Merit Medical Systems, Inc. (MMSI)
Q4 2012 Earnings Conference Call
February 21, 2013, 05:00 PM ET
Fred P. Lampropoulos - Chairman, President and CEO
Kent W. Stanger - Director, CFO, Secretary/Treasurer
Martin R. Stephens - EVP, Sales and Marketing
Rashelle Perry - General Counsel
Larry Solow - CJS Securities
Jayson Bedford - Raymond James & Associates
Jim Sidoti - Sidoti & Company
Ross Taylor - CL King & Associates, Inc.
Kevin Casey - Casey Capital
Previous Statements by MMSI
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I’d now like to turn the conference over to Fred Lampropoulos, Chairman and CEO. Please go ahead, sir.
Good afternoon ladies and gentlemen and thank you for joining us. We are broadcasting from Salt Lake City and we’d like to begin our meeting today with having our Safe Harbor provision read by our General Counsel Rashelle Perry. Rashelle?
Thank you. During our discussion today, reference may be made to projections, anticipated events or other information which is not purely historical. Please be aware that statements made in this call may be considered forward-looking statements. We caution you that all forward-looking statements involve risks, unanticipated events, uncertainties that could cause our actual results to differ materially from those anticipated in such statements. Many of these risks are discussed in our annual report on Form 10-K and other reports and filings with the SEC, available on our website.
Any forward-looking statements made in this call, are made only as of today's date and we do not assume any obligation to update such statements. Although Merit's financial statements are prepared in accordance with accounting principles generally accepted in the United States, 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 with such operation. The table included in our release, which will be discussed on this call, sets forth supplemental financial data and corresponding reconciliations to GAAP financial statements.
Investors should consider these non-GAAP measures in addition to, financial reporting measures prepared in accordance with GAAP. These non-GAAP financial measures exclude some but not all items that affect net income. Finally, these calculations may not be comparable with similarly titled measures of other companies.
Rashelle, thank you very much and again good afternoon ladies and gentlemen. Thank you for joining us. We have a very complicated discussion today including a lot of details and projections for the future and clarifications. So let me just start and give a little bit of a review of our year. We ended the year with revenues $394 million, an increase of 10% over the previous year. For the quarter we’re up 12%, just as a note that there was a couple of million dollars $1.9 million or so that came into place in the last 12 days of the month from the Thomas acquisition. And that’s included in this number.
I’m going to ask Kent Stranger, to kind of go through the GAAP and non-GAAP because there are a lot of issues relative to the expenses of the Thomas deal, associated with that and that – also there is the acquired inventory mark up cost that were in the fourth quarter. So there is a lot of complicated things here and I will ask you Kent to go through kind of clarify that for the group.
Kent W. Stanger
So Merit’s non-GAAP income from the quarter and the fourth quarter was $6.2 million or $0.15 a share compared to $7.4 million or $0.18 a share for the quarter a year-ago in ’11. For the year we were $30.8 million or $0.72 a share compared to nearly the same, $30.9 million or $0.78 a share which is on fewer shares a year-ago.
So when we look at the GAAP net income is where Fred was really talking about, gets interesting because our earnings were $641,000 or $1.005 about once it rounded to $0.01 compared to $5 million or $0.12 a year-ago. And in that was two large adjustments we had. One, which is in the non-GAAP adjustment is that $2.7 million for acquisition cost. Bankers, auditors, lawyers and those kinds of thing. The other big adjustment was write-off for an impairment, have an investment in the privately held company which net of tax was $1.5 million. So those $3.7 million made a big difference obviously in our earnings compared to the prior-year.
Fred P. Lampropoulos
Okay. All right. Thanks, Kent. And again I think the one that issue there on the impairment cost was had to do with an investment that Merit made in an Irish company on a technology that we have actually transferred and so Merit actually acquired the rights in producing that product here. But the equity part of that investment was part that we impaired. So I appreciate that.
In the fourth quarter as you can imagine we were very busy with all the work that is necessary to do a transaction. Let me address the Thomas Medical Transaction for you, it’s been now about two months. Part of that of course was during the holiday and I will say a little bit about what our thinking is today about the transaction. I think that we thus continue to feel that Merit’s entry way into the basket or access market via the cardiac rhythm management business is something that’s very comfortable for us, both in terms of the technology, the personnel that we have brought along with the deal here and the opportunities were world wide. We have dispatched two Merit employees, long time employees to Malvern, Pennsylvania where they will act as in the RD capacity and the Managing Director of the facility to essentially meritise the product.
We are convinced and believe, and I think this – the numbers will hold this that the splitable, peelable sheath is the gold standard worldwide and I think that is clear and evident when it is being essentially utilized but all of our major – large companies, the big four, the big five depending on your perspective. Now one of the challenges is that there was a lot of product that was put into customers hands in the fourth quarter and if you can just think it for a second, about $1.9 million or so coming to us, just the last 10 days over Christmas.
There was a lot of product that was moved forward, and it was a busy year for those guys. Now that means in the first quarter like you would have when people are trying to fulfill contract requirements for pricing reasons that you’re going to be a little dry. And so it is a little bit slow and will have some effect in the first quarter in terms of the transaction.
I think on the positive side, many of these accounts that are Merit accounts, as well as belonging to the larger companies are starting to ask and convert to a direct method, may be faster than we had anticipated. And so Merit will meet responsibility to our OEM customers, but at the same time we have a sales force of almost 200 people worldwide and when customers ask us when those opportunities are available, it is our full intension to meet those needs of the customers. Now clearly when we do that, we get higher margins as well.
Now another thing that we’re doing is that the facilities in Melbourne were running three shifts. And so that was quite a difficult thing to develop new products. So we have no less than three or four new projects that we’re moving forward on that are improvements of our technology and products that you will see this year and next year. They have to do with steerable sheaths, they have to do with improved splitable sheaths, they have to do with non-valve sheaths, they have to do with a number of other products, again all essentially our same call point. So we believe that this is a great opportunity for us and remember these are accounts that we will calling on. These are EP labs and places where we’re selling wires and trades and kits already. And now we’re able to expand this on a more direct basis. Also it’s a point of interest. And I think this is another – it’s actually a very big deal.