MMSI

Merit Medical Systems, Inc. (MMSI)

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Merit Medical Systems, Inc. (MMSI)

Q1 2009 Earnings Call

April 28, 2009 5:00 pm ET

Executives

Fred Lampropoulos – Chief Executive Officer

Kent Stanger – Chief Financial Officer

Greg Barnett – Chief Accounting Officer

Analysts

Sean Babic - SIG

Christopher Warren – Caris & Company

Jayson Bedford – Raymond James

James Sidoti – Sidoti & Company

Unidentified Analyst

Presentation

Operator

Welcome to the Merit Medical Systems’ first quarter 2009 earnings conference call. (Operator Instructions). This conference is being recorded today, Tuesday, April 28, 2009. I would now like to turn the conference over to Mr. Fred Lampropoulos, CEO of Merit Medical.

Fred Lampropoulos

Good afternoon, ladies and gentlemen. This is Fred Lampropoulos with members of our staff in Salt Lake City and our beautiful snow-capped mountains. We have Kent Stanger who is traveling, been on the line in Atlanta and will be home later on this evening, and I’m going to ask Ann Marie Wright if she will read our disclaimer.

Ann Marie Wright

In the course of 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, which are not purely historical, may be considered forward-looking statements. We caution you that all forward-looking statements involve risks, unanticipated events, uncertainties and other factors that could cause our actual results to differ materially from those anticipated in such statements. Many of these risks, events, uncertainties and other factors are discussed in our annual report on Form 10-K and other reports and filings with the Securities and Exchange Commission which are also available on our website. To the extent any forward-looking statements are made in this call, such statements are made only as of today's date, and we do not assume any obligation to update any such statements.

Fred Lampropoulos

Thank you, Ann Marie, and good afternoon ladies and gentlemen. We're delighted to report today the results of our first quarter. As you can all see Merit reported record sales of $58.4 million, up 9%, as compared to $53.6 for the first quarter of 2008. I should mention that in this quarter, we had approximately 3 weeks of the Alveolus sales which accounted for about $485,000, but that was only 3 weeks. The sales were affected by about $700,000 of lower than expected sales from a large OEM customer, and I’ll come back and discuss that a little further on the call as well as about $1.1 million for FX effect, and this is because of strengthening of the US dollar. All in all, I’m very pleased with the quarter. As you can see from the report, our earnings were $0.19 per share versus $0.15, a 28% increase. I think you can also see that our gross margins were up 220 basis points, over the year ago period at 42.5%. We are very pleased with the improvements that we see in gross margins.

In addition you’ll notice that the SG&A costs were 25.4%, approximately 130 basis points of that were expenses that were incurred relating to the acquisition of Alveolus, and as some of you will recall, we discussed previously that under 141R those costs now have to be expensed in the period. That being said, we also took a writedown in the quarter of about another $420,000 pre-tax. This was for some obsolete inventory and equipment, and we impaired that, but the results take all of those things into consideration. I think as you look at all of that, you’ll agree that it was an extraordinary quarter.

Let me talk a little bit about the groups. Catheter sales were up 25%. I think you’re all aware that that has been the fastest growing area of our business for some time now, and we believe that will continue as we develop more vascular access products. Custom kit and tray sales were 10%. You’ll notice that there is one situation there where you saw a reduction in our inflation device sales. Most of that reduction was a result of the lower sales from an OEM customer.

Without that, our sales would have been up 1.2%, so even that area, which is the slowest growing area of the company, still grew, although marginally. We expect to see improvements to that as we go on through the year with the introduction of two new Merit inflation devices, one digital and one a brand new version of our Basics line, and that’s a 60 mL inflation device which is used for peripheral and esophageal procedures, and that will be a Merit product.

Our inventory continues to turn reasonably well. We continue to have no long-term debt, although you’ll notice that we had a substantial reduction in cash from year end as we used that cash to pay for the transactions. We also repurchased $2.5 million worth of stock during the quarter, and at the end of March 31, we had about $16.4 million in cash.

Another thing that I’d like to bring your attention to is our tax status, and that is that our tax rate was 31.4% compared to 36%. That has to do with the large volumes of product and the direction that we’re going in Ireland, and Greg Barnett, our Chief Accounting Officer, would you just shed a little light on that Greg?

Greg Barnett

During the quarter, the strengthening of the dollar helped their cost to be lowered, plus the material cost of their purchasing went down as well, and they had some increased volumes for production, so all those increased their profitability which are taxed at a lower rate at 10% versus at 38.7% in the US, so that helped improve the overall effective rate for the company for the quarter.

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