month periods ended June 30, 2020, respectively.
Constant Currency Revenue, Organic
Merit’s constant currency revenue, organic, is
defined, with respect to prior fiscal year periods, as GAAP
revenue. With respect to current fiscal year periods, constant
currency revenue, organic, is defined as constant currency revenue
(as defined above), less revenue from certain acquisitions. For the
three and six-month periods ended June 30, 2021, Merit’s
constant currency revenue, organic, excludes revenues attributable
to the acquisition of KA Medical, LLC in November 2020.
Core Revenue
For the three and six-month periods ended June 30, 2020, Merit’s
core revenue excludes revenues attributable to its distribution
agreement with NinePoint Medical, Inc., which was suspended during
the first quarter of 2020, revenues attributable to the manufacture
of Merit’s Hypotube product which was divested in August 2020,
revenues attributable to the ITL Healthcare Pty Ltd (“ITL”)
procedure pack business in Australia which was closed in December
2020, and revenue attributable to sales of the CulturaTM
nasopharyngeal swabs and test kits (which benefited from high
demand in 2020 resulting from the COVID-19 pandemic but which are
not expected to contribute significant revenue in the future).
With respect to the three and six-month periods ended June 30,
2021, core revenue is defined as constant currency revenue, organic
(as defined above), less revenue attributable to sales of the
Cultura nasopharyngeal swabs and test kits, and revenue
attributable to the final sales of products from the closed ITL
procedure pack business in the first quarter of 2021.
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, divided by reported net sales.
Non-GAAP Operating Income and Margin
Non-GAAP operating income 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, certain 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 referenced in the tables below. Non-GAAP operating margin is
calculated by dividing non-GAAP operating income by reported net
sales.
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 income 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.
Non-GAAP Financial Measure Reconciliations
The following tables set forth supplemental
financial data and corresponding reconciliations of non-GAAP
financial measures to Merit’s corresponding financial measures
prepared in accordance with GAAP, in each case, for the three and
six-month periods ended June 30, 2021 and 2020. The
non-GAAP income adjustments referenced in the following tables do
not reflect non-performance-based stock compensation expense of
approximately $1.8 million and $2.4 million for the three-month
periods ended June 30, 2021 and 2020, respectively, and
approximately $4.4 million and $4.7 million for the six-month
periods ended June 30, 2021 and 2020.
Reconciliation of GAAP Net Income (Loss) to
Non-GAAP Net Income(Unaudited; in thousands except per
share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
June 30, 2021 |
|
Pre-Tax |
|
Tax Impact |
|
After-Tax |
|
Per Share Impact |
GAAP net income |
$ |
6,865 |
|
$ |
(1,949 |
) |
|
$ |
4,916 |
|
$ |
0.09 |
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP adjustments: |
|
|
|
|
|
|
|
|
|
|
|
Cost of Sales |
|
|
|
|
|
|
|
|
|
|
|
Amortization of intangibles |
|
10,631 |
|
|
(2,640 |
) |
|
|
7,991 |
|
|
0.14 |
Inventory write-off (a) |
|
1,620 |
|
|
(202 |
) |
|
|
1,418 |
|
|
0.02 |
Operating Expenses |
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration expense |
|
1,805 |
|
|
6 |
|
|
|
1,811 |
|
|
0.03 |
Impairment charges |
|
4,283 |
|
|
(481 |
) |
|
|
3,802 |
|
|
0.07 |
Amortization of intangibles |
|
1,788 |
|
|
(448 |
) |
|
|
1,340 |
|
|
0.02 |
Performance-based share-based compensation (b) |
|
1,343 |
|
|
(168 |
) |
|
|
1,175 |
|
|
0.02 |
Corporate transformation and restructuring (c) |
|
7,316 |
|
|
(1,816 |
) |
|
|
5,500 |
|
|
0.10 |
Acquisition-related |
|
826 |
|
|
(205 |
) |
|
|
621 |
|
|
0.01 |
Medical Device Regulation expenses (d) |
|
1,013 |
|
|
(251 |
) |
|
|
762 |
|
|
0.01 |
Other (e) |
|
6,236 |
|
|
(355 |
) |
|
|
5,881 |
|
|
0.10 |
Other (Income) Expense |
|
|
|
|
|
|
|
|
|
|
|
Amortization of long-term debt issuance costs |
|
151 |
|
|
(37 |
) |
|
|
114 |
|
|
0.00 |
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP net income |
$ |
43,877 |
|
$ |
(8,546 |
) |
|
$ |
35,331 |
|
$ |
0.62 |
|
|
|
|
|
|
|
|
|
|
|
|
Diluted shares |
|
|
|
|
|
|
|
|
|
|
57,277 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
June 30, 2020 |
|
Pre-Tax |
|
Tax Impact |
|
After-Tax |
|
Per Share Impact |
GAAP net loss |
$ |
(22,300 |
) |
|
$ |
3,242 |
|
|
$ |
(19,058 |
) |
|
$ |
(0.34 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP adjustments: |
|
|
|
|
|
|
|
|
|
|
|
Cost of Sales |
|
|
|
|
|
|
|
|
|
|
|
Amortization of intangibles |
|
12,807 |
|
|
|
(3,300 |
) |
|
|
9,507 |
|
|
|
0.17 |
|
Inventory write-off (a) |
|
345 |
|
|
|
(104 |
) |
|
|
241 |
|
|
|
0.00 |
|
Inventory mark-up related to acquisitions |
|
146 |
|
|
|
(37 |
) |
|
|
109 |
|
|
|
0.00 |
|
Operating Expenses |
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration expense |
|
343 |
|
|
|
45 |
|
|
|
388 |
|
|
|
0.01 |
|
Impairment charges |
|
3,875 |
|
|
|
(1,100 |
) |
|
|
2,775 |
|
|
|
0.05 |
|
Amortization of intangibles |
|
1,975 |
|
|
|
(533 |
) |
|
|
1,442 |
|
|
|
0.03 |
|
Performance-based share-based compensation (b) |
|
1,064 |
|
|
|
(140 |
) |
|
|
924 |
|
|
|
0.02 |
|
Corporate transformation and restructuring (c) |
|
1,676 |
|
|
|
(477 |
) |
|
|
1,199 |
|
|
|
0.02 |
|
Acquisition-related |
|
340 |
|
|
|
(84 |
) |
|
|
256 |
|
|
|
0.00 |
|
Medical Device Regulation expenses (d) |
|
303 |
|
|
|
(78 |
) |
|
|
225 |
|
|
|
0.00 |
|
Other (e) |
|
20,492 |
|
|
|
(1,226 |
) |
|
|
19,266 |
|
|
|
0.34 |
|
Other (Income) Expense |
|
|
|
|
|
|
|
|
|
|
|
Amortization of long-term debt issuance costs |
|
151 |
|
|
|
(39 |
) |
|
|
112 |
|
|
|
0.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP net income |
$ |
21,217 |
|
|
$ |
(3,831 |
) |
|
$ |
17,386 |
|
|
$ |
0.31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted shares (f) |
|
|
|
|
|
|
|
|
|
|
56,250 |
|
____________________________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)
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
June 30, 2021 |
|
Pre-Tax |
|
Tax Impact |
|
After-Tax |
|
Per Share Impact |
GAAP net income |
$ |
19,559 |
|
$ |
(3,685 |
) |
|
$ |
15,874 |
|
$ |
0.28 |
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP adjustments: |
|
|
|
|
|
|
|
|
|
|
|
Cost of Sales |
|
|
|
|
|
|
|
|
|
|
|
Amortization of intangibles |
|
21,310 |
|
|
(5,292 |
) |
|
|
16,018 |
|
|
0.28 |
Inventory write-off (a) |
|
1,620 |
|
|
(202 |
) |
|
|
1,418 |
|
|
0.02 |
Operating Expenses |
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration expense |
|
2,207 |
|
|
14 |
|
|
|
2,221 |
|
|
0.04 |
Impairment charges |
|
4,283 |
|
|
(481 |
) |
|
|
3,802 |
|
|
0.07 |
Amortization of intangibles |
|
3,604 |
|
|
(902 |
) |
|
|
2,702 |
|
|
0.05 |
Performance-based share-based compensation (b) |
|
2,359 |
|
|
(287 |
) |
|
|
2,072 |
|
|
0.04 |
Corporate transformation and restructuring (c) |
|
12,761 |
|
|
(3,162 |
) |
|
|
9,599 |
|
|
0.17 |
Acquisition-related |
|
5,608 |
|
|
(1,390 |
) |
|
|
4,218 |
|
|
0.07 |
Medical Device Regulation expenses (d) |
|
1,394 |
|
|
(346 |
) |
|
|
1,048 |
|
|
0.02 |
Other (e) |
|
6,375 |
|
|
(389 |
) |
|
|
5,986 |
|
|
0.10 |
Other (Income) Expense |
|
|
|
|
|
|
|
|
|
|
|
Amortization of long-term debt issuance costs |
|
302 |
|
|
(75 |
) |
|
|
227 |
|
|
0.00 |
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP net income |
$ |
81,382 |
|
$ |
(16,197 |
) |
|
$ |
65,185 |
|
$ |
1.14 |
|
|
|
|
|
|
|
|
|
|
|
|
Diluted shares |
|
|
|
|
|
|
|
|
|
|
57,128 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
June 30, 2020 |
|
Pre-Tax |
|
Tax Impact |
|
After-Tax |
|
Per Share Impact |
GAAP net loss |
$ |
(24,292 |
) |
|
$ |
2,080 |
|
|
$ |
(22,212 |
) |
|
$ |
(0.40 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP adjustments: |
|
|
|
|
|
|
|
|
|
|
|
Cost of Sales |
|
|
|
|
|
|
|
|
|
|
|
Amortization of intangibles |
|
25,624 |
|
|
|
(6,604 |
) |
|
|
19,020 |
|
|
|
0.34 |
|
Inventory write-off (a) |
|
1,776 |
|
|
|
(472 |
) |
|
|
1,304 |
|
|
|
0.02 |
|
Inventory mark-up related to acquisitions |
|
146 |
|
|
|
(37 |
) |
|
|
109 |
|
|
|
0.00 |
|
Operating Expenses |
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration expense |
|
5,240 |
|
|
|
66 |
|
|
|
5,306 |
|
|
|
0.09 |
|
Impairment charges |
|
7,720 |
|
|
|
(1,193 |
) |
|
|
6,527 |
|
|
|
0.12 |
|
Amortization of intangibles |
|
4,157 |
|
|
|
(1,124 |
) |
|
|
3,033 |
|
|
|
0.05 |
|
Performance-based share-based compensation (b) |
|
1,511 |
|
|
|
(192 |
) |
|
|
1,319 |
|
|
|
0.02 |
|
Corporate transformation and restructuring (c) |
|
3,452 |
|
|
|
(920 |
) |
|
|
2,532 |
|
|
|
0.05 |
|
Acquisition-related |
|
647 |
|
|
|
(164 |
) |
|
|
483 |
|
|
|
0.01 |
|
Medical Device Regulation expenses (d) |
|
603 |
|
|
|
(155 |
) |
|
|
448 |
|
|
|
0.01 |
|
Other (e) |
|
22,075 |
|
|
|
(1,634 |
) |
|
|
20,441 |
|
|
|
0.36 |
|
Other (Income) Expense |
|
|
|
|
|
|
|
|
|
|
|
Amortization of long-term debt issuance costs |
|
302 |
|
|
|
(78 |
) |
|
|
224 |
|
|
|
0.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP net income |
$ |
48,961 |
|
|
$ |
(10,427 |
) |
|
$ |
38,534 |
|
|
$ |
0.69 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted shares (f) |
|
|
|
|
|
|
|
|
|
|
56,133 |
|
____________________________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 |
|
Six Months Ended |
|
Six Months Ended |
|
June 30, 2021 |
|
June 30, 2020 |
|
June 30, 2021 |
|
June 30, 2020 |
|
Amounts |
|
% Sales |
|
Amounts |
|
% Sales |
|
Amounts |
|
% Sales |
|
Amounts |
|
% Sales |
Net Sales as Reported |
$ |
280,325 |
|
|
|
|
$ |
218,371 |
|
|
|
|
|
$ |
529,238 |
|
|
|
|
$ |
461,896 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP Operating Income (Loss) |
|
8,895 |
|
3.2 |
% |
|
|
(18,995 |
) |
|
(8.7 |
) |
% |
|
|
23,089 |
|
4.4 |
% |
|
|
(17,633 |
) |
|
(3.8 |
) |
% |
Cost of Sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of intangibles |
|
10,631 |
|
3.8 |
% |
|
|
12,807 |
|
|
5.8 |
|
% |
|
|
21,310 |
|
4.0 |
% |
|
|
25,624 |
|
|
5.6 |
|
% |
Inventory write-off (a) |
|
1,620 |
|
0.6 |
% |
|
|
345 |
|
|
0.2 |
|
% |
|
|
1,620 |
|
0.3 |
% |
|
|
1,776 |
|
|
0.5 |
|
% |
Inventory mark-up related to acquisitions |
|
— |
|
— |
|
|
|
146 |
|
|
0.1 |
|
% |
|
|
— |
|
— |
|
|
|
146 |
|
|
0.0 |
|
% |
Operating Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration expense |
|
1,805 |
|
0.6 |
% |
|
|
343 |
|
|
0.2 |
|
% |
|
|
2,207 |
|
0.4 |
% |
|
|
5,240 |
|
|
1.1 |
|
% |
Impairment charges |
|
4,283 |
|
1.5 |
% |
|
|
3,875 |
|
|
1.8 |
|
% |
|
|
4,283 |
|
0.8 |
% |
|
|
7,720 |
|
|
1.7 |
|
% |
Amortization of intangibles |
|
1,788 |
|
0.6 |
% |
|
|
1,975 |
|
|
0.9 |
|
% |
|
|
3,604 |
|
0.7 |
% |
|
|
4,157 |
|
|
0.9 |
|
% |
Performance-based share-based compensation (b) |
|
1,343 |
|
0.5 |
% |
|
|
1,064 |
|
|
0.5 |
|
% |
|
|
2,359 |
|
0.4 |
% |
|
|
1,511 |
|
|
0.3 |
|
% |
Corporate transformation and restructuring (c) |
|
7,316 |
|
2.6 |
% |
|
|
1,676 |
|
|
0.8 |
|
% |
|
|
12,761 |
|
2.4 |
% |
|
|
3,452 |
|
|
0.7 |
|
% |
Acquisition-related |
|
826 |
|
0.3 |
% |
|
|
340 |
|
|
0.1 |
|
% |
|
|
5,608 |
|
1.1 |
% |
|
|
647 |
|
|
0.1 |
|
% |
Medical Device Regulation expenses (d) |
|
1,013 |
|
0.4 |
% |
|
|
303 |
|
|
0.1 |
|
% |
|
|
1,394 |
|
0.3 |
% |
|
|
603 |
|
|
0.1 |
|
% |
Other (e) |
|
6,236 |
|
2.2 |
% |
|
|
20,492 |
|
|
9.4 |
|
% |
|
|
6,375 |
|
1.2 |
% |
|
|
22,075 |
|
|
4.8 |
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP Operating Income |
$ |
45,756 |
|
16.3 |
% |
|
$ |
24,371 |
|
|
11.2 |
|
% |
|
$ |
84,610 |
|
16.0 |
% |
|
$ |
55,318 |
|
|
12.0 |
|
% |
___________________________Note: Certain percentages may not sum
to totals due to rounding
a) |
Represents the write-off of inventory related to the divestiture or
exit of certain businesses or product lines. |
b) |
Represents performance-based
share-based compensation expense, including stock-settled and
cash-settled awards. |
c) |
Includes severance related to
corporate initiatives, write-offs and valuation adjustments of
other long-term assets associated with restructuring activities,
expenses related to Merit’s Foundations for Growth program, and
other transformation costs. |
d) |
Represents incremental expenses
incurred to comply with the Medical Device Regulation (“MDR”) in
Europe. |
e) |
The 2021 periods include accrued
contract termination costs of $6.1 million to renegotiate certain
terms of an acquisition agreement and costs to comply with Merit’s
settlement agreement with the U.S. Department of Justice. The 2020
periods include a settlement of $18.2 million with the U.S.
Department of Justice (“DOJ”) to fully resolve the DOJ’s
investigation, costs incurred in responding to the DOJ inquiry,
activist shareholder recovery fees, and expense from abandoned
patents. |
f) |
For the three and six-months
periods ended June 30, 2020, the non-GAAP net income per diluted
share calculation includes approximately 844,000 and 807,000
shares, respectively, that were excluded from the GAAP net loss per
diluted share calculation. |
Reconciliation of Reported Revenue to Constant Currency
Revenue (Non-GAAP), Constant Currency Revenue, Organic (Non-GAAP),
and Core Revenue (Non-GAAP)(Unaudited; in thousands
except percentages)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
|
June 30, |
|
% Change |
|
2021 |
|
|
2020 |
|
|
% Change |
|
2021 |
|
|
2020 |
|
Reported Revenue |
28.4 |
% |
$ |
280,325 |
|
|
$ |
218,371 |
|
|
14.6 |
% |
$ |
529,238 |
|
|
$ |
461,896 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Add: Impact of foreign
exchange |
|
|
|
(6,173 |
) |
|
|
— |
|
|
|
|
|
(9,999 |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Constant Currency Revenue
(a) |
25.5 |
% |
$ |
274,152 |
|
|
$ |
218,371 |
|
|
12.4 |
% |
$ |
519,239 |
|
|
$ |
461,896 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Revenue from certain
acquisitions |
|
|
|
(72 |
) |
|
|
— |
|
|
|
|
|
(110 |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Constant Currency Revenue,
Organic (a) |
25.5 |
% |
$ |
274,080 |
|
|
$ |
218,371 |
|
|
12.4 |
% |
$ |
519,129 |
|
|
$ |
461,896 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Revenue from
Cultura |
|
|
|
(512 |
) |
|
|
(4,566 |
) |
|
|
|
|
(1,451 |
) |
|
|
(4,566 |
) |
Less: Revenue from certain
dispositions |
|
|
|
— |
|
|
|
(2,171 |
) |
|
|
|
|
(179 |
) |
|
|
(5,700 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core Revenue (a) |
29.3 |
% |
$ |
273,568 |
|
|
$ |
211,634 |
|
|
14.6 |
% |
$ |
517,499 |
|
|
$ |
451,630 |
|
___________________________(a) A non-GAAP
financial measure. For a definition of this and other non-GAAP
financial measures, see the Non-GAAP Financial Measures section
above in this release.
Reconciliation of Reported Gross Margin to Non-GAAP
Gross Margin (Non-GAAP)(Unaudited; as a percentage of
reported revenue)
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
June 30, |
|
June 30, |
|
|
2021 |
|
2020 |
|
2021 |
|
2020 |
|
Reported Gross Margin |
44.3 |
% |
38.6 |
% |
44.6 |
% |
40.7 |
% |
|
|
|
|
|
|
|
|
|
Add back impact of: |
|
|
|
|
|
|
|
|
Amortization of intangibles |
3.8 |
% |
5.9 |
% |
4.0 |
% |
5.6 |
% |
Inventory write-off (a) |
0.6 |
% |
0.1 |
% |
0.3 |
% |
0.4 |
% |
Inventory mark-up related to acquisitions |
— |
|
0.1 |
% |
— |
|
0.0 |
% |
|
|
|
|
|
|
|
|
|
Non-GAAP Gross Margin |
48.7 |
% |
44.7 |
% |
48.9 |
% |
46.7 |
% |
___________________________Note: Certain percentages may not sum
to totals due to rounding
(a) Represents the write-off of inventory
related to the divestiture or exit of certain businesses or product
lines.
ABOUT MERIT
Founded in 1987, Merit Medical
Systems, Inc. is a leading manufacturer and marketer of
proprietary 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 6,300 people
worldwide with facilities in South Jordan, Utah; Pearland, Texas;
Richmond, Virginia; 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), operating income and margin (GAAP and
non-GAAP), gross margin (GAAP and non-GAAP), earnings per share
(GAAP and non-GAAP), free cash flow, and other financial measures,
the potential impact, scope and duration of, and Merit’s response
to, the COVID-19 pandemic and the potential for recovery from that
pandemic, future growth and profit expectations or forecasted
economic conditions, or the implementation of, and results achieved
through, Merit’s Foundations for Growth program or other expense
reduction initiatives, or the development and commercialization of
new products, 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,
2020 (the “2020 Annual Report”) and other filings with 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;
disruptions in Merit’s supply chain, manufacturing or sterilization
processes; 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; 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; 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; product recalls and product liability claims; changes in
customer purchasing patterns or the mix of products Merit sells;
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; reduced availability of, and price increases
associated with, 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 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; failure to introduce 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 2020 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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