Arrhythmia Research Technology, Inc. Reports First Quarter 2015 Results

• First quarter net sales were $5.9 million
• Generated $275 thousand of cash from operations in the first quarter

FITCHBURG, Mass., May 13, 2015 (GLOBE NEWSWIRE) -- Arrhythmia Research Technology, Inc. (NYSE MKT:HRT) (the "Company"), through its wholly-owned subsidiary, Micron Products, Inc., a diversified contract manufacturing organization that produces highly-engineered, innovative medical device technologies requiring precision machining and injection molding, announced today results for its first quarter ended March 31, 2015.

Salvatore Emma, Jr., President and CEO, commented, "In the quarter, we reported a 25.6% increase in net sales of automotive and molded medical components, as well as a 19.7% increase in sensors' sales volume. However, our operating results were adversely impacted by a measurable drop in the average market price of silver, production delays and the fact that the comparable prior-year quarter benefitted from a $250,000 final sale of Predictor licenses, which dropped directly to gross profit."

Mr. Emma added, "We also invested aggressively in quality, manufacturing systems and process improvements in the quarter and are very encouraged by the progress we are making year over year. As we ramped up for higher demand of orthopedic implant components, we encountered production delays. These challenges have been addressed and production volume improved measurably in the latter part of March. We expect that the investments we are making in manufacturing capacity and talented people will enable us to take full advantage of increased demand for our contract manufacturing services."

First Quarter 2015 Review

Net sales for the first quarter of 2015 were $5.9 million compared with $6.0 million in the prior-year period. Increased net sales of custom thermoplastic injection molded products and 6.8% higher net sales of sensors nearly offset the 29.7% lower net sales in orthopedic implant components. Despite higher sensor volume, the silver surcharge billed was lower due to a 17.8% decline in the average price of silver over the prior-year period. Shipments of orthopedic implant components were delayed due to previously noted production challenges. The prior-year first quarter benefitted from $250 thousand in sales of Predictor licenses.

The first quarter decline in gross profit was primarily the result of a 13.2 point decrease in gross margin related to the contract manufacturing of orthopedic implant components. Gross margin was impacted adversely by increased overtime and production delays during a period of increased demand of orthopedic implant components. Additionally, investments in our quality function to support the Company's growth strategy resulted in an increase of $116 thousand when compared with the prior-year period.

Selling and marketing expenses were $258 thousand, or 4.4% of net sales, in the first quarter of 2015, compared with $292 thousand, or 4.8% of net sales, in the 2014 first quarter. Travel expenses declined $21 thousand due to less international travel and trade show attendance during the period.

First quarter 2015 general and administrative expenses were $648 thousand, or 11.1% of net sales, compared with $595 thousand, or 9.9% of net sales, in the prior-year period. The increase reflects higher wages, taxes and benefits of $18 thousand due to annual merit increases, an increase in accounting fees and other related costs of $17 thousand and the engagement of an investor relations firm in the second quarter of 2014.

Research and development expenses for the first quarter of 2015 were $93 thousand, or 1.6% of net sales, compared with $97 thousand, or 1.6% of net sales, in the prior-year period.

Consolidated net income was $108 thousand, or $0.04 per diluted share, in the first quarter of 2015, down from $257 thousand, or $0.09 per diluted share, in the same period in 2014. Net income in the 2015 first quarter reflects income from discontinued operations of $363 thousand as the Company's subsidiary, RMDDxUSA, was formally discharged in its bankruptcy proceedings.  This was due to the write off of the remaining liabilities of $320 thousand and the reversal of accumulated other comprehensive income of $43 thousand from cumulative translation adjustments from RMDDx Corporation.

Net loss from continuing operations of $255 thousand for the first quarter of 2015 was due to previously noted production issues in the orthopedic implant components product line.

Adjusted EBITDA⁽¹⁾ (income from continuing operations adjusted for income taxes, other income and expense, interest, depreciation and amortization, and share-based compensation expense) for the first quarter of 2015 was $160 thousand, or 2.7% of net sales, compared with $724 thousand, or 12.0% of net sales, for the same period of the prior year. ⁽¹⁾See attached table for additional important disclosures regarding the Company's use of Adjusted EBITDA, as well as a reconciliation of net income (loss) from continuing operations to Adjusted EBITDA.

Cash flow and financial resources

At March 31, 2015, the Company had cash on hand of $391 thousand and working capital of $1.4 million. For the first quarter of 2015, the Company generated net cash from operating activities of continuing operations of $275 thousand and used net cash of $242 thousand for capital expenditures.

On May 5, 2015, the Company received a commitment letter from its bank to extend the existing revolving credit facility for an additional two-year period expiring on June 30, 2017 and to extend a new equipment line of credit of $1.0 million commencing June 26, 2015 under the same terms as the original equipment line. The Company believes that cash flow from its operations, together with its existing working capital, the revolving line of credit and other resources, will be sufficient to fund operations at current levels and repay debt obligations over the next twelve months.

Strategy and outlook

Mr. Emma concluded, "The Company is well positioned to capitalize on anticipated demand growth for our contract manufacturing services. While we continue to seek avenues to diversify our product mix and expand our customer base, we continue to believe that contract manufacturing of medical devices and components will be a primary driver of future revenue and margin growth."