Merit Medical Systems, Inc. (MMSI)

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Merit Medical Systems Inc. (MMSI)

Q1 2010 Earnings Call

April 29, 2010 5:00 pm ET


Fred Lampropoulos - Chairman & Chief Executive Officer

Kent Stanger - Chief Financial Officer

Joe Wright - Vice President, International Sales

Michelle Perry - General Counsel


Eric -Thomas Weisel Partners

James Sidoti - Sidoti & Co.

Jayson Bedford - Raymond James

Dave Turkaly - SIG

Shawn Fitz - Stephens Inc.

Ross Taylor - C.L. King & Associates



Good afternoon ladies and gentlemen. Thank you for standing by. Welcome to the Merit Medical first quarter 2010 earnings conference call. During today’s presentation all parties will be in a listen-only mode. Following the presentation, the conference will be opened for question. (Operator Instructions)

I would now like to turn the conference over to Fred Lampropoulos, Chairman and CEO; please go ahead sir.

Fred Lampropoulos

Good afternoon, ladies and gentlemen. We are broadcasting from Salt Lake City. We’re in the midst of spring time in the Rockies. We’ve had heavy snow most of the day and it’s cold. I’m delighted that you’ve taken the time and I’m pleased to be able to discuss with you today the results of our first quarter.

I’d like to start first by having our General Counsel, Michelle Perry, to talk about our Safe Harbor provisions.

Michelle Perry

In the course of our discussion today, reference maybe 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 maybe 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 are other factors are discussed in our Annual Report on Form 10-K and other reports and filings with the SEC, 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

Michelle, thank you very much. Ladies and gentlemen, I am pleased to report the results of our first quarter. I’d like to start with a brief discussion of our revenues.

Sales for the first quarter ended March 31 was $67.4 million, an increase of 16% over sales of $58.4 million for the first quarter. We beat our internal forecast by approximately $2 million. Of note, is the fact that sequentially orders from a large OEM customer were $2.8 million, and from the year ago period, approximately $800,000. So I think when you look at this performance, particularly in light of the sequential results, it’s extraordinary.

Let me just discuss for a minute a little bit about why our revenues are improving, and why we think they will improve going forward. First of all one of the products that we introduced was our EnSnare product. You’ll recall that our initial forecast was approximately $5.8 million.

In our conference call in January, early February, we discussed that number was now ramping at approximately, and moved that up to about $7.8 million. We are currently ramping as of the sales for the first quarter at $8.4 million, and we believe that this product has the potential to produce revenues in the $9 million to $10 million range this year based on that ramp.

I think we’ve been extraordinarily successful in not only converting the existing accounts, but we’re using the product in the best of class area here, but also taking market share away from some of our competitors, in again what we believe is the best of class product.

We are also producing this product at atleast 80% gross margins, and a good portion of the increase sequentially on our gross margins, we think in the range of 90 basis points came from the production of this product. So it’s being produced in Ireland, and our guys have done a terrific job, our sales force has done a terrific job.

There are other, I think really important things going on in the marketplace and for years and years many of you have heard me talk about Merit getting stronger and our competitors getting weaker. The fact of the matter is, I have never seen that statement more true than today, and in fact accelerating.

There are major disruptions in the marketplace with a number of our competitors, and we have been able to book new business 10, 20, 30 accounts. Our products where one of our major competitors is having difficulty delivering product for several reasons that we are aware of, and I am sure several that we are not, but that business is accelerating.

I am pleased to announce that earlier today we received a notification from the food and drug administration in terms of our 510(K) approval regarding a new product that we call [DETRAN]. This is a nanofold system that has an integral transducer, and a product that we think will accelerate. Again, sales in this particular area, we are seeing the weakness of our competitors.

Of also, I think of interest is the fact that we are the only company in the world that produces essentially all of the components, including the pressure sensor. Merit is now producing it and incorporating our own pressure sensor in all of our pressure transducers, or atleast we are ramping in that direction, and DETRAN has the new Merit pressure transducer incorporated into that product.

So if we look at all the various areas across our sales organization, we see that our direct sales in Europe are about 26%. We take the OEM and we EX out; the OEM customer was up 15%. In Japan we’re up almost 40%. Our US direct sales force which represents the largest single portion of our sales is up 16% worldwide dealers, and so on and so forth. So we are seeing strength across the board in our sales efforts.

Let me move if I could then now to the net income. The net income for the first quarter was $4.5 million or $0.16 per share, compared to $5.5 million or $0.19 for the first quarter last year. One of the things I’d like to do is to have some discussion for a moment, and talk about some of those things that are affecting our earnings and gross margins.

As I mentioned previously, our gross margins for the first quarter of 2010 were 42.2%. Now that compares with 42.5% last year, but I think the most important thing is not to look back a year, although that’s what we do here, is to compare, but to really look back to the fourth quarter, and you’ll all appreciate that we had the issues of production going on in a slowdown, whereas you can see form this, we clearly have bounced back, our gross margins being now 42.21% versus 40.5% for that fourth quarter.

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