Arrhythmia Research Technology, Inc. Reports 2015 Second Quarter Results

• Achieved second quarter net sales of $5.7 million and diluted earnings per share of $0.04
• $370 thousand increase in net income from continuing operations compared with the trailing first quarter of 2015
• Second quarter gross margin improved over the 2014 period and trailing first quarter of 2015

FITCHBURG, Mass., Aug. 13, 2015 (GLOBE NEWSWIRE) -- Arrhythmia Research Technology, Inc. (NYSE MKT:HRT) (the "Company"), through its wholly-owned subsidiary, Micron Products, Inc., a diversified contract manufacturing organization that produces highly-engineered, innovative medical device technologies requiring precision machining and injection molding, announced today results for its second quarter ended June 30, 2015.

Salvatore Emma, Jr., President and CEO, commented, "Improvements in production efficiency in the second quarter enabled us to overcome an approximately $200 thousand decrease in sales and post a $370 thousand profit from continuing operations over the trailing first quarter. Our second quarter also demonstrated the success of our efforts to grow our contract manufacturing business while expanding our gross margin. Looking forward, we will continue to build our capabilities and capacity to best serve our customers' increasing demands. Our investments in automation and skilled people will make us more efficient and improve our ability to scale over the long run."

Second Quarter 2015 Review

Net sales for the second quarter of 2015 were $5.7 million compared with $5.9 million in the trailing first quarter and $6.3 million in the 2014 second quarter. Net sales of custom thermoplastic injection molding and orthopedic implant components were up 53.3% year-over-year due primarily to increased orders for automotive and military and law enforcement products. Those increases helped to partially offset a 39.9% decline in sensor net sales due to a combination of lower volume and a decrease in the average price of silver versus the same prior-period. 

Despite lower sales, the Company was able to expand its gross margin over the prior-year period and 4.6 points over the trailing first quarter of 2015. This was due to lower material costs which helped to offset the impact of product mix and lower sales volume.   Additionally, increased expenditures of $137 thousand in our manufacturing quality function resulted in reduced gross profit when compared with the prior-year period.   

Selling and marketing expenses were $263 thousand, or 4.6% of net sales, in the second quarter of 2015 compared with $258 thousand, or 4.4% of net sales, in the trailing first quarter and $240 thousand, or 3.8% of net sales, in the second quarter of 2014.  Higher selling and marketing expenses were primarily related to the Company's increased involvement in trade shows for orthopedic implants.   

General and administrative expenses in the 2015 second quarter were $526 thousand, or 9.3% of net sales, compared with $648 thousand, or 11.1% of net sales, in the trailing first quarter and $543 thousand, or 8.7% of net sales, in the prior-year quarter.  Lower personnel expenses and variable compensation of $35 thousand in bonus accruals more than offset higher legal, insurance and governance costs.

Research and development expenses for the second quarter of 2015 were $62 thousand, down
$24 thousand from the prior-year period primarily as a result of the timing of investments in new product development.

Second quarter net income from continuing operations was $115 thousand, up from a net loss from continuing operations of $255 thousand in the trailing first quarter of 2015. The prior-year second quarter had net income from continuing operations of $240 thousand. 

EBITDA⁽¹⁾ (income from continuing operations adjusted for income taxes, other income and expense, interest, depreciation and amortization, and share-based compensation expense) for the second quarter of 2015 was $568 thousand, or 10.0% of net sales, compared with $160 thousand, or 2.7% of net sales, for the trailing first quarter and $645 thousand, or 10.3% of net sales, for the same period of the prior year. ⁽¹⁾See attached table for additional important disclosures regarding the Company's use of EBITDA, as well as a reconciliation of net income (loss) from continuing operations to EBITDA.

First Half 2015 Review

Net sales for the first six months of 2015 were $11.5 million, a decrease of $766 thousand, or 6.2%, compared with the first half of 2014. Lower sales reflected the decline in sensor volume and a decrease in orthopedic implant components primarily due to production delays encountered in the first quarter. Additionally, the 2014 period benefitted from $250 thousand of Predictor license sales.

Higher sales of custom thermoplastic injection molding to meet increased order volume of automotive and military and law enforcement components helped to offset the decline.

The decrease in gross margin in the 2015 first half was due primarily to an 860 basis point decrease in gross margin related to orthopedic implant components as a result of changes in product mix and production delays in the 2015 first quarter. Also impacting gross profit were increased expenditures in the manufacturing quality function and the absence of sales in 2015 of the Company's Predictor licenses.

Selling and marketing expenses of $521 thousand, or 4.5% of net sales, were relatively consistent with the first half of 2014. General and administrative expenses in the 2015 first half were $1.2 million, or 10.2% of net sales, a $36 thousand, or 3.2%, increase from $1.1 million, or 9.3% of net sales, in the prior-year period.  The increase was due to higher expenses related to consulting and professional services, insurance expense and employee and director's compensation, which were partially offset by lower bonus accruals and bank fees.

Research and development expenses for the 2015 first half were $155 thousand, or 1.3% of net sales, compared with $183 thousand, or 1.5% of net sales, in the prior-year period. The decrease was due to reduction in employee expenses which was partially offset by an increase in costs for new product development for medical device components.

Consolidated net income was $223 thousand, or $0.08 per diluted share, in the first half of 2015 compared with $497 thousand, or $0.18 per diluted share, in the same period in 2014.

EBITDA⁽¹⁾ (income from continuing operations adjusted for income taxes, other income and expense, interest, depreciation and amortization, and share-based compensation expense) in the first half of 2015 was $729 thousand, or 6.3% of net sales, compared with $1.4 million, or 11.2% of net sales, for the same period of the prior year. ⁽¹⁾See attached table for additional important disclosures regarding the Company's use of EBITDA, as well as a reconciliation of net income (loss) from continuing operations to EBITDA.

Cash flow and financial resources

At June 30, 2015, the Company had cash on hand of $285 thousand and working capital of   $4.0 million. For the six month ended June 30, 2015, the Company generated net cash from operating activities of continuing operations of $322 thousand and used net cash of $784 thousand for capital expenditures.

Strategy and outlook

Mr. Emma concluded, "We are very excited about the opportunities we are pursuing with our customers and the traction we are gaining in our targeted verticals, specifically in orthopedic implant components, automotive, and military and law enforcement.  We believe we have structured our contract manufacturing business to be more efficient and are creating opportunities to become a leading supplier of a diversified mix of high quality products."

About Arrhythmia Research Technology, Inc.

Arrhythmia Research Technology, Inc., through its wholly-owned subsidiary, Micron Products, Inc., is a diversified contract manufacturing organization that produces highly-engineered, innovative medical device technologies requiring precision machining and injection molding. The Company also manufactures components, devices and equipment for military, law enforcement, industrial and automotive applications. In addition, the Company is a market leader in the production and sale of silver/silver chloride coated and conductive resin sensors used as consumable component parts in the manufacture of integrated disposable electrophysiological sensors. The Company's strategy for growth is to build a best-in-class quality organization and capitalize on its engineering design expertise and reliable, proprietary manufacturing processes to further penetrate the medical device contract manufacturing market.

The Company routinely posts news and other important information on its websites:

http://www.arthrt.com, http://www.micronproducts.com and http://www.micronmedical.com.

Safe Harbor Statement

Forward-looking statements made herein are based on current expectations of Arrhythmia Research Technology, Inc. ("our" or the "Company") that involve a number of risks and uncertainties and should not be considered as guarantees of future performance. The factors that could cause actual results to differ materially include our ability to retain order volumes from customers who represent significant proportions of net sales; our ability to maintain our pricing model, offset higher costs with price increases and/or decrease our cost of sales; variability of customer delivery requirements; the level of sales of higher margin products and services; our ability to renew our credit facility and manage our level of debt and provisions in the debt agreements which could make the Company sensitive to the effects of economic downturns and limit our ability to react to changes in the economy or our industry; failure to comply with financial and other covenants in our credit facility; volatility in commodity and energy prices and our ability to offset higher costs with price increases; continued availability of supplies or materials used in manufacturing at competitive prices; variability of customer delivery requirements; variations in the mix of products sold; and the amount and timing of investments in capital equipment, sales and marketing, engineering and information technology resources. More information about factors that potentially could affect the Company's financial results is included in the Company's Annual Report on Form 10-K and other filings with the Securities and Exchange Commission.

FINANCIAL TABLES FOLLOW.