Revenues Up 12% for Third Quarter Gross Margin Up 140 Basis Points Sequentially from Second Quarter Income from Operations Improves to 9.4% for Third Quarter Third Quarter SG&A Expenses Down 180 Basis Points Sequentially Non-GAAP EPS $0.25 for Third Quarter Relocation to Pearland, Texas Completed PreludeEASE Hydrophilic Sheath Receives 510(k) Clearance

SOUTH JORDAN, Utah, Oct. 23, 2014 (GLOBE NEWSWIRE) -- Merit Medical Systems, Inc. (Nasdaq:MMSI), a leading manufacturer and marketer of proprietary disposable medical devices used in interventional and diagnostic procedures, particularly in cardiology, radiology and endoscopy, today announced revenues of $128.8 million for the quarter ended September 30, 2014, an increase of 12% over revenues of $115.2 million for the third quarter of 2013. Revenues for the nine-month period ended September 30, 2014 were a record $376.9 million, compared with $329.0 million for the comparable nine-month period in 2013, an increase of 15%.

Merit's non-GAAP net income for the quarter ended September 30, 2014, adjusted to eliminate non-recurring costs and amortization of intangibles, was a record $10.7 million, or $0.25 per share, compared to $10.5 million, or $0.25 per share, for the quarter ended September 30, 2013.

Merit's non-GAAP net income for the nine months ended September 30, 2014, adjusted to eliminate non-recurring costs and amortization of intangibles, was $22.5 million, or $0.52 per share, compared to $21.1 million, or $0.49 per share, for the corresponding period of 2013.

GAAP net income for the quarter ended September 30, 2014 was a record $7.8 million, or $0.18 per share, compared to $5.6 million, or $0.13 per share, for the comparable quarter of 2013.

GAAP net income for the nine-month period ended September 30, 2014 was $14.3 million, or $0.33 per share, compared to $10.0 million, or $0.23 per share, for the corresponding period of 2013.

For both the three- and nine-month periods ended September 30, 2014, GAAP operating income and net income were affected by a net non-recurring, non-cash impairment of approximately $329,000 ($204,000 after tax). Merit recorded a write-down of intangible assets related to the decreased future revenue forecast of an acquired product.

In the third quarter of 2014, compared to the third quarter of 2013, BioSphere sales increased 25%; catheter sales grew 20%; stand-alone device sales increased 14%; inflation device sales were up 13%; Merit Endotek sales rose 6%; custom kit and tray sales were up 5%; and Malvern sales were down 9%.

For the nine-month period ended September 30, 2014, compared to the nine-month period ended September 30, 2013, BioSphere sales increased 33%; stand-alone device sales grew 17%; catheter sales rose 17%; inflation device sales were up 14%; Malvern sales increased 14%; custom kit and tray sales grew 6%; and Merit Endotek sales rose 6%.

Merit's non-GAAP gross margin was 46.7% of sales for the quarter ended September 30, 2014, compared to 46.5% of sales for the quarter ended September 30, 2013. Non-GAAP gross margin was 46.0% of sales for the nine months ended September 30, 2014, compared to 45.2% of sales for the nine months ended September 30, 2013. GAAP gross margin for the third quarter of 2014 was 44.6% of sales, compared to 44.3% of sales for the third quarter of 2013. Gross margin was up 140 basis points sequentially from 43.2% of sales from the second quarter of 2014. GAAP gross margin for the nine-month period ended September 30, 2014 was 43.8% of sales, compared to 42.9% of sales for the comparable period of 2013. The increase in gross margin from the three- and nine-month periods ended September 30, 2013 to the corresponding periods of 2014 was primarily related to lower average fixed overhead unit costs resulting from higher production volumes and a favorable product mix (primarily from sales of BioSphere products).

Non-GAAP selling, general and administrative expenses for the third quarter of 2014 were 27.1% of sales, compared to 26.2% of sales for the third quarter of 2013. Non-GAAP SG&A expenses for the nine months ended September 30, 2014 were 28.6% of sales, compared to 27.3% of sales for the nine months ended September 30, 2013. GAAP SG&A expenses for the third quarter of 2014 were 28.2% of sales, compared to 27.2% of sales for the third quarter of 2013. For the nine-month period ended September 30, 2014, GAAP SG&A expenses were 29.6% of sales, compared to 28.9% of sales for the first nine months of 2013. The increase in SG&A expenses for both periods was primarily related to headcount additions and the costs to support Merit's domestic sales force reorganization, as well as international sales expansion and costs associated with the launch of Merit's new facility in Pearland, Texas, which are currently being recorded as SG&A expenses during a transition period of approximately nine months as Merit completes the movement and qualification of production equipment from the old facility in Angleton, Texas to the new Pearland facility.

Research and development costs during the third quarter of 2014 were 6.7% of sales, compared to 6.3% of sales for the third quarter of 2013. Research and development costs were 7.2% of sales for the first nine months of 2014, compared to 7.6% of sales for the comparable period of 2013. The increase in research and development costs for the third quarter of 2014 can be attributed primarily to headcount additions and an Irish government research and development benefit in the third quarter of 2013 related to the completion of Merit's new building in Galway, Ireland. The decrease in research and development expenses as a percentage of sales for the nine months ended September 30, 2014 was primarily the result of a higher rate of sales growth (15%), and a reduced rate of R&D expense growth (8%), compared to the same period in 2013.

"We are pleased with the progress we delivered in the third quarter, which is historically our slowest quarter," said Fred P. Lampropoulos, Merit's Chairman and Chief Executive Officer. "We believe our investments in automation and facilities are starting to pay off, and we still have a long way to go to reach the potential of our company."

"Our relocation in Texas from Angleton to Pearland was completed in late September," Lampropoulos continued. "We believe this move to a state-of-the-art facility will help protect our catheter and extrusion assets from regional weather risks and provide a larger talent pool for recruiting and retention."

"We recently received 510(k) clearance for our PreludeEASE™ hydrophilic radial sheath," Lampropoulos said. "We believe that the radial approach will continue to receive increased acceptance in the United States and that our recently launched ThinkRadial™ website will enhance our radial initiatives. We also expect that our 'stick to stitch' product offering and our robust product pipeline will continue to fuel growth."

Merit's income from operations was $12.1 million for the third quarter of 2014, compared to $8.4 million for the third quarter of 2013. For the nine-month period ended September 30, 2014, income from operations was $25.9 million, compared to $16.9 million for the corresponding period of 2013.

Merit's income tax expense for the third quarter of 2014 reflected an effective tax rate of 24.3%, compared to an effective tax rate of 12.9% for the third quarter of 2013. For the nine-month period ended September 30, 2014, Merit's effective tax rate was 25.6%, compared to 14.0% for the comparable period of 2013. The increase in the effective tax rate for both periods was primarily the result of a higher mix of earnings from Merit's U.S. operations, which are taxed at a higher rate than Merit's foreign operations (primarily Ireland).

CONFERENCE CALL

Merit invites all interested parties to participate in its conference call today, (Thursday, October 23 rd, 2014) at 5:00 p.m. Eastern (4:00 p.m. Central, 3:00 p.m. Mountain, and 2:00 p.m. Pacific). The domestic telephone number to call is (888) 428-9490, and the international number is (719) 325-2494. A live webcast will also be available for the conference call at merit.com.
 
BALANCE SHEET
(In thousands)
  September 30, December 31,
  2014 2013
ASSETS (Unaudited)  
Current Assets    
Cash and cash equivalents  $ 6,438   $ 7,459 
Trade receivables, net  69,387   60,186 
Employee receivables  181   224 
Other receivables  4,221   3,279 
Inventories  92,931   82,378 
Prepaid expenses  5,687   5,121 
Prepaid income taxes  1,199   1,232 
Deferred income tax assets  5,626   5,638 
Income tax refunds receivable  315   398 
Total Current Assets  185,985   165,915 
     
Property and equipment, net  247,655   243,270 
Other intangibles, net  111,237   119,987 
Goodwill  184,505   184,505 
Deferred income tax assets  799   800 
Other assets  16,328   13,806 
Total Assets  $ 746,509   $ 728,283 
     
LIABILITIES AND STOCKHOLDERS' EQUITY    
Current Liabilities    
Trade payables  26,709   26,511 
Accrued expenses  32,374   27,702 
Current portion of long-term debt  10,318   10,000 
Advances from employees  894   292 
Income taxes payable  3,805   1,089 
Total Current Liabilities  74,100   65,594 
     
     
Deferred income tax liabilities  2,335   2,548 
Liabilities related to unrecognized tax benefits  1,187   2,031 
Deferred compensation payable  8,477   7,833 
Deferred credits  2,934   3,065 
Long-term debt  230,484   238,854 
Other long-term obligation  2,741   2,652 
Total Liabilities  322,258   322,577 
     
Stockholders' Equity    
Common stock  182,614   177,775 
Retained earnings  241,291   226,988 
Accumulated other comprehensive income  346   943 
Total stockholders' equity  424,251   405,706 
Total Liabilities and Stockholders' Equity  $ 746,509   $ 728,283 
 
 
INCOME STATEMENT
(Unaudited, in thousands except per share amounts)
  Three Months Ended Nine Months Ended
  September 30, September 30,
  2014 2013 2014 2013
         
SALES  $ 128,808   $ 115,210   $ 376,909   $ 329,033 
         
COST OF SALES  71,387   64,180   211,821   188,025 
         
GROSS PROFIT  57,421   51,030   165,088   141,008 
         
OPERATING EXPENSES        
Selling, general and administrative  36,328   31,350   111,682   95,002 
Research and development  8,688   7,308   27,109   25,064 
Intangible asset impairment charge  1,102   8,089   1,102   8,089 
Contingent consideration benefit  (773)  (4,108)  (754)  (4,075)
Total  45,345   42,639   139,139   124,080 
         
INCOME FROM OPERATIONS  12,076   8,391   25,949   16,928 
         
OTHER INCOME (EXPENSE)        
Interest income  41   69   187   200 
Interest (expense)  (2,008)  (1,916)  (6,967)  (5,297)
Other income (expense)  144   (104)  52   (174)
Total other (expense) - net  (1,823)  (1,951)  (6,728)  (5,271)
         
INCOME BEFORE INCOME TAX EXPENSE  10,253   6,440   19,221   11,657 
         
INCOME TAX EXPENSE  2,489   833   4,918   1,627 
         
NET INCOME  $ 7,764   $ 5,607   $ 14,303   $ 10,030 
         
EARNINGS PER SHARE--        
Basic  $ 0.18   $ 0.13   $ 0.33   $ 0.24 
         
Diluted  $ 0.18   $ 0.13   $ 0.33   $ 0.23 
         
AVERAGE COMMON SHARES--        
Basic 43,229 42,596 43,054 42,560
         
Diluted 43,398 42,872 43,315 42,793
 

Although Merit's financial statements are prepared in accordance with accounting principles which are generally accepted in the United States of America ("GAAP"), Merit's management believes that certain non-GAAP financial measures provide investors with useful information regarding the underlying business trends and performance of Merit's ongoing operations and can be useful for period-over-period comparisons of such operations.  The following table sets forth supplemental financial data and corresponding reconciliations to GAAP financial statements for the three- and nine-month periods ended September 30, 2014 and 2013, respectively. Readers should consider these non-GAAP measures in addition to, not as a substitute for, financial reporting measures prepared in accordance with GAAP. These non-GAAP financial measures exclude some, but not all, items that affect Merit's net income. Additionally, these calculations may not be comparable with similarly titled measures of other companies.
 
NON-GAAP FINANCIAL STATEMENTS
FOR THE THREE AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2014 AND 2013
 
  Three Months Ended Nine Months Ended
  September 30, September 30,
  2014 2013 2014 2013
Non-GAAP ADJUSTMENTS        
GAAP net income  $ 7,764   $ 5,607   $ 14,303   $ 10,030 
         
Acquisition costs  3   32   89   526 
Mark-up on finished goods (a)    164     744 
Severance  28   65   149   1,411 
Long-term asset impairment charges (b)  396   27   717   80 
Intangible asset impairment charge (c)  1,102   8,089   1,102   8,089 
Long-term debt issuance charges  247   199   741   597 
Amortization of intangible assets        
Cost of sales  2,790   2,363   8,311   7,089 
SG&A expense  960   1,076   2,851   3,322 
Contingent consideration benefit (d)  (773)  (4,108)  (754)  (4,075)
Income tax effect of reconciling items (e)  (1,806)  (3,005)  (5,018)  (6,758)
         
Non-GAAP net income  $ 10,711   $ 10,509   $ 22,491   $ 21,055 
         
Non-GAAP net income per share  $ 0.25   $ 0.25   $ 0.52   $ 0.49 
         
Diluted shares used to compute Non-GAAP net income per share  43,398   42,872   43,315   42,793 
 

Merit's non-GAAP income for adjustments referenced in the preceding table does not reflect stock-based compensation expense of approximately $341,000 and approximately $289,000 for the three months ended September 30, 2014 and 2013, respectively, and stock-based compensation of approximately $1.0 million and approximately $1.1 million for the nine months ended September 30, 2014 and 2013, respectively.

(a) Increase in cost of goods sold related to the mark-up of finished goods associated with Merit's acquisition of Thomas Medical Products, Inc. (b) Amounts represent abandoned patents and some property, plant and equipment. (c) Represents impairment of certain intangible assets. (d) Represents changes in the fair value of contingent consideration liabilities for recent acquisitions. (e) Reflects an estimated annual income tax rate of 38% on a non-GAAP basis.

ABOUT MERIT

Founded in 1987, Merit Medical Systems, Inc. is engaged in the development, manufacture and distribution of proprietary disposable medical devices used in interventional and diagnostic procedures, particularly in cardiology, radiology and endoscopy. Merit serves client hospitals worldwide with a domestic and international sales force totaling approximately 200 individuals. Merit employs approximately 3,000 people worldwide, with facilities in South Jordan, Utah; Pearland, Texas, Richmond, Virginia; Malvern, Pennsylvania; Maastricht and Venlo, The Netherlands; Paris, France; Galway, Ireland; Beijing, China; and Rockland, Massachusetts.

Statements contained in this release which are not purely historical, including, without limitation, statements regarding Merit's forecasted revenues, net income, financial results or anticipated acquisitions, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and are subject to risks and uncertainties such as those described in Merit's Annual Report on Form 10-K for the year ended December 31, 2013. Such risks and uncertainties include risks relating to Merit's potential inability to successfully manage growth through acquisitions, including the inability to commercialize technology acquired through completed, proposed or future transactions; product recalls and product liability claims; expenditures relating to research, development, testing and regulatory approval or clearance of Merit's products and risks that such products may not be developed successfully or approved for commercial use; greater governmental scrutiny and regulation of the medical device industry; reforms to the 510(k) process administered by the U.S. Food and Drug Administration; compliance with governmental regulations and administrative procedures; potential restrictions on Merit's liquidity or its ability to operate its business in compliance with its current debt agreements; possible infringement of Merit's technology or the assertion that Merit's technology infringes the rights of other parties; the potential of fines, penalties or other adverse consequences if Merit's employees or agents violate the U.S. Foreign Corrupt Practices Act or other laws and regulations; laws targeting fraud and abuse in the healthcare industry; potential for significant adverse changes in, or failure to comply with, governing regulations; the effect of changes in tax laws and regulations in the United States or other countries; increases in the prices of commodity components; negative changes in economic and industry conditions in the United States and other countries; termination or interruption of relationships with Merit's suppliers, or failure of such suppliers to perform; fluctuations in Euro and GBP exchange rates; Merit's need to generate sufficient cash flow to fund its debt obligations, capital expenditures, and ongoing operations; concentration of Merit's revenues among a few products and procedures; development of new products and technology that could render Merit's existing products obsolete; market acceptance of new products; volatility in the market price of Merit's common stock; modification or limitation of governmental or private insurance reimbursement policies; changes in health care markets related to health care reform initiatives; failure to comply with applicable environmental laws; changes in key personnel; work stoppage or transportation risks; uncertainties associated with potential healthcare policy changes which may have a material adverse effect on Merit; introduction of products in a timely fashion; price and product competition; availability of labor and materials; cost increases; fluctuations in and obsolescence of inventory; and other factors referred to in Merit's Annual Report on Form 10-K for the year ended December 31, 2013 and other materials filed with the Securities and Exchange Commission. All subsequent forward-looking statements attributable to Merit or persons acting on its behalf are expressly qualified in their entirety by these cautionary statements. Actual results will 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.
CONTACT: Anne-Marie Wright, Vice President, Corporate Communications         (801) 208-4167 e-mail: awright@merit.com Fax: (801) 253-1688

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