Merit Medical Reports Results for Fourth Quarter and Year Ended December 31, 2022 Issues Fiscal Year 2023 Guidance

Merit Medical Reports Results for Fourth Quarter and Year Ended December 31, 2022 Issues Fiscal Year 2023 Guidance

  • Q4 2022 reported revenue of $293.4 million, up 5.4% compared to Q4 2021
  • Q4 2022 constant currency revenue, organic* up 8.2% compared to Q4 2021
  • Q4 2022 GAAP operating margin of 10.4%, compared to 7.9% in Q4 2021
  • Q4 2022 non-GAAP operating margin* of 17.8%, compared to 17.4% in Q4 2021
  • Q4 2022 GAAP EPS $0.58, compared to $0.36 in Q4 2021
  • Q4 2022 non-GAAP EPS* of $0.79, compared to $0.71 in Q4 2021

* Constant currency revenue; constant currency revenue, organic; non-GAAP EPS; non-GAAP net income; non-GAAP operating income and margin; non-GAAP gross profit and margin; and free cash flow are non-GAAP financial measures. A reconciliation of these financial measures to their most directly comparable GAAP financial measures is included under the heading “Non-GAAP Financial Measures” below.

SOUTH JORDAN, Utah, Feb. 22, 2023 (GLOBE NEWSWIRE) -- Merit Medical Systems, Inc. (NASDAQ: MMSI), a leading global manufacturer and marketer of healthcare technology, today announced revenue of $293.4 million for the quarter ended December 31, 2022, an increase of 5.4% compared to the quarter ended December 31, 2021. Constant currency revenue, organic, for the fourth quarter of 2022 increased 8.2% compared to the prior year period.

Merit’s revenue by operating segment and product category for the three and twelve-month periods ended December 31, 2022 and 2021 was as follows (unaudited; in thousands, except for percentages):

                   
  Three Months Ended
  Reported    Constant Currency *
  December 31,    Impact of foreign December 31,   
  2022 2021 % Change exchange 2022 % Change
Cardiovascular                  
Peripheral Intervention $112,384 $105,543 6.5% $2,463 $114,847 8.8%
Cardiac Intervention  85,277  80,438 6.0%  2,890  88,167 9.6%
Custom Procedural Solutions  49,147  50,450 (2.6)%  2,328  51,475 2.0%
OEM  38,861  33,794 15.0%  293  39,154 15.9%
Total  285,669  270,225 5.7%  7,974  293,643 8.7%
                   
Endoscopy                  
Endoscopy Devices  7,746  8,267 (6.3)%  69  7,815 (5.5)%
                   
Total $293,415 $278,492 5.4% $8,043 $301,458 8.2%


                   
  Year Ended
  Reported    Constant Currency *
  December 31,    Impact of foreign December 31,   
  2022 2021 % Change exchange 2022 % Change
Cardiovascular                  
Peripheral Intervention $439,810 $405,116 8.6% $6,476 $446,286 10.2%
Cardiac Intervention  343,186  320,641 7.0%  8,235  351,421 9.6%
Custom Procedural Solutions  190,194  193,942 (1.9)%  7,589  197,783 2.0%
OEM  145,034  123,528 17.4%  1,240  146,274 18.4%
Total  1,118,224  1,043,227 7.2%  23,540  1,141,764 9.4%
                   
Endoscopy                  
Endoscopy Devices  32,757  31,524 3.9%  266  33,023 4.8%
                   
Total $1,150,981 $1,074,751 7.1% $23,806 $1,174,787 9.3%
                   

Merit’s GAAP gross margin for the fourth quarter of 2022 was 45.9%, compared to GAAP gross margin of 46.3% for the prior year period. Merit’s non-GAAP gross margin* for the fourth quarter of 2022 was 49.5%, compared to non-GAAP gross margin of 50.0% for the prior year period.

Merit’s GAAP net income for the fourth quarter of 2022 was $33.4 million, or $0.58 per share, compared to GAAP net income of $20.6 million, or $0.36 per share, for the fourth quarter of 2021. Merit’s non-GAAP net income* for the fourth quarter of 2022 was $46.0 million, or $0.79 per share, compared to non-GAAP net income of $40.8 million, or $0.71 per share, for the prior year period.

“We delivered 8% constant currency revenue growth in the fourth quarter of 2022, at the high-end of our expectations,” said Fred P. Lampropoulos, Merit’s Chairman and Chief Executive Officer. “We also delivered another quarter of improving profitability with a 17.8% non-GAAP operating margin, 13% growth in non-GAAP net income and 12% growth in non-GAAP earnings per share. We are proud of the team’s strong execution and relentless focus on our strategic initiatives, which resulted in impressive financial results in fiscal year 2022; we delivered more than 9% constant currency revenue growth, improvements in our profitability profile with a 17% non-GAAP operating margin – a 91 basis point improvement year-over-year – and we generated strong free cash flow of nearly $70 million.”

Mr. Lampropoulos continued: “We are introducing 2023 financial guidance which reflects our confidence in our team’s ability to deliver continued strong execution, despite the challenging operating environment around the world. We intend to build upon the significant progress we have made during the first two years of our Foundations for Growth Program, and we remain committed to the financial targets that we outlined for the three-year period ending December 31, 2023, which call for our constant currency, organic revenue to increase at a CAGR of at least 5%, non-GAAP operating margins of at least 18% and cumulative free cash flow of more than $300 million.”

As of December 31, 2022, Merit had cash and cash equivalents of $58.4 million, total debt obligations of $198.2 million, and available borrowing capacity of approximately $523 million, compared to cash, cash equivalents of $67.8 million, total debt obligations of $243.1 million, and available borrowing capacity of approximately $490 million as of December 31, 2021.

Fiscal Year 2023 Financial Guidance

Based upon information currently available to Merit’s management, for the year ending December 31, 2023, absent material acquisitions, non-recurring transactions or other factors beyond Merit’s current expectations, Merit expects the following:

Revenue and Earnings Guidance*

        
  Guidance As Reported   
      % Change 
Financial Measure December 31, 2023 December 31, 2022 from Prior Year 
        
Net Sales $1.194 - $1.210 billion $1.151 billion 4% - 5% 
Cardiovascular Segment $1.156 - $1.172 billion $1.118 billion 3% - 5% 
Endoscopy Segment $37.5 - $37.8 million $32.8 million 14% - 16% 
        
GAAP       
Net Income $100 - $105 million $74.5 million   
Earnings Per Share $1.72 - $1.80 $1.29   
        
Non-GAAP       
Net Income $163 - $168 million $155.8 million   
Earnings Per Share $2.80 - $2.89 $2.70   

*Percentage figures approximated; dollar figures may not foot due to rounding

2023 Net Sales Guidance - % Change from Prior Year (Constant Currency) Reconciliation*

     
  Low High
2023 Net Sales Guidance - % Change from Prior Year (GAAP) 4%  5% 
Estimated impact of foreign currency exchange rate fluctuations -1%  -1% 
2023 Net Sales Guidance - % Change from Prior Year (Constant Currency) 5%  6% 

*Percentage figures approximated; dollar figures may not foot due to rounding

Merit’s financial guidance for the year ending December 31, 2023 is subject to risks and uncertainties identified in this release and Merit’s filings with the U.S. Securities and Exchange Commission (the “SEC”).

CONFERENCE CALL

Merit will hold its investor conference call today, Wednesday, February 22, 2023, at 5:00 p.m. Eastern (4:00 p.m. Central, 3:00 p.m. Mountain, and 2:00 p.m. Pacific). To access the conference call, please pre-register using the following link. Registrants will receive confirmation with dial-in details. A live webcast and slide deck will also be available at merit.com.

CONSOLIDATED BALANCE SHEETS
(in thousands)

       
  December 31,   
  2022 December 31,
  (Unaudited) 2021 
ASSETS      
Current Assets      
Cash and cash equivalents $58,408  $67,750 
Trade receivables, net  164,677   152,301 
Other receivables  12,992   17,763 
Inventories  265,991   221,922 
Prepaid expenses and other assets  22,324   16,149 
Prepaid income taxes  3,913   3,550 
Income tax refund receivables  779   2,777 
Total current assets  529,084   482,212 
       
Property and equipment, net  382,976   371,658 
Intangible assets, net  275,872   319,269 
Goodwill  359,821   361,741 
Deferred income tax assets  6,599   6,080 
Operating lease right-of-use assets  65,262   65,913 
Other assets  44,352   41,421 
Total Assets $1,663,966  $1,648,294 
       
LIABILITIES AND STOCKHOLDERS' EQUITY      
Current Liabilities      
Trade payables $68,504  $55,624 
Accrued expenses  123,189   159,014 
Current portion of long-term debt  11,250   8,438 
Current operating lease liabilities  11,005   10,668 
Income taxes payable  6,697   2,536 
Total current liabilities  220,645   236,280 
       
Long-term debt  186,759   234,397 
Deferred income tax liabilities  18,462   31,503 
Long-term income taxes payable  347   347 
Liabilities related to unrecognized tax benefits  1,912   932 
Deferred compensation payable  15,264   18,111 
Deferred credits  1,708   1,815 
Long-term operating lease liabilities  59,736   61,526 
Other long-term obligations  14,736   23,584 
Total liabilities  519,569   608,495 
       
Stockholders' Equity      
Common stock  675,174   641,533 
Retained earnings  480,773   406,257 
Accumulated other comprehensive loss  (11,550)  (7,991)
Total stockholders' equity  1,144,397   1,039,799 
Total Liabilities and Stockholders' Equity $1,663,966  $1,648,294 
         

CONSOLIDATED STATEMENTS OF INCOME
(Unaudited; in thousands except per share amounts)

             
  Three Months Ended Year Ended
  December 31, December 31,
  2022  2021  2022  2021 
Net sales $293,415  $278,492  $1,150,981  $1,074,751 
Cost of sales  158,863   149,686   631,882   589,418 
Gross profit  134,552   128,806   519,099   485,333 
             
Operating expenses:            
Selling, general and administrative  83,243   76,629   342,525   335,690 
Research and development  20,436   20,406   75,510   71,247 
Legal settlement     10,036      10,036 
Impairment charges  547      2,219   4,283 
Contingent consideration expense (benefit)  (91)  (161)  4,611   3,161 
Acquired in-process research and development        6,671    
Total operating expenses  104,135   106,910   431,536   424,417 
             
Income from operations  30,417   21,896   87,563   60,916 
             
Other income (expense):            
Interest income  123   101   439   769 
Interest expense  (2,158)  (1,105)  (6,339)  (5,261)
Other income (expense) — net  1,773   (711)  966   (2,507)
Total other expense — net  (262)  (1,715)  (4,934)  (6,999)
             
Income before income taxes  30,155   20,181   82,629   53,917 
             
Income tax expense (benefit)  (3,246)  (432)  8,113   5,463 
             
Net income $33,401  $20,613  $74,516  $48,454 
             
Earnings per common share            
Basic $0.58  $0.36  $1.31  $0.86 
Diluted $0.58  $0.36  $1.29  $0.84 
             
Weighted average shares outstanding            
Basic  57,098   56,489   56,806   56,145 
Diluted  57,963   57,624   57,671   57,359 
                 

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands - unaudited)

       
  Year Ended
  December 31,
  2022  2021 
CASH FLOWS FROM OPERATING ACTIVITIES:    
Net income $74,516  $48,454 
Adjustments to reconcile net income to net cash provided by operating activities:      
Depreciation and amortization  81,804   84,066 
Loss on disposition of business  1,417    
Write-off of certain intangible assets and other long-term assets  2,281   4,412 
Amortization of right-of-use operating lease assets  10,394   11,718 
Adjustments related to contingent consideration liabilities  4,611   3,161 
Acquired in-process research and development  6,671    
Deferred income taxes  (14,924)  (4,631)
Stock-based compensation expense  18,042   16,090 
Other adjustments  877   1,799 
Changes in operating assets and liabilities, net of acquisitions and divestitures  (71,398)  (17,838)
Total adjustments  39,775   98,777 
Net cash, cash equivalents, and restricted cash provided by operating activities  114,291   147,231 
       
CASH FLOWS FROM INVESTING ACTIVITIES:      
Capital expenditures for property and equipment  (45,029)  (27,939)
Cash paid in acquisitions, net of cash acquired  (8,287)  (7,171)
Other investing, net  (4,081)  (2,051)
Net cash, cash equivalents, and restricted cash used in investing activities  (57,397)  (37,161)
       
CASH FLOWS FROM FINANCING ACTIVITIES:    
Proceeds from issuance of common stock  20,070   21,306 
Payments on long-term debt  (44,938)  (108,500)
Contingent payments related to acquisitions  (32,918)  (10,665)
Payment of taxes related to an exchange of common stock  (2,474)  (576)
Net cash, cash equivalents, and restricted cash used in financing activities  (60,260)  (98,435)
Effect of exchange rates on cash  (3,826)  (801)
Net increase (decrease) in cash, cash equivalents and restricted cash  (7,192)  10,834 
       
CASH, CASH EQUIVALENTS AND RESTRICTED CASH:      
Beginning of period  67,750   56,916 
End of period $60,558  $67,750 
       
RECONCILIATION OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH TO THE CONSOLIDATED BALANCE SHEETS:      
Cash and cash equivalents  58,408   67,750 
Restricted cash reported in prepaid expenses and other current assets  2,150    
Total cash, cash equivalents and restricted cash $60,558  $67,750 
         

Non-GAAP Financial Measures

Although Merit’s financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), Merit’s management believes that certain non-GAAP financial measures referenced in this release 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 of such operations. Non-GAAP financial measures used in this release include:

  • constant currency revenue;
  • constant currency revenue, organic;
  • non-GAAP gross profit and margin;
  • non-GAAP operating income and margin;
  • non-GAAP net income;
  • non-GAAP earnings per share; and
  • free cash flow.

Merit’s management team uses these non-GAAP financial measures to evaluate Merit’s profitability and efficiency, to compare operating and financial results to prior periods, to evaluate changes in the results of its operating segments, and to measure and allocate financial resources internally. However, Merit’s management does not consider such non-GAAP measures in isolation or as an alternative to measures determined in accordance with GAAP.

Readers should consider non-GAAP measures used in this release in addition to, not as a substitute for, financial reporting measures prepared in accordance with GAAP. These non-GAAP financial measures generally exclude some, but not all, items that may affect Merit’s net income. In addition, they are subject to inherent limitations as they reflect the exercise of judgment by management about which items are excluded. Merit believes it is useful to exclude such items in the calculation of non-GAAP earnings per share, non-GAAP gross profit and margin, non-GAAP operating income and margin, and non-GAAP net income (in each case, as further illustrated in the reconciliation tables below) because such amounts in any specific period may not directly correlate to the underlying performance of Merit’s business operations and can vary significantly between periods as a result of factors such as acquisition or other extraordinary transactions, non-cash expenses related to amortization or write-off of previously acquired tangible and intangible assets, certain severance expenses, expenses resulting from non-ordinary course litigation or administrative proceedings and resulting settlements, corporate transformation expenses, governmental proceedings or changes in tax or industry regulations, gains or losses on disposal of certain assets, and debt issuance costs. Merit may incur similar types of expenses in the future, and the non-GAAP financial information included in this release should not be viewed as a statement or indication that these types of expenses will not recur. Additionally, the non-GAAP financial measures used in this release may not be comparable with similarly titled measures of other companies. Merit urges readers to review the reconciliations of its non-GAAP financial measures to the comparable GAAP financial measures, and not to rely on any single financial measure to evaluate Merit’s business or results of operations.

Constant Currency Revenue

Merit’s constant currency revenue is prepared by converting the current-period reported revenue of subsidiaries whose functional currency is a currency other than the U.S. dollar at the applicable foreign exchange rates in effect during the comparable prior-year period and adjusting for the effects of hedging transactions on reported revenue, which are recorded in the U.S. dollar. The constant currency revenue adjustments of $8.0 million and $23.8 million to reported revenue for the three and twelve-month periods ended December 31, 2022 were calculated using the applicable average foreign exchange rates for the three and twelve-month periods ended December 31, 2021.

Constant Currency Revenue, Organic

Merit’s constant currency revenue, organic, is defined, with respect to prior fiscal year periods, as GAAP revenue. With respect to current fiscal year periods, constant currency revenue, organic, is defined as constant currency revenue (as defined above), less revenue from certain acquisitions. For the three and twelve-month periods ended December 31, 2022, there were no revenues from acquisitions excluded in the calculation of Merit’s constant currency revenue, organic.

Non-GAAP Gross Profit and Margin

Non-GAAP gross profit is calculated by reducing GAAP cost of sales by amounts recorded for amortization of intangible assets and certain inventory write-offs. Non-GAAP gross margin is calculated by dividing non-GAAP gross profit by reported net sales.

Non-GAAP Operating Income and Margin

Non-GAAP operating income is calculated by adjusting GAAP operating income for certain items which are deemed by Merit’s management to be outside of core operations and vary in amount and frequency among periods, such as expenses related to acquisitions or other extraordinary transactions, non-cash expenses related to amortization or write-off of previously acquired tangible and intangible assets, certain severance expenses, performance-based stock compensation expenses, corporate transformation expenses, expenses resulting from non-ordinary course litigation or administrative proceedings and resulting settlements, governmental proceedings, and changes in governmental or industry regulations, as well as other items referenced in the tables below. Non-GAAP operating margin is calculated by dividing non-GAAP operating income by reported net sales.

Non-GAAP Net Income

Non-GAAP net income is calculated by adjusting GAAP net income for the items set forth in the definition of non-GAAP operating income above, as well as for expenses related to debt issuance costs, gains or losses on disposal of certain assets, changes in tax regulations, and other items set forth in the tables below.

Non-GAAP EPS

Non-GAAP EPS is defined as non-GAAP net income divided by the diluted shares outstanding for the corresponding period.

Free Cash Flow

Free cash flow is defined as cash flow from operations calculated in accordance with GAAP, less capital expenditures for property and equipment calculated in accordance with GAAP, as set forth in the consolidated statement of cash flows.

Non-GAAP Financial Measure Reconciliations

The following tables set forth supplemental financial data and corresponding reconciliations of non-GAAP financial measures to Merit’s corresponding financial measures prepared in accordance with GAAP, in each case, for the three and twelve-month periods ended December 31, 2022 and 2021. The non-GAAP income adjustments referenced in the following tables do not reflect non-performance-based stock compensation expense of approximately $3.2 million and $3.5 million for the three-month periods ended December 31, 2022 and 2021, respectively and $12.5 million and $11.1 million for the twelve-month periods ended December 31, 2022 and 2021, respectively.

Reconciliation of GAAP Net Income to Non-GAAP Net Income
(Unaudited; in thousands except per share amounts)

             
  Three Months Ended
  December 31, 2022
  Pre-Tax Tax Impact After-Tax Per Share Impact
GAAP net income $30,155  $3,246  $33,401  $0.58 
             
Non-GAAP adjustments:            
Cost of Sales            
Amortization of intangibles  10,615   (2,602)  8,013   0.14 
Operating Expenses            
Contingent consideration benefit  (91)  31   (60)  (0.00)
Impairment charges  547      547   0.01 
Amortization of intangibles  1,551   (382)  1,169   0.02 
Performance-based share-based compensation (b)  1,152   (133)  1,019   0.02 
Corporate transformation and restructuring (c)  3,325   (814)  2,511   0.04 
Acquisition-related  213   (52)  161   0.00 
Medical Device Regulation expenses (d)  4,482   (1,097)  3,385   0.06 
Other (e)  121   (30)  91   0.00 
Other (Income) Expense            
Amortization of long-term debt issuance costs  151   (37)  114   0.00 
Loss on disposal of business unit  17   3   20   0.00 
Tax expense related to restructuring (f)     (4,324)  (4,324)  (0.07)
             
Non-GAAP net income $52,238  $(6,191) $46,047  $0.79 
             
Diluted shares           57,963 


             
  Three Months Ended
  December 31, 2021
  Pre-Tax Tax Impact After-Tax Per Share Impact
GAAP net income $20,181  $432  $20,613  $0.36 
             
Non-GAAP adjustments:            
Cost of Sales            
Amortization of intangibles  10,570   (2,625)  7,945   0.14 
Operating Expenses            
Contingent consideration benefit  (161)  53   (108)  (0.00)
Amortization of intangibles  1,786   (447)  1,339   0.02 
Performance-based share-based compensation (b)  1,036   (110)  926   0.02 
Corporate transformation and restructuring (c)  1,605   (398)  1,207   0.02 
Acquisition-related  (2)     (2)  (0.00)
Medical Device Regulation expenses (d)  1,513   (375)  1,138   0.02 
Other (e)  10,118   (2,508)  7,610   0.13 
Other (Income) Expense            
Amortization of long-term debt issuance costs  151   (37)  114   0.00 
             
Non-GAAP net income $46,797  $(6,015) $40,782  $0.71 
             
Diluted shares           57,624 

_________________

Note: Certain per share impacts may not sum to totals due to rounding.

Reconciliation of GAAP Net Income to Non-GAAP Net Income
(Unaudited; in thousands except per share amounts)

             
  Year Ended
  December 31, 2022
  Pre-Tax Tax Impact After-Tax Per Share Impact
GAAP net income $82,629 $(8,113) $74,516  $1.29 
             
Non-GAAP adjustments:            
Cost of Sales            
Amortization of intangibles  42,154  (10,335)  31,819   0.55 
Operating Expenses            
Contingent consideration expense  4,611  14   4,625   0.08 
Impairment charges  2,219  (318)  1,901   0.03 
Amortization of intangibles  6,300  (1,558)  4,742   0.08 
Performance-based share-based compensation (b)  5,506  (546)  4,960   0.09 
Corporate transformation and restructuring (c)  23,757  (5,516)  18,241   0.32 
Acquisition-related  2,114  (517)  1,597   0.03 
Medical Device Regulation expenses (d)  12,933  (3,166)  9,767   0.17 
Other (e)  7,966  (1,893)  6,073   0.11 
Other (Income) Expense            
Amortization of long-term debt issuance costs  604  (148)  456   0.01 
Loss on disposal of business unit  1,407  (29)  1,378   0.02 
Tax expense related to restructuring (f)    (4,324)  (4,324)  (0.07)
             
Non-GAAP net income $192,200 $(36,449) $155,751  $2.70 
             
Diluted shares           57,671 


             
  Year Ended
  December 31, 2021
  Pre-Tax Tax Impact After-Tax Per Share Impact
GAAP net income $53,917 $(5,463) $48,454 $0.84
             
Non-GAAP adjustments:            
Cost of Sales            
Amortization of intangibles  42,453  (10,543)  31,910  0.56
Inventory write-off (a)  1,620  (202)  1,418  0.02
Operating Expenses            
Contingent consideration expense  3,161  52   3,213  0.06
Impairment charges  4,283  (481)  3,802  0.07
Amortization of intangibles  7,183  (1,798)  5,385  0.09
Performance-based share-based compensation (b)  5,035  (604)  4,431  0.08
Corporate transformation and restructuring (c)  18,649  (4,620)  14,029  0.24
Acquisition-related  8,473  (2,100)  6,373  0.11
Medical Device Regulation expenses (d)  4,036  (1,001)  3,035  0.05
Other (e)  16,652  (2,977)  13,675  0.24
Other (Income) Expense            
Amortization of long-term debt issuance costs  604  (150)  454  0.01
             
Non-GAAP net income $166,066 $(29,887) $136,179 $2.37
             
Diluted shares           57,359

________________

Note: Certain per share impacts may not sum to totals due to rounding.

Reconciliation of Reported Operating Income to Non-GAAP Operating Income
(Unaudited; in thousands except percentages)

                         
  Three Months Ended Three Months Ended Year Ended Year Ended
  December 31, 2022 December 31, 2021 December 31, 2022 December 31, 2021
  Amounts % Sales Amounts % Sales Amounts % Sales Amounts % Sales
Net Sales as Reported $293,415     $278,492     $1,150,981    $1,074,751   
                         
GAAP Operating Income  30,417  10.4%  21,896  7.9%  87,563 7.6%  60,916 5.7%
Cost of Sales                        
Amortization of intangibles  10,615  3.6%  10,570  3.8%  42,154 3.7%  42,453 4.0%
Inventory write-off (a)                1,620 0.2%
Operating Expenses                        
Contingent consideration (benefit) expense  (91) (0.0)%  (161)  (0.1)%  4,611 0.4%  3,161 0.3%
Impairment charges  547  0.2%       2,219 0.2%  4,283 0.4%
Amortization of intangibles  1,551  0.5%  1,786  0.6%  6,300 0.5%  7,183 0.7%
Performance-based share-based compensation (b)  1,152  0.4%  1,036  0.4%  5,506 0.5%  5,035 0.5%
Corporate transformation and restructuring (c)  3,325  1.1%  1,605  0.6%  23,757 2.1%  18,649 1.7%
Acquisition-related  213  0.1%  (2)  (0.0)%  2,114 0.2%  8,473 0.8%
Medical Device Regulation expenses (d)  4,482  1.5%  1,513  0.5%  12,933 1.1%  4,036 0.4%
Other (e)  121  0.0%  10,118  3.6%  7,966 0.7%  16,652 1.5%
                         
Non-GAAP Operating Income $52,332  17.8% $48,361  17.4% $195,123 17.0% $172,461 16.0%

__________________

Note: Certain percentages may not sum to totals due to rounding

a) Represents the write-off of inventory related to the divestiture or exit of certain businesses or product lines.
b) Represents performance-based share-based compensation expense, including stock-settled and cash-settled awards.
c) Includes consulting expenses related to the Foundations for Growth Program and other transformation costs, including severance related to corporate initiatives.
d) Represents incremental expenses incurred to comply with the E.U. Medical Device Regulation (“MDR”).
e) The 2022 year-to-date period includes costs to comply with Merit’s corporate integrity agreement with the U.S. Department of Justice (the “DOJ”), acquired in-process research and development charges of $6.7 million, and legal costs associated with a shareholder derivative proceeding. The 2021 periods include accrued class action litigation settlement costs in the fourth quarter of approximately $10 million, net of expected insurance proceeds, accrued contract termination costs of approximately $6 million to renegotiate certain terms of an acquisition agreement, and costs to comply with Merit’s settlement agreement with the DOJ.
f) Represents an adjustment to our deferred withholding tax liability on unremitted foreign earnings as a result of the restructuring of certain international subsidiaries in 2022.

Reconciliation of Reported Revenue to Constant Currency Revenue (Non-GAAP), and Constant Currency Revenue, Organic (Non-GAAP)
(Unaudited; in thousands except percentages)

                 
    Three Months Ended   Year Ended
    December31,    December31, 
  % Change 2022 2021 % Change 2022 2021
Reported Revenue 5.4%$293,415 $278,492 7.1%$1,150,981 $1,074,751
                 
Add: Impact of foreign exchange    8,043      23,806  
                 
Constant Currency Revenue (a) 8.2%$301,458 $278,492 9.3%$1,174,787 $1,074,751
                 
Less: Revenue from certain acquisitions            
                 
Constant Currency Revenue, Organic (a) 8.2%$301,458 $278,492 9.3%$1,174,787 $1,074,751

_______________

(a) A non-GAAP financial measure. For a definition of this and other non-GAAP financial measures, see the section of this release entitled “Non-GAAP Financial Measures.”

Reconciliation of Reported Gross Margin to Non-GAAP Gross Margin (Non-GAAP)
(Unaudited; as a percentage of reported revenue)

             
  Three Months Ended  Year Ended 
  December31,   December31,  
  2022  2021  2022  2021 
Reported Gross Margin 45.9% 46.3% 45.1% 45.2%
             
Add back impact of:            
Amortization of intangibles 3.6% 3.8% 3.7% 4.0%
Inventory write-off (a)   % % 0.2%
             
Non-GAAP Gross Margin 49.5% 50.0% 48.8% 49.3%

________________

Note: Certain percentages may not sum to totals due to rounding

(a) Represents the write-off of inventory related to the divestiture or exit of certain businesses or product lines.

ABOUT MERIT

Founded in 1987, Merit Medical Systems, Inc. is a leading global manufacturer and marketer of healthcare technology. Merit serves client hospitals worldwide with a domestic and international sales force and clinical support team totaling in excess of 700 individuals. Merit employs approximately 7,100 people worldwide with facilities in South Jordan, Utah; Pearland, Texas; Richmond, Virginia; Aliso Viejo, California; Maastricht and Venlo, The Netherlands; Paris, France; Galway, Ireland; Beijing, China; Tijuana, Mexico; Joinville, Brazil; Ontario, Canada; Melbourne, Australia; Tokyo, Japan; Reading, United Kingdom; Johannesburg, South Africa; and Singapore.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Statements contained in this release which are not purely historical, including, without limitation, statements regarding Merit’s forecasted plans, net sales, net income (GAAP and non-GAAP), operating income and margin (GAAP and non-GAAP), gross profit and margin (GAAP and non-GAAP), earnings per share (GAAP and non-GAAP), free cash flow, and other financial measures, future growth and profit expectations or forecasted economic conditions, or the implementation of, and results which may be achieved through, Merit’s Foundations for Growth Program or other expense reduction initiatives, are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to risks and uncertainties such as those described in Merit’s Annual Report on Form 10-K for the year ended December 31, 2021 (the “2021 Annual Report”) and other filings with the SEC. Such risks and uncertainties include inherent risks and uncertainties relating to Merit’s internal models or the projections in this release; disruptions in Merit’s supply chain, manufacturing or sterilization processes; reduced availability of, and price increases associated with, commodity components and other raw materials; adverse changes in freight, shipping and transportation expenses; negative changes in economic and industry conditions in the United States or other countries, including inflation; risks relating to Merit’s potential inability to successfully manage growth through acquisitions generally, including the inability to effectively integrate acquired operations or products or commercialize technology developed internally or acquired through completed, proposed or future transactions; risks associated with Merit’s ongoing or prospective manufacturing transfers and facility consolidations; fluctuations in interest or foreign currency exchange rates; risks and uncertainties associated with Merit’s information technology systems, including the potential for breaches of security and evolving regulations regarding privacy and data protection; governmental scrutiny and regulation of the medical device industry, including governmental inquiries, investigations and proceedings involving Merit; difficulties, delays and expenditures relating to development, testing and regulatory approval or clearance of Merit’s products, including the pursuit of approvals under the MDR, and risks that such products may not be developed successfully or approved for commercial use; litigation and other judicial proceedings affecting Merit; the potential of fines, penalties or other adverse consequences if Merit’s employees or agents violate the U.S. Foreign Corrupt Practices Act or other laws or regulations; restrictions on Merit’s liquidity or business operations resulting from its debt agreements; infringement of Merit’s technology or the assertion that Merit’s technology infringes the rights of other parties; product recalls and product liability claims; changes in customer purchasing patterns or the mix of products Merit sells; laws and regulations targeting fraud and abuse in the healthcare industry; potential for significant adverse changes in governing regulations, including reforms to the procedures for approval or clearance of Merit’s products by the U.S. Food & Drug Administration or comparable regulatory authorities in other jurisdictions; changes in tax laws and regulations in the United States or other countries; termination of relationships with Merit’s suppliers, or failure of such suppliers to perform; concentration of a substantial portion of Merit’s revenues among a few products and procedures; development of new products and technology that could render Merit’s existing or future products obsolete; market acceptance of new products; volatility in the market price of Merit’s common stock; modification or limitation of governmental or private insurance reimbursement policies; changes in healthcare policies or markets related to healthcare reform initiatives; failure to comply with applicable environmental laws; changes in key personnel; work stoppage or transportation risks; failure to introduce products in a timely fashion; price and product competition; fluctuations in and obsolescence of inventory; risks and uncertainties associated with the COVID-19 pandemic and Merit’s response thereto; and other factors referenced in the 2021 Annual Report and other materials filed with the SEC. All subsequent forward-looking statements attributable to Merit or persons acting on its behalf are expressly qualified in their entirety by these cautionary statements. Actual results will likely differ, and may differ materially, from anticipated results. Financial estimates are subject to change and are not intended to be relied upon as predictions of future operating results. Those estimates and all other forward-looking statements included in this document are made only as of the date of this document, and except as otherwise required by applicable law, Merit assumes no obligation to update or disclose revisions to estimates and all other forward-looking statements.

TRADEMARKS

Unless noted otherwise, trademarks and registered trademarks used in this release are the property of Merit Medical Systems, Inc. and its subsidiaries in the United States and other jurisdictions. 

Contacts:

 
PR/Media Inquiries:
Teresa Johnson
Merit Medical
Investor Inquiries:
Mike Piccinino, CFA, IRC
Westwicke - ICR
+1-801-208-4295+1-443-213-0509
[email protected][email protected]