Arrhythmia Research Technology’s Q2 Gross Margin Improves Despite Lower Sales

Fitchburg, Mass.-based Arrhythmia Research Technology Inc. has released its second quarter results. 

Net sales for the second quarter of 2015 were $5.7 million compared with $5.9 million in the trailing first quarter and $6.3 million in the second quarter of last year. Net sales of custom thermoplastic injection molding and orthopedic implant components were up 53.3 percent year-over-year due primarily to increased orders for automotive and military and law enforcement products. Those increases helped to partially offset a 39.9 percent decline in sensor net sales due to a combination of lower volume and a decrease in the average price of silver versus the same prior-period. Arrhythmia’s sensors are silver/silver chloride coated and conductive resin sensors used as consumable component parts in the manufacture of integrated disposable electrophysiological sensors.

Despite lower sales, the company was able to expand its gross margin over the prior-year period and 4.6 points over the trailing first quarter of 2015. This was due to lower material costs that helped to offset the impact of product mix and lower sales volume. Additionally, increased expenditures of $137 thousand in our manufacturing quality function resulted in reduced gross profit when compared with the prior-year period.

Selling and marketing expenses were $263 thousand, or 4.6 percent of net sales, in the second quarter of 2015 compared with $258 thousand, or 4.4 percent of net sales, in the trailing first quarter and $240 thousand, or 3.8 percent of net sales, in the second quarter of 2014. Higher selling and marketing expenses were primarily related to the company’s increased involvement in trade shows for orthopedic implants.

General and administrative expenses in the 2015 second quarter were $526 thousand, or 9.3 percent of net sales, compared with $648 thousand, or 11.1 percent of net sales, in the trailing first quarter and $543 thousand, or 8.7 percent of net sales, in the prior-year quarter. Lower personnel expenses and variable compensation of $35 thousand in bonus accruals more than offset higher legal, insurance and governance costs.

Research and development expenses for the second quarter of 2015 were $62 thousand, down $24 thousand from the prior-year period primarily as a result of the timing of investments in new product development.

Second quarter net income from continuing operations was $115 thousand, up from a net loss from continuing operations of $255 thousand in the trailing first quarter of 2015. The prior-year second quarter had net income from continuing operations of $240 thousand.

“Improvements in production efficiency in the second quarter enabled us to overcome an approximately $200 thousand decrease in sales and post a $370 thousand profit from continuing operations over the trailing first quarter,” said President and CEO Salvatore Emma, Jr. “Our second quarter also demonstrated the success of our efforts to grow our contract manufacturing business while expanding our gross margin. Looking forward, we will continue to build our capabilities and capacity to best serve our customers’ increasing demands. Our investments in automation and skilled people will make us more efficient and improve our ability to scale over the long run.”