Merit Medical(MMSI) - 2023 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements (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 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 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 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 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 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][137] - Increased net borrowings of approximately $88.9 million in 2023 financed acquisitions, contrasting with a $26.3 million debt reduction in 2022[18][138] Condensed Notes to Consolidated Financial Statements 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 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] 2. Recently Adopted Financial Accounting Standards 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] 3. Revenue from Contracts with Customers 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 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] - Acquired Bluegrass Vascular Technologies' Surfacer® Inside-Out® Access Catheter System for $32.7 million, including a previously held equity investment[27] - 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] - Invested $4.0 million in Solo Pace Inc. for a 19% equity stake and exclusive distribution rights for a temporary external pulse generator[31] 5. Inventories 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 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] - 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] 7. Income Taxes 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] - 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] 8. Revolving Credit Facility and Long-Term Debt 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] - As of September 30, 2023, outstanding borrowings were $287.1 million, with approximately $558 million in additional available borrowings[45] 9. Derivatives 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] - 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] 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 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] - Received requests from the SEC Division of Enforcement regarding business activities in China, particularly interactions with hospitals and healthcare officials[63] 11. Earnings Per Common Share (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 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] - Granted performance stock units representing up to 286,863 shares in the nine months ended September 30, 2023, valued using Monte-Carlo simulations[70][71] 13. Segment Reporting 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 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] - 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] 15. Accumulated Other Comprehensive Income (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] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 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 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] - 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] - 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] - The 'Foundations for Growth' corporate transformation initiative helped offset inflationary cost pressures[104] RESULTS OF OPERATIONS 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 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][112] - 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] Geographic Sales 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] Gross Profit 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][118] - Improvements were driven by increased sales, favorable product mix, manufacturing efficiencies from the 'Foundations for Growth' program, and lower freight costs[117][118] Operating Expenses 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][119][120] - R&D increases were due to higher labor costs, clinical trials, R&D development projects, and regulatory costs[122] Operating Income 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][127] - Endoscopy operating income increased due to higher sales and gross margin, partially offset by higher SG&A expenses[128] Other Expense – Net 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][130] Effective Tax Rate 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 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][133] LIQUIDITY AND CAPITAL RESOURCES 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] - 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] - Increased net borrowings by approximately $88.9 million to finance the AngioDynamics and Bluegrass acquisitions[138] CRITICAL ACCOUNTING POLICIES AND ESTIMATES 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] CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS 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] - The company assumes no obligation to update any forward-looking statement[145] NOTICE REGARDING TRADEMARKS 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][148] Item 3. Quantitative and Qualitative Disclosures About Market Risk 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] Item 4. Controls and Procedures 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] - No material changes in internal control over financial reporting occurred during the nine-month period ended September 30, 2023[151] PART II. OTHER INFORMATION Item 1. Legal Proceedings 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][63] Item 1A. Risk Factors 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][157][158] - The ongoing SEC inquiry into business activities in China could divert management's attention and materially affect reputation and financial results[159] - 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] Item 5. Other information 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] Item 6. Exhibits 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] - Financial information from the quarterly report is provided in Inline Extensible Business Reporting Language (iXBRL)[168] 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]