Merit Medical Systems, Inc. — FY 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This is an annual filing; the provided text does not give separate fourth-quarter results. Merit designs, manufactures and sells medical devices for interventional, diagnostic and therapeutic procedures. It reports cardiovascular and endoscopy segments.
Financial and operating highlights
| Metric | FY 2021 | FY 2020 |
|---|---|---|
| Net sales | $1,074.8 million | $963.9 million |
| Gross profit / margin | $485.3 million / 45.2% | $401.2 million / 41.6% |
| Operating income (loss) | $60.9 million | ($1.6) million |
| Net income (loss) | $48.5 million | ($9.8) million |
| Diluted EPS | $0.84 | ($0.18) |
| Cash from operations | $147.2 million | $165.3 million |
| Cash and cash equivalents | $67.8 million | $56.9 million |
| Long-term debt, including current portion | $243.1 million | $351.2 million |
Revenue rose 11.5% year over year and was 8.0% above 2019. Cardiovascular sales increased 11.7% to $1,043.2 million; endoscopy increased 6.2% to $31.5 million. U.S. sales were $608.9 million (56.7% of sales), while international sales were $465.9 million, up 12.6%. China sales were $138.2 million.
Gross margin improved primarily because of lower acquisition-related amortization, favorable product mix, improved manufacturing variances and lower obsolescence expense as a share of sales; higher freight costs partly offset those gains. Operating cash flow declined despite the return to profitability, with higher receivables and inventory uses contributing. Capital expenditures were $27.9 million in 2021.
At year-end, current assets were $482.2 million and current liabilities were $236.3 million. Cash included $1.9 million of restricted funds; cash held in China is subject to local restrictions on transfers abroad. Debt had approximately $490 million of additional borrowing availability, subject to credit-agreement requirements. The company reported compliance with debt covenants. Operating lease liabilities were $72.2 million and contingent consideration liabilities were $48.2 million.
Material changes versus prior period
- Sales recovery followed pandemic-related procedure deferrals and restrictions in 2020; Merit reported record annual revenue in 2021.
- Net income rebounded from a loss, supported by higher sales and gross margin, lower impairment charges ($4.3 million versus $36.5 million), and lower legal-settlement expense ($10.0 million versus $18.7 million).
- SG&A rose 12.8% to $335.7 million, including approximately $18.6 million of Foundations for Growth transformation and restructuring costs and approximately $6 million of contract-termination costs related to renegotiating an IntelliMedical agreement. R&D rose 23.8% to $71.2 million.
- Operating cash flow fell by $18.0 million, while debt declined by approximately $108 million through net repayments.
- Custom procedural solutions sales declined 4.6%, in part because Cultura COVID-19 swab and test-kit sales fell by $15.9 million. The company said demand for that product had peaked in 2020.
Outlook, risks and unusual items
Management said existing cash, expected operating cash flows and available borrowings should fund current and planned operations for the next 12 months and foreseeable future. It expects 2022 capital spending of approximately $50–$60 million. The Foundations for Growth initiative has multi-year growth and profitability targets through 2023, but the filing text provided does not state their numerical values.
- COVID-19 procedure disruptions and uneven regional recovery remain uncertain; supply, freight and logistics costs and availability were continuing challenges.
- Inflation and supplier cost increases may pressure margins; competitive and payer cost controls may limit Merit’s ability to raise prices. The filing also identifies China’s volume-based procurement policies as a source of pricing and revenue pressure.
- Regulatory risks include evolving EU Medical Device Regulation certification requirements, lengthy product approvals and clinical trials, and extensive quality and post-market obligations.
- Merit remains subject to a five-year Corporate Integrity Agreement following its 2020 DOJ settlement. Failure to comply could lead to penalties or exclusion from federal healthcare programs.
- The company recorded a $10.0 million net expense for a proposed securities class-action settlement in 2021, including $18.25 million of settlement costs offset by $8.2 million of expected insurance proceeds. Final court approval remained pending. A related shareholder derivative action was also pending; potential loss was not estimable.
- Other exposures include contingent consideration estimates based on projected revenue and milestones, foreign-exchange movements, variable-rate debt, debt covenants, product liability, intellectual-property disputes and cybersecurity risks. The auditor identified contingent consideration valuation as a critical audit matter.
Key facts for investors to verify
- Whether sales and gross-margin gains persist as procedure volumes normalize and freight, labor and other input costs evolve.
- Progress against the Foundations for Growth targets, including whether transformation costs produce sustained profitability improvement.
- Final approval and funding of the securities settlement, status of the derivative action, and ongoing compliance with the Corporate Integrity Agreement.
- 2022 capital spending, cash conversion and inventory needs, as well as debt repayment, available borrowing capacity and covenant headroom.
- EU MDR certification plans and the regulatory and clinical-trial path for the Wrapsody Endoprosthesis.