Merit Medical (MMSI) came out with quarterly earnings of $0.77 per share, beating the Zacks Consensus Estimate of $0.71 per share. This compares to earnings of $0.64 per share a year ago. These figures are adjusted for non-recurring items.This quarterly report represents an earnings surprise of 8.45%. A quarter ago, it was expected that this maker of disposable medical devices would post earnings of $0.77 per share when it actually produced earnings of $0.81, delivering a surprise of 5.19%.Over the last fou ...

Financial Performance - Q1 2024 - Merit Medical reported revenue of $323508 thousand for Q1 2024, an increase of 87% compared to $297565 thousand in Q1 2023[8] - On a constant currency basis, revenue increased by 93% to $325200 thousand[30] - Organic constant currency revenue grew by 70% to $318472 thousand, excluding revenue from certain acquisitions[30] - GAAP net income was $28240 thousand ($048 per share) compared to $20703 thousand ($036 per share) in Q1 2023, representing a 355% increase in EPS[56] - Non-GAAP net income increased by 195% to $44828 thousand ($077 per share) from $37515 thousand ($064 per share) in Q1 2023[32, 56] Regional Performance - Q1 2024 - US revenue increased by 86% to $186094 thousand from $171360 thousand in Q1 2023[8] - APAC revenue increased by 93% to $62865 thousand from $57536 thousand in Q1 2023[8] - EMEA revenue increased by 51% to $61006 thousand from $58053 thousand in Q1 2023[8] - Rest of World revenue increased significantly by 276% to $13543 thousand from $10616 thousand in Q1 2023[8] - Total International revenue increased by 89% to $137414 thousand from $126205 thousand in Q1 2023[8] 2024 Financial Guidance - The company reaffirmed its 2024 net sales guidance, projecting a 43% to 54% increase from the prior year, equating to $1312 - $1325 billion[17, 38] - The estimated impact of foreign currency exchange rate fluctuations is 05%[17] - The company anticipates non-GAAP earnings per share of $328 - $335, representing a 9% - 11% increase[38]

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2024 OR (Address of principal executive offices, including zip code) Registrant's telephone number, including area code: (801) 253-1600 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to . Commission File Nu ...

Financial Data and Key Metrics Changes - The company reported total revenue of $324.5 million in Q4 2023, representing a 10.6% year-over-year increase on a GAAP basis and a 10.3% increase on a constant currency basis [49][35] - Non-GAAP gross profit and operating profit grew by 13% each, leading to year-over-year margin expansions of 100 basis points and 40 basis points respectively [35][63] - Non-GAAP diluted earnings per share were $0.81, up from $0.79 in the prior year [97] Business Line Data and Key Metrics Changes - The cardiovascular segment drove revenue growth with a 10% increase, while the endoscopy segment saw a 20% increase [42] - Organic growth in the peripheral intervention (PI) product category was 19%, with drainage and radar localization products contributing significantly [58] - Cardiac intervention product sales increased by 35%, while custom procedural solutions (CPS) sales increased by 1%, better than expected [59][60] Market Data and Key Metrics Changes - U.S. sales increased by 13% on a constant currency basis, exceeding growth expectations by nearly 300 basis points [61] - International sales grew by 7% on an organic constant currency basis, with EMEA region growth at 7% and the rest of the world at 30% [62] - The APAC region experienced a 4% growth, primarily impacted by challenges in China [22][72] Company Strategy and Development Direction - The company introduced the Continued Growth Initiatives (CGI) program, aiming for above-market profitable growth and a target of $1.46 billion in revenue by 2026 [37][55] - The focus remains on product offering optimization, SKU rationalization, and enhancing customer engagement through education [39][40] - The company anticipates generating at least $400 million in cumulative free cash flow during the CGI program period [41] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving strong financial results, highlighting a commitment to ongoing initiatives that enhance profitability and growth [81][84] - The company acknowledged headwinds from SKU rationalization impacting revenue but expects to return to a growth trajectory of 5% to 7% in the future [126] - Management noted that the operating environment remains challenging, particularly in the APAC region due to volume-based purchasing pressures [72] Other Important Information - The company had cash and cash equivalents of $587 million and total debt obligations of $846.6 million as of December 31, 2023 [66] - Free cash flow generation improved significantly, with over $110 million generated in 2023 [100] - The company expects GAAP revenue growth of 4.3% to 5.4% year-over-year for 2024 [70] Q&A Session Summary Question: Can you provide insights on margin expansion and the balance between gross margin and operating expenses? - Management indicated that gross margin expansion is a primary driver of operating margin growth, with operating expense leverage contributing more at the higher end of the range [109] Question: What is the outlook for free cash flow and capital expenditures? - The company expects higher free cash flow driven by increased operating income and working capital improvements, with CapEx projected at 4% to 4.5% of sales [117] Question: How does the company view M&A opportunities? - Management stated that while they are continuously evaluating opportunities, any potential deals must align with strategic objectives and not disrupt existing operations [140][141]

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ☒ Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 2023 or ☐ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the transition period from to . Commission File Number 0-18592 MERIT MEDICAL SYSTEMS, INC. (Exact name of registrant as specified in its charter) Utah 87-0447695 (IRS Employer Identi ...

Financial Data and Key Metrics Changes - The company reported a third quarter net income of $43.5 million or $0.75 per share, compared to $37 million or $0.64 per share in the prior year period, reflecting an 18% growth in non-GAAP net income and a 16% growth in non-GAAP diluted earnings per share [25][26][70] - Non-GAAP gross profit and operating profit grew by 13% and 25% respectively in the third quarter, with non-GAAP gross margin at 49.8%, up 140 basis points year-over-year [15][49] - Operating expenses increased by 7% year-over-year, driven by a 6% increase in SG&A and a 12% increase in R&D expenses [24][70] Business Line Data and Key Metrics Changes - Sales of Peripheral Intervention (PI) products increased by 16%, with organic growth of 9% excluding acquired products, driven by radar localization and drainage products [11] - Cardiac Intervention products saw a 20% increase in sales for both access products and angiography and hemostasis products, while custom procedure solutions (CPS) products increased by 6% [12] - The Endoscopy segment reported an 11% increase in sales, with expectations of mid-teens growth in the second half of 2023 [13] Market Data and Key Metrics Changes - International sales increased by 3.5% on a constant currency basis, with growth driven by low-single digit growth in APAC and high-teens growth in the Rest of the World region, while EMEA growth was flat [14] - U.S. sales increased by 14% on a constant currency basis, exceeding growth expectations by over 400 basis points [40] Company Strategy and Development Direction - The company is focused on its Foundations for Growth program, aiming for significant improvements in profitability while maintaining a market-leading growth profile [20][48] - The company plans to continue investing in its people and building new capabilities to meet evolving healthcare market needs [21] - The integration of acquired businesses, particularly from AngioDynamics, is progressing well, with expectations of revenue generation ahead of plan [61] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving financial guidance for fiscal year 2023, driven by strong execution and commitment to the Foundations for Growth program [42] - The company anticipates generating more than $300 million in cumulative free cash flow by year-end 2023, despite potential working capital impacts [22] - Management acknowledged the impact of volume-based purchasing tenders in China but indicated that performance was in line with expectations [15][56] Other Important Information - The company completed enrollment in the WRAPSODY pivotal study and expects to file for FDA approval by the end of the second quarter of 2024 [16][43] - The company is transitioning product SKUs to Merit branded packaging and launching related marketing materials [44] Q&A Session Summary Question: How did the performance in China shape up in Q3? - Management indicated that the performance was as expected and factored into year-end numbers, with ongoing monitoring of the situation [56] Question: Can you provide an update on the WRAPSODY product and market opportunity? - Management expressed excitement about the product but preferred to wait for the February update to discuss market opportunities in detail [63] Question: What are the expectations for M&A activity moving forward? - Management noted that while there are many opportunities, they are disciplined and will only pursue acquisitions that fit their strategic requirements [64] Question: Was Russia a headwind to growth in Q3? - Management confirmed that they received license approvals in late August and began shipments in September, indicating a small benefit but expecting more impact in Q4 [95] Question: What is the outlook for the Endoscopy business? - Management stated that they are nearing the end of supply chain issues and expect continued growth in the Endoscopy segment moving forward [126]

† A non-GAAP financial measure, representing constant currency revenue, organic. 5 5 In thousands, except percentages | --- | --- | --- | --- | --- | --- | |---------------------|-------|------------------------------------------|-------|-------|--------------| | | | Region Q3 2023 Q3 2022 $ Change % Change | | | CC % Change* | | U.S. | | $187,505 $164,571 $22,934 | | | 13.9% 14.3% | | | | | | | | | APAC | | 59,831 60,175 (344) -0.6% 3.2% | | | | | EMEA | | 55,206 52,060 3,146 6.0% 1.1% | | | | | | | | | | ...

[PART I. FINANCIAL INFORMATION](index=4&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements (Unaudited)](index=4&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) This section presents the unaudited consolidated financial statements, including balance sheets, income statements, and cash flow statements, for periods ended September 30, 2023, and December 31, 2022 [Consolidated Balance Sheets](index=4&type=section&id=Consolidated%20Balance%20Sheets) The consolidated balance sheets show the company's financial position, with total assets increasing to $1,808.5 million as of September 30, 2023, from $1,664.0 million at December 31, 2022 Consolidated Balance Sheet Metrics | Metric | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | | :-------------------------------- | :-------------------------- | :-------------------------- | | Total Assets | $1,808,505 | $1,663,966 | | Total Liabilities | $578,620 | $519,569 | | Total Stockholders' Equity | $1,229,885 | $1,144,397 | [Consolidated Statements of Income](index=6&type=section&id=Consolidated%20Statements%20of%20Income) The consolidated statements of income reflect significant growth in net sales and net income for both the three and nine-month periods ended September 30, 2023 Consolidated Income Statement Metrics | Metric | 3 Months Ended Sep 30, 2023 (in thousands) | 3 Months Ended Sep 30, 2022 (in thousands) | 9 Months Ended Sep 30, 2023 (in thousands) | 9 Months Ended Sep 30, 2022 (in thousands) | | :-------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Net sales | $315,230 | $287,175 | $932,851 | $857,566 | | Gross profit | $142,199 | $128,573 | $433,343 | $384,547 | | Income from operations | $35,137 | $18,657 | $90,332 | $57,146 | | Net income | $25,834 | $15,272 | $66,782 | $41,115 | | Basic EPS | $0.45 | $0.27 | $1.16 | $0.73 | | Diluted EPS | $0.44 | $0.27 | $1.14 | $0.71 | [Consolidated Statements of Comprehensive Income](index=7&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income) Total comprehensive income for the three months ended September 30, 2023, was $22.5 million, an increase from $9.3 million in the prior year Consolidated Comprehensive Income Metrics | Metric | 3 Months Ended Sep 30, 2023 (in thousands) | 3 Months Ended Sep 30, 2022 (in thousands) | 9 Months Ended Sep 30, 2023 (in thousands) | 9 Months Ended Sep 30, 2022 (in thousands) | | :-------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Net income | $25,834 | $15,272 | $66,782 | $41,115 | | Total other comprehensive loss | $(3,307) | $(6,010) | $(1,301) | $(8,738) | | Total comprehensive income | $22,527 | $9,262 | $65,481 | $32,377 | [Consolidated Statements of Stockholders' Equity](index=8&type=section&id=Consolidated%20Statements%20of%20Stockholders'%20Equity) Stockholders' equity increased from $1,144.4 million at January 1, 2023, to $1,229.9 million by September 30, 2023, primarily due to net income and stock-based compensation Consolidated Stockholders' Equity Metrics | Metric | Jan 1, 2023 (in thousands) | Sep 30, 2023 (in thousands) | | :-------------------------- | :------------------------- | :-------------------------- | | Total Stockholders' Equity | $1,144,397 | $1,229,885 | | Net income (9 months) | N/A | $66,782 | | Stock-based compensation expense (9 months) | N/A | $15,346 | | Options exercised (9 months) | N/A | $16,435 | [Consolidated Statements of Cash Flows](index=10&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Net cash provided by operating activities was $82.9 million for the nine months ended September 30, 2023, while investing activities used $167.0 million, and financing activities provided $86.5 million Consolidated Cash Flow Metrics | Cash Flow Activity | 9 Months Ended Sep 30, 2023 (in thousands) | 9 Months Ended Sep 30, 2022 (in thousands) | | :--------------------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Net cash provided by operating activities | $82,900 | $86,283 | | Net cash used in investing activities | $(167,004) | $(40,068) | | Net cash provided by (used in) financing activities | $86,456 | $(54,511) | | Net increase (decrease) in cash, cash equivalents and restricted cash | $171 | $(14,158) | - Cash outflows for acquisitions significantly increased to **$138.3 million** in 2023, primarily for AngioDynamics ($100 million), Bluegrass ($32.7 million), and ART ($1.5 million)[16](index=16&type=chunk)[137](index=137&type=chunk) - Increased net borrowings of approximately **$88.9 million** in 2023 financed acquisitions, contrasting with a $26.3 million debt reduction in 2022[18](index=18&type=chunk)[138](index=138&type=chunk) [Condensed Notes to Consolidated Financial Statements](index=12&type=section&id=Condensed%20Notes%20to%20Consolidated%20Financial%20Statements) These condensed notes provide detailed explanations for the unaudited interim consolidated financial statements, covering accounting policies, acquisitions, debt, and derivatives [1. Basis of Presentation and Other Items](index=12&type=section&id=1.%20Basis%20of%20Presentation%20and%20Other%20Items) The interim consolidated financial statements are unaudited and prepared in accordance with GAAP for interim periods, including normal recurring accruals - Interim financial statements are unaudited and include normal recurring accruals, not necessarily indicative of full-year results[19](index=19&type=chunk) [2. Recently Adopted Financial Accounting Standards](index=12&type=section&id=2.%20Recently%20Adopted%20Financial%20Accounting%20Standards) The company adopted ASU 2020-04, Reference Rate Reform, in Q2 2023, transitioning its interest rate swap to SOFR, with no material financial impact - Adopted ASU 2020-04 (Reference Rate Reform) in Q2 2023, transitioning interest rate swap to SOFR, with no material financial impact[20](index=20&type=chunk) [3. Revenue from Contracts with Customers](index=12&type=section&id=3.%20Revenue%20from%20Contracts%20with%20Customers) Revenue is recognized when customers obtain control of promised goods, disaggregated by segment, product category, and geographical region, showing increased sales Revenue Disaggregation | Segment/Category | 3 Months Ended Sep 30, 2023 (in thousands) | 3 Months Ended Sep 30, 2022 (in thousands) | 9 Months Ended Sep 30, 2023 (in thousands) | 9 Months Ended Sep 30, 2022 (in thousands) | | :-------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | | **Net sales:** | | | | | | Cardiovascular | $306,084 | $278,949 | $905,335 | $832,555 | | Endoscopy | $9,146 | $8,226 | $27,516 | $25,011 | | Total Net Sales | $315,230 | $287,175 | $932,851 | $857,566 | Revenue Disaggregation | Geographic Region | 3 Months Ended Sep 30, 2023 (in thousands) | 3 Months Ended Sep 30, 2022 (in thousands) | 9 Months Ended Sep 30, 2023 (in thousands) | 9 Months Ended Sep 30, 2022 (in thousands) | | :------------------ | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | | United States | $187,505 | $164,571 | $538,447 | $482,237 | | International | $127,725 | $122,604 | $394,404 | $375,329 | | Total Net Sales | $315,230 | $287,175 | $932,851 | $857,566 | [4. Acquisitions](index=15&type=section&id=4.%20Acquisitions) Merit completed several acquisitions in 2023, including AngioDynamics' dialysis catheter and BioSentry systems for $100 million, and Bluegrass Vascular Technologies' Surfacer® system for $32.7 million - Acquired AngioDynamics' dialysis catheter and BioSentry systems for **$100 million**, adding $7.3 million in sales to the cardiovascular segment for the three months ended September 30, 2023[26](index=26&type=chunk) - Acquired Bluegrass Vascular Technologies' Surfacer® Inside-Out® Access Catheter System for **$32.7 million**, including a previously held equity investment[27](index=27&type=chunk) - Acquired intellectual property rights from Advanced Radiation Therapy (ART) for soft tissue markers for **$2 million**, recording $1.5 million as acquired in-process R&D expense[30](index=30&type=chunk) - Invested **$4.0 million** in Solo Pace Inc. for a 19% equity stake and exclusive distribution rights for a temporary external pulse generator[31](index=31&type=chunk) [5. Inventories](index=17&type=section&id=5.%20Inventories) Total inventories increased to $303.9 million as of September 30, 2023, from $266.0 million at December 31, 2022, driven by increases across all categories Inventory Breakdown | Inventory Category | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | | :----------------- | :-------------------------- | :-------------------------- | | Finished goods | $156,074 | $147,051 | | Work-in-process | $34,092 | $29,534 | | Raw materials | $113,757 | $89,406 | | Total inventories | $303,923 | $265,991 | [6. Goodwill and Intangible Assets](index=17&type=section&id=6.%20Goodwill%20and%20Intangible%20Assets) Goodwill increased to $381.1 million as of September 30, 2023, primarily due to acquisitions, while other intangible assets also increased Goodwill and Intangible Assets Summary | Metric | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | | :-------------------------------- | :-------------------------- | :-------------------------- | | Goodwill balance | $381,052 | $359,821 | | Other intangible assets — net | $43,844 | $38,350 | - Goodwill increased by **$21.5 million** due to acquisitions in the nine months ended September 30, 2023[32](index=32&type=chunk) - Aggregate amortization expense for intangible assets was **$41.1 million** for the nine months ended September 30, 2023, up from $36.3 million in 2022[34](index=34&type=chunk) [7. Income Taxes](index=21&type=section&id=7.%20Income%20Taxes) Income tax expense increased due to higher pre-tax income, with the effective tax rate for the nine-month period decreasing to 17.2% from 21.6% Income Tax Data | Metric | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :-------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Income tax expense | $4.4 million | $2.3 million | $13.8 million | $11.4 million | | Effective tax rate | 14.5% | 13.2% | 17.2% | 21.6% | - The decrease in the nine-month effective tax rate was primarily due to increased benefit from discrete items (contingent liabilities, deferred compensation) and decreased foreign inclusions[39](index=39&type=chunk) - The company is evaluating the impact of OECD Pillar 2 global minimum tax rules, which are intended to apply for tax years beginning in 2024[40](index=40&type=chunk) [8. Revolving Credit Facility and Long-Term Debt](index=21&type=section&id=8.%20Revolving%20Credit%20Facility%20and%20Long-Term%20Debt) Total long-term debt increased to $286.1 million as of September 30, 2023, following a new credit agreement providing a $150 million term loan and $700 million revolving credit Long-Term Debt Breakdown | Debt Component | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | | :-------------------------- | :-------------------------- | :-------------------------- | | Term loans | $149,063 | $124,688 | | Revolving credit loans | $138,000 | $73,500 | | Total long-term debt | $286,120 | $198,009 | - Entered into a Fourth Amended and Restated Credit Agreement in June 2023, providing a **$150 million** term loan and a **$700 million** revolving credit commitment[41](index=41&type=chunk) - As of September 30, 2023, outstanding borrowings were **$287.1 million**, with approximately **$558 million** in additional available borrowings[45](index=45&type=chunk) [9. Derivatives](index=24&type=section&id=9.%20Derivatives) Merit uses interest rate swaps and foreign currency forward contracts to mitigate interest rate and foreign currency exchange rate risks, with specific notional amounts - Uses interest rate swaps and foreign currency forward contracts to mitigate interest rate and foreign currency exchange rate risks[47](index=47&type=chunk) - Interest rate swap with a **$75 million** notional amount was transitioned to SOFR in June 2023, fixing the rate at 1.64% until July 31, 2024[50](index=50&type=chunk) Derivative Instruments Notional Amounts | Derivative Type | Designation | Notional Amount (Sep 30, 2023, in thousands) | | :-------------------------- | :-------------------------- | :------------------------------------------- | | Foreign currency forward contracts | Cash Flow Hedges | $155,700 | | Foreign currency forward contracts | Not Designated as Hedges | $96,000 | [10. Commitments and Contingencies](index=28&type=section&id=10.%20Commitments%20and%20Contingencies) The company is involved in various legal proceedings and claims, including an ongoing SEC inquiry related to business activities in China, with uncertain outcomes - Involved in various legal proceedings and claims, including product liability, intellectual property, and contract disputes[62](index=62&type=chunk) - Received requests from the SEC Division of Enforcement regarding business activities in China, particularly interactions with hospitals and healthcare officials[63](index=63&type=chunk) [11. Earnings Per Common Share (EPS)](index=29&type=section&id=11.%20Earnings%20Per%20Common%20Share%20(EPS)) Basic EPS increased to $0.45 for the three months ended September 30, 2023, and to $1.16 for the nine-month period, reflecting higher net income Earnings Per Share (EPS) Data | Metric | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Basic EPS | $0.45 | $0.27 | $1.16 | $0.73 | | Diluted EPS | $0.44 | $0.27 | $1.14 | $0.71 | [12. Stock-Based Compensation Expense](index=29&type=section&id=12.%20Stock-Based%20Compensation%20Expense) Total stock-based compensation expense before taxes increased to $5.8 million for the three months ended September 30, 2023, and to $15.3 million for the nine-month period Stock-Based Compensation Expense | Metric | 3 Months Ended Sep 30, 2023 (in thousands) | 3 Months Ended Sep 30, 2022 (in thousands) | 9 Months Ended Sep 30, 2023 (in thousands) | 9 Months Ended Sep 30, 2022 (in thousands) | | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Total stock-based compensation expense before taxes | $5,797 | $4,598 | $15,346 | $13,691 | - Granted **401,535** nonqualified stock options in the nine months ended September 30, 2023, valued using the Black-Scholes methodology[68](index=68&type=chunk) - Granted performance stock units representing up to **286,863** shares in the nine months ended September 30, 2023, valued using Monte-Carlo simulations[70](index=70&type=chunk)[71](index=71&type=chunk) [13. Segment Reporting](index=32&type=section&id=13.%20Segment%20Reporting) Merit operates in cardiovascular and endoscopy segments, both reporting increased net sales and operating income for the three and nine-month periods ended September 30, 2023 Segment Performance Data | Segment | 3 Months Ended Sep 30, 2023 (in thousands) | 3 Months Ended Sep 30, 2022 (in thousands) | 9 Months Ended Sep 30, 2023 (in thousands) | 9 Months Ended Sep 30, 2022 (in thousands) | | :-------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | | **Net sales:** | | | | | | Cardiovascular | $306,084 | $278,949 | $905,335 | $832,555 | | Endoscopy | $9,146 | $8,226 | $27,516 | $25,011 | | **Income from operations:** | | | | | | Cardiovascular | $32,622 | $17,435 | $82,966 | $51,836 | | Endoscopy | $2,515 | $1,222 | $7,366 | $5,310 | [14. Fair Value Measurements](index=33&type=section&id=14.%20Fair%20Value%20Measurements) The company measures marketable securities, derivative instruments, and contingent consideration liabilities at fair value, with contingent consideration decreasing significantly Fair Value Measurements | Financial Instrument | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | | :-------------------------------- | :-------------------------- | :-------------------------- | | Marketable securities | $73 | $138 |\n| Interest rate contract asset | $2,320 | $3,444 |\n| Foreign currency contract assets | $6,035 | $4,783 |\n| Foreign currency contract liabilities | $(2,980) | $(3,986) |\n| Contingent consideration liabilities | $(4,022) | $(18,073) | - Contingent consideration liabilities decreased from **$18.1 million** at December 31, 2022, to **$4.0 million** at September 30, 2023, due to payments and fair value changes[84](index=84&type=chunk) - Payments related to the settlement of contingent consideration liability recognized at fair value were **$3.5 million** for the nine months ended September 30, 2023, classified as financing activities[85](index=85&type=chunk) [15. Accumulated Other Comprehensive Income (Loss)](index=39&type=section&id=15.%20Accumulated%20Other%20Comprehensive%20Income%20(Loss)) Accumulated other comprehensive loss increased to $(12.9) million as of September 30, 2023, primarily due to foreign currency translation adjustments Accumulated Other Comprehensive Income (Loss) Components | Component | Balance as of Jan 1, 2023 (in thousands) | Balance as of Sep 30, 2023 (in thousands) | | :-------------------------- | :--------------------------------------- | :--------------------------------------- | | Cash Flow Hedges | $4,366 | $5,272 | | Foreign Currency Translation | $(15,916) | $(18,123) | | Total | $(11,550) | $(12,851) | - Net other comprehensive loss for the nine months ended September 30, 2023, was **$(1.3) million**, primarily due to foreign currency translation adjustments[98](index=98&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=42&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial condition and results of operations, highlighting significant increases in sales and net income [OVERVIEW](index=42&type=section&id=OVERVIEW) Merit Medical Systems, Inc. reported strong financial performance for Q3 and the first nine months of 2023, with significant increases in sales and net income - Net sales for the three months ended September 30, 2023, increased by **9.8%** to **$315.2 million**, and for the nine months, by **8.8%** to **$932.9 million**[101](index=101&type=chunk) - Net income for the three months ended September 30, 2023, was **$25.8 million** (**$0.44 EPS**), up from $15.3 million ($0.27 EPS) in the prior year[103](index=103&type=chunk) - Revenue growth was primarily driven by stronger than anticipated demand in the U.S. and favorable international sales trends, particularly in EMEA and ROW regions[104](index=104&type=chunk) - The 'Foundations for Growth' corporate transformation initiative helped offset inflationary cost pressures[104](index=104&type=chunk) [RESULTS OF OPERATIONS](index=44&type=section&id=RESULTS%20OF%20OPERATIONS) Merit's results of operations show improved profitability, with gross profit as a percentage of sales increasing to 45.1% for Q3 2023 and 46.5% for the nine-month period Key Financial Ratios | Metric | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :--------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net sales | 100 % | 100 % | 100 % | 100 % | | Gross profit | 45.1 % | 44.8 % | 46.5 % | 44.8 % | | Selling, general and administrative expenses | 27.6 % | 31.3 % | 29.8 % | 30.2 % | | Income from operations | 11.1 % | 6.5 % | 9.7 % | 6.7 % | | Net income | 8.2 % | 5.3 % | 7.2 % | 4.8 % | [Sales](index=44&type=section&id=Sales) Total sales increased by 9.8% for the three-month period and 8.8% for the nine-month period ended September 30, 2023, with strong growth in cardiovascular and endoscopy segments Sales by Product Category | Product Category | 3 Months Ended Sep 30, 2023 (in thousands) | % Change YoY | 9 Months Ended Sep 30, 2023 (in thousands) | % Change YoY | | :-------------------------- | :--------------------------------------- | :----------- | :--------------------------------------- | :----------- | | **Cardiovascular:** | | | | | | Peripheral Intervention | $128,385 | 16.0 % | $368,077 | 12.4 % | | Cardiac Intervention | $89,106 | 2.6 % | $268,209 | 4.0 % | | Custom Procedural Solutions | $48,624 | 6.4 % | $145,709 | 3.3 % | | OEM | $39,969 | 11.9 % | $123,340 | 16.2 % | | **Endoscopy:** | | | | | | Endoscopy Devices | $9,146 | 11.2 % | $27,516 | 10.0 % | | **Total Sales** | **$315,230** | **9.8 %** | **$932,851** | **8.8 %** | - Cardiovascular sales for the three-month period increased by **$27.1 million**, driven by Peripheral Intervention (+$17.7M), OEM (+$4.3M), Custom Procedural Solutions (+$2.9M), and Cardiac Intervention (+$2.3M)[108](index=108&type=chunk)[112](index=112&type=chunk) - Endoscopy sales for the three-month period increased by **11.2%**, primarily due to increased sales of EndoMAXX® esophageal stent, AEROmini Tracheobronchial Stent, and Elation® Pulmonary Balloon Dilator[112](index=112&type=chunk) [Geographic Sales](index=47&type=section&id=Geographic%20Sales) U.S. sales significantly increased by 13.9% for the three-month period and 11.7% for the nine-month period, while international sales also grew Sales by Geographic Region | Geographic Region | 3 Months Ended Sep 30, 2023 (in thousands) | % Change YoY | 9 Months Ended Sep 30, 2023 (in thousands) | % Change YoY | | :------------------ | :--------------------------------------- | :----------- | :--------------------------------------- | :----------- | | United States | $187,505 | 13.9 % | $538,447 | 11.7 % | | International | $127,725 | 4.2 % | $394,404 | 5.1 % | | Total | $315,230 | 9.8 % | $932,851 | 8.8 % | - International sales growth for the three-month period was driven by EMEA (**6.0%** increase) and ROW (**22.4%** increase), partially offset by a 0.6% decrease in APAC[115](index=115&type=chunk) [Gross Profit](index=47&type=section&id=Gross%20Profit) Gross profit as a percentage of sales increased to 45.1% for the three-month period and 46.5% for the nine-month period, driven by increased sales and manufacturing efficiencies - Gross profit percentage increased to **45.1%** for Q3 2023 (from 44.8% in Q3 2022) and to **46.5%** for the nine-month period (from 44.8% in 9M 2022)[117](index=117&type=chunk)[118](index=118&type=chunk) - Improvements were driven by increased sales, favorable product mix, manufacturing efficiencies from the 'Foundations for Growth' program, and lower freight costs[117](index=117&type=chunk)[118](index=118&type=chunk) [Operating Expenses](index=47&type=section&id=Operating%20Expenses) SG&A expenses decreased by 3.3% for the three-month period but increased by 7.2% for the nine-month period, while R&D expenses also increased Operating Expenses Summary | Operating Expense | 3 Months Ended Sep 30, 2023 (in thousands) | % Change YoY | 9 Months Ended Sep 30, 2023 (in thousands) | % Change YoY | | :--------------------------------------- | :--------------------------------------- | :----------- | :--------------------------------------- | :----------- | | Selling, General and Administrative | $86,854 | (3.3) % | $277,925 | 7.2 % | | Research and Development | $19,646 | 2.2 % | $61,089 | 10.9 % | | Impairment charges | — | N/A | $270 | (83.9) % | | Contingent consideration expense | $562 | (38.5) % | $2,177 | (53.7) % | | Acquired in-process research and development | — | N/A | $1,550 | (76.8) % | - SG&A as a percentage of sales decreased to **27.6%** for Q3 2023 (from 31.3% in Q3 2022) and to **29.8%** for 9M 2023 (from 30.2% in 9M 2022)[107](index=107&type=chunk)[119](index=119&type=chunk)[120](index=120&type=chunk) - R&D increases were due to higher labor costs, clinical trials, R&D development projects, and regulatory costs[122](index=122&type=chunk) [Operating Income](index=49&type=section&id=Operating%20Income) Total operating income significantly increased to $35.1 million for the three-month period and $90.3 million for the nine-month period, with contributions from both segments Operating Income by Segment | Segment | 3 Months Ended Sep 30, 2023 (in thousands) | 3 Months Ended Sep 30, 2022 (in thousands) | 9 Months Ended Sep 30, 2023 (in thousands) | 9 Months Ended Sep 30, 2022 (in thousands) | | :-------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Cardiovascular | $32,622 | $17,435 | $82,966 | $51,836 | | Endoscopy | $2,515 | $1,222 | $7,366 | $5,310 | | Total operating income | $35,137 | $18,657 | $90,332 | $57,146 | - Cardiovascular operating income increased due to higher sales, gross margin, and lower SG&A and acquired in-process R&D charges, partially offset by higher R&D expenses[126](index=126&type=chunk)[127](index=127&type=chunk) - Endoscopy operating income increased due to higher sales and gross margin, partially offset by higher SG&A expenses[128](index=128&type=chunk) [Other Expense – Net](index=51&type=section&id=Other%20Expense%20%E2%80%93%20Net) Other expense – net increased significantly to $4.9 million for the three-month period and $9.7 million for the nine-month period, primarily due to higher interest expense Other Expense – Net Summary | Metric | 3 Months Ended Sep 30, 2023 (in thousands) | 3 Months Ended Sep 30, 2022 (in thousands) | 9 Months Ended Sep 30, 2023 (in thousands) | 9 Months Ended Sep 30, 2022 (in thousands) | | :-------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Total other expense – net | $(4,915) | $(1,055) | $(9,710) | $(4,672) | - Increase in other expense primarily related to higher interest expense due to increased borrowings and rising interest rates[129](index=129&type=chunk)[130](index=130&type=chunk) [Effective Tax Rate](index=51&type=section&id=Effective%20Tax%20Rate) The effective tax rate for the three-month period increased to 14.5% from 13.2%, while for the nine-month period, it decreased to 17.2% from 21.6% Effective Tax Rate | Metric | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :-------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Effective tax rate | 14.5% | 13.2% | 17.2% | 21.6% | [Net Income](index=51&type=section&id=Net%20Income) Net income for the three-month period increased to $25.8 million and for the nine-month period to $66.8 million, driven by higher sales and improved margins Net Income Summary | Metric | 3 Months Ended Sep 30, 2023 (in thousands) | 3 Months Ended Sep 30, 2022 (in thousands) | 9 Months Ended Sep 30, 2023 (in thousands) | 9 Months Ended Sep 30, 2022 (in thousands) | | :-------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Net income | $25,834 | $15,272 | $66,782 | $41,115 | - Key drivers for increased net income include higher sales, improved gross margin, and lower impairment charges, contingent consideration expense, and acquired in-process R&D charges[132](index=132&type=chunk)[133](index=133&type=chunk) [LIQUIDITY AND CAPITAL RESOURCES](index=53&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) Merit's liquidity improved, with current assets exceeding current liabilities by $398.2 million, and increased borrowings funded significant acquisitions Cash Flow Activities | Cash Flow Activity | 9 Months Ended Sep 30, 2023 (in thousands) | 9 Months Ended Sep 30, 2022 (in thousands) | | :--------------------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Net cash provided by operating activities | $82,900 | $86,283 | | Net cash used in investing activities | $(167,004) | $(40,068) | | Net cash provided by (used in) financing activities | $86,456 | $(54,511) | - Current assets exceeded current liabilities by **$398.2 million** as of September 30, 2023, up from $308.4 million at December 31, 2022[135](index=135&type=chunk) - Cash used for inventories increased to **$34.4 million**, reflecting a strategy to proactively invest in inventory for high customer service levels and production line transfers[138](index=138&type=chunk) - Increased net borrowings by approximately **$88.9 million** to finance the AngioDynamics and Bluegrass acquisitions[138](index=138&type=chunk) [CRITICAL ACCOUNTING POLICIES AND ESTIMATES](index=55&type=section&id=CRITICAL%20ACCOUNTING%20POLICIES%20AND%20ESTIMATES) There were no changes to the application of critical accounting policies and estimates during the nine-month period ended September 30, 2023 - No changes to critical accounting policies and estimates in the nine-month period ended September 30, 2023[143](index=143&type=chunk) [CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS](index=55&type=section&id=CAUTIONARY%20NOTICE%20REGARDING%20FORWARD-LOOKING%20STATEMENTS) This section advises readers that the report contains forward-looking statements subject to inherent risks and uncertainties, and the company assumes no obligation to update them - Report includes forward-looking statements subject to inherent risks and uncertainties, which may cause actual results to differ materially from projections[144](index=144&type=chunk) - The company assumes no obligation to update any forward-looking statement[145](index=145&type=chunk) [NOTICE REGARDING TRADEMARKS](index=55&type=section&id=NOTICE%20REGARDING%20TRADEMARKS) This section clarifies that the report includes trademarks, tradenames, and service marks owned by the company or others, and their appearance without symbols does not waive rights - Report includes trademarks and tradenames, and their appearance without symbols does not waive ownership rights[147](index=147&type=chunk)[148](index=148&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=57&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section refers to the disclosures on currency exchange rate risk and interest rate risk provided in the 2022 Annual Report on Form 10-K, with no material changes - No material changes to quantitative and qualitative disclosures about market risk (currency exchange rate and interest rate risk) during the nine-month period ended September 30, 2023[149](index=149&type=chunk) [Item 4. Controls and Procedures](index=57&type=section&id=Item%204.%20Controls%20and%20Procedures) Management evaluated the effectiveness of disclosure controls and procedures as of September 30, 2023, concluding they are effective, with no material changes in internal control - Disclosure controls and procedures were evaluated and deemed effective at a reasonable assurance level as of September 30, 2023[150](index=150&type=chunk) - No material changes in internal control over financial reporting occurred during the nine-month period ended September 30, 2023[151](index=151&type=chunk) [PART II. OTHER INFORMATION](index=57&type=section&id=PART%20II.%20OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=57&type=section&id=Item%201.%20Legal%20Proceedings) This section refers to Note 10, 'Commitments and Contingencies,' for details on legal proceedings, including an SEC inquiry related to the company's China subsidiary - Refer to Note 10 for details on legal proceedings, including an SEC inquiry into business activities in China[153](index=153&type=chunk)[63](index=63&type=chunk) [Item 1A. Risk Factors](index=57&type=section&id=Item%201A.%20Risk%20Factors) This section updates risk factors, highlighting challenges in international operations, compliance with anti-bribery laws, and the complexities of integrating recent acquisitions - International operations expose the company to the U.S. Foreign Corrupt Practices Act (FCPA) and similar anti-bribery laws, with potential for civil and criminal penalties for non-compliance[156](index=156&type=chunk)[157](index=157&type=chunk)[158](index=158&type=chunk) - The ongoing SEC inquiry into business activities in China could divert management's attention and materially affect reputation and financial results[159](index=159&type=chunk) - Acquisitions, including recent ones like AngioDynamics and Bluegrass, incur substantial costs and present integration challenges, such as transferring manufacturing, developing new capabilities, and expanding sales/marketing[160](index=160&type=chunk) [Item 5. Other information](index=61&type=section&id=Item%205.%20Other%20information) Director F. Ann Millner adopted a Rule 10b5-1 Trading Plan on August 7, 2023, for the sale of up to 66,250 shares of common stock over a two-year term - Director F. Ann Millner adopted a Rule 10b5-1 Trading Plan on August 7, 2023, to sell up to **66,250 shares** of common stock over two years[165](index=165&type=chunk) [Item 6. Exhibits](index=62&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including organizational documents, CEO and CFO certifications, and financial information in iXBRL format - Includes certifications from CEO and CFO pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002[168](index=168&type=chunk) - Financial information from the quarterly report is provided in Inline Extensible Business Reporting Language (iXBRL)[168](index=168&type=chunk) [SIGNATURES](index=63&type=section&id=SIGNATURES) This section contains the official signatures of Merit Medical Systems, Inc.'s President and Chief Executive Officer, Fred P. Lampropoulos, and Chief Financial Officer and Treasurer, Raul Parra - The report is signed by Fred P. Lampropoulos, President and CEO, and Raul Parra, CFO and Treasurer, on October 26, 2023[174](index=174&type=chunk)

[PART I. FINANCIAL INFORMATION](index=3&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This section presents the unaudited consolidated financial statements and management's discussion and analysis for Merit Medical Systems, Inc. for the periods ended June 30, 2023 and 2022 [Item 1. Financial Statements (Unaudited)](index=3&type=section&id=Item%201.%20Financial%20Statements%20%28Unaudited%29) This section presents Merit Medical Systems' unaudited consolidated financial statements and condensed notes for Q2 2023 and 2022 [Consolidated Balance Sheets](index=3&type=section&id=Consolidated%20Balance%20Sheets) This section provides a snapshot of the company's financial position, detailing assets, liabilities, and equity as of June 30, 2023, and December 31, 2022 | Metric | June 30, 2023 (unaudited, in thousands) | December 31, 2022 (in thousands) | | :-------------------------------- | :-------------------------- | :------------------ | | Total current assets | $594,907 | $529,084 | | Total assets | $1,837,568 | $1,663,966 | | Total current liabilities | $190,003 | $220,645 | | Total liabilities | $633,868 | $519,569 | | Total stockholders' equity | $1,203,700 | $1,144,397 | - Total assets increased by **$173.6 million (10.4%)** from December 31, 2022, to June 30, 2023, primarily driven by increases in inventories, developed technology, and goodwill[8](index=8&type=chunk) - Total liabilities increased by **$114.3 million (22.0%)** over the same period, largely due to a significant increase in long-term debt[9](index=9&type=chunk) [Consolidated Statements of Income](index=5&type=section&id=Consolidated%20Statements%20of%20Income) This section details the company's financial performance, including net sales, gross profit, operating income, and net income for the three and six-month periods ended June 30, 2023 and 2022 | Metric (in thousands, except per share) | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :-------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net sales | $320,056 | $294,976 | $617,621 | $570,391 | | Gross profit | $152,782 | $135,067 | $291,144 | $255,974 | | Income from operations | $28,812 | $23,256 | $55,195 | $38,489 | | Net income | $20,245 | $15,298 | $40,948 | $25,843 | | Basic EPS | $0.35 | $0.27 | $0.71 | $0.46 | | Diluted EPS | $0.35 | $0.27 | $0.70 | $0.45 | - Net sales increased by **8.5%** for the three months ended June 30, 2023, and **8.3%** for the six months ended June 30, 2023, compared to the prior year periods[10](index=10&type=chunk) - Net income saw a significant increase of **32.3%** for the three-month period and **58.4%** for the six-month period year-over-year[10](index=10&type=chunk) [Consolidated Statements of Comprehensive Income](index=6&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income) This section presents the total comprehensive income, including net income and other comprehensive income (loss) components, for the periods ended June 30, 2023 and 2022 | Metric (in thousands) | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income | $20,245 | $15,298 | $40,948 | $25,843 | | Total other comprehensive income (loss) | $1,385 | $(4,066) | $2,006 | $(2,728) | | Total comprehensive income | $21,630 | $11,232 | $42,954 | $23,115 | - Total comprehensive income increased significantly, driven by higher net income and a positive shift in other comprehensive income (loss) from a loss in 2022 to a gain in 2023, primarily due to changes in cash flow hedges and foreign currency translation adjustments[12](index=12&type=chunk) [Consolidated Statements of Stockholders' Equity](index=7&type=section&id=Consolidated%20Statements%20of%20Stockholders%27%20Equity) This section outlines changes in stockholders' equity, including common stock, retained earnings, and accumulated other comprehensive loss, from January 1 to June 30, 2023 | Metric (in thousands) | January 1, 2023 | June 30, 2023 | | :-------------------- | :-------------- | :------------ | | Common Stock Amount | $675,174 | $691,523 | | Retained Earnings | $480,773 | $521,721 | | Accumulated Other Comprehensive Loss | $(11,550) | $(9,544) | | Total Stockholders' Equity | $1,144,397 | $1,203,700 | - Total stockholders' equity increased by **$59.3 million** from January 1, 2023, to June 30, 2023, primarily due to net income, stock-based compensation expense, and options exercised[14](index=14&type=chunk) - Accumulated Other Comprehensive Loss improved from **$(11,550) thousand** to **$(9,544) thousand**, reflecting positive other comprehensive income during the period[14](index=14&type=chunk) [Consolidated Statements of Cash Flows](index=9&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) This section details the cash inflows and outflows from operating, investing, and financing activities for the six-month periods ended June 30, 2023 and 2022 | Cash Flow Activity (in thousands) | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $31,831 | $50,794 | | Net cash used in investing activities | $(157,751) | $(23,299) | | Net cash provided by (used in) financing activities | $141,009 | $(27,444) | | Net increase (decrease) in cash, cash equivalents and restricted cash | $13,592 | $(2,513) | | Cash, cash equivalents and restricted cash, End of period | $74,150 | $65,237 | - Operating cash flows decreased by **$18.9 million** YoY, primarily due to increased investment in inventories and higher income tax payments[16](index=16&type=chunk)[130](index=130&type=chunk) - Investing activities saw a significant increase in cash usage, primarily due to **$138.3 million** in cash paid for acquisitions in 2023, compared to **$4.7 million** in 2022[16](index=16&type=chunk)[131](index=131&type=chunk) - Financing activities shifted from a net cash outflow of **$27.4 million** in 2022 to a net cash inflow of **$141.0 million** in 2023, driven by increased long-term debt proceeds to fund acquisitions[17](index=17&type=chunk)[132](index=132&type=chunk) [Condensed Notes to Consolidated Financial Statements](index=11&type=section&id=Condensed%20Notes%20to%20Consolidated%20Financial%20Statements) This section provides detailed explanations of the company's accounting policies, significant transactions, and financial instrument disclosures [1. Basis of Presentation and Other Items](index=11&type=section&id=1.%20Basis%20of%20Presentation%20and%20Other%20Items.) This note clarifies the unaudited nature of the interim financial statements and their preparation in accordance with U.S. GAAP - The interim consolidated financial statements are unaudited and prepared in accordance with U.S. GAAP for interim periods, including normal recurring accruals; results are not necessarily indicative of full-year performance[18](index=18&type=chunk) [2. Recently Adopted Financial Accounting Standards](index=12&type=section&id=2.%20Recently%20Adopted%20Financial%20Accounting%20Standards.) This note discusses the adoption of new accounting standards related to Reference Rate Reform and their immaterial impact on the financial statements - The company adopted ASU 2020-04 and ASU 2022-06 related to Reference Rate Reform (LIBOR to SOFR transition) during Q2 2023, with no material financial statement impact[19](index=19&type=chunk) - No other recently issued and not yet effective accounting standards are believed to be materially relevant to the financial statements[20](index=20&type=chunk) [3. Revenue from Contracts with Customers](index=12&type=section&id=3.%20Revenue%20from%20Contracts%20with%20Customers.) This note details the company's revenue recognition policies and disaggregates revenue by segment, product category, and geographical region - Revenue is recognized when customers obtain control of promised goods, reflecting expected consideration, consistent with 2022 Annual Report policies[21](index=21&type=chunk) - Revenue is disaggregated by reporting segment (cardiovascular, endoscopy), product category (peripheral intervention, cardiac intervention, custom procedural solutions, OEM; gastroenterology and pulmonology devices), and geographical region (United States, International)[22](index=22&type=chunk)[23](index=23&type=chunk) Revenue by Segment and Product Category (in thousands) | Segment/Category | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :----------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Cardiovascular | $311,275 | $286,670 | $599,251 | $553,606 | | Peripheral Intervention | $125,909 | $110,955 | $239,692 | $216,728 | | Cardiac Intervention | $93,775 | $89,574 | $179,103 | $171,061 | | Custom Procedural Solutions | $49,384 | $49,093 | $97,085 | $95,355 | | OEM | $42,207 | $37,048 | $83,371 | $70,462 | | Endoscopy | $8,781 | $8,306 | $18,370 | $16,785 | | Total | $320,056 | $294,976 | $617,621 | $570,391 | Revenue by Geographical Region (in thousands) | Region | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :---------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | United States | $179,582 | $164,674 | $350,942 | $317,666 | | International | $140,474 | $130,302 | $266,679 | $252,725 | | Total | $320,056 | $294,976 | $617,621 | $570,391 | [4. Acquisitions](index=14&type=section&id=4.%20Acquisitions.) This note outlines recent acquisitions, including dialysis catheter products from AngioDynamics and the Surfacer® system from Bluegrass, and their financial impact - On June 8, 2023, Merit acquired dialysis catheter products and the BioSentry® Biopsy Tract Sealant System from AngioDynamics for **$100 million**, with sales of approximately **$0.9 million** included in Q2 2023[25](index=25&type=chunk) AngioDynamics Acquisition Purchase Price Allocation (in thousands) | Assets Acquired | Amount | | :------------------ | :---------- | | Prepaid expenses | $2,000 | | Inventories | $5,254 | | Property and equipment | $108 | | Developed technology | $65,200 | | Trademarks | $4,000 | | Customer list | $5,800 | | Goodwill | $17,638 | | Total net assets acquired | $100,000 | - On May 4, 2023, Merit acquired the Surfacer® Inside-Out® Access Catheter System from Bluegrass Vascular Technologies, Inc. for **$32.7 million**, including a previously held 19.5% equity investment[26](index=26&type=chunk) - On May 1, 2023, Merit acquired intellectual property rights for soft tissue markers from Advanced Radiation Therapy, LLC (ART) for **$1.5 million**, recognized as acquired in-process research and development expense[28](index=28&type=chunk) - On January 11, 2023, Merit invested **$4.0 million** in Solo Pace Inc. for Series Seed-1 Preferred Stock, an option to purchase outstanding equity, and exclusive distribution rights[29](index=29&type=chunk) [5. Inventories](index=17&type=section&id=5.%20Inventories.) This note provides a breakdown of inventory components and highlights the increase in total inventories from December 2022 to June 2023 Inventories (in thousands) | Category | June 30, 2023 | December 31, 2022 | | :-------------- | :------------ | :---------------- | | Finished goods | $155,934 | $147,051 | | Work-in-process | $33,780 | $29,534 | | Raw materials | $116,229 | $89,406 | | Total inventories | $305,943 | $265,991 | - Total inventories increased by **$39.95 million (15.0%)** from December 31, 2022, to June 30, 2023, with significant increases in raw materials and finished goods[30](index=30&type=chunk) [6. Goodwill and Intangible Assets](index=17&type=section&id=6.%20Goodwill%20and%20Intangible%20Assets.) This note details changes in goodwill and other intangible assets, including additions from acquisitions and amortization expense Goodwill Carrying Amount (in thousands) | Metric | 2023 | | :---------------------- | :-------- | | Goodwill balance at January 1 | $359,821 | | Effect of foreign exchange | $410 | | Additions and adjustments as the result of acquisitions | $21,536 | | Goodwill balance at June 30 | $381,767 | - Goodwill increased by **$21.9 million** in the first six months of 2023, primarily due to additions from AngioDynamics and Bluegrass acquisitions, all related to the cardiovascular segment[25](index=25&type=chunk)[26](index=26&type=chunk)[30](index=30&type=chunk) Other Intangible Assets (Net Carrying Amount in thousands) | Category | June 30, 2023 | December 31, 2022 | | :------------------ | :------------ | :---------------- | | Patents | $18,719 | $19,242 | | Distribution agreements | $433 | $535 | | License agreements | $3,307 | $3,859 | | Trademarks | $15,914 | $12,358 | | Customer lists | $7,511 | $2,356 | | Total | $45,884 | $38,350 | - Aggregate amortization expense for intangible assets was **$25.7 million** for the six months ended June 30, 2023, up from **$24.2 million** in the prior year[32](index=32&type=chunk) - No impairment indicators were identified for intangible assets in the first six months of 2023, contrasting with a **$1.7 million** impairment charge in 2022 due to a divestiture[33](index=33&type=chunk)[34](index=34&type=chunk) [7. Income Taxes](index=20&type=section&id=7.%20Income%20Taxes.) This note presents income tax expense and effective tax rates, explaining the decrease in 2023 and the company's monitoring of OECD Pillar 2 rules Income Tax Expense and Effective Tax Rate | Period | Income Tax Expense (in thousands) | Effective Tax Rate | | :---------------------- | :-------------------------------- | :----------------- | | Three Months Ended June 30, 2023 | $4,655 | 18.7% | | Three Months Ended June 30, 2022 | $5,403 | 26.1% | | Six Months Ended June 30, 2023 | $9,452 | 18.8% | | Six Months Ended June 30, 2022 | $9,029 | 25.9% | - The effective income tax rate decreased in 2023 compared to 2022, primarily due to increased benefits from discrete items like share-based compensation and foreign tax credit utilization[36](index=36&type=chunk) - The company is monitoring OECD Pillar 2 global minimum tax rules, expected to apply from 2024, and evaluating eligibility for transitional safe harbor rules[37](index=37&type=chunk) [8. Revolving Credit Facility and Long-Term Debt](index=20&type=section&id=8.%20Revolving%20Credit%20Facility%20and%20Long-Term%20Debt.) This note details the company's long-term debt obligations, including the new credit agreement, outstanding borrowings, and future principal payments Long-Term Debt Obligations (in thousands) | Debt Type | June 30, 2023 | December 31, 2022 | | :------------------------ | :------------ | :---------------- | | Term loans | $150,000 | $124,688 | | Revolving credit loans | $190,000 | $73,500 | | Less unamortized debt issuance costs | $(1,018) | $(179) | | Total long-term debt | $338,982 | $198,009 | | Less current portion | $3,750 | $11,250 | | Long-term portion | $335,232 | $186,759 | - On June 6, 2023, Merit entered into a Fourth Amended and Restated Credit Agreement, providing a **$150 million** term loan and a **$700 million** revolving credit commitment, maturing on June 6, 2028[38](index=38&type=chunk) - As of June 30, 2023, outstanding borrowings were **$340.0 million**, with approximately **$507 million** in additional available borrowings; interest rates were **2.64% fixed** on **$75 million** and **6.15% variable** on **$265.0 million**[42](index=42&type=chunk) Future Minimum Principal Payments on Long-Term Debt (in thousands) | Years Ending December 31, | Future Minimum Principal Payments | | :------------------------ | :-------------------------------- | | Remaining 2023 | $1,875 | | 2024 | $3,750 | | 2025 | $5,625 | | 2026 | $7,500 | | 2027 | $9,375 | | 2028 | $311,875 | | Total | $340,000 | [9. Derivatives](index=23&type=section&id=9.%20Derivatives.) This note describes the company's use of interest rate swaps and foreign currency forward contracts to manage market risks, recognized at fair value - Merit uses interest rate swaps and foreign currency forward contracts to mitigate risks from interest rate and foreign currency exchange rate fluctuations, recognizing them at fair value on the balance sheet[45](index=45&type=chunk)[46](index=46&type=chunk) - An interest rate swap with a notional amount of **$75 million** fixes the one-month SOFR rate at **1.64%** until July 31, 2024, with a fair value asset of **$2.9 million** as of June 30, 2023[48](index=48&type=chunk)[49](index=49&type=chunk) - As of June 30, 2023, the company had **$122.5 million** in notional foreign currency forward contracts designated as cash flow hedges and **$116.9 million** in contracts not designated as hedges, primarily for Chinese Renminbi and Euros[50](index=50&type=chunk)[52](index=52&type=chunk)[53](index=53&type=chunk) Fair Value of Derivative Instruments (in thousands) | Derivative Type | Balance Sheet Location | June 30, 2023 | December 31, 2022 | | :-------------- | :--------------------- | :------------ | :---------------- | | Interest rate swaps (Asset) | Other assets (long-term) | $2,879 | $3,444 | | Foreign currency forward contracts (Assets) | Prepaid expenses and other assets / Other assets (long-term) | $4,617 | $3,271 | | Foreign currency forward contracts (Liabilities) | Accrued expenses / Other long-term obligations | $(2,717) | $(3,986) | [10. Commitments and Contingencies](index=27&type=section&id=10.%20Commitments%20and%20Contingencies.) This note outlines the company's involvement in legal proceedings, including an SEC inquiry related to China business activities, and potential adverse financial impacts - The company is involved in various legal proceedings, actions, and claims in the ordinary course of business, including product liability, intellectual property, and governmental inquiries[60](index=60&type=chunk) - Merit has received an SEC inquiry regarding business activities in China, specifically interactions with hospitals and healthcare officials, with an unpredictable scope, timing, or outcome[61](index=61&type=chunk) - The ultimate resolution of legal matters could be materially adverse to the business, financial condition, results of operations, or liquidity[62](index=62&type=chunk) [11. Earnings Per Common Share (EPS)](index=28&type=section&id=11.%20Earnings%20Per%20Common%20Share%20%28EPS%29.) This note provides a detailed calculation of basic and diluted earnings per common share for the three and six-month periods ended June 30, 2023 and 2022 Earnings Per Common Share (in thousands, except per share amounts) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :----- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income | $20,245 | $15,298 | $40,948 | $25,843 | | Basic EPS | $0.35 | $0.27 | $0.71 | $0.46 | | Diluted EPS | $0.35 | $0.27 | $0.70 | $0.45 | | Weighted average shares outstanding (Basic) | 57,537 | 56,691 | 57,445 | 56,642 | | Weighted average shares outstanding (Diluted) | 58,473 | 57,600 | 58,329 | 57,565 | - Diluted EPS increased from **$0.27** to **$0.35** for the three-month period and from **$0.45** to **$0.70** for the six-month period year-over-year[64](index=64&type=chunk) [12. Stock-Based Compensation Expense](index=28&type=section&id=12.%20Stock-Based%20Compensation%20Expense.) This note details stock-based compensation expense by category and provides information on granted options, performance stock units, and unrecognized compensation costs Stock-Based Compensation Expense Before Taxes (in thousands) | Category | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Cost of sales | $432 | $509 | $873 | $1,097 | | Research and development | $413 | $450 | $841 | $936 | | Selling, general and administrative | $4,735 | $3,492 | $7,835 | $7,060 | | Total | $5,580 | $4,451 | $9,549 | $9,093 | - Total stock-based compensation expense increased by **$1.1 million (25.4%)** for the three-month period and **$0.46 million (5.0%)** for the six-month period year-over-year[65](index=65&type=chunk) - The company granted **327,294** nonqualified stock options in the first six months of 2023 (vs. 168,606 in 2022) and **286,863** performance stock units (vs. 120,710 in 2022)[66](index=66&type=chunk)[68](index=68&type=chunk) - Remaining unrecognized compensation cost for non-vested stock options was **$23.6 million** (weighted average period of 2.4 years), for performance stock units was **$14.1 million** (2.2 years), and for cash-settled liability awards was **$4.3 million** (2.1 years) as of June 30, 2023[67](index=67&type=chunk)[70](index=70&type=chunk)[73](index=73&type=chunk) [13. Segment Reporting](index=31&type=section&id=13.%20Segment%20Reporting.) This note provides financial information disaggregated by the company's two operating segments: cardiovascular and endoscopy, based on net sales and income from operations - Merit operates in two segments: cardiovascular (peripheral intervention, cardiac intervention, custom procedural solutions, OEM) and endoscopy (gastroenterology and pulmonology devices), with performance evaluated based on net sales and income from operations[75](index=75&type=chunk) Net Sales by Segment (in thousands) | Segment | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :----------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Cardiovascular | $311,275 | $286,670 | $599,251 | $553,606 | | Endoscopy | $8,781 | $8,306 | $18,370 | $16,785 | | Total | $320,056 | $294,976 | $617,621 | $570,391 | Income from Operations by Segment (in thousands) | Segment | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :----------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Cardiovascular | $26,464 | $21,275 | $50,398 | $34,401 | | Endoscopy | $2,348 | $1,981 | $4,797 | $4,088 | | Total | $28,812 | $23,256 | $55,195 | $38,489 | [14. Fair Value Measurements](index=32&type=section&id=14.%20Fair%20Value%20Measurements.) This note details the fair value of financial assets and liabilities, including marketable securities, derivatives, and contingent consideration liabilities Fair Value of Financial Assets and Liabilities (in thousands) | Item | June 30, 2023 | December 31, 2022 | | :---------------------------------- | :------------ | :---------------- | | Marketable securities (Level 1) | $104 | $138 | | Interest rate contract asset (Level 2) | $2,879 | $3,444 | | Foreign currency contract assets (Level 2) | $7,353 | $4,783 | | Foreign currency contract liabilities (Level 2) | $(2,717) | $(3,986) | | Contingent consideration liabilities (Level 3) | $(3,581) | $(18,073) | - Contingent consideration liabilities, measured using Level 3 inputs, decreased significantly from **$18.1 million** at December 31, 2022, to **$3.6 million** at June 30, 2023, primarily due to **$16.1 million** in contingent payments made[81](index=81&type=chunk)[82](index=82&type=chunk) - Impairment charges of **$270 thousand** were recorded for an equity investment in Bluegrass in Q2 2023; no intangible asset impairments were recorded in 2023, compared to **$1.7 million** in 2022[90](index=90&type=chunk)[91](index=91&type=chunk) [15. Accumulated Other Comprehensive Income (Loss)](index=39&type=section&id=15.%20Accumulated%20Other%20Comprehensive%20Income%20%28Loss%29.) This note outlines changes in accumulated other comprehensive income (loss), driven by cash flow hedges and foreign currency translation adjustments Changes in Accumulated Other Comprehensive Income (Loss) (in thousands) | Component | Balance as of January 1, 2023 | Net other comprehensive income (loss) for Six Months Ended June 30, 2023 | Balance as of June 30, 2023 | | :------------------------- | :---------------------------- | :----------------------------------------------------------------------- | :-------------------------- | | Cash Flow Hedges | $4,366 | $1,316 | $5,682 | | Foreign Currency Translation | $(15,916) | $690 | $(15,226) | | Total | $(11,550) | $2,006 | $(9,544) | - Accumulated other comprehensive loss improved by **$2.0 million** during the first six months of 2023, primarily driven by positive contributions from cash flow hedges and foreign currency translation adjustments[95](index=95&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=41&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's financial performance, condition, and outlook for Q2 2023, covering revenue, profitability, acquisitions, and liquidity [Overview](index=41&type=section&id=OVERVIEW) This overview introduces Merit Medical's business, key financial highlights for Q2 2023, and strategic initiatives like 'Foundations for Growth' and recent acquisitions - Merit designs, develops, manufactures, markets, and sells medical products for interventional and diagnostic procedures, operating in cardiovascular and endoscopy segments[97](index=97&type=chunk) Key Financial Highlights (in millions, except EPS) | Metric | Q2 2023 | Q2 2022 | 6M 2023 | 6M 2022 | | :---------- | :-------- | :-------- | :-------- | :-------- | | Net Sales | $320.1 | $295.0 | $617.6 | $570.4 | | Gross Profit % | 47.7% | 45.8% | 47.1% | 44.9% | | Net Income | $20.2 | $15.3 | $40.9 | $25.8 | | Diluted EPS | $0.35 | $0.27 | $0.70 | $0.45 | - Revenue growth was primarily driven by stronger than anticipated demand in the U.S. and favorable international sales trends, particularly in APAC and EMEA[101](index=101&type=chunk) - The 'Foundations for Growth' corporate transformation initiative helped offset inflationary cost pressures[101](index=101&type=chunk) - Recent acquisitions include AngioDynamics' dialysis catheter products and BioSentry® Biopsy Tract Sealant System, and Bluegrass' Surfacer® Inside-Out® Access Catheter System[103](index=103&type=chunk) [Results of Operations](index=43&type=section&id=RESULTS%20OF%20OPERATIONS) This section analyzes the company's financial results, including sales performance by product category and geography, gross profit, and operating expenses [Sales](index=43&type=section&id=Sales) This subsection details sales performance by product category, highlighting growth drivers within cardiovascular and endoscopy segments Sales by Product Category (in thousands, with % Change) | Product Category | Q2 2023 Sales | Q2 2022 Sales | Q2 % Change | 6M 2023 Sales | 6M 2022 Sales | 6M % Change | | :--------------- | :------------ | :------------ | :---------- | :------------ | :------------ | :---------- | | Cardiovascular | $311,275 | $286,670 | 8.6% | $599,251 | $553,606 | 8.2% | | Peripheral Intervention | $125,909 | $110,955 | 13.5% | $239,692 | $216,728 | 10.6% | | Cardiac Intervention | $93,775 | $89,574 | 4.7% | $179,103 | $171,061 | 4.7% | | Custom Procedural Solutions | $49,384 | $49,093 | 0.6% | $97,085 | $95,355 | 1.8% | | OEM | $42,207 | $37,048 | 13.9% | $83,371 | $70,462 | 18.3% | | Endoscopy | $8,781 | $8,306 | 5.7% | $18,370 | $16,785 | 9.4% | | Total | $320,056 | $294,976 | 8.5% | $617,621 | $570,391 | 8.3% | - Cardiovascular sales increased by **8.6%** in Q2 2023, driven by strong growth in Peripheral Intervention (**13.5%**) and OEM (**13.9%**) products[105](index=105&type=chunk) - Endoscopy sales grew by **5.7%** in Q2 2023, primarily due to increased sales of EndoMAXX® esophageal stents and Elation® Pulmonary Balloon Dilators[108](index=108&type=chunk) [Geographic Sales](index=46&type=section&id=Geographic%20Sales) This subsection analyzes sales performance across different geographical regions, including the United States and international markets Sales by Geography (in thousands, with % Change) | Geography | Q2 2023 Sales | Q2 2022 Sales | Q2 % Change | 6M 2023 Sales | 6M 2022 Sales | 6M % Change | | :------------ | :------------ | :------------ | :---------- | :------------ | :------------ | :---------- | | United States | $179,582 | $164,674 | 9.1% | $350,942 | $317,666 | 10.5% | | International | $140,474 | $130,302 | 7.8% | $266,679 | $252,725 | 5.5% | | Total | $320,056 | $294,976 | 8.5% | $617,621 | $570,391 | 8.3% | - U.S. sales increased by **9.1%** in Q2 2023, driven by domestic direct and OEM businesses[110](index=110&type=chunk) - International sales grew by **7.8%** in Q2 2023, with strong performance in Asia Pacific (**10.8%**) and EMEA (**5.2%**) operations[111](index=111&type=chunk) [Gross Profit](index=46&type=section&id=Gross%20Profit) This subsection examines the gross profit percentage and the factors contributing to its improvement in Q2 2023 - Gross profit as a percentage of sales increased to **47.7%** in Q2 2023 (from 45.8% in Q2 2022) and to **47.1%** for the six-month period (from 44.9% in 6M 2022)[113](index=113&type=chunk)[114](index=114&type=chunk) - The improvement in gross profit percentage was primarily due to favorable changes in product mix, efficiencies from the 'Foundations for Growth' program, and lower freight costs[113](index=113&type=chunk)[114](index=114&type=chunk) [Operating Expenses](index=46&type=section&id=Operating%20Expenses) This subsection analyzes trends in selling, general and administrative (SG&A), research and development (R&D), and other operating expenses Operating Expenses as a Percentage of Sales | Expense Category | Q2 2023 | Q2 2022 | 6M 2023 | 6M 2022 | | :--------------- | :------ | :------ | :------ | :------ | | SG&A | 31.5% | 29.0% | 30.9% | 29.7% | | R&D | 6.3% | 6.3% | 6.7% | 6.3% | | Impairment charges | 0.1% | — | 0.0% | 0.3% | | Contingent consideration expense | 0.3% | 0.4% | 0.3% | 0.7% | | Acquired in-process R&D | 0.5% | 2.3% | 0.3% | 1.2% | - SG&A expenses increased by **18.1%** in Q2 2023, primarily due to acquisition-related costs, increased labor, equipment disposal losses, and higher travel/marketing costs[115](index=115&type=chunk) - R&D expenses increased by **9.0%** in Q2 2023, mainly due to higher labor-related and regulatory costs[117](index=117&type=chunk) - Acquired in-process R&D costs decreased significantly in 2023 (**$1.6 million** vs. **$6.7 million** in 2022), primarily due to the ART acquisition in 2023 compared to Restore Endosystems in 2022[120](index=120&type=chunk) [Operating Income](index=48&type=section&id=Operating%20Income) This subsection presents operating income by segment, highlighting the drivers of performance for cardiovascular and endoscopy Operating Income by Segment (in thousands) | Segment | Q2 2023 Operating Income | Q2 2022 Operating Income | 6M 2023 Operating Income | 6M 2022 Operating Income | | :----------- | :----------------------- | :----------------------- | :----------------------- | :----------------------- | | Cardiovascular | $26,464 | $21,275 | $50,398 | $34,401 | | Endoscopy | $2,348 | $1,981 | $4,797 | $4,088 | | Total | $28,812 | $23,256 | $55,195 | $38,489 | - Cardiovascular operating income increased by **24.4%** in Q2 2023, driven by higher sales and gross margin, partially offset by increased SG&A and R&D expenses[121](index=121&type=chunk) - Endoscopy operating income increased by **18.5%** in Q2 2023, due to increased sales and gross margin, partially offset by higher SG&A expenses[123](index=123&type=chunk) [Other Expense – Net](index=50&type=section&id=Other%20Expense%20%E2%80%93%20Net) This subsection explains the increase in other expense – net, primarily due to higher interest expense and foreign currency losses - Other expense – net increased to **$3.9 million** in Q2 2023 (from $2.6 million in Q2 2022), primarily due to higher interest expense from increased borrowings and rising interest rates, and increased foreign currency losses[124](index=124&type=chunk) [Effective Tax Rate](index=50&type=section&id=Effective%20Tax%20Rate) This subsection discusses the decrease in the effective tax rate, mainly attributed to benefits from discrete items like share-based compensation - The effective tax rate decreased to **18.7%** in Q2 2023 (from 26.1% in Q2 2022) and to **18.8%** for the six-month period (from 25.9% in 6M 2022), mainly due to increased benefits from discrete items like share-based compensation and foreign tax credit utilization[126](index=126&type=chunk) [Net Income](index=50&type=section&id=Net%20Income) This subsection highlights the increase in net income, driven by higher sales, improved gross margins, and lower acquired in-process R&D charges - Net income increased to **$20.2 million** in Q2 2023 (from $15.3 million in Q2 2022) and to **$40.9 million** for the six-month period (from $25.8 million in 6M 2022)[127](index=127&type=chunk)[128](index=128&type=chunk) - The increase in net income was driven by higher sales, improved gross margins, and lower acquired in-process R&D charges, partially offset by higher SG&A and R&D expenses[127](index=127&type=chunk)[128](index=128&type=chunk) [Liquidity and Capital Resources](index=51&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) This section assesses the company's liquidity position, cash flow trends from operating, investing, and financing activities, and future capital expenditure plans - As of June 30, 2023, current assets exceeded current liabilities by **$404.9 million**, and cash, cash equivalents, and restricted cash totaled **$74.2 million**[129](index=129&type=chunk) - Cash provided by operating activities decreased to **$31.8 million** for the six months ended June 30, 2023 (from $50.8 million in 2022), primarily due to increased inventory investment and higher income tax payments[130](index=130&type=chunk)[132](index=132&type=chunk) - Cash used in investing activities significantly increased to **$157.8 million** (from $23.3 million in 2022), mainly due to **$138.3 million** in cash paid for acquisitions[130](index=130&type=chunk)[131](index=131&type=chunk) - Cash provided by financing activities was **$141.0 million** (vs. $(27.4) million used in 2022), driven by a **$141.8 million** increase in net borrowings to finance acquisitions[132](index=132&type=chunk)[133](index=133&type=chunk) - The company anticipates spending **$55 million to $60 million** on property and equipment in 2023[130](index=130&type=chunk) [Critical Accounting Policies and Estimates](index=53&type=section&id=CRITICAL%20ACCOUNTING%20POLICIES%20AND%20ESTIMATES) This section confirms no changes to critical accounting policies previously disclosed in the 2022 Annual Report on Form 10-K - There were no changes to the application of critical accounting policies previously disclosed in the 2022 Annual Report on Form 10-K during the six-month period ended June 30, 2023[135](index=135&type=chunk) [Cautionary Notice Regarding Forward-Looking Statements](index=53&type=section&id=CAUTIONARY%20NOTICE%20REGARDING%20FORWARD-LOOKING%20STATEMENTS) This section advises caution regarding forward-looking statements, noting that actual results may differ due to inherent risks and uncertainties - The report includes forward-looking statements subject to inherent risks and uncertainties, and actual results may differ materially from projections; investors are cautioned not to unduly rely on these statements[136](index=136&type=chunk) - The company assumes no obligation to update any forward-looking statement[137](index=137&type=chunk) [Notice Regarding Trademarks](index=53&type=section&id=NOTICE%20REGARDING%20TRADEMARKS) This section clarifies that the report includes trademarks, tradenames, and service marks that are the company's property or the property of others - The report includes trademarks, tradenames, and service marks that are the company's property or the property of others, and their inclusion without symbols does not waive rights[138](index=138&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=55&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section confirms no material changes in market risk disclosures, including currency exchange rate and interest rate risks, compared to the prior annual report - No material changes occurred in currency exchange rate risk and interest rate risk disclosures during the six-month period ended June 30, 2023[140](index=140&type=chunk) [Item 4. Controls and Procedures](index=55&type=section&id=Item%204.%20Controls%20and%20Procedures) Management evaluated disclosure controls and procedures, concluding their effectiveness, and reported no material changes in internal control over financial reporting [Evaluation of Disclosure Controls and Procedures](index=55&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) This subsection confirms management's conclusion that disclosure controls and procedures were effective at a reasonable assurance level as of June 30, 2023 - Management, with CEO and CFO participation, concluded that disclosure controls and procedures were effective at a reasonable assurance level as of June 30, 2023[141](index=141&type=chunk) [Changes in Internal Control Over Financial Reporting](index=55&type=section&id=Changes%20in%20Internal%20Control%20Over%20Financial%20Reporting) This subsection reports no material changes in internal control over financial reporting during the six-month period ended June 30, 2023 - No changes in internal control over financial reporting materially affected, or are reasonably likely to materially affect, internal control over financial reporting during the six-month period ended June 30, 2023[142](index=142&type=chunk) [PART II. OTHER INFORMATION](index=55&type=section&id=PART%20II.%20OTHER%20INFORMATION) This section provides additional information beyond the financial statements, including legal proceedings, risk factors, and other disclosures [Item 1. Legal Proceedings](index=55&type=section&id=Item%201.%20Legal%20Proceedings) This section refers to Note 10 for details on legal proceedings, including ongoing litigation and an SEC inquiry related to China business activities - Legal proceedings information is detailed in Note 10 'Commitments and Contingencies' of the financial statements[144](index=144&type=chunk) [Item 1A. Risk Factors](index=55&type=section&id=Item%201A.%20Risk%20Factors) This section updates and supplements risk factors, specifically addressing international operations, anti-bribery compliance, and challenges in integrating acquired businesses [International Operations and Anti-Bribery Laws](index=55&type=section&id=Our%20international%20operations%20make%20us%20subject%20to%20the%20U.S.%20Foreign%20Corrupt%20Practices%20Act%20and%20similar%20anti-bribery%20laws%20in%20non-U.S.%20jurisdictions%2C%20and%20our%20failure%2C%20or%20the%20failure%20of%20our%20distributors%20and%20agents%2C%20to%20comply%20with%20these%20laws%20could%20subject%20us%20to%20civil%20and%20criminal%20penalties%20and%20adversely%20af%20ect%20our%20business.) This subsection highlights risks associated with international operations, compliance with anti-bribery laws, and an ongoing SEC inquiry into China business activities - International operations expose the company to the U.S. Foreign Corrupt Practices Act (FCPA) and similar anti-corruption laws, with potential for civil and criminal penalties for non-compliance[146](index=146&type=chunk)[148](index=148&type=chunk)[149](index=149&type=chunk) - An ongoing SEC inquiry into business activities in China, including interactions with hospitals and healthcare officials, could materially adversely affect reputation, business, results of operations, financial condition, or cash flows[150](index=150&type=chunk) [Acquisition Integration Risks](index=57&type=section&id=Substantial%20costs%20are%20incurred%20when%20identifying%2C%20evaluating%2C%20negotiating%20and%20closing%20acquisitions%2C%20and%20failure%20to%20integrate%20acquired%20businesses%20may%20adversely%20impact%20our%20business%20and%20financial%20results.) This subsection discusses the substantial costs and challenges associated with identifying, evaluating, and integrating acquired businesses, and the potential adverse impacts of integration failures - The company incurs significant expenses in evaluating, negotiating, and consummating acquisitions, and faces challenges in integrating acquired operations, cultures, and systems[151](index=151&type=chunk) - Recent acquisitions (AngioDynamics and Bluegrass) are in early integration stages, posing risks related to achieving projected operating and financial results, transferring manufacturing, and expanding sales/marketing capabilities[151](index=151&type=chunk) - Failure to effectively integrate acquisitions or realize anticipated benefits could adversely affect the business, operations, or financial condition, and may lead to future disposition expenses[153](index=153&type=chunk) [Item 5. Other information](index=59&type=section&id=Item%205.%20Other%20information) This section reports that no directors or officers adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during Q2 2023 - No directors or officers reported adopting or terminating Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during Q2 2023[155](index=155&type=chunk) [Item 6. Exhibits](index=60&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including corporate governance documents, credit agreements, asset purchase agreements, certifications, and iXBRL financial information - Exhibits include the Fourth Amended and Restated Credit Agreement, Asset Purchase Agreement with AngioDynamics, and certifications from the CEO and CFO[157](index=157&type=chunk) - Financial information for the quarter ended June 30, 2023, is provided in Inline Extensible Business Reporting Language (iXBRL) format[157](index=157&type=chunk) [SIGNATURES](index=61&type=section&id=SIGNATURES) This section contains the official signatures of the company's President, Chief Executive Officer, Chief Financial Officer, and Treasurer, certifying the report - The report was signed on July 28, 2023, by Fred P. Lampropoulos, President and Chief Executive Officer, and Raul Parra, Chief Financial Officer and Treasurer[162](index=162&type=chunk)

Merit Medical Investor Call July 25, 2023 Second Quarter 2023 Results Fred Lampropoulos Chairman and CEO | --- ...