What changed in this filing

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Item 1. Financial Statements

2022-10-28 compared with 2022-08-05 · 180 added, 132 removed, 635 unchanged (33% of the section changed)

4 unchanged sentences

(In thousands)

September 30,

Current assets:

27 unchanged sentences

(In thousands)

September 30,

LIABILITIES AND STOCKHOLDERS’ EQUITY

17 unchanged sentences

Stockholders' equity:

Preferred stock — 5,000 shares authorized as of June 30, 2022 and December 31, 2021;

Preferred stock — 5,000 shares authorized as of September 30, 2022 and December 31, 2021;

no shares issued

Common stock, no par value;

shares authorized — 2022 and 2021 - 100,000 ;

issued and outstanding as of June 30, 2022 - 56,745 and December 31, 2021 - 56,570

100,000 shares authorized;

issued and outstanding as of September 30, 2022 - 56,918 and December 31, 2021 - 56,570

Retained earnings

8 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Cost of sales

10 unchanged sentences

Interest expense

Other expense — net

Other income (expense) — net

Total other expense — net

9 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Other comprehensive income (loss):

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Balance — June 30, 2022

Other comprehensive loss

Stock-based compensation expense

Options exercised

Issuance of common stock under Employee Stock Purchase Plan

Shares surrendered in exchange for payment of payroll tax liabilities

Shares surrendered in exchange for exercise of stock options

Balance — September 30, 2022

See condensed notes to consolidated financial statements.

19 unchanged sentences

Balance — June 30, 2021

Other comprehensive loss

Stock-based compensation expense

Options exercised

Issuance of common stock under Employee Stock Purchase Plan

Shares surrendered in exchange for payment of payroll tax liabilities

Shares surrendered in exchange for exercise of stock options

Balance — September 30, 2021

See condensed notes to consolidated financial statements.

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(In thousands - unaudited)

Six Months Ended

Nine Months Ended

September 30,

CASH FLOWS FROM OPERATING ACTIVITIES:

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(In thousands - unaudited)

Six Months Ended

Nine Months Ended

September 30,

CASH FLOWS FROM FINANCING ACTIVITIES:

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Property and equipment purchases in accounts payable

Acquisition purchases in other long-term obligations

Acquisition purchases in accrued expenses and other long-term obligations

Merit common stock surrendered ( 15 and 3 shares, respectively) in exchange for exercise of stock options

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"we"

or "us") for the three and six-month periods ended June 30, 2022 and 2021 are not audited.

or "us") for the three and nine-month periods ended September 30, 2022 and 2021 are not audited.

Our consolidated financial statements are prepared in accordance with the requirements for unaudited interim periods and, consequently, do not include all disclosures required to be made in conformity with accounting principles generally accepted in the United States of America (“U.S.

In the opinion of our management, the accompanying consolidated financial statements contain all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of our financial position as of June 30, 2022 and December 31, 2021, and our results of operations and cash flows for the three and six-month periods ended June 30, 2022 and 2021.

The results of operations for the three and six-month periods ended June 30, 2022 and 2021 are not necessarily indicative of the results for a full-year period.

In the opinion of our management, the accompanying consolidated financial statements contain all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of our financial position as of September 30, 2022 and December 31, 2021, and our results of operations and cash flows for the three and nine-month periods ended September 30, 2022 and 2021.

The results of operations for the three and nine-month periods ended September 30, 2022 and 2021 are not necessarily indicative of the results for a full-year period.

Amounts presented in this report are rounded, while percentages and earnings per share amounts presented are calculated from the underlying amounts.

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ASU 2020-04 and ASU 2021-01 became effective as of March 12, 2020, and t he provisions of these updates may be applied prospectively to transactions through December 31, 2022, when reference rate reform activity is expected to be completed.

As of June 30, 2022, we had not modified any contracts as a result of reference rate reform.

As of September 30, 2022, we had not modified any contracts as a result of reference rate reform.

W e are currently assessing the anticipated impact of these standards on our consolidated financial statements.

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Our endoscopy segment consists of gastroenterology and pulmonology devices which assist in the palliative treatment of expanding esophageal, tracheobronchial and biliary strictures caused by malignant tumors.

The following tables present revenue from contracts with customers by reporting segment, product category and geographical region for the three and six-month periods ended June 30, 2022 and 2021 (in thousands):

The following tables present revenue from contracts with customers by reporting segment, product category and geographical region for the three and nine-month periods ended September 30, 2022 and 2021 (in thousands):

Three Months Ended

June 30, 2022

June 30, 2021

September 30, 2022

September 30, 2021

United States

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Endoscopy Devices

Six Months Ended

June 30, 2022

June 30, 2021

Nine Months Ended

September 30, 2022

September 30, 2021

United States

8 unchanged sentences

Acquisitions.

On April 30, 2022, we acquired the Restore Endosystems Bifurcated Stent System pursuant to the terms of a unit purchase agreement we executed with all of the members of Restore Endosystems, LLC (“Restore Endosystems”).

Subject to the terms and conditions of the unit purchase agreement, we paid $ 3 million in cash at closing.

On April 30, 2022, we acquired the Restore Endosystems Bifurcated Stent System pursuant to the terms of a unit purchase agreement we executed with the members of Restore Endosystems, LLC (“Restore Endosystems”).

Pursuant to the terms and conditions of the unit purchase agreement, we paid $ 3 million in cash at closing.

We also accrued $ 3.5 million of other long-term obligations, which represents the fair value of two separate $ 2 million payments which are payable no later than two and four years following the closing of the acquisition, respectively, or earlier upon the achievement of specified milestones.

We will impute interest on these liabilities with the passage of time.

We have accounted for this transaction as an asset purchase and recorded $ 6.5 million of acquired in-process research and development expense, because the technological feasibility of the underlying research and development project has not yet been reached and such technology has no identified future alternative use as of the date of acquisition.

We impute interest on these liabilities with the passage of time.

We have accounted for this transaction as an asset purchase and recorded $ 6.5 million of acquired in-process research and development expense, because the technological feasibility of the underlying research and development project has not yet been reached and such technology had no identified future alternative use as of the date of acquisition.

During April 2022, we paid $ 1.4 million to acquire shares of series A preferred stock of Fluidx Medical Technology, Inc.

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Our total current investment in Fluidx represents an ownership of approximately 17 % of its outstanding capital stock.

Inventories at June 30, 2022 and December 31, 2021 consisted of the following (in thousands):

June 30, 2022

During the three-month period ended September 30, 2022, we met the criteria requiring the final payment pursuant to our asset purchase agreement with QX Medical, LLC executed on December 15, 2011, for the acquisition of the intellectual property rights to certain support guide catheter technology.

As of September 30, 2022, we recorded a liability of $ 1.0 million within accrued expenses based upon our obligation to pay the sales milestone payment in accordance with the terms of the asset purchase agreement and capitalized a developed technology intangible asset.

Inventories at September 30, 2022 and December 31, 2021, consisted of the following (in thousands):

September 30, 2022

December 31, 2021

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Goodwill and Intangible Assets.

The change in the carrying amount of goodwill for the six-month period ended June 30, 2022 is detailed as follows (in thousands):

The change in the carrying amount of goodwill for the nine-month period ended September 30, 2022 is detailed as follows (in thousands):

Goodwill balance at January 1

Effect of foreign exchange

Goodwill balance at June 30

Total accumulated goodwill impairment losses aggregated to $ 8.3 million as of June 30, 2022 and December 31, 2021.

We did no t have any goodwill impairments for the six-month periods ended June 30, 2022 and 2021.

The total goodwill balances as of June 30, 2022 and December 31, 2021 were related to our cardiovascular segment.

Other intangible assets at June 30, 2022 and December 31, 2021 consisted of the following (in thousands):

June 30, 2022

Goodwill balance at September 30

Total accumulated goodwill impairment losses aggregated $ 8.3 million as of September 30, 2022 and December 31, 2021.

We did no t have any goodwill impairments for the nine-month periods ended September 30, 2022 and 2021.

The total goodwill balances as of September 30, 2022 and December 31, 2021 were related to our cardiovascular segment.

Other intangible assets at September 30, 2022 and December 31, 2021 consisted of the following (in thousands):

September 30, 2022

Gross Carrying

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Customer lists

Aggregate amortization expense for the three and six-month periods ended June 30, 2022 was $ 12.1 million and $ 24.2 million, respectively.

Aggregate amortization expense for the three and six-month periods ended June 30, 2021 was $ 12.4 million and $ 24.9 million, respectively.

Aggregate amortization expense for the three and nine-month periods ended September 30, 2022 was $ 12.1 million and $ 36.3 million, respectively.

Aggregate amortization expense for the three and nine-month periods ended September 30, 2021 was $ 12.4 million and $ 37.3 million, respectively.

We evaluate long-lived assets, including amortizing intangible assets, for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable.

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We determine the fair value of our amortizing assets based on estimated future cash flows discounted back to their present value using a discount rate that reflects the risk profiles of the underlying activities.

During the three-month period ended June 30, 2022, we did no t identify indicators of impairment in any intangible assets based on our qualitative assessment.

During the six-month period ended June 30, 2022, we identified indicators of impairment associated with certain acquired intangible assets based on our qualitative assessment, which led us to complete an interim quantitative impairment assessment.

During the nine-month period ended September 30, 2022, we identified indicators of impairment associated with certain acquired intangible assets based on our qualitative assessment, which led us to complete an interim quantitative impairment assessment.

The primary indicator of impairment was our divestiture on April 30, 2022 of the STD Pharmaceutical Products Limited (“STD Pharmaceutical”) business acquired in our August 2019 acquisition of Fibrovein Holdings Limited.

We recorded an impairment charge for the carrying value of $ 1.7 million of intangible assets during the six months ended June 30, 2022, all of which pertained to our cardiovascular segment.

During the three-month period ended June 30, 2021, we identified indicators of impairment associated with certain acquired intangible assets based on our qualitative assessment, which led us to complete an interim quantitative impairment assessment.

During the three-month period ended June 30, 2021, the primary indicator of impairment was our planned discontinuance of the Advocate™ Peripheral Angioplasty Balloon product line, sold under our license agreements with ArraVasc Limited (“ArraVasc”).

We recorded an impairment charge for the remaining carrying value of ArraVasc intangible assets of approximately $ 1.6 million during the three months ended June 30, 2021, all of which pertained to our cardiovascular segment.

Estimated amortization expense for developed technology and other intangible assets for the next five years consisted of the following as of June 30, 2022 (in thousands):

We recorded an impairment charge for the carrying value of $ 1.7 million of intangible assets during the nine months ended September 30, 2022 , all of which pertained to our cardiovascular segment.

During the nine-month period ended September 30, 2021, we identified indicators of impairment associated with certain acquired intangible assets based on our qualitative assessment, which led us to complete an interim quantitative impairment assessment.

During the nine-month period ended September 30, 2021, the primary indicator of impairment was our planned discontinuance of the Advocate™ Peripheral Angioplasty Balloon product line, sold under our license agreements with ArraVasc Limited (“ArraVasc”).

We recorded an impairment charge for the remaining carrying value of ArraVasc intangible assets of approximately $ 1.6 million during the nine-month period ended September 30, 2021 , all of which pertained to our cardiovascular segment.

Estimated amortization expense for developed technology and other intangible assets for the next five years consisted of the following as of September 30, 2022 (in thousands):

Year Ending December 31,

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Income Taxes.

Our provision for income taxes for the three-month periods ended June 30, 2022 and 2021 was a tax expense of $ 5.4 million and $ 1.9 million, respectively, which resulted in an effective tax rate of 26.1 % and 28.4 %, respectively.

Our provision for income taxes for the six-month periods ended June 30, 2022 and 2021 was a tax expense of $ 9.0 million and $ 3.7 million, respectively, which resulted in an effective tax rate of 25.9 % and 18.8 %, respectively.

The increase in the income tax expense and the corresponding change in the effective income tax rate for the three and six-month periods ended June 30, 2022, when compared to the prior-year periods, was primarily due to decreased benefit from discrete items such as share-based compensation and deferred compensation.

Our provision for income taxes for the three-month periods ended September 30, 2022 and 2021 was a tax expense of $ 2.3 million and $ 2.2 million, respectively, which resulted in an effective tax rate of 13.2 % and 15.6 %, respectively.

Our provision for income taxes for the nine-month periods ended September 30, 2022 and 2021 was a tax expense of $ 11.4 million and $ 5.9 million, respectively, which resulted in an effective tax rate of 21.6 % and 17.5 %, respectively.

The increase in the income tax expense and the corresponding change in the effective income tax rate for the three and nine-month periods ended September 30, 2022, when compared to the prior-year periods, was primarily due to decreased benefit from discrete items such as share-based compensation and deferred compensation.

Our effective tax rate differs from the U.S.

statutory rate primarily due to the impact of global intangible low-taxed income (“GILTI”) inclusions, state income taxes, foreign taxes, other non-deductible permanent items and discrete items (such as share-based compensation).

On August 16, 2022, the Inflation Reduction Act of 2022 was signed into law.

We currently do not anticipate the recently enacted law, including the corporate alternative minimum tax, one percent excise tax on stock repurchases, or tax incentives to promote clean energy, to have a material impact on our consolidated financial statements.

Revolving Credit Facility and Long-Term Debt.

Principal balances outstanding under our long-term debt obligations as of June 30, 2022 and December 31, 2021 consisted of the following (in thousands):

June 30, 2022

Principal balances outstanding under our long-term debt obligations as of September 30, 2022 and December 31, 2021, consisted of the following (in thousands):

September 30, 2022

December 31, 2021

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Revolving credit loans denominated in dollars and term loans made under the Third Amended Credit Agreement bear interest, at our election, at either the Base Rate or the Eurocurrency Rate (as such terms are defined in the Third Amended Credit Agreement) plus the Applicable Margin (as defined in the Third Amended Credit Agreement).

Revolving credit loans denominated in an Alternative Currency (as defined in the Third Amended Credit Agreement) bear interest at the Eurocurrency Rate plus the Applicable Margin.

Revolving credit

loans denominated in an Alternative Currency (as defined in the Third Amended Credit Agreement) bear interest at the Eurocurrency Rate plus the Applicable Margin.

Swingline loans bear interest at the Base Rate plus the Applicable Margin (as defined in the Third Amended Credit Agreement).

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(3) Maximum level of the aggregate amount of all Facility Capital Expenditures (as defined in the Third Amended Credit Agreement) in any fiscal year.

We believe we were in compliance with all covenants set forth in the Third Amended Credit Agreement as of June 30, 2022.

As of June 30, 2022, we had outstanding borrowings of $ 246.3 million and issued letter of credit guarantees of $ 1.9 million under the Third Amended Credit Agreement, with additional available borrowings of approximately $ 481 million, based on the maximum net leverage ratio and the aggregate revolving credit commitment pursuant to the Third Amended Credit Agreement.

Our interest rate as of June 30, 2022 was a fixed rate of 2.71 % with respect to $ 75 million of the principal amount, as a result of an interest rate swap (see Note 9), and a variable floating rate of 2.67 % with respect to $ 171.3 million of the principal amount.

We believe we were in compliance with all covenants set forth in the Third Amended Credit Agreement as of September 30, 2022.

As of September 30, 2022, we had outstanding borrowings of $ 216.9 million and issued letter of credit guarantees of $ 1.9 million under the Third Amended Credit Agreement, with additional available borrowings of approximately $ 509 million, based on the maximum net leverage ratio and the aggregate revolving credit commitment pursuant to the Third Amended Credit Agreement.

Our interest rate as of September 30, 2022 was a fixed rate of 2.71 % with respect to $ 75 million of the principal amount, as a result of an interest rate swap (see Note 9), and a variable floating rate of 4.12 % with respect to $ 141.9 million of the principal amount.

Our interest rate as of December 31, 2021 was a fixed rate of 2.71 % on $ 75 million as a result of an interest rate swap and a variable floating rate of 1.10 % on $ 168.1 million.

The foregoing fixed rates do not reflect potential future changes in the applicable margin.

Future minimum principal payments on our long-term debt, as of June 30, 2022, were as follows (in thousands):

Future minimum principal payments on our long-term debt, as of September 30, 2022, were as follows (in thousands):

Future Minimum

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Derivative Instruments Designated as Cash Flow Hedges

On December 23, 2019, we entered into a pay-fixed, receive-variable interest rate swap with a notional amount of $ 75 million with Wells Fargo to fix the one-month LIBOR rate at 1.71 % for the period from July 6, 2021 to July 31, 2024.

On December 23, 2019, we entered into a pay-fixed, receive-variable interest rate swap with a notional amount of $ 75 million with Wells Fargo to fix the one-month LIBOR rate on that portion of our borrowings under the Third Amended Credit Agreement at 1.71 % for the period from July 6, 2021 to July 31, 2024.

The variable portion of the interest rate swap is tied to the one-month LIBOR rate (the benchmark interest rate).

On a monthly basis, the interest rates under both the interest rate swap and the underlying debt reset, the swap is settled with the counterparty, and interest is paid.

On June 30, 2022 and December 31, 2021, our interest rate swap qualified as a cash flow hedge.

The fair value of our interest rate swap on June 30, 2022 was an asset of $ 2.0 million, which was partially offset by ($ 0.5 ) million in deferred taxes.

On September 30, 2022 and December 31, 2021, our interest rate swap qualified as a cash flow hedge.

The fair value of our interest rate swap on September 30, 2022 was an asset of $ 3.4 million, which was partially offset by ($ 0.8 ) million in deferred taxes.

The fair value of our interest rate swap on December 31, 2021 was a liability of ($ 1.4 ) million, partially offset by $ 0.4 million in deferred taxes.

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We enter into approximately 100 cash flow foreign currency hedges every month.

As of June 30, 2022 and December 31, 2021, we had entered into foreign currency forward contracts, which qualified as cash flow hedges, with aggregate notional amounts of $ 103.4 million and $ 123.0 million, respectively.

As of September 30, 2022 and December 31, 2021, we had entered into foreign currency forward contracts, which qualified as cash flow hedges, with aggregate notional amounts of $ 72.8 million and $ 123.0 million, respectively.

Derivative Instruments Not Designated as Cash Flow Hedges

We forecast our net exposure in various receivables and payables to fluctuations in the value of various currencies, and we enter into foreign currency forward contracts to mitigate that exposure.

We enter into approximately 50 foreign currency fair value hedges every month.

As of June 30, 2022 and December 31, 2021, we had entered into foreign currency forward contracts related to those balance sheet accounts with aggregate notional amounts of $ 94.0 million and $ 86.0 million, respectively.

We enter into approximately 50 foreign currency

fair value hedges every month.

As of September 30, 2022 and December 31, 2021, we had entered into foreign currency forward contracts related to those balance sheet accounts with aggregate notional amounts of $ 79.3 million and $ 86.0 million, respectively.

Balance Sheet Presentation of Derivative Instruments.

As of June 30, 2022 and December 31, 2021, all derivative instruments, both those designated as hedging instruments and those that were not designated as hedging instruments, were recorded at fair value on a gross basis on our consolidated balance sheets.

As of September 30, 2022 and December 31, 2021, all derivative instruments, both those designated as hedging instruments and those that were not designated as hedging instruments, were recorded at fair value on a gross basis on our consolidated balance sheets.

We are not subject to any master netting agreements.

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Balance Sheet Location

June 30, 2022

September 30, 2022

December 31, 2021

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Balance Sheet Location

June 30, 2022

September 30, 2022

December 31, 2021

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Reclassified from AOCI

Three Months Ended June 30,

Three Months Ended September 30,

Derivative instrument

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Reclassified from AOCI

Six Months Ended June 30,

Nine Months Ended September 30,

Derivative instrument

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Cost of sales

As of June 30, 2022, $ 3.2 million, or $ 2.4 million after taxes, was expected to be reclassified from AOCI to earnings in revenue and cost of sales over the succeeding twelve months.

As of June 30, 2022, $ 1.0 million, or $ 0.8 million after taxes, was expected to be reclassified from AOCI to earnings in interest expense over the succeeding twelve months.

As of September 30, 2022, $ 5.5 million, or $ 4.2 million after taxes, was expected to be reclassified from AOCI to earnings in revenue and cost of sales over the succeeding twelve months.

As of September 30, 2022, $ 1.9 million, or $ 1.5 million after taxes, was expected to be reclassified from AOCI to earnings in interest expense over the succeeding twelve months.

Derivative Instruments Not Designated as Hedging Instruments

The following gains/(losses) from these derivative instruments were recognized in our consolidated statements of income for the periods presented (in thousands):

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Derivative Instrument

1 unchanged sentence

Foreign currency forward contracts

Other expense — net

Other income (expense) — net

Commitments and Contingencies.

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The outcomes of these matters will generally not be known for prolonged periods of time.

In certain proceedings, the claimants may seek damages as well as other compensatory and equitable relief that could result in the payment of significant claims and settlements and/or the imposition of injunctions or other equitable relief.

In certain proceedings, the claimants may seek damages as well as other compensatory and equitable relief that could result in the payment of significant amounts and settlements and/or the imposition of injunctions or other equitable relief.

For legal matters for which our management had sufficient information to reasonably estimate our future obligations, a liability representing management’s best estimate of the probable loss, or the minimum of the range of probable losses when a best estimate within the range is not known, is recorded.

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The derivative complaint alleges that the individual defendants violated their fiduciary duties owed to Merit and were unjustly enriched at the expense of and to the detriment of Merit between February 2019 and October 2019, and seeks unspecified damages, costs, and professional fees.

We intend to vigorously defend against the lawsuit.

The proceeding was stayed until February 19, 2022, subject to the right of either party to seek to lift or extend the stay.

The stay has expired, however, the parties have been engaged in mediation in an attempt to resolve the dispute.

The parties have negotiated a tentative agreement to settle the dispute;

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As currently proposed, the settlement would result in an expense to Merit of $ 1.0 million.

The estimated expense associated with the tentative settlement has been reflected in our financial results reported for the three and six-month periods ended June 30, 2022.

We have received a request from the Division of Enforcement of the U.S, Securities and Exchange Commission (“SEC”) seeking the voluntary production of information relating to the business activities of Merit’s subsidiary in China, including interactions with hospitals and health care officials in China.

The estimated expense associated with the tentative settlement has been reflected in our financial results reported for the nine-month period ended September 30, 2022.

On October 18, 2022, the court entered an order preliminarily approving the settlement and providing for notice to the Company’s shareholders, subject to further consideration at a settlement hearing scheduled for February 16, 2023.

We received a request from the Division of Enforcement of the U.S, Securities and Exchange Commission (“SEC”) seeking the voluntary production of information relating to the business activities of Merit’s subsidiary in China, including interactions with hospitals and health care officials in China.

We are cooperating with this request and investigating the matter and, at this time, are unable to predict the scope, timing, significance or outcome of this matter.

Legal costs for proceedings, legal actions and claims discussed, such as outside counsel fees and expenses, are charged to expense in the period(s) incurred.

Legal costs for proceedings, legal actions and claims discussed above, such as outside counsel fees and expenses, are charged to expense in the period(s) incurred.

Earnings Per Common Share (EPS).

The computation of weighted average shares outstanding and the basic and diluted earnings per common share for the three and six-month periods ended June 30, 2022 and 2021 consisted of the following (in thousands, except per share amounts):

The computation of weighted average shares outstanding and the basic and diluted earnings per common share for the three and nine-month periods ended September 30, 2022 and 2021 consisted of the following (in thousands, except per share amounts):

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Average common shares outstanding

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Stock-Based Compensation Expense.

Stock-based compensation expense before income tax expense for the three and six-month periods ended June 30, 2022 and 2021 consisted of the following (in thousands):

Stock-based compensation expense before income tax expense for the three and nine-month periods ended September 30, 2022 and 2021 consisted of the following (in thousands):

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Cost of sales

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Nonqualified Stock Options

During the six-month periods ended June 30, 2022 and 2021, we granted stock options representing 168,606 and 125,850 shares of our common stock, respectively.

We use the Black-Scholes methodology to value the stock-based compensation

expense for options.

During the nine-month periods ended September 30, 2022 and 2021, we granted stock options representing 203,606 and 656,350 shares of our common stock, respectively.

We use the Black-Scholes methodology to value the stock-based compensation expense for options.

In applying the Black-Scholes methodology to the option grants, the fair value of our stock-based awards granted was estimated using the following assumptions for the periods indicated below:

Six Months Ended

Nine Months Ended

September 30,

Risk-free interest rate

1.4 % - 3.4 %

0.5 % - 0.7 %

Expected option term

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46.2 % - 47.4 %

46.3 % - 46.7 %

The average risk-free interest rate is determined using the U.S.

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For awards with a vesting period, compensation expense is recognized on a straight-line basis over the service period, which corresponds to the vesting period.

As of June 30, 2022, the total remaining unrecognized compensation cost related to non-vested stock options was $ 24.0 million, which was expected to be recognized over a weighted average period of 2.6 years.

As of September 30, 2022, the total remaining unrecognized compensation cost related to non-vested stock options was $ 22.0 million, which was expected to be recognized over a weighted average period of 2.3 years.

Stock-Settled Performance-Based Restricted Stock Units (“Performance Stock Units”)

During the six-month periods ended June 30, 2022 and 2021, we granted performance stock units to certain of our executive officers which represent up to 120,710 and 128,883 shares of our common stock, respectively.

During the nine-month periods ended September 30, 2022 and 2021, we granted performance stock units to certain of our executive officers which represent up to 120,710 and 128,883 shares of our common stock, respectively.

Conversion of the performance stock units occurs at the end of the relevant performance periods, or one year after the agreement date, whichever is later.

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The fair value of each performance stock unit was estimated as of the grant date using the following assumptions for awards granted in the periods indicated below:

Six Months Ended

Nine Months Ended

September 30,

Risk-free interest rate

1.6 % - 2.7 %

0.1 % - 0.3 %

Performance period

2.6 - 2.8 years

1.8 - 2.8 years

Expected dividend yield

1 unchanged sentence

38.5 % - 46.2 %

43.7 % - 49.3 %

The risk-free interest rate of return was determined using the U.S.

Treasury rate at the time of grant with a term equal to the expected term of the award.

The expected volatility was based on a weighted average volatility of our stock price and the average volatility of our compensation peer group's volatilities.

The expected volatility was based on the weighted average volatility of our stock price and the average volatility of our compensation peer group's stock price.

The expected dividend yield was assumed to be zero because, at the time of the grant, we had no plans to declare a dividend.

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At the end of the performance period, cumulative expense is calculated based on the actual level of FCF achieved.

As of June 30, 2022, the total remaining unrecognized compensation cost related to stock-settled performance stock units was $ 8.0 million, which is expected to be recognized over a weighted average period of 2.0 years.

September 30, 2022, the total remaining unrecognized compensation cost related to stock-settled performance stock units was $ 6.5 million, which is expected to be recognized over a weighted average period of 1.7 years.

Liability Awards

During the six-month periods ended June 30, 2022 and 2021, we granted liability awards to our Chief Executive Officer with total target cash incentives, each in the amount of $ 1.0 million.

During the nine-month periods ended September 30, 2022 and 2021, we granted liability awards to our Chief Executive Officer with total target cash incentives, each in the amount of $ 1.0 million.

These awards entitle him to a target cash payment based upon attaining targeted levels of FCF and rTSR, as defined in the award agreements.

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These awards are classified as liabilities and reported in accrued expenses and other long-term obligations within our consolidated balance sheet.

As of June 30, 2022, the total remaining unrecognized compensation cost related to cash-settled performance-based share-based awards was $ 3.2 million, which is expected to be recognized over a weighted average period of 2.0 years.

As of September 30, 2022, the total remaining unrecognized compensation cost related to cash-settled performance-based share-based awards was $ 2.7 million, which is expected to be recognized over a weighted average period of 1.9 years.

Restricted Stock Units

During the three-month periods ended June 30, 2022 and 2021, we granted restricted stock units to our non-employee directors representing 30,500 and 26,226 shares of our common stock.

During the nine-month periods ended September 30, 2022 and 2021, we granted restricted stock units to our non-employee directors representing 30,500 and 26,226 shares of our common stock, respectively.

The expense recognized for restricted stock units is equal to the closing stock price on the date of grant, which is recognized over the vesting period.

Restricted stock units granted to each director are subject to such director’s continued service through the vesting date, which is one year from the date of grant.

As of June 30, 2022, the total remaining unrecognized compensation cost related to restricted stock units was $ 1.6 million, which will be recognized over the remaining vesting period.

As of September 30, 2022, the total remaining unrecognized compensation cost related to restricted stock units was $ 1.2 million, which will be recognized over the remaining vesting period.

Segment Reporting.

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We evaluate the performance of our operating segments based on net sales and income from operations.

Financial information relating to our reportable operating segments and reconciliations to the consolidated totals for the three and six-month periods ended June 30, 2022 and 2021, were as follows (in thousands):

Financial information relating to our reportable operating segments and reconciliations to the consolidated totals for the three and nine-month periods ended September 30, 2022 and 2021, were as follows (in thousands):

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Cardiovascular

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Assets (Liabilities) Measured at Fair Value on a Recurring Basis

Our financial assets and (liabilities) carried at fair value and measured on a recurring basis as of June 30, 2022 and December 31, 2021 consisted of the following (in thousands):

Our financial assets and (liabilities) carried at fair value and measured on a recurring basis as of September 30, 2022 and December 31, 2021 consisted of the following (in thousands):

Fair Value Measurements Using

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unobservable inputs

June 30, 2022

September 30, 2022

Interest rate contract asset, long-term (1)

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We measure the initial liability and re-measure the liability on a recurring basis using Level 3 inputs as defined under authoritative guidance for fair value measurements.

Changes in the fair value of our contingent consideration liabilities during the three and six-month periods ended June 30, 2022 and 2021 consisted of the following (in thousands):

Changes in the fair value of our contingent consideration liabilities during the three and nine-month periods ended September 30, 2022 and 2021 consisted of the following (in thousands):

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Beginning balance

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Ending balance

As of June 30, 2022, $ 5.7 million in contingent consideration liability was included in other long-term obligations and $ 11.7 million in contingent consideration liability was included in accrued expenses in our consolidated balance sheet.

As of September 30, 2022, $ 5.5 million in contingent consideration liability was included in other long-term obligations and $ 12.8 million in contingent consideration liability was included in accrued expenses in our consolidated balance sheet.

As of December 31, 2021, $ 13.5 million in contingent consideration liability was included in other long-term obligations and $ 34.7 million in contingent consideration liability was included in accrued expenses in our consolidated balance sheet.

Payments related to the settlement of the contingent consideration liability recognized at fair value as of the applicable acquisition date of $ 32.8 million and $ 0.5 million for the six-month periods ended June 30, 2022 and 2021, respectively, have been reflected as a cash outflow from financing activities in the accompanying consolidated statements of cash flows.

Payments related to increases in the contingent consideration liability subsequent to the date of acquisition of $ 1.8 million for the six-month period ended June 30, 2022 are reflected as operating cash flows.

The recurring Level 3 measurement of our contingent consideration liabilities included the following significant unobservable inputs at June 30, 2022 and December 31, 2021 (amounts in thousands):

Payments related to the settlement of the contingent consideration liability recognized at fair value as of the applicable acquisition date of $ 32.9 million and $ 10.6 million for the nine-month periods ended September 30, 2022 and 2021, respectively, have been reflected as a cash outflow from financing activities in the accompanying consolidated statements of cash flows.

Payments related to increases in the contingent consideration liability subsequent to the date of acquisition of $ 1.8 million for the nine-month period ended September 30, 2022 are reflected as operating cash flows.

The recurring Level 3 measurement of our contingent consideration liabilities included the following significant unobservable inputs at September 30, 2022 and December 31, 2021 (amounts in thousands):

Fair value at

September 30,

Contingent consideration liability

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Contingent Payments to Related Parties

During the six-month period ended June 30, 2022, we made contingent payments of $ 1.6 million to a former director of Merit and former shareholder of Cianna Medical, Inc.

During the nine-month period ended September 30, 2022, we made contingent payments of $ 1.6 million to a former director of Merit and former shareholder of Cianna Medical, Inc.

(“Cianna Medical”), which we acquired in 2018.

We made no such payments during the six-month period ended June 30, 2021.

We made no such payments during the nine-month period ended September 30, 2021.

The terms of the acquisition, including contingent consideration payments, were determined prior to the appointment of the former Cianna Medical shareholder as a Merit director.

13 unchanged sentences

Intangible Assets.

On April 30, 2022, we completed the divestiture of Fibrovein Holdings Limited, in exchange for the termination of our obligations arising from the acquisition transaction in August 2019 and the purchaser’s agreement to make potential future payments upon a qualifying disposition of the STD Pharmaceutical business.

During the six-month period ended June 30, 2022, we had impairment losses related to acquired intangible assets of $ 1.7 million (see note 6) in connection with this disposition.

In addition to the intangible asset impairment, during the three-month period ended June 30, 2022, we recorded a loss within other expense – net of $ 1.3 million primarily associated with the transfer of net assets of the divested entity including approximately $ 1.0 million of cash and $ 1.2 million of inventory, partially offset by a gain of $ 1.0 million from reclassification of foreign currency translation gains.

During the six-month period ended June 30, 2021 we had losses related to acquired intangible assets of $ 1.6 million (see note 6).

On April 30, 2022, we completed the divestiture of Fibrovein Holdings Limited, which was the owner of all of the capital stock of STD Pharmaceutical Products Limited, in exchange for the termination of our obligations arising from the acquisition transaction in August 2019 and the purchaser’s agreement to make potential future payments upon a qualifying disposition of the STD Pharmaceutical business.

During the nine-month period ended September 30, 2022 , we had impairment losses related to acquired intangible assets of $ 1.7 million (see note 6) in connection with this disposition.

In addition to the intangible asset impairment, during the three-month period ended June 30, 2022, we recorded a loss within other income (expense) – net of $ 1.3 million primarily associated with the transfer of net assets of the divested entity including approximately $ 1.0 million of cash and $ 1.2 million of inventory, partially offset by a gain of $ 1.0 million from reclassification of foreign currency translation gains.

During the nine-month period ended September 30, 2021 we had losses related to acquired intangible assets of $ 1.6 million (see note 6).

Right of Use Operating Lease Assets.

During the three-month period ended June 30, 2021, we identified changes in events and circumstances relating to certain right-of-use (“ROU”) operating lease assets.

We compared the anticipated undiscounted cash flows generated by a sublease to the carrying value of the ROU operating lease and related long-lived assets and determined that the carrying values were not recoverable.

Consequently, we recorded impairment losses in the three-month period ended June 30, 2021 of approximately $ 1.4 million, which is equal to the excess of the carrying value of the assets over their estimated fair value.

During the nine-month period ended September 30, 2021, we identified changes in events and circumstances relating to certain right-of-use (“ROU”) operating lease assets.

We compared the anticipated

undiscounted cash flows generated by a sublease to the carrying value of the ROU operating lease and related long-lived assets and determined that the carrying values were not recoverable.

Consequently, we recorded impairment losses in the nine-month period ended September 30, 2021 of approximately $ 1.4 million, which is equal to the excess of the carrying value of the assets over their estimated fair value.

The impairment losses were driven primarily by site consolidation decisions and changes in our projected cash flows for the ROU operating lease assets and related long-lived assets, due to changes in the real estate market as a result of the COVID-19 pandemic.

These changes include an increase in the anticipated time to identify lessees, an increase in anticipated lease concessions, and a decrease in the expected lease rates for the properties.

These changes included an increase in the anticipated time to identify lessees, an increase in anticipated lease concessions, and a decrease in the expected lease rates for the properties.

The ROU operating lease asset impairment losses in 2021 pertained to our cardiovascular segment.

We had no such losses during the three and six-month periods ended June 30, 2022.

We had no such losses during the three and nine-month periods ended September 30, 2022.

Property and Equipment.

During the three and six-month periods ended June 30, 2021, we had losses of $ 1.3 million related to the measurement of property and equipment at fair value based on the planned discontinuance of the Advocate™ Peripheral Angioplasty Balloon product line, sold under our license agreements with ArraVasc, which pertained to our cardiovascular segment.

During the three and nine-month periods ended September 30, 2021, we had losses of $ 1.3 million related to the measurement of property and equipment at fair value based on the discontinuance of the Advocate™ Peripheral Angioplasty Balloon product line, sold under our license agreements with ArraVasc, which pertained to our cardiovascular segment.

Notes Receivable

Our outstanding long-term notes receivable, including accrued interest and our allowance for current expected credit losses, were $ 2.4 million and $ 2.3 million as of June 30, 2022 and December 31, 2021, respectively.

As of June 30, 2022 and December 31, 2021, we had an allowance for current expected credit losses of $ 0.2 million and $ 0.2 million, respectively, associated with these notes receivable.

Our outstanding long-term notes receivable, including accrued interest and an allowance for current expected credit losses, were $ 2.4 million and $ 2.3 million as of September 30, 2022, and December 31, 2021, respectively.

As of September 30, 2022 and December 31, 2021, we had an allowance for current expected credit losses of $ 0.2 million and $ 0.2 million, respectively, associated with these notes receivable.

We assess the allowance for current expected credit losses on an individual security basis, due to the limited number of securities, using a probability of default model, which is based on relevant information about past events, including historical experience, current conditions and reasonable and supportable forecasts that affect the expected collectability of securities, and other security specific factors.

The table below presents a rollforward of the allowance for current expected credit losses on our notes receivable for the three and six-month periods ended June 30, 2022 and 2021 (in thousands):

The table below presents a rollforward of the allowance for current expected credit losses on our notes receivable for the three and nine-month periods ended September 30, 2022 and 2021 (in thousands):

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Beginning balance

2 unchanged sentences

Accumulated Other Comprehensive Income (Loss).

The changes in each component of accumulated other comprehensive income (loss) for the three and six-month periods ended June 30, 2022 and 2021 were as follows:

The changes in each component of accumulated other comprehensive income (loss) for the three and nine-month periods ended September 30, 2022 and 2021 were as follows:

Cash Flow Hedges

Foreign Currency Translation

Balance as of April 1, 2022

Balance as of June 30, 2022

Other comprehensive income (loss)

2 unchanged sentences

Interest expense

Other expense — net

Net other comprehensive income (loss)

Balance as of June 30, 2022

Balance as of September 30, 2022

Cash Flow Hedges

Foreign Currency Translation

Balance as of April 1, 2021

Balance as of June 30, 2021

Other comprehensive income (loss)

3 unchanged sentences

Net other comprehensive income (loss)

Balance as of June 30, 2021

Balance as of September 30, 2021

Cash Flow Hedges

Foreign Currency Translation

Balance as of January 1, 2022

Balance as of December 31, 2021

Other comprehensive income (loss)

4 unchanged sentences

Net other comprehensive income (loss)

Balance as of June 30, 2022

Balance as of September 30, 2022

Cash Flow Hedges

Foreign Currency Translation

Balance as of January 1, 2021

Balance as of December 31, 2020

Other comprehensive income (loss)

3 unchanged sentences

Net other comprehensive income (loss)

Balance as of June 30, 2021

Balance as of September 30, 2021

Subsequent Events.

On October 3, 2022, we entered into an asset purchase agreement to acquire substantially all the assets of BioTrace Medical, Inc.

(“BioTrace”), developer of the Tempo® Temporary Pacing Lead device.

Subject to the terms and conditions of the asset purchase agreement, we paid $ 2.5 million in cash at closing.

Additionally, upon achievement of the first device sold in the United States, we are obligated to pay a total of six annual royalty payments at an amount of up to 10 % of net sales.

We intend to account for this transaction as an asset purchase and will capitalize the acquired assets, including developed technology, in our consolidated balance sheet.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements