Costs of Processing and Distribution
Costs of processing and distribution
decreased $4.5 million, or 12.3%, to $31.7 million for the three months ended March 31, 2019, compared to $36.2 million for the three months ended March 31, 2018. Costs of processing and distribution decreased primarily as a
result of our strategic initiative to optimize material cost and drive operational efficiency. Costs of processing and distribution decreased as a percentage of revenues from 51.8% for the three months ended March 31, 2018, to 45.5% for the
three months ended March 31, 2019. For the three months ended March 31, 2018, costs of processing and distribution included an inventory charge of $1.0 million from the
write-off
of inventory
related to our international restructuring and a $206,000 charge related to the purchase accounting
step-up
of Zyga inventory.
Marketing, General and Administrative Expenses
Marketing, general and administrative expenses increased $3.5 million, or
12.3%, to $31.9 million for the three months ended March 31, 2019, from $28.4 million for the three months ended March 31, 2018. The increase was primarily due to increased legal cost related to patent litigation and the Paradigm
acquisition resulting in incremental headcount and marketing and administrative related expenses. Marketing, general and administrative expenses increased as a percentage of revenues from 40.6% for the three months ended March 31, 2018, to
45.7% for the three months ended March 31, 2019.
Research and Development Expenses
Research and development expenses
increased $915,000, or 26.7%, to $4.3 million for the three months ended March 31, 2019, from $3.4 million for the three months ended March 31, 2018. The increase in research and development was in support of our strategic
initiative to accelerate growth resulting in increased investment in new product development and clinical studies. Research and development expenses increased as a percentage of revenues from 4.9% for the three months ended March 31, 2018, to
6.2% for the three months ended March 31, 2019.
Severance and Restructuring Costs
There were no severance and
restructuring costs for the three months ended March 31, 2019, as compared to $884,000 of expenses for the three months ended March 31, 2018.
Acquisition
and Integration
Expenses
Acquisition and integration expenses related to the purchase of Paradigm
resulted in $9.0 million of expenses for the three months ended March 31, 2019, as compared to $800,000 related to the purchase of Zyga for the three months ended March 31, 2018.
Total Net Other Expense
Total net other expense, which includes interest expense, interest income, and foreign exchange gain,
increased $729,000, or 94.1%, to $1.5 million for the three months ended March 31, 2019, from $775,000 for the three months ended March 31, 2018. The increase in total net other expense is primarily due to higher interest expense as a
result of new debt financing due to the purchase of Paradigm.
Income Tax Provision
Income tax provision for the three
months ended March 31, 2019, was $396,000 compared to $249,000 for the three months ended March 31, 2018. Our effective tax rate for the three months ended March 31, 2019, was 4.6% compared to 34.8% for the three months ended
March 31, 2018. Our effective tax rate for the three months ended March 31, 2019, was primarily impacted by
non-deductible
acquisition expenses related to the purchase of Paradigm.
Non-GAAP
Financial Measures
We utilize certain financial measures that are not calculated based on Generally Accepted Accounting Principles (GAAP). Certain of
these financial measures are considered
non-GAAP
financial measures within the meaning of Item 10 of Regulation
S-K
promulgated by the SEC. We believe that
non-GAAP
financial measures provide an additional way of viewing aspects of our operations that, when viewed with the GAAP results, provide a more complete understanding of our results of operations and the factors
and trends affecting our business. These
non-GAAP
financial measures are also used by our management to evaluate financial results and to plan and forecast future periods. However,
non-GAAP
financial measures should be considered as a supplement to, and not as a substitute for, or superior to, the corresponding measures calculated in accordance with GAAP.
Non-GAAP
financial measures used by us may differ from the
non-GAAP
measures used by other companies, including our competitors.
To supplement our consolidated financial statements presented on a GAAP basis, we disclose
non-GAAP
net income applicable to common shares adjusted for certain amounts. The calculation of the tax effect on the adjustments between GAAP net loss applicable to common shares and
non-GAAP
net income applicable to
common shares is based upon our estimated annual GAAP tax rate, adjusted to account for items excluded from GAAP net loss applicable to common shares in calculating
non-GAAP
net income applicable to common
shares.
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