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Merit Medical Systems, Inc. (MMSI)
Q1 2013 Results Earnings Call
April 25, 2013 5:00 PM ET
Fred Lampropoulos - Chairman and CEO
Rashelle Perry - General Counsel
Kent Stanger - Chief Financial Officer
Tom Gunderson - Piper Jaffray
Jayson Bedford - Raymond Jame
Jim Sidoti - Sidoti & Company
Chris Cooley - Stephens
Ross Taylor - CL King
Previous Statements by MMSI
» Merit Medical Systems' CEO Discusses Q4 2012 Results - Earnings Call Transcript
» Merit Medical Systems CEO Discusses Q3 2010 Results - Earnings Call Transcript
» Merit Medical Systems, Inc. Q2 2010 Earnings Call Transcript
» Merit Medical Systems Inc. Q1 2010 Earnings Call Transcript
I would now like to turn the conference over to our host, Fred Lampropoulos, Chairman and CEO. Please go ahead.
Good afternoon, ladies and gentlemen. We are assembled in South Jordan, Utah to present to you our first quarter results and to talk about lot of items that I know that you are interested in today. We’ll start out first by having our General Counsel, Rashelle Perry read our opening statements. Rashelle?
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 which are not historical may be considered forward-looking statements.
We caution you that all forward-looking statements involve risks, unanticipated events, and 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 Securities and Exchange Commission 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 which are generally accepted in United States, 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 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, 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 net income. Finally, these calculations may not be comparable with similarly titled measures of other company.
Rashelle thank you very much. Ladies and gentlemen, we have to talk about today and a lot of issues that I know will be of interest to you. Let me start off first and talk a little bit about the revenue side of things and explain a little bit about our business there in the first quarter. And then I will turn the time over to Kent Stanger, our Chief Financial Officer, who will discuss with you the various issues as it pertains to gross margins and the expenses that have been added there, so that you have a clear understanding.
Let’s talk about revenues, first of all, as I think you are well aware that we had relatively slow quarter. This is not inconsistent with other medical device companies and there are many, many factors behind this. Some has to do with utilization. Some has to do with various aspects of the Affordable Healthcare Act. There are lot of various issues that go into this.
Our sales increased over the previous year was 9%, however, of note for you, well, is that 3% was the direct growth rate of Merit’s direct sales and the rest of that was added from the addition of Melbourne. So that is I think essentially the slowest quarter in terms of growth that we’ve, that I can recall and I can go through, and we’ll go through a number of the areas little bit later on in terms of both revenues.
Now, unless you immediately either get off the call or get this made, I will tell that business were better in March. We had a record month. We did $37.5 million. The business has improved substantially and we have a number of new products and ideas that we will submit to you that we think will be of interest to you.
But the first thing I’m going to do this have Kent go over the gross margins, because we think that’s an important to understand. Kent, do you want to go through that?
Certainly. Gross margins were 41.4% compared to 46.2% for the first quarter year ago and there is a lot of issues there that I want to disclose. First of all, we had a reduction due to manufacturing variances or unapplied overheads due to reduction of inventory.
We drop our inventory $2.1 million during the quarter and are managing that in a prudent manner. And $1 million of that was due to variances in Malvern in the lower sales volumes and production volumes associated with that.
The next thing of note is that we had new amortizations of intangibles in regards to gross margins for Malvern, which was $1.3 million. And we also had new taxes you're aware of it that was we've put it into cost of sales, so that was over $1 million, almost $1.1 million and 1% of sales adjustment to the cost of sales.
And finally, 26% or $580,000 of one-time charges that have to do with the markup of inventory or the increase of inventory costs due to the acquisition accounting values that are flowing through and almost completed this quarter, we have a couple hundred thousand that left. I think those are total adjustments was the 4.8% that you saw on the GAAP basis.
Okay. All right, Kent.
I might following with net non-GAAP basis but the gross margins were 44.4%, compared to 47.2% a year ago and if you take the tax out of that which wasn't there to be compared, its 45.4%. So still a decline of 1.8% and most of that has to do with the manufacturing variances I referred to.
Okay. All right. Thank you. Let me talk about the revenue side for a moment. You'll notice there and I'm sure you're well aware that Merit has reduced its guidance for the year by about $10 million. Almost all of that comes from Malvern and I’d like to explain to you what our thinking is there and why we've done this.
When we acquired Thomas Medical, we had a forecast based on the best possible information of due diligence that was available. One other things that we have not -- we did see by the way, a substantial amount of record sales of product that was shipped out of Malvern in the fourth quarter.
We were fortunate that we picked up about $1.7 million worth of that, but clearly the pipeline was quite full. In fact I think their amount was almost $8 million, Kent, if I’m…
For the quarter.
… for the quarter.