Merit Medical Reports Results for Fourth Quarter and Year Ended December 31, 2016

Merit Gives 2017 Guidance

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| Source: Merit Medical Systems, Inc.
  • Q4 worldwide revenue of $157.7 million ($159.0 million on a comparable, constant currency* basis), up 14.0% as reported (up 14.9% on a comparable, constant currency* basis) over Q4 2015
  • FY16 worldwide revenue of $603.8 million ($608.8 million on a comparable, constant currency* basis), up 11.4% as reported (up 12.3% on a comparable, constant currency* basis)
  • Q4 core revenue* up 7.9% over Q4 2015; FY16 core revenue* up 7.6% over FY15
  • Q4 GAAP EPS was $0.17; Q4 non-GAAP EPS* was $0.31
  • FY16 GAAP EPS was $0.45; FY16 non-GAAP EPS* was $1.01
  • Q4 2016 GAAP gross margin was 44.5%, compared to 43.6% in Q4 2015; Q4 2016 non-GAAP gross margin* was 48.4%, compared to 45.6% for Q4 2015

* Constant currency revenue, core revenue, non-GAAP EPS, non-GAAP gross margin and non-GAAP net income (referenced on the following page) are non-GAAP financial measures. A reconciliation of these and other non-GAAP financial measures used in this release to their most directly comparable GAAP financial measure is included under the heading “Non-GAAP Financial Measures” below.

SOUTH JORDAN, Utah, Feb. 21, 2017 (GLOBE NEWSWIRE) -- 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 and endoscopy, today announced sales of $157.7 million for the quarter ended December 31, 2016, an increase of 14.0% over sales of $138.4 million for the quarter ended December 31, 2015.  On a constant currency basis, sales for the fourth quarter of 2016 would have been up 14.9% over sales for the comparable quarter of 2015. For the year ended December 31, 2016, Merit’s sales were $603.8 million, an increase of 11.4% over sales of $542.1 million, for the year ended December 31, 2015.  On a constant currency basis, sales for the year ended December 31, 2016 would have been up 12.3% over sales for 2015.

Merit’s GAAP net income for the fourth quarter of 2016 was $7.5 million, or $0.17 per share, compared to $6.4 million, or $0.14 per share, for the fourth quarter of 2015, up primarily due to decreases in SG&A and R&D expenses as a percentage of sales, partially offset by increased interest expense due to higher debt balances, primarily as a result of Merit’s acquisition of DFINE, Inc. in July 2016. Merit’s non-GAAP net income* for the quarter ended December 31, 2016 was $13.8 million, or $0.31 per share, up 28.2% compared to $10.8 million, or $0.24 per share, for the quarter ended December 31, 2015. 

Merit’s GAAP net income for the year ended December 31, 2016 was $20.1 million, or $0.45 per share, compared to $23.8 million, or $0.53 per share, for the year ended December 31, 2015, down primarily as a result of restructuring costs related to the acquisition of DFINE, Inc. in July 2016.  Merit’s non-GAAP net income* for the year ended December 31, 2016 was $45.1 million, or $1.01 per share, up 17.1% compared to $38.5 million, or $0.87 per share, for 2015. 

Merit’s sales by category for the three and twelve months ended December 31, 2016, compared to the corresponding periods in 2015, were as follows:

        
   Three Months Ended   Twelve Months Ended
   December 31,   December 31,
 % Change  2016  2015 % Change  2016  2015
Cardiovascular           
Stand-alone devices28.8% $51,902 $40,289 24.5% $193,517 $155,414
Custom kits and procedure trays5.5%  30,219  28,631 2.6%  119,392  116,368
Inflation devices5.8%  19,145  18,088 0.7%  73,919  73,373
Catheters16.3%  28,659  24,650 14.6%  110,939  96,833
Embolization devices3.4%  12,098  11,702 2.2%  46,035  45,025
CRM/EP5.6%  9,558  9,048 7.5%  36,446  33,902
Total14.5%  151,581  132,408 11.4%  580,248  520,915
            
Endoscopy           
Endoscopy devices2.3%  6,134  5,996 11.1%  23,590  21,234
            
Total14.0% $157,715 $138,404 11.4% $603,838 $542,149
            

“We are pleased to complete year two of our three-year plan,” said Fred P. Lampropoulos, Merit’s Chairman and Chief Executive Officer.  “With the introduction of a number of new products in the beginning of 2017, we look forward to continued growth accompanied by continued expansion of gross margins and profits.”

“We believe the recently announced acquisitions of an Argon Medical Devices business unit and Catheter Connections serve both tactical and strategic objectives,” Lampropoulos said.  “We believe the Argon transaction will enable us to participate in tenders which previously were not available due to vacancies in our product line, especially reusable transducers.  Additionally, we recently came to a preliminary agreement with our longstanding Japanese distributor to transfer licenses and customers to us.  Almost 50% of the Argon business we acquired is sold in Japan and other parts of Asia.  We intend to combine the acquired Argon business and the Merit-branded products into one business.  When completed, we believe the new combined business unit will substantially improve our growth prospects in Japan.”

“We believe the Catheter Connections products complement the Argon products and provide a substantial value proposition to both domestic hospitals as well as international opportunities,” Lampropoulos continued.  “We expect that this product line, which has had substantial distribution gaps globally, will enhance company growth and profits as we integrate the injection molding and a portion of manufacturing.  We have already initiated new product development in both of the acquired businesses.”

2017 GUIDANCE
Based upon information currently available to Merit's management, Merit estimates that for the year ending December 31, 2017, absent material acquisitions or non-recurring transactions, Merit's revenues will be in the range of $713-$723 million, an increase of approximately 18-20%, compared to revenues of $603.8 million for the year ended December 31, 2016.  Also, based on information currently available to Merit's management, Merit estimates that, absent material acquisitions or non-recurring transactions, Merit's GAAP earnings per share for 2017 will be in the range of $0.54-$0.60 and non-GAAP* earnings per share will be in the range of $1.15-$1.20. Merit’s financial guidance for the year ending December 31, 2017 is subject to risks and uncertainties, including, but not limited to, potential accounting adjustments attributable to Merit’s ongoing valuation of intangibles and other financial assets acquired from Argon Medical Devices, Inc. and Catheter Connections, Inc., as well as risks and uncertainties identified in Merit’s public filings.

CONFERENCE CALL
Merit will hold its investor conference call (conference ID 62632957) today, Tuesday, February 21, 2017, 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 will also be available for the conference call at merit.com.

    
BALANCE SHEET   
(In thousands)   
 December 31, December 31,
  2016   2015 
 (Unaudited)  
ASSETS   
Current Assets   
  Cash and cash equivalents$    19,171   $    4,177  
  Trade receivables, net   80,521      70,292  
  Employee receivables   198      217  
  Other receivables   5,445      6,799  
  Inventories   120,695      105,999  
  Prepaid expenses and other assets   6,226      5,634  
  Prepaid income taxes   2,525      2,955  
  Deferred income tax assets   8,219      7,025  
  Income tax refunds receivable   423      905  
    Total Current Assets   243,423      204,003  
    
 Property and equipment, net   276,573      267,778  
 Intangibles, net   181,697      109,354  
 Goodwill   211,927      184,472  
 Deferred income tax assets   171    
 Other assets   29,012      13,121  
Total Assets$    942,803   $    778,728  
    
LIABILITIES AND STOCKHOLDERS' EQUITY   
Current Liabilities   
  Trade payables   30,619      37,977  
  Accrued expenses   44,947      37,846  
  Current portion of long-term debt   10,000      10,000  
  Advances from employees   572      589  
  Income taxes payable   2,193      1,498  
    Total Current Liabilities   88,331      87,910  
    
Deferred income tax liabilities   25,981      10,985  
Liabilities related to unrecognized tax benefits   438      768  
Deferred compensation payable   9,211      8,500  
Deferred credits   2,550      2,721  
Long-term debt   314,373      197,593  
Other long-term obligations   3,730      4,148  
   Total Liabilities   444,614      312,625  
    
Stockholders' Equity   
  Common stock   206,186      197,826  
  Retained earnings   293,885      273,764  
  Accumulated other comprehensive loss    (1,882)    (5,487)
  Total stockholders' equity   498,189      466,103  
Total Liabilities and Stockholders' Equity$    942,803   $    778,728  
    


INCOME STATEMENT        
(Unaudited, in thousands except per share amounts)       
 Three Months Ended Year Ended
 December 31,
 December 31,
  2016   2015   2016   2015 
        
SALES$    157,715   $    138,404   $    603,838   $    542,149  
        
COST OF SALES   87,460      78,097      338,813      306,368  
        
GROSS PROFIT   70,255      60,307      265,025      235,781  
        
OPERATING EXPENSES       
  Selling, general and administrative   45,839      40,941      184,398      156,348  
  Research and development   11,792      11,421      45,229      40,810  
  Contingent consideration expense (benefit)   (38)    (105)    61      80  
  Acquired in-process research and development   61    -     461      1,000  
    Total   57,654      52,257      230,149      198,238  
        
INCOME FROM OPERATIONS   12,601      8,050      34,876      37,543  
        
OTHER INCOME (EXPENSE)       
  Interest income   26      62      81      272  
  Interest (expense)   (2,678)    (1,453)    (8,798)    (6,229)
  Other income (expense)   (327)    (105)    (773)    (386)
    Total other (expense) - net   (2,979)    (1,496)    (9,490)    (6,343)
        
INCOME BEFORE INCOME TAXES   9,622      6,554      25,386      31,200  
        
INCOME TAX EXPENSE   2,116      145      5,265      7,398  
        
NET INCOME$    7,506   $    6,409   $    20,121   $    23,802  
        
EARNINGS PER COMMON SHARE-       
  Basic$    0.17   $    0.14   $    0.45   $    0.54  
        
  Diluted$    0.17   $    0.14   $    0.45   $    0.53  
        
AVERAGE COMMON SHARES-       
  Basic   44,601      44,216      44,408      44,036  
        
  Diluted   45,165      44,642      44,862      44,511  
        

NON-GAAP FINANCIAL MEASURES

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 referred to 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;
  • non-GAAP net income;
  • non-GAAP earnings per share; and
  • non-GAAP gross margin.

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 each segment, 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 such 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 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 expenses in the calculation of non-GAAP net income, non-GAAP gross margin and non-GAAP earnings per share (in each case, as further illustrated in the reconciliation table 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 new acquisitions, non-cash expense related to amortization of previously acquired tangible and intangible assets, unusual compensation expenses or expense resulting from litigation or governmental proceedings.  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 Reconciliation
Merit’s revenue on a constant currency basis is prepared by translating the current-period reported sales 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 $1.3 million and $4.9 million for the three and twelve-month periods ended December 31, 2016, respectively, were calculated using the applicable average foreign exchange rates for the three and twelve-month periods ended December 31, 2015.

Core Revenue
Merit’s core revenue is defined as reported revenue excluding revenues from the acquisitions of the HeRO® Graft and DFINE, Inc. in 2016.

Other Non-GAAP Financial Measure Reconciliation
The following table sets 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 twelve-month periods ended December 31, 2016 and 2015.  Non-GAAP gross margin is calculated by reducing GAAP cost of sales by amounts recorded for amortization of intangible assets, inventory mark-up and severance expense related to acquisitions.  The non-GAAP income adjustments referenced in the following table do not reflect stock-based compensation expense of approximately $593,000 and $600,000 for the three-month periods ended December 31, 2016 and 2015, respectively, and approximately $2.5 million and $2.2 million for the twelve-month periods ended December 31, 2016 and 2015, respectively.

     
CONSOLIDATED STATEMENTS OF OPERATIONS - NON-GAAP    
FOR THE THREE AND TWELVE MONTHS ENDED December 31, 2016 AND 2015 (Unaudited)   
In thousands, except per share data    
 Three Months Ended
 December 31, 2016
 Pre-TaxTax Impact (a)After-TaxPer Share Impact
GAAP net income $  9,622 $  (2,116)$  7,506 $  0.17 
     
Non-GAAP adjustments:    
  Cost of Sales    
  Amortization of intangibles   4,434    (1,653)   2,781    0.06 
  Inventory mark-up related to acquisition   1,581    (615)   966    0.02 
  Selling, General & Administrative      -  
  Severance   848    (330)   518    0.01 
  Acquisition-related (c)   1,673    (624)   1,049    0.02 
  Fair value adjustment to contingent consideration (d)   (38)   15    (23)   (0.00)
  Long-term asset impairment charge (b)   13    (5)   8    0.00 
  Acquired in-process research & development   61    (24)   37    0.00 
  Amortization of intangibles   1,298    (499)   799    0.02 
  Special legal expense (f)   96    (37)   59    0.00 
  Other Income      -  
  Amortization of long-term debt issuance costs   172    (67)   105    0.00 
     
Adjusted net income$  19,760 $  (5,955)$  13,805 $  0.31 
     
Diluted shares    45,165 
     
 Three Months Ended
 December 31, 2015
 Pre-TaxTax Impact (a)After-TaxPer Share Impact
GAAP net income $  6,554 $  (145)$  6,409 $  0.14 
     
Non-GAAP adjustments:    
  Cost of Sales    
  Amortization of intangibles   2,857    (1,041)   1,816    0.04 
  Selling, General & Administrative    
  Severance   1,217    (473)   744    0.02 
  Acquisition-related (c)   1,841    (716)   1,125    0.03 
  Fair value adjustment to contingent consideration (d)   (105)   41    (64)   (0.00)
  Long-term asset impairment charge (b)   42    (16)   26    0.00 
  Acquired in-process research & development   -    -    -    -  
  Amortization of intangibles   910    (347)   563    0.01 
  Other Income    
  Amortization of long-term debt issuance costs   246    (96)   150    0.00 
     
Adjusted net income$  13,562 $  (2,794)$  10,768 $  0.24 
     
Diluted shares      44,642 
     
(continued) 

 

In thousands, except per share data    
 Year Ended
 December 31, 2016
 Pre-TaxTax Impact (a)After-TaxPer Share Impact
GAAP net income $  25,386$  (5,265)$  20,121$  0.45
     
Non-GAAP adjustments:    
  Cost of Sales    
  Amortization of intangibles   15,122   (5,592)   9,530   0.21
  Inventory mark-up related to acquisition   2,990   (1,163)   1,827   0.04
  Severance   56   (22)   34   0.00
  Selling, General & Administrative    
  Severance   10,271   (3,878)   6,393   0.14
  Acquisition-related (c)   5,423   (1,805)   3,618   0.08
  Fair value adjustment to contingent consideration (d)   61   (24)   37   0.00
  Long-term asset impairment charge (b)   100   (38)   62   0.00
  Acquired in-process research & development   461   (179)   282   0.01
  Amortization of intangibles   4,167   (1,595)   2,572   0.06
  Special legal expense (f)   96   (38)   58   0.00
  Other Income    
  Amortization of long-term debt issuance costs   952   (370)   582   0.01
     
Adjusted net income$  65,085$  (19,969)$  45,116$  1.01
     
Diluted shares    44,862
     
 Year Ended
 December 31, 2015
 Pre-TaxTax Impact (a)After-TaxPer Share Impact
GAAP net income $  31,200$  (7,398)$  23,802$  0.53
     
Non-GAAP adjustments:    
  Cost of Sales    
  Amortization of intangibles   11,255   (3,779)   7,476   0.17
  Selling, General & Administrative    
  Severance   2,934   (1,141)   1,793   0.04
  Acquisition-related (c)   2,305   (897)   1,408   0.03
  Fair value adjustment to contingent consideration (d)   80   (31)   49   0.00
  Long-term asset impairment charge (b)   141   (55)   86   0.00
  Acquired in-process research & development   1,000   (389)   611   0.01
  Amortization of intangibles   3,563   (1,359)   2,204   0.05
  Termination fee (e)   800   (311)   489   0.01
  Other Income    
  Amortization of long-term debt issuance costs   987   (384)   603   0.01
     
Adjusted net income$  54,265$  (15,744)$  38,521$  0.87
     
Diluted shares    44,511
 
(concluded) 

(a) Reflects the tax effect of the non-GAAP adjustments
(b) Represents abandoned patents
(c) Represents costs related to acquisitions
(d) Represents changes in the fair value of contingent consideration liabilities and contingent receivables as a result of acquisitions
(e) Costs associated with the termination of our agreement with a third-party contract manufacturer in Tijuana, Mexico
(f) Costs incurred in responding to an inquiry from the U.S. Department of Justice

     
Reconciliation of Reported Revenue to Core Revenue (Non-GAAP)    
For the three and twelve months ended December 31, 2016 
(Unaudited, in thousands) 
 
 Three months ended  Twelve months ended
 December 31,  December 31,
 % Change 2016 2015 % Change 2016 2015
Reported Revenue $  157,715$  138,404  $  603,838$  542,149
        
LESS Sales from:       
HeRO® Graft/DFINE, Inc.*    8,355   -      20,579   - 
       
Core Revenue7.9%$   149,360 $   138,404  7.6%$   583,259 $   542,149
 
* Represents the combined sales from the acquisitions of the HeRO® Graft in February 2016 and DFINE, Inc. in July 2016

ABOUT MERIT

Founded in 1987, Merit Medical Systems, Inc. is engaged in the development, manufacture and distribution of proprietary disposable medical devices used in interventional, diagnostic and therapeutic procedures, particularly in cardiology, radiology and endoscopy. Merit serves client hospitals worldwide with a domestic and international sales force totaling approximately 200 individuals.  Merit employs approximately 4,500 people worldwide with facilities in South Jordan, Utah; Pearland, Texas; Richmond, Virginia; Malvern, Pennsylvania; Rockland, Massachusetts; San Jose, California; Maastricht and Venlo, The Netherlands; Paris, France; Galway, Ireland; Beijing, China; Tijuana, Mexico; Joinville, Brazil; Markham, Ontario, Canada; Melbourne, Australia; Tokyo, Japan; and Singapore.

FORWARD-LOOKING STATEMENTS
Statements contained in this release which are not purely historical, including, without limitation, statements regarding Merit's forecasted plans, revenues, net income, financial results or anticipated or completed 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, 2015 and Quarterly Reports on Form 10-Q filed during 2016.  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; governmental scrutiny and regulation of the medical device industry, including governmental inquiries, investigations and proceedings involving Merit; reforms to the 510(k) process administered by the U.S. Food and Drug Administration; restrictions on Merit's liquidity or business operations resulting from its current debt agreements; 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 or regulations; laws and regulations targeting fraud and abuse in the healthcare industry; potential for significant adverse changes in governing regulations; 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;  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, 2015 and other materials filed with the Securities and Exchange Commission. All subsequent forward-looking statements attributable to Merit or persons acting on its behalf are expressly qualified in their entirety by these cautionary statements. Actual results will likely differ, and may differ materially, from anticipated results. Financial estimates are subject to change and are not intended to be relied upon as predictions of future operating results, and Merit assumes no obligation to update or disclose revisions to those estimates.

TRADEMARKS
Unless noted otherwise, trademarks and registered trademarks used in this release are the property of Merit Medical Services, Inc., in the United States and other jurisdictions.

Contact: Anne-Marie Wright, Vice President, Corporate Communications
Phone: (801) 208-4167  e-mail: awright@merit.com  Fax: (801) 253-1688