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]

Financial Performance - Q3 2023 - Revenue reached $31523 million, a 98% increase compared to $287175 million in Q3 2022[3, 73] - GAAP gross margin increased to 451% from 448% year-over-year, while non-GAAP gross margin increased to 498% from 484%[47, 73] - GAAP operating margin significantly increased to 111% from 65%, and non-GAAP operating margin increased to 183% from 161%[32, 73] - GAAP net income increased to $258 million from $153 million, and non-GAAP net income increased to $435 million from $370 million[28, 73] - GAAP earnings per share increased to $044 from $027, and non-GAAP earnings per share increased to $075 from $064[28, 73] Financial Performance - Year-to-Date (YTD) 2023 - Revenue reached $932851 million, an 88% increase compared to $857566 million in YTD 2022[32, 73] - GAAP gross margin increased to 465% from 448% year-over-year, while non-GAAP gross margin increased to 504% from 485%[47, 73] - GAAP operating margin significantly increased to 97% from 67%, and non-GAAP operating margin increased to 181% from 167%[32, 73] - GAAP net income increased to $668 million from $411 million, and non-GAAP net income increased to $1287 million from $1097 million[37, 73] - GAAP earnings per share increased to $114 from $071, and non-GAAP earnings per share increased to $221 from $191[37, 73] Revenue Breakdown by Region - Q3 2023 - US revenue reached $187505 million, a 139% increase from $164571 million in Q3 2022[3] - APAC revenue reached $59831 million, a -06% decrease from $60175 million in Q3 2022[3] - EMEA revenue reached $55206 million, a 60% increase from $52060 million in Q3 2022[3] - Rest of World revenue reached $12688 million, a 224% increase from $10369 million in Q3 2022[3] Updated 2023 Financial Guidance - Net sales are projected to be $1242 - $1251 billion, an 8%-9% increase year-over-year[51] - Cardiovascular segment sales are projected to be $1205 - $1214 billion, an 8%-9% increase year-over-year[51] - Endoscopy segment sales are projected to be $369 - $370 million, a 13% increase year-over-year[51]

[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 | --- ...

[PART I. FINANCIAL INFORMATION](index=3&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This section presents the unaudited consolidated financial statements and condensed notes for Q1 2023 and 2022 [Item 1. Financial Statements (Unaudited)](index=4&type=section&id=Item%201.%20Financial%20Statements%20%28Unaudited%29) This section presents the unaudited consolidated financial statements and condensed notes for Q1 2023 and 2022 [Consolidated Balance Sheets](index=4&type=section&id=Consolidated%20Balance%20Sheets) The consolidated balance sheets show a slight increase in total assets and stockholders' equity, with a decrease in total liabilities as of March 31, 2023 | Metric | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | Change (vs. Dec 31, 2022, in thousands) | | :----- | :---------------------------- | :------------------------------- | :-------------------------------------- | | Total Assets | $1,684,109 | $1,663,966 | +$20,143 | | Total Liabilities | $512,454 | $519,569 | -$7,115 | | Total Stockholders' Equity | $1,171,655 | $1,144,397 | +$27,258 | | Cash and cash equivalents | $57,945 | $58,408 | -$463 | | Inventories | $289,581 | $265,991 | +$23,590 | [Consolidated Statements of Income](index=6&type=section&id=Consolidated%20Statements%20of%20Income) These statements detail revenues, expenses, and net income for Q1 2023 and 2022, showing significant year-over-year growth across key profitability metrics | Metric | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | YoY Change (in thousands) | YoY Growth | | :----- | :----------------------------------------------- | :----------------------------------------------- | :------------------------ | :--------- | | Net sales | $297,565 | $275,415 | +$22,150 | +8.0% | | Cost of sales | $159,203 | $154,508 | +$4,695 | +3.0% | | Gross profit | $138,362 | $120,907 | +$17,455 | +14.4% | | Income from operations | $26,383 | $15,233 | +$11,150 | +73.2% | | Net income | $20,703 | $10,545 | +$10,158 | +96.3% | | Basic EPS | $0.36 | $0.19 | +$0.17 | +89.5% | | Diluted EPS | $0.36 | $0.18 | +$0.18 | +100.0% | [Consolidated Statements of Comprehensive Income](index=7&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income) These statements report net income and other comprehensive income components for Q1 2023 and 2022, showing a significant year-over-year increase in total comprehensive income | Metric | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | YoY Change (in thousands) | | :----- | :----------------------------------------------- | :----------------------------------------------- | :------------------------ | | Net income | $20,703 | $10,545 | +$10,158 | | Other comprehensive income | $621 | $1,338 | -$717 | | Total comprehensive income | $21,324 | $11,883 | +$9,441 | [Consolidated Statements of Stockholders' Equity](index=8&type=section&id=Consolidated%20Statements%20of%20Stockholders%27%20Equity) These statements detail changes in stockholders' equity for Q1 2023 and 2022, reflecting an increase driven by net income and other comprehensive income | Metric | March 31, 2023 (in thousands) | January 1, 2023 (in thousands) | Change (in thousands) | | :----- | :---------------------------- | :----------------------------- | :-------------------- | | Total Stockholders' Equity | $1,171,655 | $1,144,397 | +$27,258 | | Common Stock Amount | $681,108 | $675,174 | +$5,934 | | Retained Earnings | $501,476 | $480,773 | +$20,703 | [Consolidated Statements of Cash Flows](index=9&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) These statements break down cash flows for Q1 2023 and 2022, showing increased operating cash flow and a significant decrease in cash used in financing activities | Metric | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | YoY Change (in thousands) | | :-------------------------------- | :----------------------------------------------- | :----------------------------------------------- | :------------------------ | | Net cash provided by operating activities | $14,545 | $12,010 | +$2,535 | | Net cash used in investing activities | $(14,856) | $(9,868) | -$4,988 | | Net cash used in financing activities | $(497) | $(14,240) | +$13,743 | | Net decrease in cash, cash equivalents and restricted cash | $(432) | $(11,987) | +$11,555 | | End of period cash, cash equivalents and restricted cash | $60,126 | $55,763 | +$4,363 | [Condensed Notes to Consolidated Financial Statements](index=11&type=section&id=Condensed%20Notes%20to%20Consolidated%20Financial%20Statements) These notes provide additional disclosures for the unaudited consolidated financial statements, covering key accounting policies, financial instruments, and operational details [Note 1. Basis of Presentation and Other Items](index=11&type=section&id=Note%201.%20Basis%20of%20Presentation%20and%20Other%20Items) This note clarifies the unaudited nature and U.S. GAAP compliance of interim financial statements, noting that Q1 results may not predict full-year performance - Interim financial statements are unaudited and prepared under U.S. GAAP, including normal recurring accruals[20](index=20&type=chunk) - Results for the three-month period are not necessarily indicative of full-year performance[20](index=20&type=chunk) [Note 2. Recently Issued Financial Accounting Standards](index=11&type=section&id=Note%202.%20Recently%20Issued%20Financial%20Accounting%20Standards) This note discusses recent FASB ASUs on Reference Rate Reform (LIBOR transition), noting the company has not modified any contracts due to this reform - FASB issued ASUs 2020-04, 2021-01, and 2022-06 regarding Reference Rate Reform (LIBOR transition), deferring the sunset date of guidance to December 31, 2024[21](index=21&type=chunk) - As of March 31, 2023, the company had not modified any contracts as a result of reference rate reform[21](index=21&type=chunk) [Note 3. Revenue from Contracts with Customers](index=11&type=section&id=Note%203.%20Revenue%20from%20Contracts%20with%20Customers) This note details the company's unchanged revenue recognition policy and disaggregates revenue by segment, product, and geography, showing an **8.0%** year-over-year increase - Revenue is recognized when customers obtain control of promised goods, reflecting the expected consideration[23](index=23&type=chunk) - Revenue is disaggregated by reporting segment (cardiovascular, endoscopy), product category (peripheral intervention, cardiac intervention, custom procedural solutions, OEM, endoscopy devices), and geographical region (United States, International)[24](index=24&type=chunk)[25](index=25&type=chunk) Revenue by Segment and Region | Segment/Region | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | YoY Change (in thousands) | YoY Growth | | :------------- | :----------------------------------------------- | :----------------------------------------------- | :------------------------ | :--------- | | Cardiovascular | $287,976 | $266,936 | +$21,040 | +7.9% | | Endoscopy | $9,589 | $8,479 | +$1,110 | +13.1% | | United States | $171,360 | $152,992 | +$18,368 | +12.0% | | International | $126,205 | $122,423 | +$3,782 | +3.1% | | Total Revenue | $297,565 | $275,415 | +$22,150 | +8.0% | [Note 4. Acquisitions](index=13&type=section&id=Note%204.%20Acquisitions) This note reports a **$2.0 million** equity investment in Solo Pace Inc. in January 2023, acquiring a **19%** ownership stake - In January 2023, the company invested **$2.0 million** to acquire a **19%** equity interest in Solo Pace Inc., recorded as an equity investment at cost[25](index=25&type=chunk) [Note 5. Inventories](index=13&type=section&id=Note%205.%20Inventories) This note details inventory composition, showing an increase from **$266.0 million** to **$289.6 million** as of March 31, 2023, primarily in finished goods and raw materials Inventory Composition | Inventory Category | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | Change (in thousands) | | :----------------- | :---------------------------- | :------------------------------- | :-------------------- | | Finished goods | $153,275 | $147,051 | +$6,224 | | Work-in-process | $34,646 | $29,534 | +$5,112 | | Raw materials | $101,660 | $89,406 | +$12,254 | | Total inventories | $289,581 | $265,991 | +$23,590 | [Note 6. Goodwill and Intangible Assets](index=13&type=section&id=Note%206.%20Goodwill%20and%20Intangible%20Assets) This note reports goodwill at **$360.3 million** as of March 31, 2023, with no Q1 2023 impairment, but notes a **$1.7 million** intangible asset impairment in Q1 2022 - Goodwill balance was **$360.3 million** as of March 31, 2023, with no impairment charges in Q1 2023 or Q1 2022[26](index=26&type=chunk) - Total accumulated goodwill impairment losses remained at **$8.3 million** as of March 31, 2023[26](index=26&type=chunk) - A **$1.7 million** impairment charge for intangible assets was recorded in Q1 2022 due to the planned divestiture of the STD Pharmaceutical business[30](index=30&type=chunk) Intangible Assets Net Carrying Amount | Intangible Asset Category | March 31, 2023 Net Carrying Amount (in thousands) | December 31, 2022 Net Carrying Amount (in thousands) | | :------------------------ | :------------------------------------------------ | :--------------------------------------------------- | | Developed technology | $227,203 | $237,522 | | Other intangible assets | $36,681 | $38,350 | | Goodwill | $360,291 | $359,821 | [Note 7. Income Taxes](index=16&type=section&id=Note%207.%20Income%20Taxes) This note reports Q1 2023 income tax expense of **$4.8 million**, with the effective tax rate decreasing to **18.8%** due to discrete items and higher pre-tax income Income Tax Expense and Effective Tax Rate | Metric | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | YoY Change (in thousands) | | :----- | :----------------------------------------------- | :----------------------------------------------- | :------------------------ | | Income tax expense | $4,797 | $3,626 | +$1,171 | | Effective tax rate | 18.8% | 25.6% | -6.8 pp | - Decrease in effective tax rate primarily due to increased benefit from discrete items (contingent liabilities, deferred compensation)[33](index=33&type=chunk) - Increase in income tax expense primarily due to increased pre-tax book income[33](index=33&type=chunk) [Note 8. Revolving Credit Facility and Long-Term Debt](index=16&type=section&id=Note%208.%20Revolving%20Credit%20Facility%20and%20Long-Term%20Debt) This note details **$197.7 million** in long-term debt as of March 31, 2023, under a credit agreement providing **$150 million** term loan and **$600 million** revolving credit, with the company in compliance Long-Term Debt | Debt Type | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | Change (in thousands) | | :-------- | :---------------------------- | :------------------------------- | :-------------------- | | Term loans | $121,875 | $124,688 | -$2,813 | | Revolving credit loans | $75,948 | $73,500 | +$2,448 | | Total long-term debt | $197,673 | $198,009 | -$336 | - The Third Amended Credit Agreement provides for a **$150 million** term loan and a **$600 million** revolving credit commitment, maturing July 31, 2024[35](index=35&type=chunk) - As of March 31, 2023, the company had **$197.8 million** outstanding borrowings and approximately **$521 million** available borrowing capacity[40](index=40&type=chunk)[123](index=123&type=chunk) - The company was in compliance with all financial covenants (Consolidated Total Leverage Ratio, Consolidated Interest Coverage Ratio, Facility Capital Expenditures) as of March 31, 2023[37](index=37&type=chunk)[38](index=38&type=chunk)[39](index=39&type=chunk) [Note 9. Derivatives](index=18&type=section&id=Note%209.%20Derivatives) This note explains the company's use of interest rate swaps and foreign currency forward contracts to mitigate market risks, recognized at fair value - The company uses interest rate swaps and foreign currency forward contracts to mitigate interest rate and foreign currency exchange rate risks[42](index=42&type=chunk)[44](index=44&type=chunk)[49](index=49&type=chunk) - As of March 31, 2023, the company had a pay-fixed, receive-variable interest rate swap with a notional amount of **$75 million**, fixing the one-month LIBOR rate at **1.71%** until July 31, 2024[47](index=47&type=chunk) - As of March 31, 2023, the company had **$98.0 million** in notional foreign currency forward contracts designated as cash flow hedges and **$129.0 million** not designated as hedges[51](index=51&type=chunk)[52](index=52&type=chunk) Derivative Fair Values | Derivative Type | Balance Sheet Location | March 31, 2023 Fair Value (in thousands) | December 31, 2022 Fair Value (in thousands) | | :-------------- | :--------------------- | :--------------------------------------- | :------------------------------------------ | | Interest rate swaps (Asset) | Other assets (long-term) | $2,791 | $3,444 | | Foreign currency forward contracts (Assets) | Prepaid expenses and other assets / Other assets (long-term) | $4,401 | $4,783 | | Foreign currency forward contracts (Liabilities) | Accrued expenses / Other long-term obligations | $(3,459) | $(3,986) | [Note 10. Commitments and Contingencies](index=23&type=section&id=Note%2010.%20Commitments%20and%20Contingencies) This note discloses legal proceedings, including an ongoing U.S. SEC inquiry into the China subsidiary's business activities, with an uncertain material outcome - The company is involved in various legal proceedings, actions, and claims, including product liability, intellectual property, and contract disputes[57](index=57&type=chunk) - The U.S. SEC Division of Enforcement is conducting an inquiry into the business activities of the company's China subsidiary, specifically interactions with hospitals and healthcare officials[58](index=58&type=chunk) - The company is cooperating with the SEC inquiry but cannot predict its scope, timing, significance, or outcome, which could have a material adverse effect on its reputation, business, financial condition, or cash flows[58](index=58&type=chunk)[59](index=59&type=chunk)[141](index=141&type=chunk) [Note 11. Earnings Per Common Share (EPS)](index=23&type=section&id=Note%2011.%20Earnings%20Per%20Common%20Share%20%28EPS%29) This note provides the computation of basic and diluted EPS for Q1 2023 and 2022, showing a year-over-year increase in both metrics Earnings Per Common Share | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | YoY Change | | :-------------------------------- | :-------------------------------- | :-------------------------------- | :--------- | | Net income (in thousands) | $20,703 | $10,545 | +$10,158 | | Basic EPS | $0.36 | $0.19 | +$0.17 | | Diluted EPS | $0.36 | $0.18 | +$0.18 | | Weighted average shares outstanding (Basic, in thousands of shares) | 57,352 | 56,593 | +759 | | Weighted average shares outstanding (Diluted, in thousands of shares) | 58,183 | 57,531 | +652 | [Note 12. Stock-Based Compensation Expense](index=23&type=section&id=Note%2012.%20Stock-Based%20Compensation%20Expense) This note details stock-based compensation expense, which decreased to **$4.0 million** in Q1 2023, covering various equity awards and their unrecognized costs Stock-Based Compensation Expense by Category | Expense Category | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | YoY Change (in thousands) | | :--------------- | :----------------------------------------------- | :----------------------------------------------- | :------------------------ | | Cost of sales | $441 | $588 | -$147 | | Research and development | $428 | $486 | -$58 | | Selling, general and administrative | $3,100 | $3,568 | -$468 | | Total stock-based compensation expense | $3,969 | $4,642 | -$673 | - Total remaining unrecognized compensation cost for non-vested stock options was **$25.5 million**, expected to be recognized over a weighted average period of **2.6 years** as of March 31, 2023[65](index=65&type=chunk) - Total remaining unrecognized compensation cost for stock-settled performance stock units was **$15.9 million**, expected to be recognized over a weighted average period of **2.4 years** as of March 31, 2023[69](index=69&type=chunk) - Total remaining unrecognized compensation cost for cash-settled performance-based share-based awards (Liability Awards) was **$4.5 million**, expected to be recognized over a weighted average period of **2.3 years** as of March 31, 2023[71](index=71&type=chunk) [Note 13. Segment Reporting](index=27&type=section&id=Note%2013.%20Segment%20Reporting) This note reports financial information for the cardiovascular and endoscopy segments, both showing increased net sales and operating income in Q1 2023 - The company operates in two segments: cardiovascular (peripheral intervention, cardiac intervention, custom procedural solutions, OEM) and endoscopy (gastroenterology and pulmonology devices)[73](index=73&type=chunk)[95](index=95&type=chunk) Segment Net Sales and Income from Operations | Segment | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | YoY Change (in thousands) | YoY Growth | | :------ | :----------------------------------------------- | :----------------------------------------------- | :------------------------ | :--------- | | **Net Sales** | | | | | | Cardiovascular | $287,976 | $266,936 | +$21,040 | +7.9% | | Endoscopy | $9,589 | $8,479 | +$1,110 | +13.1% | | **Income from Operations** | | | | | | Cardiovascular | $23,934 | $13,126 | +$10,808 | +82.3% | | Endoscopy | $2,449 | $2,107 | +$342 | +16.2% | [Note 14. Fair Value Measurements](index=29&type=section&id=Note%2014.%20Fair%20Value%20Measurements) This note details fair value measurements for financial assets and liabilities, including contingent consideration which decreased from **$18.1 million** to **$16.0 million** - Marketable securities are valued using Level 1 inputs (active market prices)[77](index=77&type=chunk) - Interest rate and foreign currency contracts are valued using Level 2 inputs[80](index=80&type=chunk) - Contingent consideration liabilities are re-measured at fair value each reporting period using Level 3 unobservable inputs (discount rates, projected payments, probability of milestone achievement)[79](index=79&type=chunk)[81](index=81&type=chunk)[82](index=82&type=chunk) Fair Value Items | Fair Value Item | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | Change (in thousands) | | :-------------- | :---------------------------- | :------------------------------- | :-------------------- | | Marketable securities | $103 | $138 | -$35 | | Interest rate contract asset | $2,791 | $3,444 | -$653 | | Foreign currency contract assets | $4,401 | $4,783 | -$382 | | Foreign currency contract liabilities | $(3,459) | $(3,986) | +$527 | | Contingent consideration liabilities | $(16,000) | $(18,073) | +$2,073 | [Note 15. Accumulated Other Comprehensive Income (Loss)](index=36&type=section&id=Note%2015.%20Accumulated%20Other%20Comprehensive%20Income%20%28Loss%29) This note presents changes in accumulated other comprehensive income (loss) components, which decreased from **$(11.55) million** to **$(10.93) million** in Q1 2023 Accumulated Other Comprehensive Income (Loss) Components | Component | Balance as of March 31, 2023 (in thousands) | Balance as of January 1, 2023 (in thousands) | Change (in thousands) | | :-------- | :------------------------------------------ | :------------------------------------------- | :-------------------- | | Cash Flow Hedges | $3,081 | $4,366 | -$1,285 | | Foreign Currency Translation | $(14,010) | $(15,916) | +$1,906 | | Total Accumulated Other Comprehensive Loss | $(10,929) | $(11,550) | +$621 | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=37&type=section&id=Item%202.%20Management%27s%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 for Q1 2023, covering performance, liquidity, and accounting policies [Overview](index=37&type=section&id=OVERVIEW) This overview summarizes Q1 2023 financial performance, highlighting an **8.0%** increase in net sales, improved gross profit margin, and significant net income growth - Net sales increased by **8.0%** to **$297.6 million** in Q1 2023, driven by stronger than anticipated demand in the U.S. and favorable international sales trends, particularly in the EMEA region[96](index=96&type=chunk)[98](index=98&type=chunk) - Gross profit as a percentage of sales increased to **46.5%** in Q1 2023 from **43.9%** in Q1 2022[97](index=97&type=chunk) - Net income for Q1 2023 was **$20.7 million** (**$0.36** per share), up from **$10.5 million** (**$0.18** per share) in Q1 2022[97](index=97&type=chunk) - The Foundations for Growth program helped offset inflationary cost pressures in certain raw materials, shipping, and freight expenses[98](index=98&type=chunk) [Results of Operations](index=39&type=section&id=RESULTS%20OF%20OPERATIONS) This section provides a detailed analysis of Q1 2023 financial performance, covering sales, gross profit, operating expenses, and net income [Sales](index=39&type=section&id=Sales) Net sales increased **8.0%** year-over-year to **$297.6 million**, driven by **7.9%** cardiovascular and **13.1%** endoscopy sales growth, with strong U.S. and EMEA performance Net Sales by Category | Category | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | YoY Change (in thousands) | YoY Growth | | :-------------------------- | :----------------------------------------------- | :----------------------------------------------- | :------------------------ | :--------- | | **Total Net Sales** | $297,565 | $275,415 | +$22,150 | +8.0% | | **Cardiovascular Sales** | $287,976 | $266,936 | +$21,040 | +7.9% | | Peripheral Intervention | $113,783 | $105,773 | +$8,010 | +7.6% | | Cardiac Intervention | $85,328 | $81,487 | +$3,841 | +4.7% | | Custom Procedural Solutions | $47,701 | $46,262 | +$1,439 | +3.1% | | OEM | $41,164 | $33,414 | +$7,750 | +23.2% | | **Endoscopy Sales** | $9,589 | $8,479 | +$1,110 | +13.1% | - U.S. sales increased by **12.0%** to **$171.4 million**, driven primarily by U.S. Direct and OEM businesses[104](index=104&type=chunk) - International sales increased by **3.1%** to **$126.2 million**, with EMEA operations growing **11.7%** and ROW operations growing **6.7%**, partially offset by a **4.9%** decrease in Asia Pacific[105](index=105&type=chunk) [Gross Profit](index=41&type=section&id=Gross%20Profit) Gross profit as a percentage of sales increased to **46.5%** in Q1 2023, driven by favorable product mix, operational efficiencies, and reduced costs Gross Profit as Percentage of Sales | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | Change (pp) | | :----- | :-------------------------------- | :-------------------------------- | :---------- | | Gross profit as % of sales | 46.5% | 43.9% | +2.6 | - Increase in gross profit percentage driven by favorable product mix, efficiencies gained in the Foundations for Growth program, lower freight and distribution costs, lower intangible asset amortization expense as a percentage of sales, and lower obsolescence expense as a percentage of sales[106](index=106&type=chunk) [Operating Expenses](index=41&type=section&id=Operating%20Expenses) SG&A increased **7.3%**, R&D rose **22.6%** due to regulatory costs, and contingent consideration expense decreased significantly in Q1 2023 Operating Expenses by Category | Expense Category | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | YoY Change (in thousands) | YoY Growth | % of Sales (2023) | % of Sales (2022) | | :--------------- | :----------------------------------------------- | :----------------------------------------------- | :------------------------ | :--------- | :---------------- | :---------------- | | SG&A | $90,144 | $84,015 | +$6,129 | +7.3% | 30.3% | 30.5% | | R&D | $21,314 | $17,387 | +$3,927 | +22.6% | 7.2% | 6.3% | | Impairment charges | $0 | $1,672 | -$1,672 | -100.0% | 0.0% | 0.6% | | Contingent consideration expense | $521 | $2,600 | -$2,079 | -80.0% | 0.2% | 0.9% | - Increase in SG&A primarily due to increased labor-related costs associated with headcount and severance, as well as increased travel and marketing costs[107](index=107&type=chunk) - Increase in R&D largely due to higher regulatory expenses incurred to comply with the E.U. Medical Device Regulation (MDR)[108](index=108&type=chunk) [Operating Income](index=43&type=section&id=Operating%20Income) Total operating income significantly increased by **73.2%** to **$26.4 million**, with both cardiovascular and endoscopy segments showing strong growth Operating Income by Segment | Segment | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | YoY Change (in thousands) | YoY Growth | | :------ | :----------------------------------------------- | :----------------------------------------------- | :------------------------ | :--------- | | Total Operating Income | $26,383 | $15,233 | +$11,150 | +73.2% | | Cardiovascular Operating Income | $23,934 | $13,126 | +$10,808 | +82.3% | | Endoscopy Operating Income | $2,449 | $2,107 | +$342 | +16.2% | - Cardiovascular operating income increase primarily a result of higher sales and higher gross margin, partially offset by higher SG&A and R&D expenses[111](index=111&type=chunk) - Endoscopy operating income increase primarily a result of increased sales and gross margin, offset partially by higher SG&A expenses[112](index=112&type=chunk) [Other Expense – Net](index=43&type=section&id=Other%20Expense%20%E2%80%93%20Net) Other expense decreased to **$0.9 million** in Q1 2023, primarily due to lower foreign currency losses, partially offset by higher interest expense Other Expense – Net | Metric | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | YoY Change (in thousands) | | :----- | :----------------------------------------------- | :----------------------------------------------- | :------------------------ | | Total other expense – net | $(883) | $(1,062) | +$179 | - Change in other expense primarily related to decreased expense from realized and unrealized foreign currency losses, partially offset by an increase in interest expense associated with rising interest rates[113](index=113&type=chunk) [Effective Tax Rate](index=43&type=section&id=Effective%20Tax%20Rate) The effective tax rate decreased to **18.8%** in Q1 2023, primarily due to increased benefits from discrete items, despite higher pre-tax income Effective Tax Rate | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | Change (pp) | | :----- | :-------------------------------- | :-------------------------------- | :---------- | | Effective tax rate | 18.8% | 25.6% | -6.8 | - Decrease in the effective income tax rate primarily due to increased benefit from discrete items such as contingent liabilities and deferred compensation[114](index=114&type=chunk) - Increase in the income tax expense primarily due to increased pre-tax book income[114](index=114&type=chunk) [Net Income](index=45&type=section&id=Net%20Income) Net income for Q1 2023 significantly increased to **$20.7 million**, driven by higher sales and gross margins, partially offset by increased operating expenses Net Income | Metric | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | YoY Change (in thousands) | YoY Growth | | :----- | :----------------------------------------------- | :----------------------------------------------- | :------------------------ | :--------- | | Net income | $20,703 | $10,545 | +$10,158 | +96.3% | - Increase in net income primarily the result of higher sales and higher gross margins as a percentage of sales, partially offset by higher SG&A and R&D expenses[116](index=116&type=chunk) [Liquidity and Capital Resources](index=45&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) Current assets exceeded liabilities by **$341.3 million** as of March 31, 2023, with increased operating cash flow and significant available borrowing capacity - Current assets exceeded current liabilities by **$341.3 million** as of March 31, 2023[117](index=117&type=chunk) - Cash, cash equivalents, and restricted cash totaled **$60.1 million** as of March 31, 2023, with **$32.2 million** held by the China subsidiary[98](index=98&type=chunk)[117](index=117&type=chunk) Cash Flow Activities | Cash Flow Activity | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | YoY Change (in thousands) | | :----------------- | :----------------------------------------------- | :----------------------------------------------- | :------------------------ | | Operating Activities | $14,545 | $12,010 | +$2,535 | | Investing Activities | $(14,856) | $(9,868) | -$4,988 | | Financing Activities | $(497) | $(14,240) | +$13,743 | - Capital expenditures for property and equipment were **$12.8 million** in Q1 2023, with an anticipated **$55-$60 million** for the full year 2023[118](index=118&type=chunk) - Cash outflows for acquisitions in Q1 2023 were **$2.0 million** related to the investment in Solo Pace Inc[119](index=119&type=chunk) - Contingent consideration payments decreased significantly to **$2.6 million** in Q1 2023 from **$24.5 million** in Q1 2022[122](index=122&type=chunk) - The company has approximately **$521 million** in additional available borrowing capacity under its Third Amended Credit Agreement[98](index=98&type=chunk)[123](index=123&type=chunk) [Critical Accounting Policies and Estimates](index=47&type=section&id=CRITICAL%20ACCOUNTING%20POLICIES%20AND%20ESTIMATES) This section confirms no changes to critical accounting policies and estimates were made during Q1 2023 - No changes to critical accounting policies and estimates were made in Q1 2023[125](index=125&type=chunk) [Cautionary Notice Regarding Forward-Looking Statements](index=47&type=section&id=CAUTIONARY%20NOTICE%20REGARDING%20FORWARD-LOOKING%20STATEMENTS) This section warns that forward-looking statements are subject to risks and uncertainties, and actual results may differ materially, with no obligation to update - The report includes forward-looking statements, which are subject to inherent risks and uncertainties, and actual results may differ materially from those projected or assumed[126](index=126&type=chunk) - The company assumes no obligation to update any forward-looking statement[127](index=127&type=chunk) [Notice Regarding Trademarks](index=49&type=section&id=NOTICE%20REGARDING%20TRADEMARKS) This section clarifies that the report includes trademarks and tradenames, and the omission of symbols does not waive proprietary rights - The report includes trademarks, tradenames, and service marks that are the company's property or the property of others, and the absence of symbols does not waive the company's or any applicable licensor's rights to these marks[129](index=129&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=49&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section refers to the 2022 Form 10-K for market risk disclosures, noting no material changes in Q1 2023 - No material changes to quantitative and qualitative disclosures about market risk were reported in Q1 2023 compared to the 2022 Annual Report on Form 10-K[130](index=130&type=chunk) [Item 4. Controls and Procedures](index=49&type=section&id=Item%204.%20Controls%20and%20Procedures) This section details the evaluation of disclosure controls and procedures and reports on changes in internal control over financial reporting [Evaluation of Disclosure Controls and Procedures](index=49&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of March 31, 2023 - Management, with CEO and CFO participation, concluded that disclosure controls and procedures were effective as of March 31, 2023, providing reasonable assurance that required information is recorded, processed, summarized, and reported timely[131](index=131&type=chunk) [Changes in Internal Control Over Financial Reporting](index=49&type=section&id=Changes%20in%20Internal%20Control%20Over%20Financial%20Reporting) This section reports no material changes in internal control over financial reporting during Q1 2023 - No material changes in internal control over financial reporting occurred during Q1 2023[132](index=132&type=chunk) [PART II. OTHER INFORMATION](index=49&type=section&id=PART%20II.%20OTHER%20INFORMATION) This section provides additional information including legal proceedings, risk factors, and exhibits [Item 1. Legal Proceedings](index=49&type=section&id=Item%201.%20Legal%20Proceedings) This section refers to Note 10 "Commitments and Contingencies" for detailed information regarding legal proceedings - Legal proceedings information is detailed in Note 10 "Commitments and Contingencies" of the financial statements[134](index=134&type=chunk) [Item 1A. Risk Factors](index=49&type=section&id=Item%201A.%20Risk%20Factors) This section updates risk factors, highlighting international operations and anti-bribery compliance risks, including an ongoing SEC inquiry into the China subsidiary - The company's international operations expose it to the U.S. Foreign Corrupt Practices Act (FCPA) and similar anti-bribery laws, with potential for civil and criminal penalties for non-compliance[138](index=138&type=chunk)[139](index=139&type=chunk)[140](index=140&type=chunk) - The ongoing SEC inquiry into the China subsidiary's business activities (interactions with hospitals and healthcare officials) could materially and adversely affect the company's reputation, business, results of operations, financial condition, or cash flows[141](index=141&type=chunk) [Item 6. Exhibits](index=52&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the 10-Q report, including corporate governance documents, compensation agreements, and certifications - Exhibits include corporate governance documents (Articles of Incorporation, Bylaws), executive compensation agreements (Performance Stock Unit Award Agreements), Sarbanes-Oxley certifications (CEO, CFO), and financial data in iXBRL format[143](index=143&type=chunk) [SIGNATURES](index=53&type=section&id=SIGNATURES) This section contains the official signatures of the company's principal executive and financial officers [Signatures Details](index=53&type=section&id=SIGNATURES_details) The report was signed on April 28, 2023, by the President and CEO, and the CFO and Treasurer of Merit Medical Systems, Inc - The report was signed by Fred P. Lampropoulos (President and CEO) and Raul Parra (CFO and Treasurer) on April 28, 2023[149](index=149&type=chunk)

Merit Medical Systems, Inc. (NASDAQ:MMSI) Q1 2023 Earnings Call Transcript April 26, 2023 5:00 PM ET Company Participants Fred Lampropoulos - Chairman and Chief Executive Officer Raul Parra - Chief Financial Officer Brian Lloyd - Chief Legal Officer and Corporate Secretary Conference Call Participants Steve Lichtman - Oppenheimer Jayson Bedford - Raymond James Mike Matson - Needham & Company Jim Sidoti - Sidoti & Company Jason Bednar - Piper Sandler Michael Petusky - Barrington Research William Plovanic - C ...

Merit Medical Investor Call April 26, 2023 an 2 TRADEMARKS 3 m In thousands, except percentages 5 5 6 6 7 • constant currency revenue; • constant currency revenue, organic; • non-GAAP gross profit and margin; • non-GAAP operating income and margin; • non-GAAP net income; • non-GAAP earnings per share; and • free cash flow. Readers should consider non-GAAP measures used in this presentation in addition to, not as a substitute for, financial reporting measures prepared in accordance with GAAP. These non-GAAP ...

Business Segments - The company operates through two segments: cardiovascular and endoscopy, with a focus on medical devices for vascular access and minimally invasive procedures [25]. - Cardiovascular segment includes product categories such as peripheral intervention, cardiac intervention, custom procedural solutions, and OEM [27]. - The endoscopy segment includes gastroenterology and pulmonary products, with a variety of kits and accessories for procedures [46]. Sales and Market Performance - U.S. sales accounted for 57% of net sales for the years ended December 31, 2022, 2021, and 2020 [55]. - In 2022, international sales grew by 7.4% compared to 2021, accounting for 43% of net sales, with China representing 13% of net sales at $149.3 million [56]. - The company achieved the highest annual revenue in its history in 2022, following growth in global sales as demand for products increased post-COVID-19 [58]. Product Development and Innovation - The company emphasizes rapid product development to meet customer needs, involving cross-departmental project teams for new product introductions [54]. - New product additions in 2022 included Prelude Roadster®, Sync EZ™, Safeguard Focus Cool™, and Scout BX™ [66]. - The company operates research and development facilities in California, Texas, Utah, Ireland, France, and Singapore, emphasizing innovation for continued growth [67]. Regulatory Compliance and Quality Standards - The company maintains a Corporate Integrity Agreement with the Office of Inspector General, requiring compliance with federal healthcare regulations [82]. - The company has received various ISO certifications for its facilities, ensuring adherence to international quality standards [68]. - Compliance with quality system regulations (QSR) is critical, as failure could lead to manufacturing shutdowns or product recalls, significantly impacting business operations [89]. Competition and Market Challenges - The company faces competition from larger firms such as Medtronic and Boston Scientific, but believes it holds a leading position in digital inflation technology [75]. - The company operates in a highly competitive market, facing competition from larger firms with greater resources [158]. - Consolidation in the healthcare industry has led to demands for price concessions, negatively impacting revenues [157]. Financial and Operational Risks - Elevated commodity and supply chain costs were experienced in 2022, with expectations for continued inflation in 2023 [149]. - The company faces challenges in passing increased costs onto customers due to the competitive nature of the healthcare industry [150]. - The company incurred substantial costs related to acquisitions and may face challenges in integrating acquired businesses, which could adversely affect financial results [166]. Legal and Regulatory Scrutiny - The company anticipates continued scrutiny from government authorities, which may increase compliance costs and expose it to litigation risks [188]. - The company is subject to various laws targeting fraud and abuse in the healthcare industry, with violations potentially leading to substantial fines and exclusion from healthcare programs [189]. - The company paid $18.7 million to resolve a DOJ investigation into past marketing practices, which included interest and fees, and is now operating under a Corporate Integrity Agreement (CIA) [187]. Data Privacy and Security - Privacy and data security compliance is increasingly complex, with potential fines for violations of laws such as GDPR and PIPL impacting operational costs [108]. - The company faces stringent privacy regimes, including GDPR in the EU, which imposes severe penalties for non-compliance and requires prompt notification of data breaches [109]. - Cyber-attacks could lead to unauthorized access to sensitive information, resulting in regulatory sanctions and damage to the company's reputation [222]. Employee and Talent Management - As of December 31, 2022, the company had 6,846 employees across approximately 40 countries, emphasizing the importance of attracting and retaining talent in the competitive medical device industry [126]. - The company achieved its eighth consecutive year of zero healthcare plan cost increases for U.S. employees participating in group healthcare plans, reflecting its focus on competitive health and wellness benefits [131]. - The company hired its first Director of Global Talent Management in 2021 to enhance global talent management programs, with a performance management program set to launch in 2023 [132]. Sustainability and Corporate Responsibility - The company has established a Corporate Sustainability Council to drive long-term Environment, Social, and Governance (ESG) goals across its enterprise [121]. - The company has identified sustainability opportunities, including programs to reduce waste and greenhouse gas emissions, as part of its business strategy [123]. - In 2022, the company supported humanitarian missions through product donations in five countries, including Haiti and Kenya [133].