- Q3 2021 reported revenue of $267.0 million, up 9.4% compared to Q3 2020
- Q3 2021 constant currency revenue, organic* up 8.8% compared to Q3 2020
- Q3 2021 GAAP EPS of $0.21, compared to GAAP loss per share of ($0.05) in Q3 2020
- Q3 2021 non-GAAP EPS* of $0.52, compared to $0.42 in Q3 2020
* Constant currency revenue; constant currency revenue, organic; core revenue; non-GAAP EPS; non-GAAP net income; non-GAAP operating income and margin; non-GAAP gross margin; and free cash flow are non-GAAP financial measures. A reconciliation of these financial measures to their most directly comparable GAAP financial measures is included under the heading “Non-GAAP Financial Measures” below.
SOUTH JORDAN, Utah, Oct. 28, 2021 (GLOBE NEWSWIRE) -- 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 $267.0 million for the quarter ended September 30, 2021, an increase of 9.4% compared to the quarter ended September 30, 2020. Constant currency revenue, organic* for the third quarter of 2021 was up 8.8% compared to the prior year period.
Merit’s GAAP gross margin for the third quarter of 2021 was 45.1%, compared to GAAP gross margin of 41.8% for the prior year period. Merit’s non-GAAP gross margin* for the third quarter of 2021 was 49.1%, compared to non-GAAP gross margin* of 47.0% for the prior year period.
Merit’s GAAP net income for the third quarter of 2021 was $12.0 million, or $0.21 per share, compared to a GAAP net loss of ($3.0) million, or ($0.05) per share, for the third quarter of 2020. Merit’s non-GAAP net income* for the third quarter of 2021 was $30.2 million, or $0.52 per share, compared to non-GAAP net income* of $24.0 million, or $0.42 per share, for the prior year period.
Merit’s revenue by operating segment and product category for the three and nine-month periods ended September 30, 2021, compared to the corresponding periods in 2020, was as follows (unaudited; in thousands, except for percentages):
| Three Months Ended | Nine Months Ended | |||||||||||||||||
| September 30, | September 30, | |||||||||||||||||
| % Change | 2021 | 2020 | % Change | 2021 | 2020 | |||||||||||||
| Cardiovascular | ||||||||||||||||||
| Peripheral Intervention | 16.5 | % | $ | 101,059 | $ | 86,778 | 21.5 | % | $ | 299,573 | $ | 246,488 | ||||||
| Cardiac Intervention | 15.5 | % | 79,813 | 69,089 | 15.7 | % | 240,203 | 207,685 | ||||||||||
| Custom Procedural Solutions | (12.4 | )% | 49,435 | 56,429 | (3.9 | )% | 143,492 | 149,369 | ||||||||||
| OEM | 21.9 | % | 29,397 | 24,117 | 11.3 | % | 89,734 | 80,592 | ||||||||||
| Total | 9.9 | % | 259,704 | 236,413 | 13.0 | % | 773,002 | 684,134 | ||||||||||
| Endoscopy | ||||||||||||||||||
| Endoscopy devices | (3.2 | )% | 7,317 | 7,562 | 7.0 | % | 23,257 | 21,737 | ||||||||||
| Total | 9.4 | % | $ | 267,021 | $ | 243,975 | 12.8 | % | $ | 796,259 | $ | 705,871 | ||||||
“Third quarter revenue increased 8.8% year-over-year on a constant currency, organic basis, exceeding the high-end of the expectations we provided on our second quarter call,” said Fred P. Lampropoulos, Merit’s Chairman and Chief Executive Officer. “Our growth was driven by strong sales of our Cardiovascular products, including sales growth in the mid-to-high teens year-over-year in our Peripheral Intervention and Cardiac Intervention products. We delivered strong non-GAAP gross margin performance in the third quarter driven, in part, by early benefits attributable to our Foundations for Growth initiatives, which offset inflationary pressures in raw materials, freight and logistics expenses in the period. The strong increase in non-GAAP gross margins, combined with prudent operating expense control, resulted in growth in our non-GAAP net income* and non-GAAP EPS* of 26% and 24%, respectively, year-over-year.”
Mr. Lampropoulos continued: “Despite the challenging operating environment due to the unexpected rise in COVID cases in recent months, our team continues to execute well. We are cautiously optimistic on the pace of recovery over the balance of the year, but we remain confident in our growth expectations for fiscal year 2021 which we reaffirmed in this afternoon’s press release. Specifically, we continue to expect total revenue growth, on a constant currency basis*, of approximately 9% to 10% year-over-year in fiscal year 2021 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* 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 September 30, 2021, Merit had cash on hand of $69 million, long term debt obligations of $279 million, and available borrowing capacity of $456 million, compared to cash on hand of $57 million, long term debt obligations of $352 million, and available borrowing capacity of $389 million as of December 31, 2020.
Fiscal Year 2021 Financial Guidance
Based upon information currently available to Merit’s management, Merit is reaffirming net revenue and non-GAAP net income and earnings per share expectations and updating GAAP net income and earnings per share expectations for the year ending December 31, 2021. Absent material acquisitions, non-recurring transactions or other factors beyond Merit’s control, Merit expects the following:
| Financial Measure | Guidance Range | ||
| Net Sales | $1,060 - $1,070 million | ||
| GAAP | |||
| Net Income | $38.1 - $46.4 million | ||
| Earnings Per Share | $0.66 - $0.81 | ||
| Non-GAAP | |||
| Net Income | $118.8 - $127.1 million | ||
| Earnings Per Share | $2.07 - $2.22 | ||
The 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 fiscal year 2021 net revenue guidance range continues to assume:
- 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.
- 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.
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 3378476) today, Thursday, October 28, 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)
| September 30, | ||||||||
| 2021 | December 31, | |||||||
| (Unaudited) | 2020 | |||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash and cash equivalents | $ | 68,904 | $ | 56,916 | ||||
| Trade receivables, net | 150,780 | 146,641 | ||||||
| Other receivables | 10,659 | 7,774 | ||||||
| Inventories | 208,081 | 198,019 | ||||||
| Prepaid expenses and other assets | 18,778 | 13,120 | ||||||
| Prepaid income taxes | 3,679 | 3,688 | ||||||
| Income tax refund receivables | 2,561 | 3,549 | ||||||
| Total current assets | 463,442 | 429,707 | ||||||
| Property and equipment, net | 373,456 | 382,728 | ||||||
| Intangible assets, net | 330,937 | 367,915 | ||||||
| Goodwill | 362,000 | 363,533 | ||||||
| Deferred income tax assets | 4,581 | 4,597 | ||||||
| Operating lease right-of-use assets | 68,078 | 78,240 | ||||||
| Other assets | 40,672 | 37,676 | ||||||
| Total Assets | $ | 1,643,166 | $ | 1,664,396 | ||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| Current Liabilities | ||||||||
| Trade payables | $ | 51,077 | $ | 49,837 | ||||
| Accrued expenses | 141,929 | 111,944 | ||||||
| Current portion of long-term debt | 7,500 | 7,500 | ||||||
| Current operating lease liabilities | 11,119 | 12,903 | ||||||
| Income taxes payable | 1,850 | 2,820 | ||||||
| Total current liabilities | 213,475 | 185,004 | ||||||
| Long-term debt | 271,181 | 343,722 | ||||||
| Deferred income tax liabilities | 33,238 | 33,312 | ||||||
| Long-term income taxes payable | 347 | 347 | ||||||
| Liabilities related to unrecognized tax benefits | 1,016 | 1,016 | ||||||
| Deferred compensation payable | 17,414 | 16,808 | ||||||
| Deferred credits | 1,842 | 1,923 | ||||||
| Long-term operating lease liabilities | 63,505 | 70,941 | ||||||
| Other long-term obligations | 27,772 | 52,748 | ||||||
| Total liabilities | 629,790 | 705,821 | ||||||
| Stockholders' Equity | ||||||||
| Common stock | 633,948 | 606,224 | ||||||
| Retained earnings | 385,644 | 357,803 | ||||||
| Accumulated other comprehensive loss | (6,216 | ) | (5,452 | ) | ||||
| Total stockholders' equity | 1,013,376 | 958,575 | ||||||
| Total Liabilities and Stockholders' Equity | $ | 1,643,166 | $ | 1,664,396 | ||||
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(Unaudited; in thousands except per share amounts)
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Net sales | $ | 267,021 | $ | 243,975 | $ | 796,259 | $ | 705,871 | ||||||||
| Cost of sales | 146,527 | 141,961 | 439,732 | 415,857 | ||||||||||||
| Gross profit | 120,494 | 102,014 | 356,527 | 290,014 | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Selling, general and administrative | 86,474 | 72,215 | 259,061 | 217,790 | ||||||||||||
| Research and development | 16,974 | 13,506 | 50,841 | 42,404 | ||||||||||||
| Legal settlement | — | — | — | 18,200 | ||||||||||||
| Impairment charges | — | 20,585 | 4,283 | 28,305 | ||||||||||||
| Contingent consideration expense (benefit) | 1,115 | (4,356 | ) | 3,322 | 884 | |||||||||||
| Total operating expenses | 104,563 | 101,950 | 317,507 | 307,583 | ||||||||||||
| Income (loss) from operations | 15,931 | 64 | 39,020 | (17,569 | ) | |||||||||||
| Other income (expense): | ||||||||||||||||
| Interest income | 104 | 67 | 668 | 234 | ||||||||||||
| Interest expense | (1,233 | ) | (2,197 | ) | (4,156 | ) | (8,056 | ) | ||||||||
| Other expense - net | (625 | ) | (118 | ) | (1,796 | ) | (1,085 | ) | ||||||||
| Total other expense — net | (1,754 | ) | (2,248 | ) | (5,284 | ) | (8,907 | ) | ||||||||
| Income (loss) before income taxes | 14,177 | (2,184 | ) | 33,736 | (26,476 | ) | ||||||||||
| Income tax expense (benefit) | 2,210 | 825 | 5,895 | (1,255 | ) | |||||||||||
| Net income (loss) | $ | 11,967 | $ | (3,009 | ) | $ | 27,841 | $ | (25,221 | ) | ||||||
| Earnings (loss) per common share | ||||||||||||||||
| Basic | $ | 0.21 | $ | (0.05 | ) | $ | 0.50 | $ | (0.46 | ) | ||||||
| Diluted | $ | 0.21 | $ | (0.05 | ) | $ | 0.49 | $ | (0.46 | ) | ||||||
| Weighted average shares outstanding | ||||||||||||||||
| Basic | 56,302 | 55,505 | 56,033 | 55,386 | ||||||||||||
| Diluted | 57,549 | 55,505 | 57,274 | 55,386 | ||||||||||||
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands - unaudited)
| Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2021 | 2020 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net income (loss) | $ | 27,841 | $ | (25,221 | ) | |||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | 63,173 | 70,458 | ||||||
| Write-off of certain intangible assets and other long-term assets | 4,412 | 28,409 | ||||||
| Amortization of right-of-use operating lease assets | 8,941 | 9,522 | ||||||
| Fair value adjustments to contingent consideration | 3,322 | 884 | ||||||
| Stock-based compensation expense | 11,589 | 10,268 | ||||||
| Gain on sale of business | — | (508 | ) | |||||
| Other adjustments | 1,002 | 1,653 | ||||||
| Changes in operating assets and liabilities, net of acquisitions and divestitures | (18,864 | ) | 32,890 | |||||
| Total adjustments | 73,575 | 153,576 | ||||||
| Net cash provided by operating activities | 101,416 | 128,355 | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Capital expenditures for property and equipment | (19,612 | ) | (35,590 | ) | ||||
| Other investing, net | (2,942 | ) | (1,191 | ) | ||||
| Net cash used in investing activities | (22,554 | ) | (36,781 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from issuance of common stock | 17,814 | 4,954 | ||||||
| Payments on long-term debt, net | (72,625 | ) | (82,255 | ) | ||||
| Contingent payments related to acquisitions | (10,579 | ) | (12,991 | ) | ||||
| Payment of taxes related to an exchange of common stock | (576 | ) | (866 | ) | ||||
| Net cash used in financing activities | (65,966 | ) | (91,158 | ) | ||||
| Effect of exchange rates on cash | (908 | ) | (185 | ) | ||||
| Net increase in cash and cash equivalents | 11,988 | 231 | ||||||
| CASH AND CASH EQUIVALENTS: | ||||||||
| Beginning of period | 56,916 | 44,320 | ||||||
| End of period | $ | 68,904 | $ | 44,551 | ||||
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 ($1.4) million and ($11.4) million to reported revenue for the three and nine-month periods ended September 30, 2021 were calculated using the applicable average foreign exchange rates for the three and nine-month periods ended September 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 nine-month periods ended September 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 nine-month periods ended September 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 nine-month periods ended September 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.
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 acquisitions or other extraordinary transactions, 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 for property and equipment 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 nine-month periods ended September 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 $3.2 million and $3.0 million for the three-month periods ended September 30, 2021 and 2020, respectively, and approximately $7.6 million and $7.6 million for the nine-month periods ended September 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 | |||||||||||||
| September 30, 2021 | |||||||||||||
| Pre-Tax | Tax Impact | After-Tax | Per Share Impact | ||||||||||
| GAAP net income | $ | 14,177 | $ | (2,210 | ) | $ | 11,967 | $ | 0.21 | ||||
| Non-GAAP adjustments: | |||||||||||||
| Cost of Sales | |||||||||||||
| Amortization of intangibles | 10,573 | (2,626 | ) | 7,947 | 0.14 | ||||||||
| Operating Expenses | |||||||||||||
| Contingent consideration expense | 1,115 | (16 | ) | 1,099 | 0.02 | ||||||||
| Amortization of intangibles | 1,793 | (449 | ) | 1,344 | 0.02 | ||||||||
| Performance-based share-based compensation (b) | 1,639 | (207 | ) | 1,432 | 0.02 | ||||||||
| Corporate transformation and restructuring (c) | 4,282 | (1,061 | ) | 3,221 | 0.06 | ||||||||
| Acquisition-related | 2,866 | (711 | ) | 2,155 | 0.04 | ||||||||
| Medical Device Regulation expenses (d) | 1,129 | (280 | ) | 849 | 0.01 | ||||||||
| Other (e) | 159 | (78 | ) | 81 | 0.00 | ||||||||
| Other (Income) Expense | |||||||||||||
| Amortization of long-term debt issuance costs | 151 | (37 | ) | 114 | 0.00 | ||||||||
| Non-GAAP net income | $ | 37,884 | $ | (7,675 | ) | $ | 30,209 | $ | 0.52 | ||||
| Diluted shares | 57,549 | ||||||||||||
| Three Months Ended | ||||||||||||||||
| September 30, 2020 | ||||||||||||||||
| Pre-Tax | Tax Impact | After-Tax | Per Share Impact | |||||||||||||
| GAAP net loss | $ | (2,184 | ) | $ | (825 | ) | $ | (3,009 | ) | $ | (0.05 | ) | ||||
| Non-GAAP adjustments: | ||||||||||||||||
| Cost of Sales | ||||||||||||||||
| Amortization of intangibles | 12,529 | (3,229 | ) | 9,300 | 0.16 | |||||||||||
| Inventory mark-up related to acquisitions | 41 | (11 | ) | 30 | 0.00 | |||||||||||
| Operating Expenses | ||||||||||||||||
| Contingent consideration benefit | (4,356 | ) | 492 | (3,864 | ) | (0.07 | ) | |||||||||
| Impairment charges | 20,585 | (3,170 | ) | 17,415 | 0.31 | |||||||||||
| Amortization of intangibles | 1,893 | (508 | ) | 1,385 | 0.02 | |||||||||||
| Performance-based share-based compensation (b) | 1,112 | (141 | ) | 971 | 0.02 | |||||||||||
| Corporate transformation and restructuring (c) | 2,833 | (743 | ) | 2,090 | 0.04 | |||||||||||
| Acquisition-related | 189 | (49 | ) | 140 | 0.00 | |||||||||||
| Medical Device Regulation expenses (d) | 411 | (106 | ) | 305 | 0.01 | |||||||||||
| Other (e) | 1,401 | (1,933 | ) | (532 | ) | (0.01 | ) | |||||||||
| Other (Income) Expense | ||||||||||||||||
| Amortization of long-term debt issuance costs | 151 | (39 | ) | 112 | 0.00 | |||||||||||
| Gain on disposal of business unit | (508 | ) | 131 | (377 | ) | (0.01 | ) | |||||||||
| Non-GAAP net income | $ | 34,097 | $ | (10,131 | ) | $ | 23,966 | $ | 0.42 | |||||||
| Diluted shares (f) | 56,456 | |||||||||||||||
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)
| Nine Months Ended | |||||||||||||
| September 30, 2021 | |||||||||||||
| Pre-Tax | Tax Impact | After-Tax | Per Share Impact | ||||||||||
| GAAP net income | $ | 33,736 | $ | (5,895 | ) | $ | 27,841 | $ | 0.49 | ||||
| Non-GAAP adjustments: | |||||||||||||
| Cost of Sales | |||||||||||||
| Amortization of intangibles | 31,884 | (7,918 | ) | 23,966 | 0.42 | ||||||||
| Inventory write-off (a) | 1,620 | (202 | ) | 1,418 | 0.02 | ||||||||
| Operating Expenses | |||||||||||||
| Contingent consideration expense | 3,322 | (2 | ) | 3,320 | 0.06 | ||||||||
| Impairment charges | 4,283 | (481 | ) | 3,802 | 0.07 | ||||||||
| Amortization of intangibles | 5,397 | (1,352 | ) | 4,045 | 0.07 | ||||||||
| Performance-based share-based compensation (b) | 3,998 | (494 | ) | 3,504 | 0.06 | ||||||||
| Corporate transformation and restructuring (c) | 17,044 | (4,223 | ) | 12,821 | 0.22 | ||||||||
| Acquisition-related | 8,475 | (2,101 | ) | 6,374 | 0.11 | ||||||||
| Medical Device Regulation expenses (d) | 2,523 | (625 | ) | 1,898 | 0.03 | ||||||||
| Other (e) | 6,534 | (468 | ) | 6,066 | 0.11 | ||||||||
| Other (Income) Expense | |||||||||||||
| Amortization of long-term debt issuance costs | 453 | (112 | ) | 341 | 0.01 | ||||||||
| Non-GAAP net income | $ | 119,269 | $ | (23,873 | ) | $ | 95,396 | $ | 1.67 | ||||
| Diluted shares | 57,274 | ||||||||||||
| Nine Months Ended | ||||||||||||||||
| September 30, 2020 | ||||||||||||||||
| Pre-Tax | Tax Impact | After-Tax | Per Share Impact | |||||||||||||
| GAAP net loss | $ | (26,476 | ) | $ | 1,255 | $ | (25,221 | ) | $ | (0.45 | ) | |||||
| Non-GAAP adjustments: | ||||||||||||||||
| Cost of Sales | ||||||||||||||||
| Amortization of intangibles | 38,154 | (9,833 | ) | 28,321 | 0.50 | |||||||||||
| Inventory write-off (a) | 1,776 | (472 | ) | 1,304 | 0.02 | |||||||||||
| Inventory mark-up related to acquisitions | 187 | (48 | ) | 139 | 0.00 | |||||||||||
| Operating Expenses | ||||||||||||||||
| Contingent consideration expense | 884 | 559 | 1,443 | 0.03 | ||||||||||||
| Impairment charges | 28,305 | (4,363 | ) | 23,942 | 0.43 | |||||||||||
| Amortization of intangibles | 6,049 | (1,632 | ) | 4,417 | 0.08 | |||||||||||
| Performance-based share-based compensation (b) | 2,623 | (334 | ) | 2,289 | 0.04 | |||||||||||
| Corporate transformation and restructuring (c) | 6,285 | (1,660 | ) | 4,625 | 0.08 | |||||||||||
| Acquisition-related | 836 | (215 | ) | 621 | 0.01 | |||||||||||
| Medical Device Regulation expenses (d) | 1,013 | (261 | ) | 752 | 0.01 | |||||||||||
| Other (e) | 23,477 | (3,567 | ) | 19,910 | 0.35 | |||||||||||
| Other (Income) Expense | ||||||||||||||||
| Amortization of long-term debt issuance costs | 453 | (117 | ) | 336 | 0.01 | |||||||||||
| Gain on disposal of business unit | (508 | ) | 131 | (377 | ) | (0.01 | ) | |||||||||
| Non-GAAP net income | $ | 83,058 | $ | (20,557 | ) | $ | 62,501 | $ | 1.11 | |||||||
| Diluted shares (f) | 56,241 | |||||||||||||||
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 | Nine Months Ended | Nine Months Ended | |||||||||||||||||||||||
| September 30, 2021 | September 30, 2020 | September 30, 2021 | September 30, 2020 | |||||||||||||||||||||||
| Amounts | % Sales | Amounts | % Sales | Amounts | % Sales | Amounts | % Sales | |||||||||||||||||||
| Net Sales as Reported | $ | 267,021 | $ | 243,975 | $ | 796,259 | $ | 705,871 | ||||||||||||||||||
| GAAP Operating Income (Loss) | 15,931 | 6.0 | % | 64 | 0.0 | % | 39,020 | 4.9 | % | (17,569 | ) | (2.5 | )% | |||||||||||||
| Cost of Sales | ||||||||||||||||||||||||||
| Amortization of intangibles | 10,573 | 4.0 | % | 12,529 | 5.1 | % | 31,884 | 4.0 | % | 38,154 | 5.4 | % | ||||||||||||||
| Inventory write-off (a) | — | — | — | — | 1,620 | 0.2 | % | 1,776 | 0.3 | % | ||||||||||||||||
| Inventory mark-up related to acquisitions | — | — | 41 | 0.0 | % | — | — | 187 | 0.0 | % | ||||||||||||||||
| Operating Expenses | ||||||||||||||||||||||||||
| Contingent consideration expense (benefit) | 1,115 | 0.4 | % | (4,356 | ) | (1.8 | )% | 3,322 | 0.4 | % | 884 | 0.1 | % | |||||||||||||
| Impairment charges | — | — | 20,585 | 8.4 | % | 4,283 | 0.5 | % | 28,305 | 4.0 | % | |||||||||||||||
| Amortization of intangibles | 1,793 | 0.7 | % | 1,893 | 0.8 | % | 5,397 | 0.7 | % | 6,049 | 0.9 | % | ||||||||||||||
| Performance-based share-based compensation (b) | 1,639 | 0.6 | % | 1,112 | 0.5 | % | 3,998 | 0.5 | % | 2,623 | 0.4 | % | ||||||||||||||
| Corporate transformation and restructuring (c) | 4,282 | 1.6 | % | 2,833 | 1.2 | % | 17,044 | 2.1 | % | 6,285 | 0.9 | % | ||||||||||||||
| Acquisition-related | 2,866 | 1.1 | % | 189 | 0.1 | % | 8,475 | 1.1 | % | 836 | 0.1 | % | ||||||||||||||
| Medical Device Regulation expenses (d) | 1,129 | 0.4 | % | 411 | 0.2 | % | 2,523 | 0.3 | % | 1,013 | 0.1 | % | ||||||||||||||
| Other (e) | 159 | 0.1 | % | 1,401 | 0.6 | % | 6,534 | 0.8 | % | 23,477 | 3.3 | % | ||||||||||||||
| Non-GAAP Operating Income | $ | 39,487 | 14.8 | % | $ | 36,702 | 15.0 | % | $ | 124,100 | 15.6 | % | $ | 92,020 | 13.0 | % | ||||||||||
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 the 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 approximately $6 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 “DOJ”). The 2020 periods include a settlement of $18.2 million with the DOJ to fully resolve the DOJ’s investigation, costs incurred in responding to the DOJ inquiry, activist shareholder settlement fees, and expense from abandoned patents.
f) For the three and nine-months periods ended September 30, 2020, the non-GAAP net income per diluted share calculation includes approximately 951,000 and 855,000 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 | Nine Months Ended | |||||||||||||||||||||
| September 30, | September 30, | |||||||||||||||||||||
| % Change | 2021 | 2020 | % Change | 2021 | 2020 | |||||||||||||||||
| Reported Revenue | 9.4 | % | $ | 267,021 | $ | 243,975 | 12.8 | % | $ | 796,259 | $ | 705,871 | ||||||||||
| Add: Impact of foreign exchange | (1,443 | ) | — | (11,442 | ) | — | ||||||||||||||||
| Constant Currency Revenue (a) | 8.9 | % | $ | 265,578 | $ | 243,975 | 11.2 | % | $ | 784,817 | $ | 705,871 | ||||||||||
| Less: Revenue from certain acquisitions | (99 | ) | — | (208 | ) | — | ||||||||||||||||
| Constant Currency Revenue, Organic (a) | 8.8 | % | $ | 265,479 | $ | 243,975 | 11.2 | % | $ | 784,609 | $ | 705,871 | ||||||||||
| Less: Revenue from Cultura | (855 | ) | (9,604 | ) | (2,306 | ) | (14,169 | ) | ||||||||||||||
| Less: Revenue from certain dispositions | — | (3,041 | ) | (179 | ) | (8,741 | ) | |||||||||||||||
| Core Revenue (a) | 14.4 | % | $ | 264,624 | $ | 231,330 | 14.5 | % | $ | 782,124 | $ | 682,961 | ||||||||||
(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 | Nine Months Ended | |||||||||||
| September 30, | September 30, | |||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||
| Reported Gross Margin | 45.1 | % | 41.8 | % | 44.8 | % | 41.1 | % | ||||
| Add back impact of: | ||||||||||||
| Amortization of intangibles | 4.0 | % | 5.1 | % | 4.0 | % | 5.4 | % | ||||
| Inventory write-off (a) | — | — | 0.2 | % | 0.3 | % | ||||||
| Inventory mark-up related to acquisitions | — | 0.0 | % | — | 0.0 | % | ||||||
| Non-GAAP Gross Margin | 49.1 | % | 47.0 | % | 49.0 | % | 46.8 | % | ||||
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 6,700 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: | Investor Inquiries: |
| Teresa Johnson | Mike Piccinino, CFA, IRC |
| Merit Medical | Westwicke - ICR |
| +1-801-208-4295 | +1-443-213-0509 |
| tjohnson@merit.com | mike.piccinino@westwicke.com |
