Non-GAAP Income from Operations Up 40%
Core Sales Up 13%
Malvern Sales Up 49%
Europe Sales Up 31%
China Direct Sales Up 56%
SOUTH JORDAN, Utah, April 24, 2014 (GLOBE NEWSWIRE) -- Merit Medical Systems, Inc. (Nasdaq:MMSI), a leading manufacturer and marketer of proprietary disposable devices used primarily in cardiology, radiology and endoscopy, today announced record sales of $119.2 million for the quarter ended March 31, 2014, an increase of 15% over sales of $103.9 million for the quarter ended March 31, 2013.
Merit's non-GAAP net income for the quarter ended March 31, 2014, was $5.4 million, or $0.12 per share, compared to $4.3 million, or $0.10 per share, for the quarter ended March 31, 2013. The increase in non-GAAP net income was attributable primarily to increased sales and higher gross margins, which were partially offset by increases in interest expense and a higher effective income tax rate.
Merit's GAAP net income for the first quarter of 2014 was $2.8 million, or $0.07 per share, compared to net income of $671,000, or $0.02 per share, for the first quarter of 2013.
For the first quarter of 2014, compared to the first quarter of 2013, Malvern sales grew 49%; BioSphere sales increased 28%; stand-alone device sales rose 18%; catheter sales grew 16%; inflation device sales were up 10%; Endotek sales increased 3%; and custom kit and tray sales rose 3%. Excluding sales to an OEM customer, inflation device sales increased 7%.
Non-GAAP gross margin was 46.0% of sales for the quarter ended March 31, 2014, compared to 44.4% of sales for the quarter ended March 31, 2013. GAAP gross margin for the first quarter of 2014 was 43.6% of sales, compared to 41.4% of sales for the first quarter of 2013. The increase in gross margin was primarily related to lower average fixed overhead unit costs which reflect higher production volumes for the first quarter of 2014, compared to the first quarter of 2013.
Non-GAAP income from operations for the quarter ended March 31, 2014 was $10.3 million, or 8.7% of sales, up 40% compared to $7.4 million, or 7.1% of sales, for the quarter ended March 31, 2013. GAAP income from operations for the quarter ended March 31, 2014 was $6.5 million, or 5.4% of sales, compared to $1.8 million, or 1.7% of sales, for the first quarter of 2013. The increase in income from operations was primarily attributable to higher sales and gross margins.
"Business has improved substantially in the first quarter of 2014, compared to the first quarter of 2013," said Fred P. Lampropoulos, Merit's Chairman and Chief Executive Officer. "Our efforts to replace lost OEM sales in our Malvern division with direct sales have been very successful. With new products in the pipeline for cardiac rhythm management (CRM) and electrophysiology (EP) and further training of our sales force, we continue to be optimistic about the future of this division. Our embolic sales improvement was driven by our Japanese and Chinese sales efforts, and we expect this trend to continue."
"We are scheduled to initiate Merit's Think Radial™ program at the EuroPCR meeting in Paris next month with the introduction of the PreludeEase™ Hydrophilic Sheath," Lampropoulos continued. "The PreludeEase is now under review by the FDA, but it is already CE-marked, and sales will commence in Europe immediately. This new product, along with Merit's existing and recently acquired radial products, combined with the Think Radial program, which provides training and discussion of radial procedures by practicing interventionalists (radialists) to other physicians, will support the substantial growth we expect going forward."
"In manufacturing operations, we are scheduled to complete our move from Angleton, Texas, to our new Pearland, Texas facility by the end of the third quarter of 2014," Lampropoulos said. "Our automation and consolidation efforts in South Jordan continue with several logistics and manufacturing projects scheduled to come online over the next few months."
"After a year of planning and initiation of our new sales force split, we are extremely pleased with the focus and improved competence of our sales force," Lampropoulos added. "We believe this will help to focus on specific opportunities while helping to enhance sales of products that have not had the necessary attention in the past. All of this was accomplished and executed with no personnel loss and with increased enthusiasm of our sales force."
GAAP selling, general and administrative expense for the first quarter of 2014 was 30.9% of sales, essentially unchanged compared to 30.9% of sales for the first quarter of 2013. Non-GAAP SG&A expense for the first quarter of 2014 was 30.0% of sales, compared to 28.9% of sales for the first quarter of 2013. The increase in non-GAAP SG&A expense was primarily related to headcount additions to support Merit's domestic sales force split, international sales expansion, and costs associated with Merit's new facility in Pearland, Texas, which are currently being expensed to SG&A during a transition period of approximately nine months as Merit transitions the movement and qualification of production equipment from its Angleton facility to the new Pearland facility.
GAAP research and development expense was 7.4% of sales for the first quarter of 2014, compared to 8.8% of sales for the first quarter of 2013. The reduction in R&D expense was primarily due to the absence of severance expense recorded in the first quarter of 2014, compared to approximately $415,000 recorded in the first quarter of 2013.
GAAP other expense, which consists primarily of interest expense, for the quarter ended March 31, 2014, was approximately $2.6 million, compared to $1.5 million for the quarter ended March 31, 2013. The increase in interest expense was primarily due to higher debt balances and interest rates during the first quarter of 2014.
Merit's effective tax rate for the quarter ended March 31, 2014 was 27.4%, compared to negative (217.2%), for the comparable period of 2013. Excluding the reinstatement of the 2012 research and development tax credit of approximately $500,000, Merit's effective tax rate would have been 19.2% for the first quarter of 2013. The increase in the effective tax rate was primarily the result of a higher mix of projected earnings for Merit's U.S. operations which are taxed at a higher rate than Merit's operations in foreign jurisdictions (primarily Ireland).
CONFERENCE CALL
Merit Medical invites all interested parties to participate in its conference call today, April 24, 2014, 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 to call is (877) 941-6009, and the international number is (480) 629-9819. A live webcast, as well as a rebroadcast of the conference call, can be accessed at www.merit.com.
| BALANCE SHEET | ||
| (Unaudited in thousands) | ||
| March 31, | December 31, | |
| 2014 | 2013 | |
| ASSETS | ||
| Current Assets | ||
| Cash and cash equivalents | $ 12,591 | $ 7,459 |
| Trade receivables, net | 64,326 | 60,186 |
| Employee receivables | 190 | 224 |
| Other receivables | 2,834 | 3,279 |
| Inventories | 84,730 | 82,378 |
| Prepaid expenses | 5,767 | 5,121 |
| Prepaid income taxes | 1,232 | 1,232 |
| Deferred income tax assets | 5,617 | 5,638 |
| Income tax refunds receivable | 211 | 398 |
| Total Current Assets | 177,498 | 165,915 |
| Property and equipment, net | 247,985 | 243,270 |
| Other intangibles, net | 116,694 | 119,987 |
| Goodwill | 184,505 | 184,505 |
| Deferred income tax assets | 800 | 800 |
| Other assets | 14,328 | 13,806 |
| Total Assets | $ 741,810 | $ 728,283 |
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||
| Current Liabilities | ||
| Trade payables | 27,236 | 26,511 |
| Accrued expenses | 30,497 | 27,702 |
| Current portion of long-term debt | 10,000 | 10,000 |
| Advances from employees | 803 | 292 |
| Income taxes payable | 912 | 1,089 |
| Total Current Liabilities | 69,448 | 65,594 |
| Deferred income tax liabilities | 2,548 | 2,548 |
| Liabilities related to unrecognized tax benefits | 2,031 | 2,031 |
| Deferred compensation payable | 8,116 | 7,833 |
| Deferred credits | 3,019 | 3,065 |
| Long-term debt | 244,441 | 238,854 |
| Other long-term obligations | 2,578 | 2,652 |
| Total Liabilities | 332,181 | 322,577 |
| Stockholders' Equity | ||
| Common stock | 178,866 | 177,775 |
| Retained earnings | 229,811 | 226,988 |
| Accumulated other comprehensive income | 952 | 943 |
| Total stockholders' equity | 409,629 | 405,706 |
| Total Liabilities and Stockholders' Equity | $ 741,810 | $ 728,283 |
| INCOME STATEMENT | ||
| (Unaudited, in thousands except per share amounts) | ||
| Three Months Ended | ||
| March 31, | ||
| 2014 | 2013 | |
| SALES | $ 119,236 | $ 103,948 |
| COST OF SALES | 67,193 | 60,955 |
| GROSS PROFIT | 52,043 | 42,993 |
| OPERATING EXPENSES | ||
| Selling, general and administrative | 36,774 | 32,128 |
| Research and development | 8,780 | 9,108 |
| Total | 45,554 | 41,236 |
| INCOME FROM OPERATIONS | 6,489 | 1,757 |
| OTHER INCOME (EXPENSE) | ||
| Interest income | 67 | 57 |
| Interest (expense) | (2,606) | (1,539) |
| Other (expense) | (64) | (63) |
| Total other (expense) - net | (2,603) | (1,545) |
| INCOME BEFORE INCOME TAXES | 3,886 | 212 |
| INCOME TAX EXPENSE (BENEFIT) | 1,063 | (459) |
| NET INCOME | $ 2,823 | $ 671 |
| EARNINGS PER COMMON SHARE- | ||
| Basic | $ 0.07 | $ 0.02 |
| Diluted | $ 0.07 | $ 0.02 |
| AVERAGE COMMON SHARES- | ||
| Basic | 42,865 | 42,520 |
| Diluted | 43,234 | 42,835 |
Although Merit's financial statements are prepared in accordance with accounting principles which are generally accepted in the United States of America ("GAAP"), Merit's management believes that certain non-GAAP financial measures 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. The following table sets forth supplemental financial data and corresponding reconciliations to GAAP financial statements for the three-month periods ended March 31, 2014 and 2013. Readers should consider these non-GAAP measures in addition to, not as a substitute for, financial reporting measures prepared in accordance with GAAP. These non-GAAP financial measures exclude some, but not all, items that affect Merit's net income. Additionally, these calculations may not be comparable with similarly titled measures of other companies.
| Three Months Ended | ||
| March 31, | ||
| 2014 | 2013 | |
| Non-GAAP ADJUSTMENTS | ||
| GAAP net income | $ 2,823 | $ 671 |
| Acquisition costs | 30 | 467 |
| Severance | 82 | 1,080 |
| Mark-up on finished goods (a) | -- | 580 |
| Amortization of long-term debt issuance costs | 247 | 199 |
| Long-term asset impairment charges | 34 | -- |
| Amortization of intangible assets: | ||
| Cost of sales | 2,737 | 2,363 |
| SG&A expenses | 957 | 1,118 |
| Contingent consideration expense (b) | 11 | 16 |
| Income tax effect of reconciling items (c) | (1,557) | (2,213) |
| Non-GAAP net income | $ 5,364 | $ 4,281 |
| Non-GAAP net income per share | $ 0.12 | $ 0.10 |
| Diluted shares used to compute Non-GAAP net income per share | 43,234 | 42,835 |
Merit's non-GAAP income, after giving effect to the adjustments referenced in the preceding table, does not reflect stock-based compensation expense of approximately $339,000 and $459,000 for the three months ended March 31, 2014 and 2013, respectively.
(a) Increase in cost of goods sold related to the mark-up of finished goods associated with Merit's acquisition of Thomas Medical Products, Inc.
(b) Represents changes in the fair value of contingent consideration liabilities related to recent acquisitions.
(c) Reflects an estimated annual effective tax rate of 38% on a non-GAAP basis.
ABOUT MERIT
Founded in 1987, Merit Medical Systems, Inc. is engaged in the development, manufacture and distribution of proprietary disposable medical devices used in interventional and diagnostic procedures, particularly in cardiology, radiology and endoscopy. Merit serves client hospitals worldwide with a domestic and international sales force totaling approximately 200 individuals. Merit employs approximately 3,000 people worldwide with facilities in South Jordan, Utah; Angleton and Pearland, Texas; Richmond, Virginia; Malvern, Pennsylvania; Maastricht and Venlo, The Netherlands; Paris, France; Galway, Ireland; Beijing, China; and Rockland, Massachusetts.
Statements contained in this release which are not purely historical, including, without limitation, statements regarding Merit's forecasted revenues, net income, financial results or anticipated acquisitions, 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, 2013. Such risks and uncertainties include risks relating to Merit's potential inability to successfully manage growth through acquisitions, including the inability to commercialize technology acquired through completed, proposed or future transactions; product recalls and product liability claims; 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; greater governmental scrutiny and regulation of the medical device industry; reforms to the 510(k) process administered by the U.S. Food and Drug Administration; compliance with governmental regulations and administrative procedures; potential restrictions on Merit's liquidity or its ability to operate its business by its current debt agreements; possible infringement of Merit's technology or the assertion that Merit's technology infringes the rights of other parties; 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 and regulations; laws targeting fraud and abuse in the healthcare industry; potential for significant adverse changes in, or failure to comply with, governing regulations; the effect of 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 and other countries; termination or interruption of relationships with Merit's suppliers, or failure of such suppliers to perform; fluctuations in Euro and GBP exchange rates; Merit's need to generate sufficient cash flow to fund its debt obligations, capital expenditures, and ongoing operations; concentration 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 health care markets related to health care reform initiatives; failure to comply with applicable environmental laws; changes in key personnel; work stoppage or transportation risks; uncertainties associated with potential healthcare policy changes which may have a material adverse effect on Merit; introduction of products in a timely fashion; price and product competition; availability of labor and materials; cost increases; 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, 2013 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 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.