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Item 2. Management’s Discussion and Analysis

2023-07-28 compared with 2023-04-28 · 107 added, 67 removed, 88 unchanged (66% of the section changed)

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These risks and uncertainties are discussed in Part I, Item 1A “Risk Factors” in the 2022 Annual Report on Form 10-K and in Part II, Item 1A “Risk Factors” in this report.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and related condensed notes thereto, which are included in Part I of this report.

We design, develop, manufacture, market and sell medical products for interventional and diagnostic procedures.

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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.

For the three-month period ended March 31, 2023, we reported sales of $297.6 million, an increase of $22.2 million or 8.0%, compared to sales for the three-month period ended March 31, 2022 of $275.4 million.

For the three-month period ended March 31, 2023, foreign currency fluctuations (net of hedging) decreased our net sales by $4.9 million, assuming applicable foreign exchange rates in effect during the comparable prior-year periods.

Gross profit as a percentage of sales increased to 46.5% for the three-month period ended March 31, 2023, compared to 43.9% for the three-month period ended March 31, 2022.

Net income for the three-month period ended March 31, 2023 was $20.7 million, or $0.36 per share, compared to net income of $10.5 million, or $0.18 per share, for the three-month period ended March 31, 2022.

For the three-month period ended June 30, 2023, we reported sales of $320.1 million, up $25.1 million or 8.5%, compared to sales for the three-month period ended June 30, 2022 of $295.0 million.

For the six-month period ended June 30, 2023, we reported sales of $617.6 million, an increase of $47.2 million or 8.3%, compared to sales for the six-month period ended June 30, 2022 of $570.4 million.

For the three and six-month periods ended June 30, 2023, foreign currency fluctuations (net of hedging) decreased our net sales by $2.6 million and $7.4 million, respectively, assuming applicable foreign exchange rates in effect during the comparable prior-year periods.

Gross profit as a percentage of sales increased to 47.7% for the three-month period ended June 30, 2023, compared to 45.8% for the three-month period ended June 30, 2022.

Gross profit as a percentage of sales increased to 47.1% for the six-month period ended June 30, 2023, compared to 44.9% for the six-month period ended June 30, 2022.

Net income for the three-month period ended June 30, 2023 was $20.2 million, or $0.35 per share, compared to net income of $15.3 million, or $0.27 per share, for the three-month period ended June 30, 2022.

Net income for the six-month period ended June 30, 2023 was $40.9 million, or $0.70 per share, compared to net income of $25.8 million, or $0.45 per share, for the six-month period ended June 30, 2022.

Recent Developments and Trends

In addition to the trends identified in the 2022 Annual Report on Form 10-K under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Overview,” our business in 2023 has been impacted, and we believe will continue to be impacted, by the following recent developments and trends:

● Our revenue results during the three-month period ended March 31, 2023 were driven primarily by stronger than anticipated demand in the U.S.

and more favorable than anticipated international sales trends, particularly in the EMEA region.

● Our dedication to the Foundations for Growth program has helped offset inflationary cost pressures in certain raw materials, shipping, and freight expenses.

● As of March 31, 2023, we had cash, cash equivalents, and restricted cash of $60.1 million and net available borrowing capacity of approximately $521 million.

● Our revenue results during the three-month period ended June 30, 2023 were driven primarily by stronger than anticipated demand in the U.S.

and more favorable than anticipated international sales trends, particularly in the Asia Pacific (“APAC”) and Europe, Middle East and Africa (“EMEA”) regions.

● On November 10, 2020, we introduced a corporate transformation initiative known as “Foundations for Growth” with multi-year financial targets for growth and improved profitability.

Our dedication to our Foundations for Growth program helped offset inflationary cost pressures in certain raw materials, shipping, and freight expenses.

● As of June 30, 2023, we had cash, cash equivalents, and restricted cash of $74.2 million and net available borrowing capacity of approximately $507 million.

● During the three months ended June 30, 2023, we completed the acquisition of a portfolio of dialysis catheter products and the BioSentry Biopsy Tract Sealant System from AngioDynamics and acquisition of the Surfacer Inside-Out Access Catheter System from Bluegrass.

RESULTS OF OPERATIONS

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Three Months Ended

Six Months Ended

Selling, general and administrative expenses

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Contingent consideration expense

Acquired in-process research and development expense

Income from operations

Other expense — net

Income before income taxes

Sales for the three-month period ended March 31, 2023 increased by 8.0%, or $22.2 million, compared to the corresponding period in 2022.

Listed below are the sales by product category within each of our financial reporting segments for the three-month periods ended March 31, 2023 and 2022 (in thousands, other than percentage changes):

Sales for the three-month period ended June 30, 2023 increased by 8.5%, or $25.1 million, compared to the corresponding period in 2022.

Sales for the six-month period ended June 30, 2023 increased by 8.3%, or $47.2 million, compared to the corresponding period in 2022.

Listed below are the sales by product category within each of our financial reporting segments for the three and six-month periods ended June 30, 2023 and 2022 (in thousands, other than percentage changes):

Three Months Ended

Six Months Ended

Cardiovascular

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Cardiovascular Sales.

Our cardiovascular sales for the three-month period ended March 31, 2023 were $288.0 million, up 7.9% when compared to the corresponding period of 2022 of $266.9 million.

Sales for the three-month period ended March 31, 2023 were favorably affected by increased sales of:

Our cardiovascular sales for the three-month period ended June 30, 2023 were $311.3 million, up 8.6% when compared to the corresponding period of 2022 of $286.7 million.

Sales for the three-month period ended June 30, 2023 were favorably affected by increased sales of:

(a) Peripheral intervention products, which increased by $15.0 million, or 13.5%, from the corresponding period of 2022.

This increase was driven primarily by sales of our access, drainage, and radar localization products, offset partially by decreased sales of our intervention products.

This increase was driven primarily by sales of our access, radar localization, embolotherapy, drainage, biopsy, and angiography products.

(b) Cardiac intervention products, which increased by $4.2 million, or 4.7%, from the corresponding period of 2022.

This increase was driven primarily by sales of our access, angiography and cardiac rhythm management/electrophysiology (“CRM/EP”) products, offset partially by decreased sales of our intervention products.

This increase was driven primarily by sales of our angiography, hemostasis, access and cardiac rhythm management/electrophysiology (“CRM/EP”) products, offset partially by decreased sales of our intervention products.

(c) Custom procedural solutions products, which increased by $0.3 million, or 0.6%, from the corresponding period of 2022.

This increase was driven primarily by increased sales of our kits and trays, offset partially by decreased sales of our critical care products.

This increase was driven primarily by increased sales of our kits and critical care products, offset partially by decreased sales of our procedure trays.

(d) OEM products, which increased by $5.2 million, or 13.9%, from the corresponding period of 2022.

This increase was driven primarily by sales of our CRM/EP and intervention products, and kits.

This increase was driven primarily by sales of our CRM/EP, coatings, and kits, offset partially by intervention, angiography and access products.

Our cardiovascular sales for the six-month period ended June 30, 2023 were $599.3 million, up 8.2% when compared to the corresponding period of 2022 of $553.6 million.

Sales for the six-month period ended June 30, 2023 were favorably affected by increased sales of:

Peripheral intervention products, which increased by $23.0 million, or 10.6%, from the corresponding period of 2022.

This increase was driven primarily by sales of our access, drainage, radar localization, biopsy, angiography and embolotherapy products, offset partially by decreased sales of our intervention products.

Cardiac intervention products, which increased by $8.0 million, or 4.7%, from the corresponding period of 2022.

This increase was driven primarily by sales of our angiography, access, hemostasis and CRM/EP products, offset partially by decreased sales of our intervention products.

Custom procedural solutions products, which increased by $1.7 million, or 1.8%, from the corresponding period of 2022.

This increase was driven primarily by increased sales of our kits, offset partially by decreased sales of our critical care products and procedure trays.

OEM products, which increased by $12.9 million, or 18.3%, from the corresponding period of 2022.

This increase was driven primarily by sales of our CRM/EP, kits, coatings and intervention products, offset partially by decreased sales of our angiography and access products.

Endoscopy Sales .

Our endoscopy sales for the three-month period ended March 31, 2023 were $9.6 million, up 13.1% when compared to sales in the corresponding period of 2022 of $8.5 million.

Sales for the three-month period ended March 31, 2023 compared to the corresponding period in 2022 were favorably affected by increased sales of our Aero Mini fully covered tracheobronchial stent, EndoMAXX® fully covered esophageal stent products and Elation Pulmonary Balloon Dilator, offset partially by decreased sales of our other stents.

Our endoscopy sales for the three-month period ended June 30, 2023 were $8.8 million, up 5.7% when compared to sales in the corresponding period of 2022 of $8.3 million.

Sales for the three-month period ended June 30, 2023 compared to the corresponding period in 2022 were favorably affected by increased sales of our EndoMAXX® fully covered esophageal stent, Elation® Pulmonary Balloon Dilator, Big 60 TM Alpha TM inflation device, and other stents, offset partially by decreased sales of our probes.

Our endoscopy sales for the six-month period ended June 30, 2023 were $18.4 million, up 9.4%, when compared to sales in the corresponding period of 2022 of $16.8 million.

Sales for the six-month period ended June 30, 2023 were favorably affected by increased sales of our EndoMAXX fully covered esophageal stent, Elation Pulmonary Balloon Dilator, Aero Mini tracheobronchial stent and Big 60 Alpha inflation device, offset partially by decreased sales of our probes and other stents.

Geographic Sales

Listed below are sales by geography for the three-month periods ended March 31, 2023 and 2022 (in thousands, other than percentage changes):

Listed below are sales by geography for the three and six-month periods ended June 30, 2023 and 2022 (in thousands, other than percentage changes):

Three Months Ended

Six Months Ended

United States

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United States Sales.

sales for the three-month period ended March 31, 2023 were $171.4 million, or 57.6% of net sales, up 12.0% when compared to the corresponding period of 2022.

sales for the three-month period ended June 30, 2023 were $179.6 million, or 56.1% of net sales, up 9.1% when compared to the corresponding period of 2022.

sales for the six-month period ended June 30, 2023 were $350.9 million, or 56.8% of net sales, up 10.5% when compared to the corresponding period of 2022.

The increase in our domestic sales was driven primarily by our U.S.

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International Sales .

International sales for the three-month period ended March 31, 2023 were $126.2 million, or 42.4% of net sales, up 3.1% when compared to the corresponding period of 2022 of $122.4 million.

The increase in our international sales for the three-month period ended March 31, 2023, compared to the corresponding period of 2022, included increased sales in our EMEA operations of $6.1 million or 11.7%, increased sales in our rest of the world (“ROW”) operations of $0.7 million or 6.7%, offset partially by decreased sales in our Asia Pacific operations of $(3.0) million or (4.9)%.

Our gross profit as a percentage of sales increased to 46.5% for the three-month period ended March 31, 2023, compared to 43.9% for the three-month period ended March 31, 2022.

The increase in gross profit percentage was primarily due to favorable changes in product mix, efficiencies gained in our 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.

International sales for the three-month period ended June 30, 2023 were $140.5 million, or 43.9% of net sales, up 7.8% when compared to the corresponding period of 2022 of $130.3 million.

The increase in our international sales for the three-month period ended June 30, 2023, compared to the corresponding period of June 30, 2022 included increased sales in our Asia Pacific operations of $6.7 million or 10.8%, in our EMEA operations of $2.9 million or 5.2%, and in our rest of world (”ROW”) operations of $0.5 million or 4.5%.

International sales for the six-month period ended June 30, 2023 were $266.7 million, or 43.2% of net sales, up 5.5% when compared to the corresponding period of 2022 of $252.7 million.

The increase in our international sales for the six-month period ended June 30, 2023, compared to the six-month period ended June 30, 2022, included increased sales in our EMEA operations of $9.0 million or 8.3%, in our APAC operations of $3.8 million or 3.1%, and in our ROW operations of $1.2 million or 5.5%.

Our gross profit as a percentage of sales increased to 47.7% for the three-month period ended June 30, 2023, compared to 45.8% for the three-month period ended June 30, 2022.

The increase in gross profit percentage was primarily due to favorable changes in product mix, efficiencies gained in our Foundations for Growth program, and lower freight costs as a percentage of sales.

Our gross profit as a percentage of sales increased to 47.1% for the six-month period ended June 30, 2023, compared to 44.9% for the six-month period ended June 30, 2022.

The increase in gross profit percentage was primarily due to favorable changes in product mix, favorable manufacturing variances from efficiencies gained in our Foundations for Growth program and lower freight costs as a percentage of sales.

Operating Expenses

Selling, General and Administrative Expense.

Selling, general and administrative ("SG&A") expenses increased $6.1 million, or 7.3%, for the three-month period ended March 31, 2023 compared to the corresponding period of 2022.

As a percentage of sales, SG&A expenses were 30.3% for the three-month period ended March 31, 2023, compared to 30.5% for the corresponding period of 2022.

For the three-month period ended March 31, 2023, SG&A expenses increased compared to the corresponding period of 2022 primarily due to increased labor-related costs associated with headcount and severance, as well as increased travel and marketing costs to promote sales as restrictions continue to lift post pandemic.

Selling, general and administrative ("SG&A") expenses increased $15.4 million, or 18.1%, for the three-month period ended June 30, 2023 compared to the corresponding period of 2022.

As a percentage of sales, SG&A expenses were 31.5% for the three-month period ended June 30, 2023, compared to 29.0% for the corresponding period of 2022.

SG&A expenses increased $21.6 million, or 12.7%, for the six-month period ended June 30, 2023 compared to the corresponding period of 2022.

As a percentage of sales, SG&A expenses were 30.9% for the six-month period ended June 30, 2023, compared to 29.7% for the corresponding period of 2022.

For the three and six-month periods ended June 30, 2023, SG&A expenses increased compared to the corresponding periods of 2022 primarily due to acquisition-related costs incurred in connection with the AngioDynamics and Bluegrass transactions, increased labor-related costs associated with headcount, increased loss for disposal of equipment, as well as increased travel and marketing costs to promote sales as restrictions continued to lift post-COVID 19 pandemic.

Research and Development Expenses.

Research and development (”R&D”) expenses for the three-month period ended March 31, 2023 were $21.3 million, up 22.6%, when compared to R&D expenses in the corresponding period of 2022 of $17.4 million.

The increases in R&D expenses for the three-month period ended March 31, 2023 compared to the corresponding periods in 2022 were largely due to higher regulatory expenses incurred to comply with the E.U.

Medical Device Regulation (“MDR”) .

Research and development (”R&D”) expenses for the three-month period ended June 30, 2023 were $20.1 million, up 9.0%, when compared to R&D expenses in the corresponding period of 2022 of $18.5 million.

R&D expenses for the six-month period ended June 30, 2023 were $41.4 million, up 15.6%, when compared to R&D expenses in the corresponding period of 2022 of $35.9 million.

The increases in R&D expenses for the three and six-month periods ended June 30, 2023 compared to the corresponding periods in 2022 were largely due to increased labor-related costs and higher regulatory costs.

Impairment Charges .

For the three-month period ended March 31, 2023, we recorded no impairment charges.

For the three-month period ended March 31, 2022, we recorded impairment charges of $1.7 million of intangible assets due to the planned divestiture of the STD Pharmaceutical business, which we completed on April 30, 2022.

For the three and six-month periods ended June 30, 2023, we recorded impairment charges of $270 thousand due to the acquisition and subsequent write-off of our equity investment in Bluegrass.

For the six-month period ended June 30, 2022, we recorded impairment charges of $1.7 million of intangible assets due to the divestiture of the STD Pharmaceutical business, which we completed on April 30, 2022.

Contingent Consideration Expense .

For the three-month period ended March 31, 2023, we recognized contingent consideration expense from changes in the estimated fair value of our contingent consideration obligations stemming from our previously disclosed business acquisitions of $0.5 million compared to contingent consideration expense of $2.6 million for the three-month period ended March 31, 2022.

For the three and six-month periods ended June 30, 2023, we recognized contingent consideration expense from changes in the estimated fair value of our contingent consideration obligations stemming from our previously disclosed business acquisitions of $1.1 million and $1.6 million, respectively, compared to contingent consideration expense of $1.2 million and $3.8 million for the three and six-month periods ended June 30, 2022, respectively.

Expense in each period related to changes in the probability and timing of achieving certain revenue and operational milestones, as well as expense for the passage of time.

Acquired In-process Research and Development.

For the three and six-month periods ended June 30, 2023, we recognized $1.6 million in acquired in-process research and development costs primarily associated with the assets we acquired from ART on May 1, 2023.

For the three and six-month periods ended June 30, 2022, we recognized $6.7 million in acquired in-process research and development costs primarily associated with our acquisition of Restore Endosystems, LLC (“Restore Endosystems”).

Operating Income

The following table sets forth our operating income by financial reporting segment for the three-month periods ended March 31, 2023 and 2022 (in thousands):

The following table sets forth our operating income by financial reporting segment for the three and six-month periods ended June 30, 2023 and 2022 (in thousands):

Three Months Ended

Operating Income (Loss)

Six Months Ended

Operating Income

Cardiovascular

Total operating income (loss)

Total operating income

Cardiovascular Operating Income.

Our cardiovascular operating income for the three-month period ended March 31, 2023 was $23.9 million, compared to cardiovascular operating income in the corresponding period of 2022 of $13.1 million.

The increase in cardiovascular operating income during the three-month period ended March 31, 2023 compared to the corresponding period of 2022 was primarily a result of higher sales ($288.0 million compared to $266.9 million) and higher gross margin, partially offset by higher SG&A and R&D expenses .

Our cardiovascular operating income for the three-month period ended June 30, 2023 was $26.5 million, compared to cardiovascular operating income in the corresponding period of 2022 of $21.3 million.

The increase in cardiovascular operating income during the three-month period ended June 30, 2023 compared to the corresponding period of 2022 was primarily a result of higher sales ($311.3 million compared to $286.7 million) and higher gross margin, lower acquired in-process research and development charges, partially offset by higher SG&A and R&D expenses .

Our cardiovascular operating income for the six-month period ended June 30, 2023 was $50.4 million, compared to cardiovascular operating income in the corresponding period of 2022 of $34.4 million.

The increase in cardiovascular operating income during the six-month period ended June 30, 2023 compared to the corresponding period of 2022 was primarily a result of higher sales ($599.3 million compared to $553.6 million) and higher gross margin, lower impairment charges, lower contingent consideration expense, and lower acquired in-process research and development charges, partially offset by higher SG&A and R&D expenses .

Endoscopy Operating Income .

Our endoscopy operating income for the three-month period ended March 31, 2023 was $2.4 million, compared to endoscopy operating income of $2.1 million for the corresponding period of 2022.

The increase in endoscopy operating income for the three-month period ended March 31, 2023 compared to the corresponding period of 2022 was primarily a result of increased sales and gross margin, offset partially by higher SG&A expenses.

Our endoscopy operating income for the three-month period ended June 30, 2023 was $2.3 million, compared to endoscopy operating income of $2.0 million for the corresponding period of 2022.

Our endoscopy operating income for the six-month period ended June 30, 2023 was $4.8 million, compared to endoscopy operating income of $4.1 million for the corresponding period of 2022.

The increase in endoscopy operating income for the three and six-month periods ended June 30, 2023 compared to the corresponding periods of 2022 was primarily a result of increased sales and gross margin, offset partially by higher SG&A expenses.

Other Expense – Net

Our other expense for the three-month periods ended March 31, 2023 and 2022 was $0.9 million and $1.1 million, respectively.

The change in other expense was 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.

Our other expense for the three-month periods ended June 30, 2023 and 2022 was $3.9 million and $2.6 million, respectively.

The change in other expense was primarily related to an increase in interest expense associated with increased borrowings and rising interest rates, increased expense associated with realized and unrealized foreign currency losses, partially offset by a $1.3 million loss on the divestiture of the STD Pharmaceutical business in 2022.

Our other expense for the six-month periods ended June 30, 2023 and 2022 was $4.8 million and $3.6 million, respectively.

The change in other expense was primarily related to an increase in interest expense associated with increased borrowings and rising interest rates, partially offset by decreased expense associated with realized and unrealized foreign currency losses and a $1.3 million loss on the divestiture of the STD Pharmaceutical business in 2022.

Effective Tax Rate

Our provision for income taxes for the three-month periods ended March 31, 2023 and 2022 was a tax expense of $4.8 million and $3.6 million, respectively, which resulted in an effective tax rate of 18.8% and 25.6%, respectively.

The decrease in the effective income tax rate for the three-month period ended March 31, 2023, when compared to the prior-year period, was primarily due to increased benefit from discrete items such as contingent liabilities and deferred compensation, and the increase in the income tax expense when compared to the prior-year period was primarily due to increased pre-tax book income.

Our net income for the three-month periods ended March 31, 2023 and 2022 was $20.7 million and $10.5 million, respectively.

The increase in our net income for the three-month period ended March 31, 2023 was primarily the result higher sales and higher gross margins as a percentage of sales, partially offset by higher SG&A and R&D expenses.

Our provision for income taxes for the three-month periods ended June 30, 2023 and 2022 was a tax expense of $4.7 million and $5.4 million, respectively, which resulted in an effective tax rate of 18.7% and 26.1%, respectively.

Our provision for income taxes for the six-month periods ended June 30, 2023 and 2022 was a tax expense of $9.5 million and $9.0 million, respectively, which resulted in an effective tax rate of 18.8% and 25.9%, respectively.

The decrease in the effective income tax rate for the three and six-month periods ended June 30, 2023, when compared to the prior-year periods, was primarily due to increased benefit from discrete items such as share-based compensation and deferred compensation, as well as foreign tax credit utilization.

The change in income tax expense when compared to the prior-year periods was primarily due to differences in pre-tax book income.

Our net income for the three-month periods ended June 30, 2023 and 2022 was $20.2 million and $15.3 million, respectively.

The increase in our net income for the three-month period ended June 30, 2023 was primarily the result of higher sales, higher gross margins as a percentage of sales, and lower acquired in-process research and development charges, partially offset by higher SG&A and R&D expenses.

Our net income for the six-month periods ended June 30, 2023 and 2022 was $40.9 million and $25.8 million, respectively.

The increase in our net income for the six-month period ended June 30, 2023 was the result of several principal factors, including higher sales, improved gross margins as a percentage of sales, lower impairment charges and lower acquired in-process research and development charges, partially offset by higher SG&A and R&D expenses and higher income tax expense.

LIQUIDITY AND CAPITAL RESOURCES

Capital Commitments, Contractual Obligations and Cash Flows

At March 31, 2023 and December 31, 2022, our current assets exceeded current liabilities by $341.3 million and $308.4 million, respectively, and we had cash, cash equivalents and restricted cash of $60.1 million and $60.6 million, respectively, of which $57.6 million and $49.6 million, respectively, were held by foreign subsidiaries.

As of June 30, 2023 and December 31, 2022, our current assets exceeded current liabilities by $404.9 million and $308.4 million, respectively, and we had cash, cash equivalents and restricted cash of $74.2 million and $60.6 million, respectively, of which $51.3 million and $49.6 million, respectively, were held by foreign subsidiaries.

We currently believe f uture repatriation of cash and other property held by our foreign subsidiaries will generally not be subject to U.S.

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In addition, cash held by our subsidiary in China is subject to local laws and regulations that require government approval for the transfer of such funds to entities located outside of China.

As of March 31, 2023, and December 31, 2022, we had cash, cash equivalents and restricted cash of $32.2 million and $26.1 million, respectively, within our subsidiary in China.

As of June 30, 2023, and December 31, 2022, we had cash, cash equivalents and restricted cash of $26.2 million and $26.1 million, respectively, within our subsidiary in China.

Cash flows provided by operating activities .

We generated cash from operating activities of $14.5 million and $12.0 million during the three-month periods ended March 31, 2023 and 2022, respectively.

We generated cash from operating activities of $31.8 million and $50.8 million during the six-month periods ended June 30, 2023 and 2022, respectively.

Significant factors affecting operating cash flows during these periods included:

● Net income was $20.7 million and $10.5 million for the three-month periods ended March 31, 2023 and 2022, respectively.

● Cash (used for) provided by other receivables was ($1.5) million and $5.8 million for the three-month periods ended March 31, 2023 and 2022, respectively, due primarily to the collection of approximately $8.2 million during 2022 for insurance proceeds in connection with the consolidated securities class action lawsuit we settled.

● Cash used for inventories was ($23.0) million and ($9.2) million for the three-month periods ended March 31, 2023 and 2022, respectively.

● Net income was $40.9 million and $25.8 million for the six-month periods ended June 30, 2023 and 2022, respectively.

● Cash used for inventories was $(35.5) million and $(14.8) million for the six-month periods ended June 30, 2023 and 2022, respectively.

The increase in inventory was associated with our strategy to proactively invest in our inventory balances to encourage high customer service levels, as well as to build bridge inventory for production line transfers and increases in safety stock due to vendor supply delays.

● Cash used for accrued expenses was ($3.6) million and ($23.5) million for the three-month periods ended March 31, 2023 and 2022, respectively, due primarily to the timing and payment of compensation-related accruals, and during 2022, payment of approximately $18.25 million into escrow in connection with the settlement of a securities class action lawsuit.

● Cash paid for income taxes was $(17.8) million and $(7.9) million for the six-month periods ended June 30, 2023 and 2022, respectively, due primarily due to increases in income before tax.

Cash flows used in investing activities.

We used cash in investing activities of $14.9 million and $9.9 million for the three-month periods ended March 31, 2023 and 2022, respectively.

We used cash for capital expenditures of property and equipment of $12.8 million and $9.5 million in the three-month periods ended March 31, 2023 and 2022, respectively.

We used cash in investing activities of $157.8 million and $23.3 million for the six-month periods ended June 30, 2023 and 2022, respectively.

We used cash for capital expenditures of property and equipment of $18.6 million and $16.8 million in the six-month periods ended June 30, 2023 and 2022, respectively.

Capital expenditures in each period were primarily related to investment in property and equipment to support development and production of our products.

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We anticipate that we will spend approximately $55 to $60 million in 2023 for property and equipment.

Cash outflows invested in acquisitions for the three-month period ended March 31, 2023 were $2.0 million and were related to our investment in Solo Pace.

There were no cash outflows invested in acquisitions for the three-month period ended March 31, 2022.

Cash outflows invested in acquisitions for the six-month period ended June 30, 2023 were $138.3 million and were primarily related to payments in our asset purchase agreements with AngioDynamics ($100 million), Bluegrass ($32.7 million) and ART ($1.5 million), and our investment in Solo Pace ($4.0 million).

Cash outflows invested in acquisitions for the six-month period ended June 30, 2022 were approximately $4.7 million and were primarily related to our $3.0 million upfront payment in our purchase of Restore Endosystems and our additional equity investment in Fluidx Medical Technology, LLC of $1.4 million.

Cash flows used in financing activities.

Cash used in financing activities for the three-month periods ended March 31, 2023 and 2022 was $0.5 million and $14.2 million, respectively.

We completed payment of contingent consideration of $2.6 million and $24.5 million for the three-month periods ended March 31, 2023 and 2022, respectively, principally related to sales milestone payments connected to our acquisitions completed in prior years of Brightwater Medical, Inc.

and Cianna Medical, respectively.

As of March 31, 2023, we had outstanding borrowings of $197.8 million and issued letter of credit guarantees of $3.2 million under the Third Amended Credit Agreement, with additional available borrowings of approximately $521 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 March 31, 2023 was a fixed rate of 2.71% with respect to $75 million of the principal amount as a result of an interest rate swap and a variable floating rate of 5.84% with respect to $122.8 million of the principal amount.

Cash provided by (used in) financing activities for the six-month periods ended June 30, 2023 and 2022 was $141.0 million and $(27.4) million, respectively.

During the six-month period ended June 30, 2023 we increased our net borrowings by approximately $141.8 million to finance the acquisitions of AngioDynamics and Bluegrass.

During the six-month period ended June 30, 2022 we increased our net borrowings by approximately $3.1 million to partially finance the payment of contingent consideration of $34.6 million, principally related to our acquisition of Cianna Medical and payment of the final sales milestone to Vascular Insights, LLC.

As of June 30, 2023, we had outstanding borrowings of $340.0 million and issued letter of credit guarantees of $3.2 million under the Fourth Amended Credit Agreement, with additional available borrowings of approximately $507 million, based on the maximum net leverage ratio and the aggregate revolving credit commitment pursuant to the Fourth Amended Credit Agreement.

Our interest rate as of June 30, 2023 was a fixed rate of 2.64% with respect to $75 million of the principal amount as a result of an interest rate swap and a variable floating rate of 6.15% with respect to $265.0 million of the principal amount.

Our interest rate as of December 31, 2022 was a fixed rate of 2.71% on $75 million as a result of an interest rate swap and a variable floating rate of 5.38% on $123.2 million.

We currently believe that our existing cash balances, anticipated future cash flows from operations and borrowings under the Third Amended Credit Agreement will be adequate to fund our current and currently planned future operations for the next twelve months and the foreseeable future.

We currently believe that our existing cash balances, anticipated future cash flows from operations and borrowings under the Fourth Amended Credit Agreement will be adequate to fund our current and currently planned future operations for the next twelve months and the foreseeable future.

In the event we pursue and complete significant transactions or acquisitions in the future, additional funds will likely be required to meet our strategic needs, which may require us to raise additional funds in the debt or equity markets.

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Our financial results are affected by the selection and application of accounting policies and methods.

In the three-month period ended March 31, 2023 there were no changes to the application of critical accounting policies previously disclosed in Part II, Item 7 of the 2022 Annual Report on Form 10-K.

In the six-month period ended June 30, 2023 there were no changes to the application of critical accounting policies previously disclosed in Part II, Item 7 of the 2022 Annual Report on Form 10-K.

CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS

This report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

management for future operations, any statements concerning proposed new products or services, any statements regarding the integration, development or commercialization of the business or any assets acquired from other parties, any statements regarding future economic conditions or performance, and any statements of assumptions underlying any of the foregoing.

All statements in this report, other than statements of historical fact, are “forward-looking statements” for purposes of these provisions, including any projections of earnings, revenues or other financial items, any statements of the plans and objectives of our management for future operations, any statements concerning proposed new products or services, any statements regarding the integration, development or commercialization of the business or any assets acquired from other parties, any statements regarding future economic conditions or performance, and any statements of assumptions underlying any of the foregoing.

In some cases, forward-looking statements can be identified by the use of terminology such as “may,” “will,” “expects,” “plans,” “anticipates,” “intends,” “seeks,” “believes,” “estimates,” “potential,” “forecasts,” “continue,” or other forms of these words or similar words or expressions, or the negative thereof or other comparable terminology.

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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 2. Management’s Discussion and Analysis