Attached files
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| EX-99.1 - EXHIBIT 99.1 - MERIT MEDICAL SYSTEMS INC | earningreleaseq32017.htm |
| 8-K - 8-K - MERIT MEDICAL SYSTEMS INC | a10252017-8k.htm |
FRED LAMPROPOULOS
Chairman & CEO
BERNARD BIRKETT
CFO
Third Quarter FY2017 Results
Exhibit 99.2
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This presentation and any accompanying management commentary include “forward-looking statements,” as defined within applicable securities laws and regulations. All statements in this presentation,
other than statements of historical fact, are “forward-looking statements”, including projections of earnings, revenues or other financial items, statements regarding our plans and objectives for future
operations, statements concerning proposed products or services, statements regarding the integration, development or commercialization of our business or any business, assets or operations we have acquired
or may acquire, statements regarding future economic conditions or performance, statements regarding governmental inquiries, investigations or proceedings and statements of assumptions underlying any
of the foregoing. All forward-looking statements, including financial projections, included in this presentation are made as of the date of this presentation, and are based on information available to us as of
such date. We assume no obligation to update or disclose revisions to any forward-looking statement, except as required by law or regulation. In some cases, forward-looking statements can be identified
by the use of terminology such as “may,” “will,” “likely,” “expects,” “plans,” “anticipates,” “intends,” “believes,” “estimates,” “projects,” ”forecast,” “potential,” “plan,” or other comparable terminology.
Forward-looking statements are based on our current beliefs, expectations and assumptions regarding our business, domestic and global economies, regulatory and competitive environments and other
conditions. There can be no assurance that such beliefs, expectations or assumptions or any of the forward-looking statements will prove to be correct. Actual results will likely differ, and may differ
materially, from those projected or assumed in the forward-looking statements. Our future financial and operating results and condition, as well as any forward-looking statements, are subject to inherent
risks and uncertainties such as those described in our Annual Report on Form 10-K for the year ended December 31, 2016 and other filings with the U.S. Securities and Exchange Commission. Such risks
and uncertainties include risks relating to our 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 approvals of our 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 or proceedings; reforms to the
510(k) process administered by the U.S. Food and Drug Administration; restrictions on our liquidity or business operations resulting from our debt agreements; infringement of our technology or the assertion
that our technology infringes the rights of other parties; the potential of fines, penalties or other adverse consequences if our 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 our suppliers, or failure of such suppliers to perform; fluctuations in exchange rates; concentration of a substantial portion of our revenues among a few products and procedures; development
of new products and technology that could render our existing products obsolete; market acceptance of new products; volatility in the market price of our 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; and fluctuations in and obsolescence
of inventory.
All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. The financial projections set forth in this presentation
are based on a number of assumptions, estimates and forecasts. The inaccuracy of any one of those assumptions, estimates or forecasts could materially impact our financial results. Inevitably, some of
those assumptions, estimates or forecasts will not occur and unanticipated events and circumstances will occur subsequent to the date of this presentation. In addition to changes in the underlying assumptions,
our future performance is subject to a number of risks and uncertainties with respect to our existing and proposed business, and other factors that may cause our actual results or performance to be materially
different from any predicted or implied. Although we have attempted to identify important assumptions in the financial projections, there may be other factors that could materially affect our actual financial
performance, and no assurance can be given that all material factors have been considered in the preparation of the financial projections. Accordingly, you should not place undue reliance on such projections.
Future operating results are, in fact, impossible to predict.
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 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. Certain financial measures included in this presentation, or which may be referenced
in management’s discussion of Merit’s historical and future operations and financial results, have not been calculated in accordance
with GAAP, and, therefore, are referenced as non-GAAP financial measures. Readers should consider non-GAAP measures used
in this presentation 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. Additionally,
non-GAAP financial measures used in this presentation 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.
Please refer to “Notes to Non-GAAP Financial Measures” at the end of these materials for more information.
TRADEMARKS
Unless noted otherwise, trademarks used in this presentation are the property of Merit Medical Systems, Inc., in the United States
and other jurisdictions.
3
Q3 2017 Q3 2016 YTD 2017 YTD 2016
Revenue $179.3M $157.0M $537.0M $446.1M
Gross Margin 44.9% 43.2% 44.8% 43.7%
Net Income (Loss) $(3.6)M $1.0M $20.7M $12.6M
EPS $(0.07) $0.02 $0.42 $0.28
Financial Summary
GAAP
4
Q3 2017 Q3 2016 YTD 2017 YTD 2016
Revenue (Constant Currency) $178.3M $157.0M $539.1M $446.1M
Revenue (Reported) $179.3M $157.0M $537.0M $446.1M
Gross Margin 48.1% 46.8% 48.2% 46.4%
Net Income $16.5M $11.5M $47.4M $31.4M
EPS $0.32 $0.26 $0.96 $0.70
Financial Summary
Non-GAAP
5
Q3 2017 Revenue by Market
Revenue by Market in Constant Currency
EMEA:
18.0%
United
States:
57.8%
Other
International:
24.2%
GAAP Constant Currency
Revenue Growth
Q3'17 over Q3'16
40
35
30
25
20
15
10
5
0
%
G
ro
w
th
United States Other International EMEA
5%
32.9%
25.7%
5%
32.6%
22.1%
(GAAP 18.5%)
(GAAP 57.5%)
(GAAP 24.0%)
6
YTD 2017 Revenue by Market
Revenue by Market in Constant Currency
EMEA:
18.3%
United
States:
58.1%
Other
International:
23.6%
GAAP Constant Currency
Revenue Growth
YTD'17 over YTD'16
40
35
30
25
20
15
10
5
%
G
ro
w
th
United States Other International EMEA
12.4%
33.9% 33.4%
12.4%
35.1% 34.7%
(GAAP 18.2%)
(GAAP 58.3%)
(GAAP 23.5%)
7
8
9
10
Global Reach
11
12
13
14
15
NOTES TO NON-GAAP FINANCIAL MEASURES
For additional details, please see the accompanying press release and forward-looking statement disclosure.
These presentation materials and associated commentary from Merit’s management, as well as the press release issued today, use non-GAAP financial measures,
including:
• constant currency revenue;
• core revenue;
• core revenue on a constant currency basis;
• non-GAAP earnings per share;
• non-GAAP gross margin; and
• non-GAAP net income.
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 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
net income, non-GAAP earnings per share and non-GAAP gross margin (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 expenses 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 presentation 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 presentation 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.
16
NOTES TO NON-GAAP FINANCIAL MEASURES (cont.)
Constant Currency Revenue
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 $(1.0) million and $2.1 million for the three and
nine-month periods ended September 30, 2017, respectively, were calculated using the applicable average foreign exchange rates for the three and nine-month periods ended
September 30, 2016, respectively.
Core Revenue and Core Revenue on a Constant Currency Basis
Merit’s core revenue is defined as reported revenue excluding revenues from the acquisitions of the HeRO® Graft (excluded January 2017 only), DFINE, Inc. (through June) in 2016,
Catheter Connections, Inc. and the critical care division of Argon Medical Devices, Inc. in January 2017, Osseon LLC in July 2017, and Laurane Medical S.A.S. in August 2017. Core
revenue on a constant currency basis is defined as core revenue plus the foreign exchange impact related to those core sales, using the applicable foreign exchange rates in effect for
the comparable prior-year periods presented.
Non-GAAP Gross Margin
Non-GAAP gross margin is calculated by reducing GAAP cost of sales by amounts recorded for amortization of intangible assets, inventory mark-up related to acquisitions and
severance.
Non-GAAP Net Income
Non-GAAP net income is calculated by reducing GAAP net income by certain items which are deemed by Merit’s management to be of a special or non-recurring nature, such as
items related to 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, as well as other items as set forth in the table below.
Non-GAAP EPS
Non-GAAP EPS is defined as non-GAAP net income divided by the diluted shares outstanding for the corresponding period.
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 nine-month periods ended September 30, 2017 and 2016. The non-GAAP income adjustments
referenced in the following table do not reflect stock-based compensation expense of approximately $1.2 million and $0.5 million for the three-month periods ended September 30,
2017 and 2016, respectively, and approximately $2.9 million and $1.9 million for the nine-month periods ended September 30, 2017 and 2016, respectively.
17
Reconciliation of GAAP Net Income to Non-GAAP Net Income
(Unaudited, in thousands except per share amounts)
Three Months Ended
September 30, 2017
Pre-Tax Tax Impact(a) After-Tax
Per Share
Impact
GAAP net income $ (2,205) $ (1,364) $ (3,569) $ (0.07)
Non-GAAP adjustments:
Cost of Sales
Amortization of intangibles 5,472 (2,056) 3,416 0.07
Inventory mark-up related to acquisitions 242 (94) 148 —
Selling, General and Administrative
Severance 396 (154) 242 —
Acquisition-related (b) 1,729 (666) 1,063 0.02
Fair value adjustment to contingent consideration (c) 20 (8) 12 —
Long-term asset impairment charge (d) 67 (26) 41 —
Acquired in-process research and development 12,061 (68) 11,993 0.23
Amortization of intangibles 1,530 (591) 939 0.02
Special legal expense (e) 2,118 (824) 1,294 0.03
Other (Income) Expense
Gain on bargain purchase (f) 778 — 778 0.02
Amortization of long-term debt issuance costs 171 (67) 104 —
Non-GAAP net income $ 22,379 $ (5,918) $ 16,461 $ 0.32
Diluted shares 51,599
Three Months Ended
September 30, 2016
Pre-Tax
Tax Impact
(a) After-Tax
Per Share
Impact
GAAP net income $ (5) $ 978 $ 973 $ 0.02
Non-GAAP adjustments:
Cost of Sales
Amortization of intangibles 4,446 (1,653) 2,793 0.06
Inventory mark-up related to acquisitions 1,202 (468) 734 0.02
Severance 56 (22) 34 —
Selling, General and Administrative
Severance 7,644 (2,840) 4,804 0.11
Acquisition-related (b) 1,377 (231) 1,146 0.03
Fair value adjustment to contingent consideration (c) (94) 37 (57) —
Long-term asset impairment charge (d) — — — —
Acquired in-process research and development 300 (117) 183 —
Amortization of intangibles 1,224 (469) 755 0.02
Other (Income) Expense
Amortization of long-term debt issuance costs 258 (101) 157 —
Non-GAAP net income $ 16,408 $ (4,886) $ 11,522 $ 0.26
Diluted shares 45,000
(a) Reflects the tax effect associated with pre-tax income and the non-GAAP adjustments
(b) Represents costs related to acquisitions
(c) Represents changes in the fair value of contingent consideration liabilities and contingent receivables as a result of acquisitions
(d) Represents abandoned patents
(e) Costs incurred in responding to an inquiry from the U.S. Department of Justice
(f) Represents the gain on bargain purchase realized from the acquisition of the critical care division of Argon Medical Devices, Inc.
18
Reconciliation of GAAP Net Income to Non-GAAP Net Income
(Unaudited, in thousands except per share amounts) Nine Months Ended
September 30, 2017
Pre-Tax Tax Impact (a) After-Tax Per Share Impact
GAAP net income $ 24,601 $ (3,884) $ 20,717 $ 0.42
Non-GAAP adjustments:
Cost of Sales
Amortization of intangibles 15,215 (5,702) 9,513 0.19
Inventory mark-up related to acquisitions 3,121 (1,214) 1,907 0.04
Selling, General and Administrative
Severance 1,740 (677) 1,063 0.02
Acquisition-related (b) 5,017 (1,501) 3,516 0.07
Fair value adjustment to contingent
consideration (c) 39 (15) 24 —
Long-term asset impairment charge (d) 86 (33) 53 —
Acquired in-process research and development 12,136 (97) 12,039 0.25
Amortization of intangibles 4,202 (1,621) 2,581 0.05
Special legal expense (e) 10,615 (4,129) 6,486 0.13
Other (Income) Expense
Gain on bargain purchase (f) (10,796) — (10,796) (0.22)
Amortization of long-term debt issuance costs 514 (200) 314 0.01
Non-GAAP net income $ 66,490 $ (19,073) $ 47,417 $ 0.96
Diluted shares 49,555
Nine Months Ended
September 30, 2016
Pre-Tax Tax Impact (a) After-Tax Per Share Impact
GAAP net income $ 15,764 $ (3,149) $ 12,615 $ 0.28
Non-GAAP adjustments:
Cost of Sales
Amortization of intangibles 10,688 (3,939) 6,749 0.15
Inventory mark-up related to acquisitions 1,409 (548) 861 0.02
Severance 56 (22) 34 —
Selling, General and Administrative
Severance 9,422 (3,532) 5,890 0.13
Acquisition-related (b) 3,750 (1,154) 2,596 0.06
Fair value adjustment to contingent
consideration (c) 99 (38) 61 —
Long-term asset impairment charge (d) 88 (34) 54 —
Acquired in-process research and
development 400 (156) 244 0.01
Amortization of intangibles 2,869 (1,096) 1,773 0.04
Other (Income) Expense
Amortization of long-term debt issuance costs 779 (303) 476 0.01
Non-GAAP net income $ 45,324 $ (13,971) $ 31,353 $ 0.70
Diluted shares 44,763
(a) Reflects the tax effect associated with pre-tax income and the non-GAAP adjustments
(b) Represents costs related to acquisitions
(c) Represents changes in the fair value of contingent consideration liabilities and contingent receivables as a result of acquisitions
(d) Represents abandoned patents
(e) Costs incurred in responding to an inquiry from the U.S. Department of Justice
(f) Represents the gain on bargain purchase realized from the acquisition of the critical care division of Argon Medical Devices, Inc.
19
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)
Three Months Ended Nine Months Ended
September 30, September 30,
% Change 2017 2016 % Change 2017 2016
Reported Revenue 14.2% $ 179,337 $ 156,975 20.4% $ 536,955 $ 446,123
Add: Impact of foreign exchange (a) (1,033) — 2,139 —
Constant Currency Revenue 13.6% $ 178,304 $ 156,975 20.8% $ 539,094 $ 446,123
Three Months Ended Nine Months Ended
September 30, September 30,
% Change 2017 2016 % Change 2017 2016
Reported Revenue 14.2% $ 179,337 $ 156,975 20.4% $ 536,955 $ 446,123
Less: Revenue from certain acquisitions (b) (14,360) — (52,586) —
Core Revenue 5.1% $ 164,977 $ 156,975 8.6% $ 484,369 $ 446,123
Add: Impact of foreign exchange on core
revenue (a) (969) — 1,677 —
Core revenue on a constant currency basis 4.5% $ 164,008 $ 156,975 8.9% $ 486,046 $ 446,123
(a) The constant currency revenue adjustments of $(1.0) million and $2.1 million to reported revenue, as well as the adjustments of $(1.0) million and $1.7 million to core revenue, for the three and nine-month periods
ended September 30, 2017, respectively, were calculated using the applicable average foreign exchange rates for the three and nine-month periods ended September 30, 2016, respectively.
(b) Represents revenue from the acquisitions of the HeRO Graft in February 2016 (excluding January 2017 revenue); DFINE, Inc. in July 2016; the assets of Catheter Connections, Inc. in January 2017; the critical care
division of Argon Medical Devices, Inc. in January 2017; the acquisition of Osseon LLC in July 2017 and the acquisition of Laurane Medical S.A.S. in August 2017.
20
Reconciliation of Reported Gross Margin to Non-GAAP Gross Margin (Non-GAAP)
(Unaudited, in thousands)
(As a percentage of reported revenue)
Three Months Ended Nine Months Ended
September 30, September 30,
2017 2016 2017 2016
Reported Gross Margin 44.9% 43.2% 44.8% 43.7%
Add back impact of:
Amortization of intangibles 3.1% 2.8% 2.8% 2.4%
Inventory mark-up related to acquisitions 0.1% 0.8% 0.6% 0.3%
Non-GAAP Gross Margin 48.1% 46.8% 48.2% 46.4%
21
Revised 2017 Guidance
22
Previous Guidance Revised Guidance
Revenue $722M - 727M $722M - 727M
Gross Margin GAAP 45.0% - 45.5% 45.0% - 45.5%
Gross Margin Non-GAAP 48.0% - 48.5% 48.0% - 48.5%
EPS GAAP $0.80 - $0.86 $0.55 - $0.61 *
EPS Non-GAAP $1.23 - $1.28 $1.23 - $1.28
*Revision due to the impact of the in-process research and development charge attributable to the
IntelliMedical acquisition completed in the third quarter
