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 $255.5 million for the quarter ended
June 30, 2019, an increase of 13.7% over revenue of $224.8
million for the quarter ended June 30, 2018. Core revenue on a
comparable, constant currency basis* for the second quarter of 2019
would have been up 9.6% when compared to the second quarter of
2018.
Merit’s GAAP net income for the second quarter
of 2019 was $6.9 million, or $0.12 per share, compared to GAAP net
income of $10.9 million, or $0.21 per share, for the second quarter
of 2018. Merit’s non-GAAP net income* for the quarter ended
June 30, 2019 was $23.8 million, or $0.42 per share, compared
to $22.4 million, or $0.43 per share, for the quarter ended
June 30, 2018.
Merit's GAAP gross margin for the second quarter
of 2019 was 43.8%, compared to GAAP gross margin of 44.5% for the
second quarter of 2018. Merit's non-GAAP gross margin* for the
second quarter of 2019 was 48.7%, compared to non-GAAP gross
margin* of 48.9% for the second quarter of 2018.
Merit’s revenue by category for the three and
six months ended June 30, 2019, compared to the corresponding
periods in 2018, was as follows (unaudited, in thousands, except
for percentages):
|
|
|
Three Months Ended |
|
|
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
|
|
June 30, |
|
% Change |
|
2019 |
|
2018 |
|
|
% Change |
|
2019 |
|
2018 |
Cardiovascular |
|
|
|
|
|
|
|
|
|
|
|
|
Stand-alone devices |
11.9% |
|
$ |
103,522 |
|
|
$ |
92,496 |
|
|
|
13.2% |
|
$ |
198,948 |
|
|
$ |
175,742 |
|
Cianna Medical |
n/a |
|
11,237 |
|
|
— |
|
|
|
n/a |
|
24,085 |
|
|
— |
|
Custom kits and procedure trays |
1.0% |
|
34,343 |
|
|
33,992 |
|
|
|
—% |
|
67,286 |
|
|
67,264 |
|
Inflation devices |
—% |
|
24,315 |
|
|
24,305 |
|
|
|
(0.8)% |
|
46,333 |
|
|
46,724 |
|
Catheters |
15.2% |
|
45,344 |
|
|
39,374 |
|
|
|
20.7% |
|
88,383 |
|
|
73,239 |
|
Embolization devices |
10.1% |
|
14,008 |
|
|
12,724 |
|
|
|
2.1% |
|
25,835 |
|
|
25,310 |
|
CRM/EP |
3.0% |
|
13,897 |
|
|
13,496 |
|
|
|
9.7% |
|
26,276 |
|
|
23,962 |
|
Total |
14.0% |
|
246,666 |
|
|
216,387 |
|
|
|
15.7% |
|
477,146 |
|
|
412,241 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Endoscopy |
|
|
|
|
|
|
|
|
|
|
|
|
Endoscopy devices |
5.3% |
|
8,866 |
|
|
8,423 |
|
|
|
7.3% |
|
16,735 |
|
|
15,603 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grand Total |
13.7% |
|
$ |
255,532 |
|
|
$ |
224,810 |
|
|
|
15.4% |
|
$ |
493,881 |
|
|
$ |
427,844 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
“There were a number of factors affecting
revenues and gross margins during the second quarter,” said Fred P.
Lampropoulos, Merit’s Chairman and Chief Executive Officer. “The
shortfall in revenue involved foreign exchange, slower than
anticipated conversion and uptake of acquired products such as the
Vascular Insights (ClariVein®) product line and some products from
the BD acquisition. Additionally, we saw sales of legacy
products increase more than expected. Of course the
combination of lower than expected revenues and the mix resulted in
lower gross margins. The silver lining is the core growth and the
management of SG&A expenses which were in line with our
expectations.”
“There are several other factors that lead us to
believe there are opportunities for continued growth,” Lampropoulos
continued. “As previously announced, Merit has secured a
number of GPO contracts which will layer in over the balance of the
year as will the growth of our embolic products which grew at 10%
for the quarter with an acceleration in June. We believe this is
due to a recently proposed divestiture from a strategic competitor.
We believe this will continue to be an opportunity in what has
otherwise been a flat business for the last few years. We believe
it will also be enhanced by the continued growth of our recently
introduced EmboCube™ and the Torpedo™ embolic products that were
recently cleared by the FDA.”
“As we proceed through July, we are seeing
increased orders for our ClariVein products,” Lampropoulos said.
“Some of the orders are first-time orders which we attribute to
pipeline filling prior to closing the transaction.”
“We have modified our gross margin projections
to reflect the adjustments to various factors that we do not
control and also to the expected sales of our legacy products due
to the aforementioned GPO and business opportunities for our fluid
management business,” Lampropoulos continued. “We believe this is
the appropriate manner to serve our customers who have few choices
for access to the product lines Merit offers. We cannot imagine
telling customers that we cannot help them. Having a long-term
strategy has always been the hallmark of our business success. We
will continue to serve and meet the demands of our customers.”
“Finally, to insure progress and attention to
financial matters, we have increased our focus on efficiency of
COGs, our habits and priorities of all our operating expenses,”
Lampropoulos said. “We believe we will maneuver the ship rather
quickly to continued growth and profitability improvement. Because
of this confidence, as well as the tailwinds of GPOs, the
introduction of new products and our momentum, we are not changing
our 2020 forecast.”
REVISED 2019 GUIDANCEBased upon information
currently available to Merit's management, Merit estimates for the
year ending December 31, 2019, absent material acquisitions or
non-recurring transactions, the following:
Financial Measure |
|
Prior Guidance |
|
Revised Guidance |
|
|
|
|
|
Net Sales |
|
$1,011 - $1,030 million |
|
$1,007 - $1,029 million |
|
|
|
|
|
GAAP |
|
|
|
|
Earnings per share |
|
$1.02 - $1.13 |
|
$0.62 - $0.84 |
Gross Margin |
|
45.6% - 46.5% |
|
44.1% - 44.8% |
|
|
|
|
|
Non-GAAP |
|
|
|
|
Earnings per share |
|
$1.97 - $2.08 |
|
$1.74 - $1.97 |
Gross Margin |
|
50.6% - 51.3% |
|
49.2% - 49.9% |
|
|
|
|
|
Merit’s financial guidance for the year ending December 31,
2019 is subject to risks and uncertainties identified in
Merit’s public filings.
CONFERENCE CALLMerit will hold its investor
conference call (conference ID 7074006) today, Thursday, July 25,
2019, at 5:00 p.m. Eastern (4:00 p.m. Central, 3:00 p.m. Mountain,
and 2:00 p.m. Pacific). The domestic telephone number is (844)
578-9672 and the international number is (508) 637-5656. A live
webcast and slide deck will also be available at merit.com.
|
|
|
|
CONSOLIDATED BALANCE
SHEETS |
|
|
|
(In
thousands) |
June 30, |
|
December 31, |
|
2019 |
|
2018 |
|
(Unaudited) |
|
|
ASSETS |
|
|
|
Current Assets |
|
|
|
Cash and cash equivalents |
$ |
35,182 |
|
|
$ |
67,359 |
|
Trade receivables, net |
156,444 |
|
|
137,174 |
|
Other receivables |
11,520 |
|
|
11,879 |
|
Inventories |
202,994 |
|
|
197,536 |
|
Prepaid expenses and other assets |
12,305 |
|
|
11,326 |
|
Prepaid income taxes |
3,625 |
|
|
3,627 |
|
Income tax refund receivables |
4,876 |
|
|
933 |
|
Total current assets |
426,946 |
|
|
429,834 |
|
|
|
|
|
Property and equipment,
net |
350,519 |
|
|
331,452 |
|
Intangible assets, net |
466,070 |
|
|
462,713 |
|
Goodwill |
349,773 |
|
|
335,433 |
|
Deferred income tax
assets |
3,038 |
|
|
3,001 |
|
Operating lease right-of-use
assets |
79,309 |
|
|
— |
|
Other assets |
58,255 |
|
|
57,579 |
|
Total Assets |
$ |
1,733,910 |
|
|
$ |
1,620,012 |
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS' EQUITY |
|
|
|
Current Liabilities |
|
|
|
Trade payables |
$ |
52,601 |
|
|
$ |
54,024 |
|
Accrued expenses |
97,176 |
|
|
96,173 |
|
Current portion of long-term debt |
15,000 |
|
|
22,000 |
|
Current operating lease liabilities |
11,732 |
|
|
— |
|
Income taxes payable |
42 |
|
|
3,146 |
|
Total current liabilities |
176,551 |
|
|
175,343 |
|
|
|
|
|
Long-term debt |
385,221 |
|
|
373,152 |
|
Deferred income tax
liabilities |
60,932 |
|
|
56,363 |
|
Long-term income taxes
payable |
392 |
|
|
392 |
|
Liabilities related to
unrecognized tax benefits |
3,013 |
|
|
3,013 |
|
Deferred compensation
payable |
12,739 |
|
|
11,219 |
|
Deferred credits |
2,192 |
|
|
2,261 |
|
Long-term operating lease
liabilities |
71,272 |
|
|
— |
|
Other long-term
obligations |
70,923 |
|
|
65,494 |
|
Total liabilities |
783,235 |
|
|
687,237 |
|
|
|
|
|
Stockholders' Equity |
|
|
|
Common stock |
579,250 |
|
|
571,383 |
|
Retained earnings |
376,572 |
|
|
363,425 |
|
Accumulated other comprehensive loss |
(5,147 |
) |
|
(2,033 |
) |
Total stockholders' equity |
950,675 |
|
|
932,775 |
|
Total Liabilities and
Stockholders' Equity |
$ |
1,733,910 |
|
|
$ |
1,620,012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED
STATEMENTS OF INCOME |
|
|
|
|
|
|
|
(Unaudited, in thousands except per share
amounts) |
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
June 30, |
|
June 30, |
|
2019 |
|
2018 |
|
2019 |
|
2018 |
|
|
|
|
|
|
|
|
NET SALES |
$ |
255,532 |
|
|
$ |
224,810 |
|
|
$ |
493,881 |
|
|
$ |
427,844 |
|
|
|
|
|
|
|
|
|
COST OF SALES |
143,568 |
|
|
124,801 |
|
|
277,281 |
|
|
239,779 |
|
|
|
|
|
|
|
|
|
GROSS PROFIT |
111,964 |
|
|
100,009 |
|
|
216,600 |
|
|
188,065 |
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES |
|
|
|
|
|
|
|
Selling, general and administrative |
79,977 |
|
|
69,095 |
|
|
158,247 |
|
|
134,007 |
|
Research and development |
16,332 |
|
|
15,316 |
|
|
32,375 |
|
|
29,638 |
|
Intangible asset impairment charge |
548 |
|
|
— |
|
|
548 |
|
|
— |
|
Contingent consideration expense |
2,406 |
|
|
178 |
|
|
3,181 |
|
|
219 |
|
Acquired in-process research and development |
500 |
|
|
306 |
|
|
525 |
|
|
306 |
|
Total |
99,763 |
|
|
84,895 |
|
|
194,876 |
|
|
164,170 |
|
|
|
|
|
|
|
|
|
INCOME FROM OPERATIONS |
12,201 |
|
|
15,114 |
|
|
21,724 |
|
|
23,895 |
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE) |
|
|
|
|
|
|
|
Interest income |
342 |
|
|
342 |
|
|
698 |
|
|
487 |
|
Interest expense |
(3,115 |
) |
|
(3,338 |
) |
|
(5,879 |
) |
|
(5,736 |
) |
Other expense - net |
(429 |
) |
|
(553 |
) |
|
(698 |
) |
|
(721 |
) |
Total other expense - net |
(3,202 |
) |
|
(3,549 |
) |
|
(5,879 |
) |
|
(5,970 |
) |
|
|
|
|
|
|
|
|
INCOME BEFORE INCOME
TAXES |
8,999 |
|
|
11,565 |
|
|
15,845 |
|
|
17,925 |
|
|
|
|
|
|
|
|
|
INCOME TAX EXPENSE |
2,140 |
|
|
624 |
|
|
2,791 |
|
|
1,715 |
|
|
|
|
|
|
|
|
|
NET INCOME |
$ |
6,859 |
|
|
$ |
10,941 |
|
|
$ |
13,054 |
|
|
$ |
16,210 |
|
|
|
|
|
|
|
|
|
EARNINGS PER COMMON
SHARE: |
|
|
|
|
|
|
|
Basic |
$ |
0.12 |
|
|
$ |
0.22 |
|
|
$ |
0.24 |
|
|
$ |
0.32 |
|
|
|
|
|
|
|
|
|
Diluted |
$ |
0.12 |
|
|
$ |
0.21 |
|
|
$ |
0.23 |
|
|
$ |
0.31 |
|
|
|
|
|
|
|
|
|
AVERAGE COMMON SHARES: |
|
|
|
|
|
|
|
Basic |
55,017 |
|
|
50,473 |
|
|
54,967 |
|
|
50,376 |
|
|
|
|
|
|
|
|
|
Diluted |
56,555 |
|
|
52,154 |
|
|
56,523 |
|
|
52,033 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP Financial MeasuresAlthough Merit’s
financial statements are prepared in accordance with accounting
principles generally accepted in the United States of America
(“GAAP”), Merit’s management believes that certain non-GAAP
financial measures referenced in this release provide investors
with useful information regarding the underlying business trends
and performance of Merit’s ongoing operations and can be useful for
period-over-period comparisons of such operations. Non-GAAP
financial measures used in this release include:
- constant currency revenue,
- core revenue,
- core revenue on a constant currency basis,
- non-GAAP gross margin,
- non-GAAP net income, and
- non-GAAP earnings per share.
Merit’s management team uses these non-GAAP
financial measures to evaluate Merit’s profitability and
efficiency, to compare operating results to prior periods, to
evaluate changes in the operating results of its operating
segments, and to measure and allocate financial resources
internally. However, Merit’s management does not consider such
non-GAAP measures in isolation or as an alternative to measures
determined in accordance with GAAP.
Readers should consider non-GAAP measures used
in this release in addition to, not as a substitute for, financial
reporting measures prepared in accordance with GAAP. These non-GAAP
financial measures generally exclude some, but not all, items that
may affect Merit's net income. In addition, they are subject to
inherent limitations as they reflect the exercise of judgment by
management about which items are excluded. Merit believes it is
useful to exclude such items in the calculation of non-GAAP
earnings per share, non-GAAP gross margin and non-GAAP net income
(in each case, as further illustrated in the reconciliation tables
below) because such amounts in any specific period may not directly
correlate to the underlying performance of Merit’s business
operations and can vary significantly between periods as a result
of factors such as acquisition transactions, non-cash expenses
related to amortization or write-off of previously acquired
tangible and intangible assets, severance expenses, expenses
resulting from non-ordinary course litigation, governmental
proceedings or changes in tax or industry regulations, and debt
issuance costs. Merit may incur similar types of expenses in the
future, and the non-GAAP financial information included in this
release should not be viewed as a statement or indication that
these types of expenses will not recur. Additionally, the non-GAAP
financial measures used in this release may not be comparable with
similarly titled measures of other companies. Merit urges investors
and potential investors to review the reconciliations of its
non-GAAP financial measures to the comparable GAAP financial
measures, and not to rely on any single financial measure to
evaluate Merit’s business or results of operations.
Constant Currency RevenueMerit’s revenue on a
constant currency basis is prepared by translating the
current-period reported revenue of subsidiaries whose functional
currency is other than the U.S. dollar at the applicable foreign
exchange rates in effect during the comparable prior-year period.
The constant currency revenue adjustments of $4.7 million and $9.5
million for the three and six-month periods ended June 30,
2019, respectively, were calculated using the applicable average
foreign exchange rates for the three and six-month periods ended
June 30, 2018, respectively.
Core Revenue and Core Revenue on a Constant
Currency BasisMerit’s core revenue is defined (a) with respect to
prior fiscal year periods, as GAAP revenue, and (b) with respect to
current fiscal year periods, as GAAP revenue, less revenue from
certain acquisitions and strategic transactions. For the three and
six-month periods ended June 30, 2019, Merit’s core revenue
excludes revenues attributable to (i) the acquisition of (1)
certain divested assets of Becton, Dickinson and Company in
February 2018 (excluded January 2019 only), (2) the assets of
DirectACCESS Medical, LLC in May 2018 (excluded through April 2019
only), (3) Cianna Medical, Inc. in November 2018, (4) the assets of
Vascular Insights, LLC in December 2018, and (5) Brightwater
Medical, Inc. in June 2019, and (ii) distribution arrangements
executed with NinePoint Medical, Inc. in April 2018 (excluded
through April 2019 only) and QXMedical, LLC in May 2018 (excluded
through May 2019 only). Core revenue on a constant currency basis
is defined as core revenue (as described in the first sentence of
this paragraph) adjusted to eliminate the foreign exchange impact
related to those core revenues for the relevant period, using the
applicable average foreign exchange rates in effect for the
comparable prior-year periods presented.
Non-GAAP Gross MarginNon-GAAP gross margin is
calculated by reducing GAAP cost of sales by amounts recorded for
amortization of intangible assets and inventory mark-up related to
acquisitions.
Non-GAAP Net IncomeNon-GAAP net income is
calculated by adjusting GAAP net income for certain items which are
deemed by Merit’s management to be outside of core operations and
vary in amount and frequency among periods, such as expenses
related to new acquisitions, non-cash expenses related to
amortization or write-off of previously acquired tangible and
intangible assets, severance expenses, expenses resulting from
non-ordinary course litigation, governmental proceedings or changes
in tax or industry regulations, and debt issuance costs, as well as
other items set forth in the tables below.
Non-GAAP EPSNon-GAAP EPS is defined as non-GAAP
net income divided by the diluted shares outstanding for the
corresponding period.
Other Non-GAAP Financial Measure
ReconciliationThe tables in this release set forth supplemental
financial data and corresponding reconciliations of non-GAAP net
income and non-GAAP earnings per share to Merit’s net income and
earnings per share prepared in accordance with GAAP for the three
and six-month periods ended June 30, 2019 and 2018. The
non-GAAP income adjustments referenced in the following table do
not reflect stock-based compensation expense of approximately $2.5
million and $1.6 million for the three-month periods ended
June 30, 2019 and 2018, respectively, and approximately $4.3
million and $2.8 million for the six-month periods ended
June 30, 2019 and 2018, respectively.
|
|
|
|
Reconciliation of GAAP Net Income to Non-GAAP Net
Income |
|
|
|
(Unaudited, in
thousands except per share amounts) |
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
June 30, 2019 |
|
Pre-Tax |
Tax Impact (a) |
After-Tax |
Per Share Impact |
GAAP net income |
$ |
8,999 |
|
$ |
(2,140 |
) |
$ |
6,859 |
|
$ |
0.12 |
|
|
|
|
|
|
Non-GAAP adjustments: |
|
|
|
|
Cost of Sales |
|
|
|
|
Amortization of intangibles |
12,178 |
|
(3,118 |
) |
9,060 |
|
0.16 |
|
Inventory mark-up related to acquisitions |
212 |
|
(54 |
) |
158 |
|
0.00 |
|
Operating Expenses |
|
|
|
|
Severance |
494 |
|
(127 |
) |
367 |
|
0.01 |
|
Acquisition-related (b) |
1,173 |
|
(289 |
) |
884 |
|
0.02 |
|
Medical Device Regulation expenses (c) |
113 |
|
(29 |
) |
84 |
|
0.00 |
|
Fair value adjustment to contingent consideration (d) |
2,406 |
|
(44 |
) |
2,362 |
|
0.04 |
|
Long-term asset impairment charge (e) |
423 |
|
(109 |
) |
314 |
|
0.01 |
|
Acquired in-process research and development |
500 |
|
(129 |
) |
371 |
|
0.01 |
|
Intangible asset impairment charge (f) |
548 |
|
(141 |
) |
407 |
|
0.01 |
|
Amortization of intangibles |
2,699 |
|
(710 |
) |
1,989 |
|
0.03 |
|
Special legal expense (g) |
1,015 |
|
(261 |
) |
754 |
|
0.01 |
|
Other (Income) Expense |
|
|
|
|
Amortization of long-term debt issuance costs |
201 |
|
(52 |
) |
149 |
|
0.00 |
|
Tax expense related to
restructuring (h) |
— |
|
2 |
|
2 |
|
0.00 |
|
Non-GAAP net income |
$ |
30,961 |
|
$ |
(7,201 |
) |
$ |
23,760 |
|
$ |
0.42 |
|
|
|
|
|
|
Diluted shares |
|
|
|
56,555 |
|
|
|
|
|
|
|
Three Months Ended |
|
June 30, 2018 |
|
Pre-Tax |
Tax Impact (a) |
After-Tax |
Per Share Impact |
GAAP net income |
$ |
11,565 |
|
$ |
(624 |
) |
$ |
10,941 |
|
$ |
0.21 |
|
|
|
|
|
|
Non-GAAP adjustments: |
|
|
|
|
Cost of Sales |
|
|
|
|
Amortization of intangibles |
7,937 |
|
(2,061 |
) |
5,876 |
|
|
0.12 |
|
Inventory mark-up related to acquisitions |
1,888 |
|
(485 |
) |
1,403 |
|
|
0.03 |
|
Operating Expenses |
|
|
|
|
Severance |
163 |
|
(38 |
) |
125 |
|
|
0.00 |
|
Acquisition-related (b) |
620 |
|
(159 |
) |
461 |
|
|
0.01 |
|
Fair value adjustment to contingent consideration (d) |
178 |
|
(46 |
) |
132 |
|
|
0.00 |
|
Long-term asset impairment charge (e) |
29 |
|
(7 |
) |
22 |
|
|
0.00 |
|
Acquired in-process research and development |
306 |
|
(79 |
) |
227 |
|
|
0.00 |
|
Amortization of intangibles |
2,466 |
|
(655 |
) |
1,811 |
|
|
0.03 |
|
Special legal expense (g) |
1,646 |
|
(423 |
) |
1,223 |
|
|
0.02 |
|
Other (Income) Expense |
|
|
|
|
Amortization of long-term debt issuance costs |
201 |
|
(52 |
) |
149 |
|
|
0.00 |
|
Non-GAAP net income |
$ |
26,999 |
|
$ |
(4,629 |
) |
$ |
22,370 |
|
$ |
0.43 |
|
|
|
|
|
|
Diluted shares |
|
|
|
52,154 |
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of GAAP Net Income to Non-GAAP Net
Income |
|
|
|
(Unaudited, in
thousands except per share amounts) |
|
|
|
|
Six Months Ended |
|
June 30, 2019 |
|
Pre-Tax |
Tax Impact (a) |
After-Tax |
Per Share Impact |
GAAP net income |
$ |
15,845 |
|
$ |
(2,791 |
) |
$ |
13,054 |
|
$ |
0.23 |
|
|
|
|
|
|
Non-GAAP adjustments: |
|
|
|
|
Cost of Sales |
|
|
|
|
Amortization of intangibles |
24,157 |
|
(6,185 |
) |
17,972 |
|
0.32 |
|
Inventory mark-up related to acquisitions |
884 |
|
(228 |
) |
656 |
|
0.01 |
|
Operating expenses |
|
|
|
|
Severance |
822 |
|
(212 |
) |
610 |
|
0.01 |
|
Acquisition-related (b) |
1,741 |
|
(435 |
) |
1,306 |
|
0.02 |
|
Medical Device Regulation expenses (c) |
113 |
|
(29 |
) |
84 |
|
0.00 |
|
Fair value adjustment to contingent consideration (d) |
3,181 |
|
(185 |
) |
2,996 |
|
0.05 |
|
Long-term asset impairment charge (e) |
634 |
|
(163 |
) |
471 |
|
0.01 |
|
Acquired in-process research and development |
525 |
|
(135 |
) |
390 |
|
0.01 |
|
Intangible asset impairment charge (f) |
548 |
|
(141 |
) |
407 |
|
0.01 |
|
Amortization of intangibles |
5,506 |
|
(1,450 |
) |
4,056 |
|
0.07 |
|
Special legal expense (g) |
2,678 |
|
(689 |
) |
1,989 |
|
0.04 |
|
Other (Income) Expense |
|
|
|
|
Amortization of long-term debt issuance costs |
402 |
|
(104 |
) |
298 |
|
0.01 |
|
Tax expense related to
restructuring (h) |
— |
|
93 |
|
93 |
|
0.00 |
|
|
|
|
|
|
Non-GAAP net income |
$ |
57,036 |
|
$ |
(12,654 |
) |
$ |
44,382 |
|
$ |
0.79 |
|
|
|
|
|
|
Diluted shares |
|
|
|
56,523 |
|
|
|
|
|
|
|
Six Months Ended |
|
June 30, 2018 |
|
Pre-Tax |
Tax Impact (a) |
After-Tax |
Per Share Impact |
GAAP net income |
$ |
17,925 |
|
$ |
(1,715 |
) |
$ |
16,210 |
|
$ |
0.31 |
|
|
|
|
|
|
Non-GAAP adjustments: |
|
|
|
|
Cost of Sales |
|
|
|
|
Amortization of intangibles |
14,400 |
|
(3,670 |
) |
10,730 |
|
0.21 |
|
Inventory mark-up related to acquisitions |
3,761 |
|
(967 |
) |
2,794 |
|
0.05 |
|
Operating Expenses |
|
|
|
|
Severance |
162 |
|
(38 |
) |
124 |
|
0.00 |
|
Acquisition-related (b) |
2,590 |
|
(666 |
) |
1,924 |
|
0.04 |
|
Fair value adjustment to contingent consideration (d) |
219 |
|
(56 |
) |
163 |
|
0.00 |
|
Long-term asset impairment charge (e) |
86 |
|
(22 |
) |
64 |
|
0.00 |
|
Acquired in-process research and development |
306 |
|
(79 |
) |
227 |
|
0.00 |
|
Amortization of intangibles |
4,465 |
|
(1,187 |
) |
3,278 |
|
0.06 |
|
Special legal expense (g) |
3,337 |
|
(858 |
) |
2,479 |
|
0.05 |
|
Other (Income) Expense |
|
|
|
|
Amortization of long-term debt issuance costs |
402 |
|
(103 |
) |
299 |
|
0.01 |
|
|
|
|
|
|
Non-GAAP net income |
$ |
47,653 |
|
$ |
(9,361 |
) |
$ |
38,292 |
|
$ |
0.74 |
|
|
|
|
|
|
Diluted shares |
|
|
|
52,033 |
|
|
|
|
|
|
|
(a) Reflects the tax effect associated with pre-tax income and
the non-GAAP adjustments.(b) Represents transaction costs and
certain integration costs, including travel, related to
acquisitions.(c) Represents incremental expenses incurred to comply
with the Medical Device Regulation (MDR) in Europe.(d) Represents
changes in the fair value of contingent consideration liabilities
and contingent receivables as a result of acquisitions.(e)
Represents abandoned patents and other long-term assets.(f)
Represents impairment charges related to certain acquired
intangible assets.(g) Costs incurred in responding to an inquiry
from the U.S. Department of Justice.(h) Net tax expense related to
non-recurring tax withholdings in connection with restructuring of
certain international subsidiaries.
|
|
|
Reconciliation of Reported Revenue to Core Revenue
(Non-GAAP), Constant Currency Revenue (Non-GAAP), and Core Revenue
on a Constant Currency Basis (Non-GAAP) |
(Unaudited; in thousands
except percentages) |
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
June 30, |
|
|
June 30, |
|
% Change |
2019 |
2018 |
|
% Change |
2019 |
2018 |
Reported Revenue |
13.7% |
$ |
255,532 |
|
$ |
224,810 |
|
|
15.4% |
$ |
493,881 |
|
$ |
427,844 |
|
|
|
|
|
|
|
|
|
Add: Impact of foreign
exchange (a) |
|
4,671 |
|
— |
|
|
|
9,461 |
|
— |
|
|
|
|
|
|
|
|
|
Constant Currency
Revenue |
15.7% |
$ |
260,203 |
|
$ |
224,810 |
|
|
17.6% |
$ |
503,342 |
|
$ |
427,844 |
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
June 30, |
|
|
June 30, |
|
% Change |
2019 |
2018 |
|
% Change |
2019 |
2018 |
Reported Revenue |
13.7% |
$ |
255,532 |
|
$ |
224,810 |
|
|
15.4% |
$ |
493,881 |
|
$ |
427,844 |
|
|
|
|
|
|
|
|
|
Less: Revenue from certain
acquisitions (b) |
|
(13,717 |
) |
— |
|
|
|
(33,519 |
) |
— |
|
|
|
|
|
|
|
|
|
Core
Revenue |
7.6% |
$ |
241,815 |
|
$ |
224,810 |
|
|
7.6% |
$ |
460,362 |
|
$ |
427,844 |
|
|
|
|
|
|
|
|
|
Add: Impact of foreign
exchange (a) |
|
4,671 |
|
— |
|
|
|
9,461 |
|
— |
|
|
|
|
|
|
|
|
|
Core Revenue on a
Constant Currency Basis |
9.6% |
$ |
246,486 |
|
$ |
224,810 |
|
|
9.8% |
$ |
469,823 |
|
$ |
427,844 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) The constant currency revenue adjustment of
$4.7 million and $9.5 million to reported revenue and to core
revenue, for the three and six months ended June 30, 2019,
respectively, were calculated using the applicable average foreign
exchange rates for the three and six months ended June 30,
2018.
(b) Merit’s core revenue is defined (a) with
respect to prior fiscal year periods, as GAAP revenue, and (b) with
respect to current fiscal year periods, as GAAP revenue, less
revenue from certain acquisitions and strategic transactions. For
the three and six-month periods ended June 30, 2019, Merit’s
core revenue excludes revenues attributable to (i) the acquisition
of (1) certain divested assets of Becton, Dickinson and Company in
February 2018 (excluded January 2019 only), (2) the assets of
DirectACCESS Medical, LLC in May 2018 (excluded through April 2019
only), (3) Cianna Medical, Inc. in November 2018, (4) the assets of
Vascular Insights, LLC in December 2018, and (5) Brightwater
Medical, Inc. in June 2019, and (ii) distribution arrangements
executed with NinePoint Medical, Inc. in April 2018 (excluded
through April 2019 only) and QXMedical, LLC in May 2018 (excluded
through May 2019 only). Core revenue on a constant currency basis
is defined as core revenue (as described in the first sentence of
this paragraph) adjusted to eliminate the foreign exchange impact
related to those core revenues for the relevant period, using the
applicable average foreign exchange rates in effect for the
comparable prior-year periods presented.
|
|
|
|
Reconciliation of Reported Gross Margin to Non-GAAP Gross
Margin (Non-GAAP) |
(Unaudited, as a
percentage of reported revenue) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
June 30, |
|
June 30, |
|
2019 |
|
2018 |
|
2019 |
|
2018 |
Reported Gross Margin |
43.8 |
% |
|
44.5 |
% |
|
43.9 |
% |
|
44.0 |
% |
|
|
|
|
|
|
|
|
Add back impact of: |
|
|
|
|
|
|
|
Amortization of intangibles |
4.8 |
% |
|
3.5 |
% |
|
4.8 |
% |
|
3.3 |
% |
Inventory mark-up related to acquisitions |
0.1 |
% |
|
0.9 |
% |
|
0.2 |
% |
|
0.9 |
% |
|
|
|
|
|
|
|
|
Non-GAAP Gross Margin |
48.7 |
% |
|
48.9 |
% |
|
48.9 |
% |
|
48.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
ABOUT MERITFounded in 1987, Merit Medical
Systems, Inc. is engaged in the development, manufacture and
distribution of proprietary disposable medical devices used in
interventional, diagnostic and therapeutic procedures, particularly
in cardiology, radiology, oncology, critical care and
endoscopy. Merit serves client hospitals worldwide with a
domestic and international sales force and clinical support team
totaling in excess of 300 individuals. Merit employs
approximately 6,300 people worldwide with facilities in South
Jordan, Utah; Pearland, Texas; Richmond, Virginia; Malvern,
Pennsylvania; Rockland, Massachusetts; San Jose and Aliso Viejo,
California; Maastricht and Venlo, The Netherlands; Paris, France;
Galway, Ireland; Beijing, China; Tijuana, Mexico; Joinville,
Brazil; Markham, Ontario, Canada; Melbourne, Australia; Tokyo,
Japan; Reading, United Kingdom; Johannesburg, South Africa; and
Singapore.
FORWARD-LOOKING STATEMENTSStatements contained
in this release which are not purely historical, including, without
limitation, statements regarding Merit's forecasted plans, net
sales, net income (GAAP and non-GAAP), gross margin (GAAP and
non-GAAP), earnings per share (GAAP and non-GAAP), effective tax
rate and other financial results, anticipated or completed
acquisitions, or the introduction of new products, are
forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995 and are subject to risks
and uncertainties such as those described in Merit's Annual Report
on Form 10-K for the year ended December 31, 2018 and subsequent
filings with the Securities and Exchange Commission. Such
risks and uncertainties include inherent risks and uncertainties
relating to Merit’s internal models or the projections in this
release; risks relating to Merit's potential inability to
successfully manage growth through acquisitions generally,
including the inability to effectively integrate acquired
operations or products or commercialize technology acquired through
completed, proposed or future transactions; expenditures relating
to research, development, testing and regulatory approval or
clearance of Merit's products and risks that such products may not
be developed successfully or approved for commercial use;
governmental scrutiny and regulation of the medical device
industry, including governmental inquiries, investigations and
proceedings involving Merit; restrictions on Merit's liquidity or
business operations resulting from its debt agreements;
infringement of Merit's technology or the assertion that Merit's
technology infringes the rights of other parties; product recalls
and product liability claims; changes in customer purchasing
patterns or the mix of products Merit sells; risks and
uncertainties associated with Merit’s information technology
systems, including the potential for breaches of security and
evolving regulations regarding privacy and data protection; the
potential of fines, penalties or other adverse consequences if
Merit's employees or agents violate the U.S. Foreign Corrupt
Practices Act or other laws or regulations; the pending exit of the
United Kingdom from the European Union and uncertainties about
when, how or if such exit will occur; laws and regulations
targeting fraud and abuse in the healthcare industry; potential for
significant adverse changes in governing regulations, including
reforms to the procedures for approval or clearance of Merit's
products by the U.S. Food & Drug Administration or comparable
regulatory authorities in other jurisdictions; changes in tax laws
and regulations in the United States or other countries; increases
in the prices of commodity components; negative changes in economic
and industry conditions in the United States or other countries;
termination or interruption of relationships with Merit's
suppliers, or failure of such suppliers to perform; fluctuations in
exchange rates; uncertainties relating to the LIBOR calculation
method and the potential phasing out of LIBOR; concentration of a
substantial portion of Merit's revenues among a few products and
procedures; development of new products and technology that could
render Merit's existing products obsolete; market acceptance of new
products; volatility in the market price of Merit's common stock;
modification or limitation of governmental or private insurance
reimbursement policies; changes in healthcare policies or markets
related to healthcare reform initiatives; failure to comply with
applicable environmental laws; changes in key personnel; work
stoppage or transportation risks; introduction of products in a
timely fashion; price and product competition; availability of
labor and materials; fluctuations in and obsolescence of inventory;
and other factors referred to in Merit's Annual Report on Form 10-K
for the year ended December 31, 2018 and other materials filed with
the Securities and Exchange Commission. All subsequent
forward-looking statements attributable to Merit or persons acting
on its behalf are expressly qualified in their entirety by these
cautionary statements. Actual results will likely differ, and may
differ materially, from anticipated results. Financial estimates
are subject to change and are not intended to be relied upon as
predictions of future operating results, and Merit assumes no
obligation to update or disclose revisions to those estimates.
TRADEMARKSUnless noted otherwise, trademarks and
registered trademarks used in this release are the property of
Merit Medical Systems, Inc. and its subsidiaries in the United
States and other jurisdictions.
Contact: Anne-Marie Wright,
Vice President, Corporate CommunicationsPhone:
(801) 208-4167 e-mail: awright@merit.com Fax:
(801) 253-1688
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