Merit Medical Systems Earnings 2020-03-31
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
FOR THE QUARTERLY PERIOD ENDED
OR
FOR THE TRANSITION PERIOD FROM TO .
Commission File Number
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(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) |
(Address of principal executive offices, including zip code)
Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol | Name of exchange on which registered |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Accelerated Filer ☐ | Non-Accelerated Filer ☐ | Smaller Reporting Company | Emerging Growth Company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
Indicate the number of shares outstanding of each of the Registrant’s classes of common stock, as of the latest practicable date.
Common Stock |
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Title or class | Number of Shares |
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2020 AND DECEMBER 31, 2019
(In thousands)
| March 31, |
| December 31, | |||
| 2020 |
| 2019 | |||
ASSETS |
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CURRENT ASSETS: |
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Cash and cash equivalents | $ | | $ | | ||
Trade receivables — net of allowance for uncollectible accounts — 2020 — $ |
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Other receivables |
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Inventories |
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Prepaid expenses and other current assets |
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Prepaid income taxes |
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Income tax refund receivables |
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Total current assets |
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PROPERTY AND EQUIPMENT: |
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Land and land improvements |
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Buildings |
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Manufacturing equipment |
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Furniture and fixtures |
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Leasehold improvements |
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Construction-in-progress |
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Total property and equipment |
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Less accumulated depreciation |
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Property and equipment — net |
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OTHER ASSETS: |
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Intangible assets: |
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Developed technology — net of accumulated amortization —2020 — $ |
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Other — net of accumulated amortization — 2020 — $ |
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Goodwill |
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Deferred income tax assets |
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Right-of-use operating lease assets | | | ||||
Other assets |
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Total other assets |
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TOTAL ASSETS | $ | | $ | | ||
See condensed notes to consolidated financial statements. | (continued) |
3
MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2020 AND DECEMBER 31, 2019
(In thousands)
| March 31, |
| December 31, | |||
| 2020 |
| 2019 | |||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
| (unaudited) |
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CURRENT LIABILITIES: |
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Trade payables | $ | | $ | | ||
Accrued expenses |
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Current portion of long-term debt |
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Short-term operating lease liabilities | | | ||||
Income taxes payable |
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Total current liabilities |
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LONG-TERM DEBT |
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DEFERRED INCOME TAX LIABILITIES |
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LONG-TERM INCOME TAXES PAYABLE |
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LIABILITIES RELATED TO UNRECOGNIZED TAX BENEFITS |
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DEFERRED COMPENSATION PAYABLE |
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DEFERRED CREDITS |
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LONG-TERM OPERATING LEASE LIABILITIES | |
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OTHER LONG-TERM OBLIGATIONS |
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Total liabilities |
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COMMITMENTS AND CONTINGENCIES (Notes 4, 8, 9 and 10) |
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STOCKHOLDERS’ EQUITY: |
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Preferred stock — |
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Common stock, no par value; shares authorized — 2020 and 2019 - 100,000; issued and outstanding as of - |
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Retained earnings |
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Accumulated other comprehensive loss |
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Total stockholders’ equity |
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | | $ | | ||
See condensed notes to consolidated financial statements. | (concluded) |
4
MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
FOR THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019
(In thousands, except per share amounts - unaudited)
| Three Months Ended | |||||
March 31, | ||||||
| 2020 |
| 2019 | |||
NET SALES | $ | | $ | | ||
COST OF SALES |
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GROSS PROFIT |
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OPERATING EXPENSES: |
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Selling, general and administrative |
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Research and development |
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Impairment and other charges |
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Contingent consideration expense |
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Acquired in-process research and development |
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Total operating expenses |
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INCOME FROM OPERATIONS |
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OTHER INCOME (EXPENSE): |
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Interest income |
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Interest expense |
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Other expense - net |
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Total other expense — net |
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INCOME (LOSS) BEFORE INCOME TAXES |
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INCOME TAX EXPENSE |
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NET INCOME (LOSS) | $ | ( | $ | | ||
EARNINGS (LOSS) PER COMMON SHARE: |
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Basic | $ | ( | $ | | ||
Diluted | $ | ( | $ | | ||
AVERAGE COMMON SHARES: |
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Basic |
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Diluted |
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See condensed notes to consolidated financial statements.
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MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
FOR THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019
(In thousands - unaudited)
| Three Months Ended | |||||
March 31, | ||||||
| 2020 |
| 2019 | |||
Net income (loss) | $ | ( | $ | | ||
Other comprehensive income (loss): |
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Cash flow hedges |
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Income tax benefit (expense) |
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Foreign currency translation adjustment |
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Income tax benefit (expense) |
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Total other comprehensive loss |
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Total comprehensive income (loss) | $ | ( | $ | | ||
See condensed notes to consolidated financial statements.
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MERIT MEDICAL SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019
(In thousands - unaudited)
Accumulated Other | ||||||||||||||
Common Stock | Retained | Comprehensive | ||||||||||||
| Total |
| Shares |
| Amount |
| Earnings |
| Income (Loss) | |||||
BALANCE — January 1, 2020 | $ | |
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Net loss |
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Cumulative effect adjustment upon adoption of ASU 2016-13, Credit Losses | ( | ( | ||||||||||||
Other comprehensive loss |
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Stock-based compensation expense |
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Options exercised |
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Issuance of common stock under Employee Stock Purchase Plan |
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Shares surrendered in exchange for payment of payroll tax liabilities | ( |
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Shares surrendered in exchange for exercise of stock options | ( |
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BALANCE — March 31, 2020 | $ | |
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Accumulated Other | ||||||||||||||
Common Stock | Retained | Comprehensive | ||||||||||||
| Total |
| Shares |
| Amount |
| Earnings |
| Income (Loss) | |||||
BALANCE — January 1, 2019 | $ | | | $ | | $ | | $ | ( | |||||
Net income |
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Reclassify deferred gain on sale-leaseback upon adoption of ASC 842 | | | ||||||||||||
Other comprehensive loss |
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Stock-based compensation expense |
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Options exercised |
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Issuance of common stock under Employee Stock Purchase Plan |
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BALANCE — March 31, 2019 | $ | |
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See condensed notes to consolidated financial statements. |
7
MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019
(In thousands - unaudited)
Three Months Ended | ||||||
March 31, | ||||||
| 2020 |
| 2019 | |||
CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net income (loss) | $ | ( | $ | | ||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
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Depreciation and amortization |
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Loss on sales and/or abandonment of property and equipment |
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Write-off of certain intangible assets and other long-term assets |
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Acquired in-process research and development |
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Amortization of right-of-use operating lease assets | | | ||||
Fair value adjustments to contingent consideration | | | ||||
Amortization of deferred credits |
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Amortization of long-term debt issuance costs |
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Stock-based compensation expense |
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Changes in operating assets and liabilities, net of effects from acquisitions: |
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Trade receivables |
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Other receivables |
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Inventories |
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Prepaid expenses and other current assets |
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Prepaid income taxes |
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Income tax refund receivables |
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Other assets |
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Trade payables |
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Accrued expenses |
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Income taxes payable |
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Deferred compensation payable |
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Operating lease liabilities | ( | ( | ||||
Other long-term obligations |
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Total adjustments |
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Net cash provided by operating activities |
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CASH FLOWS FROM INVESTING ACTIVITIES: |
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Capital expenditures for: |
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Property and equipment |
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Intangible assets |
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Proceeds from the sale of property and equipment |
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Cash received for settlement of current note receivable |
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Cash paid in acquisitions, net of cash acquired |
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Net cash used in investing activities |
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See condensed notes to consolidated financial statements. | (continued) |
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MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019
(In thousands - unaudited)
| Three Months Ended | |||||
March 31, | ||||||
2020 | 2019 | |||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
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Proceeds from issuance of common stock | $ | | $ | | ||
Proceeds from issuance of long-term debt |
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Payments on long-term debt | ( | ( | ||||
Contingent payments related to acquisitions |
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Payment of taxes related to an exchange of common stock |
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Net cash used in financing activities |
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EFFECT OF EXCHANGE RATES ON CASH |
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
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CASH AND CASH EQUIVALENTS: |
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Beginning of period |
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End of period | $ | | $ | | ||
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION |
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Cash paid during the period for: |
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Interest (net of capitalized interest of $ | $ | | $ | | ||
Income taxes | $ | | $ | | ||
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES |
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Property and equipment purchases in accounts payable | $ | | $ | | ||
Current note receivable converted to equity investment | $ | | $ | — | ||
Right-of-use operating lease assets obtained in exchange for operating lease liabilities | $ | | $ | | ||
See condensed notes to consolidated financial statements. | (concluded) |
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MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation. The interim consolidated financial statements of Merit Medical Systems, Inc. ("Merit," "we" or "us") for the three months ended March 31, 2020 and 2019 are not audited. Our consolidated financial statements are prepared in accordance with the requirements for unaudited interim periods and, consequently, do not include all disclosures required to be made in conformity with accounting principles generally accepted in the United States of America. In the opinion of our management, the accompanying consolidated financial statements contain all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of our financial position as of March 31, 2020 and December 31, 2019, and our results of operations and cash flows for the three-month periods ended March 31, 2020 and 2019. The results of operations for the three-month periods ended March 31, 2020 and 2019 are not necessarily indicative of the results for a full-year period. Within the financial statements and tables presented, certain columns and rows may not total due to the use of rounded numbers for disclosure purposes. Percentages and earnings per share amounts presented are calculated from the underlying amounts. These interim consolidated financial statements should be read in conjunction with the financial statements included in our Annual Report on Form 10-K (the "2019 Form 10-K") for the year ended December 31, 2019, which was filed with the Securities and Exchange Commission (the "SEC") on March 2, 2020.
Reclassifications
Certain reclassifications have been made to the 2019 periods to conform to the 2020 presentation. In the consolidated statements of cash flows, the fair value adjustment to contingent consideration is presented as a reconciling item between net income (loss) and cash flows from operating activities in 2020, with a corresponding reclassification of $
2. Recently Issued Financial Accounting Standards.
Recently Adopted
In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2018-15, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). ASU 2018-15 became effective for us on January 1, 2020. The adoption of this standard did not have a material impact on our consolidated financial statements.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820), which removes, modifies and adds various disclosure requirements related to fair value disclosures. ASU 2018-13 became effective for us beginning on January 1, 2020. We modified our disclosures beginning in the three-month period ended March 31, 2020 to conform with this guidance (see Note 14).
In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which replaced the incurred loss impairment methodology for financial assets with a methodology that reflects expected credit losses. The new credit loss model must be applied to loans, accounts receivable, and other financial assets. ASU 2016-13 became effective for us beginning on January 1, 2020. We adopted this standard using a modified retrospective approach with a cumulative-effect adjustment to retained earnings of $
We currently believe that all other issued and not yet effective accounting standards are not relevant to our financial statements.
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3.
Disaggregation of Revenue
The disaggregation of revenue is based on product category and geographical region. Beginning in the first quarter of 2020, we revised our product categories to more clearly reflect how we sell our products to our customers. We presented historical information under the new revised product categories in a Current Report on Form 8-K, filed with the SEC on April 3, 2020.
We design, develop, manufacture and market medical products for interventional and diagnostic procedures. For financial reporting purposes, we report our operations in
The following tables present revenue from contracts with customers for the three-month periods ended March 31, 2020 and 2019 (in thousands):
Three Months Ended | Three Months Ended | |||||||||||||||||
March 31, 2020 | March 31, 2019 | |||||||||||||||||
| United States |
| International |
| Total |
| United States |
| International |
| Total | |||||||
Cardiovascular |
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Peripheral Intervention | $ | | $ | | $ | | $ | | $ | | $ | | ||||||
Cardiac Intervention |
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Custom Procedural Solutions |
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OEM |
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Total |
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Endoscopy | ||||||||||||||||||
Endoscopy devices |
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Total | $ | | $ | | $ | | $ | | $ | | $ | | ||||||
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4. Acquisitions. On August 1, 2019, we entered into a share purchase agreement to acquire Fibrovein Holdings Limited, which is the owner of
Assets Acquired |
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Trade receivables | $ | | |
Inventories |
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Prepaid expenses and other assets |
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Intangible assets |
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Developed technology | | ||
Goodwill | | ||
Total assets acquired |
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Liabilities Assumed |
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Trade payables |
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Accrued expenses |
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Deferred income tax liabilities |