Merit Medical Systems, Inc. (NASDAQ: MMSI), a global leader in
healthcare technology, today announced it has signed a definitive
asset purchase agreement to purchase Cook Medical’s lead management
portfolio for total cash consideration of approximately $210
million. Merit expects to fund the transaction through a
combination of cash on hand and borrowings under its long-term
credit facility. The closing of the proposed transaction is
expected to occur during the fourth quarter of 2024, subject to the
receipt or waiver (in accordance with the provisions of the asset
purchase agreement) of certain closing conditions, including
clearance under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, and other customary closing conditions.
Cook Medical’s lead management business has 34 years of
operating history and provides a comprehensive end-to-end product
portfolio of medical devices and accessories used in lead
management procedures for patients who need a pacemaker or an
implantable cardioverter-defibrillator (ICD) lead removed or
replaced.
“This transaction is consistent with our Continued Growth
Initiatives (CGI) and positions Merit to offer clinicians an
increasingly comprehensive set of solutions to support cardiac
intervention patients, from diagnosis, to therapy and intervention,
to post-procedure care, ” said Fred P. Lampropoulos, Merit’s
Chairman and Chief Executive Officer. “We believe this transaction
will strengthen our fast-growing, high-margin electrophysiology and
CRM business with the addition of differentiated products and an
established commercial infrastructure. We believe the transaction
will enhance our position in the cardiac intervention market, which
we estimate represents an annual addressable opportunity of more
than $900 million in the US, EMEA and APAC regions. Specifically,
beginning in fiscal year 2025, the addition of Cook’s lead
management business positions Merit to represent more than $100
million in combined annualized electrophysiology and cardiac rhythm
management revenue serving the global cardiac intervention
market.”
Mr. Lampropoulos continued: “We have updated our full-year 2024
financial guidance to include the projected impact of this
acquisition from a prospective closing date of October 31, 2024 to
December 31, 2024 and, importantly, we have reaffirmed our updated
full-year 2024 financial guidance previously issued on August 1,
2024. While we anticipate the transaction will be modestly dilutive
to our full-year 2024 non-GAAP profitability given the partial-year
contribution, we believe the financial profile of this acquisition
is very attractive and is consistent with our goal of delivering
sustainable, constant currency growth, improving profitability and
strong free cash flow generation. We look forward to discussing
this acquisition and our updated outlook for 2024 on our third
quarter earnings report on October 30, 2024.”
Non-GAAP net income; non-GAAP earnings per share; non-GAAP gross
margin; non-GAAP operating margin and constant currency revenue are
non-GAAP financial measures. A description of these financial
measures is included under the heading “Non-GAAP Financial
Measures” below. A quantitative reconciliation of such financial
measures to comparable GAAP financial measures is not available
without unreasonable effort.
Financial Summary:
Merit believes that the assets it proposes to acquire from Cook
Medical generated approximately $37 million of revenue over the
twelve-month period ended December 31, 2023, with sales to
customers in the US, EMEA, APAC and ROW representing approximately
41%, 42%, 11% and 6%, respectively. If the proposed transaction
(including Merit’s proposed execution of a transition services
agreement pursuant to which Cook Medical would provide
manufacturing and other services to Merit during a two-year
transition period) is consummated, of which there can be no
assurance, the assets Merit proposes to acquire from Cook Medical,
are projected to contribute revenue, from a projected closing date
of October 31, 2024 through December 31, 2024, in the range of $4
to $6 million and are projected, during the same period of time, to
dilute Merit’s previously forecasted non-GAAP operating margin,
non-GAAP net income and non-GAAP earnings per share, inclusive of
approximately $1.8 million of lower interest income on cash
balances used for the total purchase consideration and excluding
approximately $1.9 million of non-cash and non-recurring
transaction-related expenses, and to be dilutive to Merit’s
full-year 2024 GAAP net income and GAAP earnings per share. The
acquisition is projected to be accretive to non-GAAP gross margin,
accretive to non-GAAP operating margin in the first full-year post
close, and accretive to non-GAAP net income and non-GAAP earnings
per share in the second full-year post close. The acquisition, if
completed, is projected to be dilutive to Merit’s GAAP net income
and GAAP earnings per share in the first full-year post close,
neutral in the second-full year post close and accretive
thereafter.
Updated Fiscal Year 2024 Financial Guidance
Merit’s updated full-year 2024 financial guidance now reflects
the projected impacts of the acquisition of Cook Medical’s lead
management business from a projected closing date of October 31,
2024 through December 31, 2024. Merit is otherwise reaffirming
prior full-year 2024 financial guidance previously announced on
August 1, 2024.
Based upon the information currently available to Merit’s
management, for the year ending December 31, 2024, after giving
effect to the projected contribution of the assets proposed to be
acquired from Cook Medical, assuming the proposed acquisition
closes on October 31, 2024 and absent material acquisitions,
non-recurring transactions or other factors beyond Merit’s current
expectations, Merit now expects the following financial
results:
Revenue and Earnings Guidance*
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Updated
Guidance(1) |
Prior
Guidance(2) |
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Year Ending |
% Change |
Year Ending |
% Change |
|
Financial Measure |
|
December 31, 2024 |
Y/Y |
December 31, 2024 |
Y/Y |
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Net
Sales |
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$1.339 - $1.351 billion |
6.5% - 7.5% |
$1.335 - $1.345 billion |
6% - 7% |
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Cardiovascular Segment |
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$1.285 - $1.295 billion |
5.3% - 6.1% |
$1.281 - $1.289 billion |
5% - 6% |
|
Endoscopy Segment |
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$54 - $56 million |
45% - 52% |
$54 - $56 million |
45% - 52% |
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Non-GAAP |
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Earnings Per Share |
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$3.25 - $3.34 |
14% - 17% |
$3.27 - $3.35 |
15% - 17% |
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*Percentage figures approximated; dollar figures
may not foot due to rounding
2024 Net Sales Guidance - % Change from Prior
Year (Constant Currency) Reconciliation*
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Updated
Guidance(1) |
Prior
Guidance(2) |
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Low |
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High |
Low |
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High |
|
2024 Net Sales Guidance - % Change from Prior Year (GAAP) |
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6.5% |
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7.5% |
6.2% |
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7.0% |
|
Estimated impact of foreign
currency exchange rate fluctuations |
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0.7% |
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0.7% |
0.7% |
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0.7% |
|
2024 Net Sales Guidance - %
Change from Prior Year (Constant Currency) |
|
7.2% |
|
8.2% |
6.9% |
|
7.7% |
|
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*Percentage figures approximated and may not
foot due to rounding(1) “Updated Guidance” reflects Merit’s
full-year 2024 financial guidance, previously introduced on August
1, 2024, plus the projected impacts of the acquisition of assets
from Cook Medical. from a projected closing date of October 31,
2024 through December 31, 2024. (2) “Prior Guidance”
reflects Merit’s full-year 2024 financial guidance, previously
introduced on August 1, 2024, excluding the acquisition of the
assets of Cook Medical.
Merit does not provide guidance for GAAP
reported financial measures (other than revenue) or a
reconciliation of forward-looking non-GAAP financial measures to
the most directly comparable GAAP reported financial measures
(other than revenue) because Merit is unable to predict with
reasonable certainty the financial impact of items 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,
expenses resulting from non-ordinary course litigation or
administrative proceedings and resulting settlements, governmental
proceedings and changes in governmental or industry regulations.
These items are uncertain, depend on various factors, and could
have a material impact on GAAP reported results for the guidance
period. For the same reasons, Merit is unable to address the
significance of the unavailable information, which could be
material to future results. Specifically, Merit is not, without
unreasonable effort, able to reliably predict the impact of these
items and Merit believes inclusion of a reconciliation of these
forward-looking non-GAAP measures to their GAAP counterparts could
be confusing to investors or cause undue reliance.
Merit’s financial guidance for the year
ending December 31, 2024 is subject to risks and uncertainties
identified in this release and Merit’s filings with the U.S.
Securities and Exchange Commission (the “SEC”).
Advisors
Wells Fargo acted as financial advisor to Merit and Bank of
America Securities acted as financial advisor to Cook Medical. Parr
Brown Gee & Loveless served as legal advisor to Merit. Ice
Miller served as legal advisor to Cook Medical.
Non-GAAP Financial Measures
Although Merit’s financial statements are prepared in accordance
with accounting principles generally accepted in the United States
of America, Merit’s management believes that the non-GAAP financial
measures referenced in this release may 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 referenced in this release include:
- constant currency revenue;
- non-GAAP gross profit and margin;
- non-GAAP operating income and margin;
- non-GAAP net income; and
- non-GAAP earnings per share.
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 referenced 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 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, 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 referenced 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 referenced 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
their most directly 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 US 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 US dollar.
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
inventory mark-up related to acquisitions. 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, expenses resulting from non-ordinary
course litigation or administrative proceedings and resulting
settlements, governmental proceedings, and changes in governmental
or industry regulations. 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.
Non-GAAP EPS
Non-GAAP EPS is defined as non-GAAP net income divided by the
diluted shares outstanding for the corresponding period.
ABOUT MERIT MEDICAL
Founded in 1987, Merit Medical Systems, Inc. is engaged in the
development, manufacture, and distribution of proprietary
disposable medical devices used in interventional, diagnostic, and
therapeutic procedures, particularly in cardiology, radiology,
oncology, critical care, and endoscopy. Merit serves client
hospitals worldwide with a domestic and international sales force
and clinical support team totaling more than 700 individuals. Merit
employs approximately 7,000 people worldwide.
ABOUT COOK MEDICALSince 1963, Cook Medical has
worked closely with physicians to develop technologies that
eliminate the need for open surgery. Today we invent, manufacture
and deliver a unique portfolio of medical devices to the healthcare
systems of the world. Serving patients is a privilege, and we
demand the highest standards of quality, ethics and service. We
have remained family owned so that we have the freedom to focus on
what we care about: patients, our employees and our
communities.
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, revenues, 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), 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 Continued Growth Initiatives 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, 2023 (the “2023 Annual Report”) and other filings with the SEC.
Such risks and uncertainties include inherent risks and
uncertainties associated with Merit’s proposed acquisition of Cook
Medical’s lead management portfolio and integration of the assets
and operations proposed to be acquired from Cook Medical and its
ability to achieve projected financial results, product development
and other anticipated benefits of the proposed acquisition;
uncertainties as to whether Merit will be successful in completing
the proposed acquisition, including the risk that conditions to
closing the proposed acquisition will not be satisfied;
uncertainties as to whether, if the acquisition of the Cook Medical
lead management portfolio is completed, Merit will achieve sales,
gross and operating margin, net income and earnings per share
performance consistent with its forecasts projected for the
acquisition; 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; consequences
associated with a Corporate Integrity Agreement executed between
Merit and the U.S. Office of Inspector General – Department of
Health and Human Services; difficulties, delays and expenditures
relating to development, testing and regulatory approval or
clearance of Merit’s products, including the pursuit of approvals
under the European Union Medical Device Regulation, 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 jurisdictions; termination of relationships with
Merit’s suppliers, or failure of such suppliers to perform;
development of new products and technology that could render
Merit’s existing or future products obsolete; market acceptance of
new products; dependance on distributors to commercialize Merit’s
products in various jurisdictions outside the United States;
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; and other factors referenced in the
2023 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
release are made only as of the date of this release, 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., its subsidiaries, or its licensors. Cook Medical is a
trademark of Cook Medical LLC.
CONTACTS
PR/Media Inquiries Sarah Comstock Merit Medical +1-801-432-2864
| sarah.comstock@merit.com
Investor InquiriesMike Piccinino, CFA, IRC Westwicke - ICR
+1-443-213-0509 | mike.piccinino@westwicke.com
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