What changed in this filing

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Item 1. Financial Statements

2023-10-26 compared with 2023-07-28 · 163 added, 123 removed, 669 unchanged (30% 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, 2023 and December 31, 2022;

Preferred stock — 5,000 shares authorized as of September 30, 2023 and December 31, 2022;

no shares issued

1 unchanged sentence

100,000 shares authorized;

issued and outstanding as of June 30, 2023 - 57,634 and December 31, 2022 - 57,306

issued and outstanding as of September 30, 2023 - 57,746 and December 31, 2022 - 57,306

Retained earnings

8 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Cost of sales

22 unchanged sentences

Three Months Ended

Six Months Ended

Other comprehensive income (loss):

Nine Months Ended

September 30,

Other comprehensive income:

Cash flow hedges

2 unchanged sentences

Income tax benefit (expense)

Total other comprehensive income (loss)

Total other comprehensive loss

Total comprehensive income

19 unchanged sentences

Balance — June 30, 2023

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, 2023

See condensed notes to consolidated financial statements.

18 unchanged sentences

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.

3 unchanged sentences

(In thousands - unaudited)

Six Months Ended

Nine Months Ended

September 30,

CASH FLOWS FROM OPERATING ACTIVITIES:

14 unchanged sentences

Prepaid expenses and other current assets

Prepaid income taxes

Income tax refund receivables

20 unchanged sentences

(In thousands - unaudited)

Six Months Ended

Nine Months Ended

September 30,

CASH FLOWS FROM FINANCING ACTIVITIES:

21 unchanged sentences

Acquisition purchases in accrued expenses and other long-term obligations

Merit common stock surrendered ( 86 and 15 shares, respectively) in exchange for exercise of stock options

Right-of-use operating lease assets obtained in exchange for operating lease liabilities

7 unchanged sentences

"we"

or "us") for the three and six-month periods ended June 30, 2023 and 2022 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, 2023 and December 31, 2022, and our results of operations and cash flows for the three and six-month periods ended June 30, 2023 and 2022.

The results of operations for the three and six-month periods ended June 30, 2023 and 2022 are not necessarily indicative of the results for a full-year period.

or "us") for the three and nine-month periods ended September 30, 2023 and 2022 are not audited.

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, 2023 and December 31, 2022, and our results of operations and cash flows for the three and nine-month periods ended September 30, 2023 and 2022.

The results of operations for the three and nine-month periods ended September 30, 2023 and 2022 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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In December 2022, the FASB issued ASU 2022-06, Deferral of the Sunset Date of Topic 848 , which defers the sunset date of the guidance in ASC 848 to December 31, 2024.

During the quarter ended June 30, 2023, the Company transitioned our interest rate swap agreement to reference the Secured Overnight Financing Rate (“SOFR”) in connection with reference rate reform and adopted certain optional expedients provided in ASU 2020-04 in relation to contract modifications and hedge accounting that allowed us to continue hedge accounting for our interest rate swap cash flow hedges (see Note 9).

During the quarter ended June 30, 2023, we transitioned our interest rate swap agreement to reference the Secured Overnight Financing Rate (“SOFR”) in connection with reference rate reform and adopted certain optional expedients provided in ASU 2020-04 in relation to contract modifications and hedge accounting that allowed us to continue hedge accounting for our interest rate swap cash flow hedges (see Note 9).

The adoption of this guidance did not have a material impact 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, 2023 and 2022 (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, 2023 and 2022 (in thousands):

Three Months Ended

June 30, 2023

June 30, 2022

September 30, 2023

September 30, 2022

United States

7 unchanged sentences

Endoscopy Devices

Six Months Ended

June 30, 2023

June 30, 2022

Nine Months Ended

September 30, 2023

September 30, 2022

United States

11 unchanged sentences

We accounted for this acquisition as a business combination.

The sales related to the acquisition have been included in our cardiovascular segment since the acquisition date and were approximately $ 0.9 million for each of the three and six-month periods ended June 30, 2023.

The sales related to the acquisition have been included in our cardiovascular segment since the acquisition date and were approximately $ 7.3 and $ 8.3 million for the three and nine-month periods ended September 30, 2023, respectively.

It is not practical to separately report earnings related to the acquisition, as we cannot split out sales costs related solely to the products acquired, principally because our sales representatives sell multiple products within our cardiovascular business segment.

Acquisition-related costs associated with the AngioDynamics acquisition, which are included in selling, general and administrative expenses in the accompanying consolidated statements of income, were approximately $ 4.8 million for each of the three and six-month periods ended June 30, 2023.

Acquisition-related costs associated with the AngioDynamics acquisition, which are included in selling, general and administrative expenses in the accompanying consolidated statements of income, were approximately $ 0.1 million and $ 4.9 million for the three and nine-month periods ended September 30, 2023, respectively.

The purchase price was preliminarily allocated as follows (in thousands):

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Total net assets acquired

We are amortizing the AngioDynamics developed technology intangible assets over nine years , the trademark intangible assets over 11 years , and the customer list intangible asset on an accelerated basis over 10 years .

We have estimated the weighted average life of the intangible assets acquired from AngioDynamics to be 10.5 years.

The goodwill consists largely of the synergies expected from combining operations and is expected to be deductible for income tax purposes.

The pro forma effects to our consolidated results of operations of the AngioDynamics acquisition are not material.

The pro forma effects to our consolidated results of operations of the AngioDynamics acquisition are not material in relation to reported sales and it was deemed impracticable to obtain information to determine earnings associated with the acquired product lines which represent only a small portion of the product lines of a large, consolidated company without standalone financial information.

On May 4, 2023, we entered into an asset purchase agreement to acquire the assets associated with the Surfacer® Inside-Out® Access Catheter System from Bluegrass Vascular Technologies, Inc.

(“Bluegrass”), for a purchase price of $ 32.7 million.

Prior to the acquisition, Merit held an equity investment of 1,251,878 Bluegrass common shares representing approximately 19.5 % ownership in Bluegrass.

Prior to the acquisition, we held an equity investment of 1,251,878 Bluegrass common shares representing approximately 19.5 % ownership in Bluegrass.

The fair value of this previously-held equity investment of approximately $ 245,000 is included in the purchase price allocation.

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On May 1, 2023, we entered into an asset purchase agreement to acquire certain assets from Advanced Radiation Therapy, LLC (“ART”), related to intellectual property rights for soft tissue markers.

The total purchase price of the ART assets included an up-front payment of $ 750,000 , a deferred payment of $ 750,000 payable upon the first to occur of (1) shipment and installation of two commercial production winders used in the manufacture of the product or (2) 30 days after delivery of the winders to Merit, and, a deferred payment of $ 500,000 payable upon regulatory approval from the U.S.

The total purchase price of the ART assets included an up-front payment of $ 750,000 , a deferred payment of $ 750,000 payable upon the first to occur of (1) shipment and installation of two commercial production winders used to manufacture the product or (2) 30 days after delivery of the winders to Merit, and, a deferred payment of $ 500,000 payable upon regulatory approval from the U.S.

Food and Drug Administration for Merit to commence commercialization, marketing and sale of the product in the United States.

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("Solo Pace”), owner and developer of a temporary external pulse generator and grounding pad with associated remote control module.

Pursuant to these agreements, we paid $ 4.0 million to acquire (a) shares of Series Seed-1 Preferred Stock of Solo Pace, (b) an option to purchase the outstanding equity of Solo Pace within the earlier of five years after product commercialization or within 120 days after the twelve-month period wherein sales exceed $ 6.0 million, and (c) exclusive rights to distribute the Solo Pace product upon commercialization.

Pursuant to these agreements, we paid $ 4.0 million to acquire (a) shares of Series Seed-1 Preferred Stock of Solo Pace, (b) an option to purchase the outstanding equity of Solo Pace within the earlier of five years after product commercialization or within 120 days after the twelve-month period wherein sales of the Solo Pace product exceed $ 6.0 million, and (c) exclusive rights to distribute the Solo Pace product upon commercialization.

The shares of Solo Pace stock have been reflected within other assets in the accompanying consolidated balance sheets.

Our investment in Solo Pace represents an ownership of approximately 19 % of its outstanding capital stock and has been recorded as an equity investment accounted for at cost because the equity interest does not have a readily determinable fair value and because we are not able to exercise significant influence over the operations of Solo Pace.

Inventories at June 30, 2023 and December 31, 2022 consisted of the following (in thousands):

June 30, 2023

Inventories at September 30, 2023 and December 31, 2022 consisted of the following (in thousands):

September 30, 2023

December 31, 2022

4 unchanged sentences

Goodwill and Intangible Assets.

The change in the carrying amount of goodwill for the six-month period ended June 30, 2023 is detailed as follows (in thousands):

The change in the carrying amount of goodwill for the nine-month period ended September 30, 2023 is detailed as follows (in thousands):

Goodwill balance at January 1

1 unchanged sentence

Additions and adjustments as the result of acquisitions

Goodwill balance at June 30

Total accumulated goodwill impairment losses aggregated $ 8.3 million as of June 30, 2023 and December 31, 2022.

We did no t have any goodwill impairments for the six-month periods ended June 30, 2023 and 2022.

The total goodwill balances as of June 30, 2023 and December 31, 2022 were related to our cardiovascular segment.

Other intangible assets at June 30, 2023 and December 31, 2022 consisted of the following (in thousands):

June 30, 2023

Goodwill balance at September 30

Total accumulated goodwill impairment losses aggregated $ 8.3 million as of September 30, 2023 and December 31, 2022, respectively.

We did no t have any goodwill impairments for the nine-month periods ended September 30, 2023 or 2022.

The total goodwill balances as of September 30, 2023 and December 31, 2022 were related to our cardiovascular segment.

Other intangible assets at September 30, 2023 and December 31, 2022 consisted of the following (in thousands):

September 30, 2023

Gross Carrying

7 unchanged sentences

Customer lists

Aggregate amortization expense for the three and six-month periods ended June 30, 2023 was $ 13.4 million and $ 25.7 million, respectively.

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 nine-month periods ended September 30, 2023 was $ 15.4 million and $ 41.1 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.

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.

1 unchanged sentence

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 and six-month periods ended June 30, 2023, 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.

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

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.

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.

Estimated amortization expense for developed technology and other intangible assets for the next five years consisted of the following as of June 30, 2023 (in thousands):

We did no t identify indicators of impairment in any intangible assets based on our qualitative assessment for the nine-month period ended September 30, 2023.

For 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 of the STD Pharmaceutical Products Limited (“STD Pharmaceutical”) business acquired in our August 2019 acquisition of Fibrovein Holdings Limited.

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

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.

Estimated amortization expense for developed technology and other intangible assets for the next five years consisted of the following as of September 30, 2023 (in thousands):

Estimated Amortization Expense

1 unchanged sentence

Income Taxes.

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 period ended June 30, 2023, when compared to the prior-year period, 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 increase in the income tax expense for the six-month period ended June 30, 2023, when compared to the prior-year period, was primarily due to increased pre-tax book income.

Our provision for income taxes for the three-month periods ended September 30, 2023 and 2022 was a tax expense of $ 4.4 million and $ 2.3 million, respectively, which resulted in an effective tax rate of 14.5 % and 13.2 %, respectively.

Our provision for income taxes for the nine-month periods ended September 30, 2023 and 2022 was a tax expense of $ 13.8 million and $ 11.4 million, respectively, which resulted in an effective tax rate of 17.2 % and 21.6 %, respectively.

The increase in the income tax expense for the three and nine-month periods ended September 30, 2023, when compared to the respective prior-year periods, and the corresponding increase in the effective income tax rate for the three month period ended September 30, 2023, when compared to the prior-year period, was primarily due to increased pre-tax book income and decreased benefit from discrete items such as share-based compensation.

The decrease in the effective income tax rate for the nine-month period ended September 30, 2023, when compared to the prior-year period, was primarily due to increased benefit from discrete items such as contingent liabilities and deferred compensation, as well as decreased foreign inclusions.

Our effective tax rate differs from the U.S.

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The safe harbor transition period will apply to fiscal years beginning on or before December 31, 2025 and ending before December 31, 2026.

The Company is closely monitoring developments and evaluating the impact these new rules will have on our tax rate, including eligibility to qualify for these safe harbor rules.

We are closely monitoring developments and evaluating the impact these new rules are anticipated to have on our tax rate, including eligibility to qualify for these safe harbor rules.

Revolving Credit Facility and Long-Term Debt.

Principal balances outstanding under our long-term debt obligations as of June 30, 2023 and December 31, 2022 consisted of the following (in thousands):

June 30, 2023

Principal balances outstanding under our long-term debt obligations as of September 30, 2023 and December 31, 2022 consisted of the following (in thousands):

September 30, 2023

December 31, 2022

11 unchanged sentences

Term loans made under the Fourth Amended Credit Agreement bear interest, at our election, at either (i) the Base Rate (as defined in the Fourth Amended Credit Agreement) plus the Applicable Margin (as defined in the Fourth Amended Credit Agreement) or, (ii) Adjusted Term SOFR (as defined in the Fourth Amended Credit Agreement) plus the Applicable Margin (as defined in the Fourth Amended Credit Agreement).

Revolving credit loans bear interest, at our election, at either (a) the Base Rate plus the Applicable Margin, (b) Adjusted Term SOFR plus the Applicable Margin, (c) Adjusted Eurocurrency Rate plus the Applicable Margin and (d) Adjusted Daily Simple SONIA (as defined in the Fourth Amended Credit Agreement) plus the Applicable Margin.

Revolving credit loans bear interest, at our election, at either (a) the Base Rate plus the Applicable Margin, (b) Adjusted Term SOFR plus the Applicable Margin, (c) Adjusted Eurocurrency Rate plus the Applicable Margin or (d) Adjusted Daily Simple SONIA (as defined in the Fourth Amended Credit Agreement) plus the Applicable Margin.

Swingline loans bear interest at the Base Rate plus the Applicable Margin.

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(2) Minimum ratio of Consolidated EBITDA (as defined in the Fourth Amended Credit Agreement and adjusted for certain expenditures) to Consolidated Interest Expense (as defined in the Fourth Amended Credit Agreement) for any period of four consecutive fiscal quarters.

We believe we were in compliance with all covenants set forth in the Fourth Amended Credit Agreement as of June 30, 2023.

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 (see Note 9), and a variable floating rate of 6.15 % with respect to $ 265.0 million of the principal amount.

We believe we were in compliance with all covenants set forth in the Fourth Amended Credit Agreement as of September 30, 2023.

As of September 30, 2023, we had outstanding borrowings of $ 287.1 million and issued letter of credit guarantees of $ 3.8 million under the Fourth Amended Credit Agreement, with additional available borrowings of approximately $ 558 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 September 30, 2023 was a fixed rate of 2.89 % 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 6.67 % with respect to $ 212.1 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.

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, 2023, were as follows (in thousands):

Future minimum principal payments on our long-term debt, as of September 30, 2023, were as follows (in thousands):

Future Minimum

17 unchanged sentences

In June 2023, certain terms under the agreement were amended to reflect the transition from LIBOR to SOFR, an alternative reference rate.

Under the interest rate swap agreement we fix the one-month SOFR rate on that portion of our borrowings under the Fourth Amended Credit Agreement at 1.64 % for the period from June 1, 2023 to July 31, 2024.

Under the interest rate swap agreement we fixed the one-month SOFR rate on that portion of our borrowings under the Fourth Amended Credit Agreement at 1.64 % for the period from June 1, 2023 to July 31, 2024.

The variable portion of the interest rate swap is tied to the one-month SOFR 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, 2023 and December 31, 2022, our interest rate swap qualified as a cash flow hedge.

The fair value of our interest rate swap on June 30, 2023 was an asset of $ 2.9 million, which was partially offset by $ 0.7 million in deferred taxes.

The fair value of our interest rate swap on December 31, 2022 was an asset of $ 3.4 million, partially offset by $ 0.8 million in deferred taxes.

On September 30, 2023 and December 31, 2022, our interest rate swap qualified as a cash flow hedge.

The fair value of our interest rate swap as of September 30, 2023 was an asset of $ 2.3 million, which was partially offset by $ 0.6 million in deferred taxes.

The fair value of our interest rate swap as of December 31, 2022 was an asset of $ 3.4 million, partially offset by $ 0.8 million in deferred taxes.

Foreign Currency Risk.

10 unchanged sentences

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

As of June 30, 2023 and December 31, 2022, we had entered into foreign currency forward contracts, which qualified as cash flow hedges, with aggregate notional amounts of $ 122.5 million and $ 87.8 million, respectively.

As of September 30, 2023 and December 31, 2022, we had entered into foreign currency forward contracts, which qualified as cash flow hedges, with aggregate notional amounts of $ 155.7 million and $ 87.8 million, respectively.

Derivative Instruments Not Designated as Cash Flow Hedges

1 unchanged sentence

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

As of June 30, 2023 and December 31, 2022, we had entered into foreign currency forward contracts related to those balance sheet accounts with aggregate notional amounts of $ 116.9 million and $ 92.4 million, respectively.

As of September 30, 2023 and December 31, 2022, we had entered into foreign currency forward contracts related to those balance sheet accounts with aggregate notional amounts of $ 96.0 million and $ 92.4 million, respectively.

Balance Sheet Presentation of Derivative Instruments.

As of June 30, 2023 and December 31, 2022, 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, 2023 and December 31, 2022, 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.

2 unchanged sentences

Balance Sheet Location

June 30, 2023

September 30, 2023

December 31, 2022

Interest rate swaps

Prepaid expenses and other assets

Interest rate swaps

Other assets (long-term)

10 unchanged sentences

Balance Sheet Location

June 30, 2023

September 30, 2023

December 31, 2022

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Reclassified from AOCI

Three Months Ended June 30,

Three Months Ended September 30,

Derivative instrument

9 unchanged sentences

Reclassified from AOCI

Six Months Ended June 30,

Nine Months Ended September 30,

Derivative instrument

4 unchanged sentences

Cost of sales

As of June 30, 2023, $ 4.0 million, or $ 3.0 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, 2023, $ 2.7 million, or $ 2.0 million after taxes, was expected to be reclassified from AOCI to earnings in interest expense over the succeeding twelve months.

As of September 30, 2023, $ 4.0 million, or $ 3.0 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, 2023, $ 2.3 million, or $ 1.8 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

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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, 2023 and 2022 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, 2023 and 2022 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, 2023 and 2022 consisted of the following (in thousands):

Stock-based compensation expense before income tax expense for the three and nine-month periods ended September 30, 2023 and 2022 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, 2023 and 2022, we granted stock options representing 327,294 and 168,606 shares of our common stock, respectively.

During the nine-month periods ended September 30, 2023 and 2022, we granted stock options representing 401,535 and 203,606 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

11 unchanged sentences

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, 2023, the total remaining unrecognized compensation cost related to non-vested stock options was $ 23.6 million, which was expected to be recognized over a weighted average period of 2.4 years.

As of September 30, 2023, the total remaining unrecognized compensation cost related to non-vested stock options was $ 22.5 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, 2023 and 2022, we granted performance stock units which represent up to 286,863 and 120,710 shares of our common stock, respectively.

During the nine-month periods ended September 30, 2023 and 2022, we granted performance stock units which represent up to 286,863 and 120,710 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

3.9 % - 4.6 %

1.6 % - 2.7 %

Performance period

2.6 - 2.8 years

Expected dividend yield

1 unchanged sentence

31.4 % - 32.6 %

38.5 % - 46.2 %

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

5 unchanged sentences

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

As of June 30, 2023, the total remaining unrecognized compensation cost related to stock-settled performance stock units was $ 14.1 million, which is expected to be recognized over a weighted average period of 2.2 years.

As of September 30, 2023, the total remaining unrecognized compensation cost related to stock-settled performance stock units was $ 12.3 million, which is expected to be recognized over a weighted average period of 2.0 years.

Liability Awards

During the six-month periods ended June 30, 2023 and 2022, we granted liability awards to our Chief Executive Officer with total target cash incentives in the amount of $ 1.3 million and $ 1.0 million, respectively.

These awards entitle him to a target cash payment based upon the Company’s relative shareholder return as compared to the rTSR and achievement of specified performance metrics, as defined in the award agreements.

During the six-month period ended June 30, 2023, we granted additional performance stock units to certain employees that will be settled in cash.

The cash paid upon vesting at the end of the service period is based upon performance against specified financial performance metrics and relative total shareholder return as compared to the rTSR, as defined in the award agreements.

During the nine-month periods ended September 30, 2023 and 2022, we granted liability awards to our Chief Executive Officer with total target cash incentives in the amount of $ 1.3 million and $ 1.0 million, respectively.

These awards entitle him to a target cash payment based upon our relative shareholder return as compared to the rTSR and achievement of specified performance metrics, as defined in the award agreements.

During the nine-month period ended September 30, 2023, we granted additional performance stock units to certain employees that provide for settlement in cash upon our achievement of specified financial metrics.

The cash payable upon vesting at the end of the service period is based upon performance against specified financial performance metrics and relative total shareholder return as compared to the rTSR, as defined in the award agreements.

Compensation expense is recognized for the cash payment probable of being awarded based on the performance metrics.

1 unchanged sentence

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, 2023, the total remaining unrecognized compensation cost related to cash-settled performance-based share-based awards was $ 4.3 million, which is expected to be recognized over a weighted average period of 2.1 years.

As of September 30, 2023, the total remaining unrecognized compensation cost related to cash-settled performance-based share-based awards was $ 3.6 million, which is expected to be recognized over a weighted average period of 2.0 years.

Restricted Stock Units

During the three-month periods ended June 30, 2023 and 2022, we granted restricted stock units to our non-employee directors representing 20,358 and 30,500 shares of our common stock, respectively.

During the nine-month periods ended September 30, 2023 and 2022, we granted restricted stock units to our non-employee directors representing 20,358 and 30,500 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, 2023, the total remaining unrecognized compensation cost related to restricted stock units was $ 1.5 million, which will be recognized over the remaining vesting period.

As of September 30, 2023, the total remaining unrecognized compensation cost related to restricted stock units was $ 1.1 million, which will be recognized over the remaining vesting period.

Segment Reporting.

6 unchanged sentences

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, 2023 and 2022, 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, 2023 and 2022, were as follows (in thousands):

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Cardiovascular

7 unchanged sentences

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, 2023 and December 31, 2022 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, 2023 and December 31, 2022 consisted of the following (in thousands):

Fair Value Measurements Using

4 unchanged sentences

unobservable inputs

June 30, 2023

September 30, 2023

Marketable securities (1)

Interest rate contract asset, long-term (2)

Interest rate contract asset, current (2)

Foreign currency contract assets, current and long-term (3)

15 unchanged sentences

Level 1 instrument valuations are obtained from real-time quotes for transactions in active exchange markets involving identical assets.

(2) The fair value of the interest rate contract is determined using Level 2 fair value inputs and is reported with other long-term assets in the consolidated balance sheets.

(2) The fair value of the interest rate contract is determined using Level 2 fair value inputs and is reported within prepaid expenses and other current assets as of September 30, 2023 and other long-term assets as of December 31, 2022 in the consolidated balance sheets.

(3) The fair value of the foreign currency contract assets (including those designated as hedging instruments and those not designated as hedging instruments) is determined using Level 2 fair value inputs and is recorded as prepaid expenses and other current assets or other long-term assets in the consolidated balance sheets.

3 unchanged sentences

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, 2023 and 2022 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, 2023 and 2022 consisted of the following (in thousands):

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Beginning balance

3 unchanged sentences

Ending balance

As of June 30, 2023, $ 3.2 million in contingent consideration liability was included in other long-term obligations and $ 0.4 million in contingent consideration liability was included in accrued expenses in our consolidated balance sheet.

As of September 30, 2023, $ 3.6 million in contingent consideration liability was included in other long-term obligations and $ 0.4 million in contingent consideration liability was included in accrued expenses in our consolidated balance sheet.

As of December 31, 2022, $ 2.3 million in contingent consideration liability was included in other long-term obligations and $ 15.8 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 $ 3.4 million and $ 32.8 million for the six-month periods ended June 30, 2023 and 2022, 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 $ 12.7 million and $ 1.8 million for the six-month periods ended June 30, 2023 and 2022, respectively, 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, 2023 and December 31, 2022 (amounts in thousands):

Payments related to the settlement of the contingent consideration liability recognized at fair value as of the applicable acquisition date of $ 3.5 million and $ 32.9 million for the nine-month periods ended September 30, 2023 and 2022, 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 $ 12.7 million and $ 1.8 million for the nine-month period ended September 30, 2023 and 2022, respectively, 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, 2023 and December 31, 2022 (amounts in thousands):

Fair value at

September 30,

Contingent consideration liability

40 unchanged sentences

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.

During the six-month period ended June 30, 2023, we made the final contingent payment to Cianna Medical shareholders, including $ 0.9 million paid to the former Merit director who is a former Cianna Medical shareholder.

During the six-month period ended June 30, 2022, we made a contingent payment of $ 1.6 million.

During the nine-month period ended September 30, 2023, we made the final contingent payment to Cianna Medical shareholders, including $ 0.9 million paid to the former Merit director who is a former Cianna Medical shareholder.

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

Fair Value of Other Assets (Liabilities)

11 unchanged sentences

Equity Investments.

During the six-month period ended June 30, 2023, we recorded impairment charges of $ 270,000 associated with our previously-held equity investment in Bluegrass in connection with the asset acquisition completed on May 4, 2023 (see Note 4).

During the nine-month period ended September 30, 2023, we recorded impairment charges of $ 270,000 associated with our previously-held equity investment in Bluegrass in connection with the Bluegrass asset acquisition completed on May 4, 2023 (see Note 4).

Intangible Assets.

During the six-month period ended June 30, 2023, we had no losses related to acquired intangible assets.

During the six-month period ended June 30, 2022, we recorded an impairment charge of $ 1.7 million related to the acquired intangible assets from our August 2019 acquisition of STD Pharmaceutical (see Note 6).

During the nine-month period ended September 30, 2023, we had no losses related to acquired intangible assets.

During the nine-month period ended September 30, 2022 , we recorded an impairment charge of $ 1.7 million related to the acquired intangible assets from our August 2019 acquisition of STD Pharmaceutical (see Note 6).

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.

Current Expected Credit Losses

Our outstanding long-term notes receivable, including accrued interest and an allowance for current expected credit losses, were $ 2.4 million and $ 2.4 million as of June 30, 2023 and December 31, 2022, respectively.

As of June 30, 2023 and December 31, 2022, we had an allowance for current expected credit losses of $ 296,000 and $ 281,000 , 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 $ 2.4 million as of September 30, 2023 and December 31, 2022, respectively.

As of September 30, 2023 and December 31, 2022, we had an allowance for current expected credit losses of $ 328,000 and $ 281,000 , 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, 2023 and 2022 (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, 2023 and 2022 (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, 2023 and 2022 were as follows:

The changes in each component of accumulated other comprehensive income (loss) for the three and nine-month periods ended September 30, 2023 and 2022 were as follows:

Cash Flow Hedges

Foreign Currency Translation

Balance as of April 1, 2023

Balance as of July 1, 2023

Other comprehensive income (loss)

2 unchanged sentences

Interest expense

Net other comprehensive income (loss)

Balance as of June 30, 2023

Net other comprehensive loss

Balance as of September 30, 2023

Cash Flow Hedges

Foreign Currency Translation

Balance as of April 1, 2022

Balance as of July 1, 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

5 unchanged sentences

Interest expense

Other expense — net

Net other comprehensive income (loss)

Balance as of June 30, 2023

Balance as of September 30, 2023

Cash Flow Hedges

7 unchanged sentences

Net other comprehensive income (loss)

Balance as of June 30, 2022

Balance as of September 30, 2022

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