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Item 2. Management’s Discussion and Analysis

2023-10-26 compared with 2023-07-28 · 112 added, 96 removed, 99 unchanged (68% of the section changed)

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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 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.

For the three-month period ended September 30, 2023, we reported sales of $315.2 million, up $28.1 million or 9.8%, compared to sales for the three-month period ended September 30, 2022 of $287.2 million.

For the nine-month period ended September 30, 2023, we reported sales of $932.9 million, an increase of $75.3 million or 8.8% compared to sales for the nine-month period ended September 30, 2022 of $857.6 million.

Foreign currency fluctuations (net of hedging) increased (decreased) our net sales by $0.2 million and ($7.3) million for the three and nine-month periods ended September 30, 2023, respectively, assuming applicable foreign exchange rates in effect during the comparable prior-year periods.

Gross profit as a percentage of sales increased to 45.1% for the three-month period ended September 30, 2023 compared to 44.8% for the three-month period ended September 30, 2022.

Gross profit as a percentage of sales increased to 46.5% for the nine-month period ended September 30, 2023 compared to 44.8% for the nine-month period ended September 30, 2022.

Net income for the three-month period ended September 30, 2023 was $25.8 million, or $0.44 per share, compared to net income of $15.3 million, or $0.27 per share, for the three-month period ended September 30, 2022.

Net income for the nine-month period ended September 30, 2023 was $66.8 million, or $1.14 per share, compared to net income of $41.1 million, or $0.71 per share, for the nine-month period ended September 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 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.

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

and more favorable than anticipated international sales trends, particularly in our Europe, Middle East and Africa (“EMEA”) and rest of world (“ROW”) 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.

● As of September 30, 2023, we had cash, cash equivalents, and restricted cash of $60.7 million and net available borrowing capacity of approximately $558 million.

● In June 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

Nine Months Ended

September 30,

Selling, general and administrative expenses

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Income before income taxes

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):

Sales for the three-month period ended September 30, 2023 increased by 9.8%, or $28.1 million, compared to the corresponding period in 2022.

Sales for the nine-month period ended September 30, 2023 increased by 8.8%, or $75.3 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 nine-month periods ended September 30, 2023 and 2022 (in thousands, other than percentage changes):

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Cardiovascular

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Cardiovascular Sales.

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:

Our cardiovascular sales for the three-month period ended September 30, 2023 were $306.1 million, up 9.7% when compared to the corresponding period of 2022 of $278.9 million.

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

(a) Peripheral intervention products, which increased by $17.7 million, or 16.0%, from the corresponding period of 2022.

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

This increase was driven primarily by increased sales of our access, biopsy, radar localization, drainage, angiography, delivery systems, and intervention products.

(b) Cardiac intervention products, which increased by $2.3 million, or 2.6%, from the corresponding period of 2022.

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.

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

(c) Custom procedural solutions products, which increased by $2.9 million, or 6.4%, from the corresponding period of 2022.

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(d) OEM products, which increased by $4.3 million, or 11.9%, from the corresponding period of 2022.

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:

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

Our cardiovascular sales for the nine-month period ended September 30, 2023 were $905.3 million, up 8.7% when compared to the corresponding period of 2022 of $832.6 million.

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

Peripheral intervention products, which increased by $40.7 million, or 12.4%, 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.

This increase was driven primarily by increased sales of our access, radar localization, drainage, biopsy, angiography, delivery systems, and embolotherapy products, offset partially by decreased sales of our vertebral compression fracture products.

Cardiac intervention products, which increased by $10.3 million, or 4.0%, 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.

This increase was driven primarily by increased 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 $4.7 million, or 3.3%, 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.

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

OEM products, which increased by $17.2 million, or 16.2%, 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.

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

Endoscopy Sales .

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.

Our endoscopy sales for the three-month period ended September 30, 2023 were $9.1 million, up 11.2% when compared to sales in the corresponding period of 2022 of $8.2 million.

Sales for the three-month period ended September 30, 2023 compared to the corresponding period in 2022 were favorably affected by increased sales of our EndoMAXX® fully covered esophageal stent, AEROmini Tracheobronchial Stent, Elation® Pulmonary Balloon Dilator, and other stents, offset partially by decreased sales of our probes.

Our endoscopy sales for the nine-month period ended September 30, 2023 were $27.5 million, up 10.0%, when compared to sales in the corresponding period of 2022 of $25.0 million.

Sales for the nine-month period ended September 30, 2023 were favorably affected by increased sales of our EndoMAXX fully covered esophageal stent, Elation Pulmonary Balloon Dilator, AEROmini Tracheobronchial Stent, and BIG60F Alpha™ inflation device, offset partially by decreased sales of our probes.

Geographic Sales

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):

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

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

United States

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United States Sales.

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.

sales for the three-month period ended September 30, 2023 were $187.5 million, or 59.5% of net sales, up 13.9% when compared to the corresponding period of 2022.

sales for the nine-month period ended September 30, 2023 were $538.4 million, or 57.7% of net sales, up 11.7% when compared to the corresponding period of 2022.

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

Direct and OEM businesses.

Direct and OEM operations.

International 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.

International sales for the three-month period ended September 30, 2023 were $127.7 million, or 40.5% of net sales, up 4.2% when compared to the corresponding period of 2022 of $122.6 million.

The increase in our international sales for the three-month period ended September 30, 2023, compared to the corresponding period of 2022 included increased sales in our EMEA operations of $3.1 million or 6.0% and in our ROW operations of $2.3 million or 22.4%, offset partially by decreased sales in our Asia Pacific (“APAC”) operations of ($0.3) million or (0.6%).

International sales for the nine-month period ended September 30, 2023 were $394.4 million, or 42.3% of net sales, up 5.1% when compared to the corresponding period of 2022 of $375.3 million.

The increase in our international sales for the nine-month period ended September 30, 2023, compared to the nine-month period ended September 30, 2022, included increased sales in our EMEA operations of $12.1 million or 7.6%, in our ROW operations of $3.5 million or 11.0%, and in our APAC operations of $3.4 million or 1.9%.

Our gross profit as a percentage of sales increased to 45.1% for the three-month period ended September 30, 2023, compared to 44.8% for the three-month period ended September 30, 2022.

The increase in gross profit percentage was primarily due to increased sales combined with favorable changes in standard cost and product mix and lower freight costs as a percentage of sales.

Our gross profit as a percentage of sales increased to 46.5% for the nine-month period ended September 30, 2023, compared to 44.8% for the nine-month period ended September 30, 2022.

The increase in gross profit percentage was primarily due to an increase in sales combined with favorable changes in standard cost and 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 $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.

Selling, general and administrative ("SG&A") expenses decreased ($2.9) million, or (3.3)%, for the three-month period ended September 30, 2023 compared to the corresponding period of 2022.

As a percentage of sales, SG&A expenses were 27.6% for the three-month period ended September 30, 2023, compared to 31.3% for the corresponding period of 2022.

For the three-month period ended September 30, 2023, SG&A expenses decreased compared to the corresponding period of 2022, primarily due to a decrease in consulting costs in connection with the Foundations for Growth program, offset partially by increased travel as restrictions continue to lift post-COVID 19 pandemic and increased amortization expense associated with acquisitions.

SG&A expenses increased $18.6 million, or 7.2%, for the nine-month period ended September 30, 2023 compared to the corresponding period of 2022.

As a percentage of sales, SG&A expenses were 29.8% for the nine-month period ended September 30, 2023, compared to 30.2% for the corresponding period of 2022.

For the nine-month period ended

September 30, 2023, SG&A expenses increased compared to the corresponding period of 2022 primarily due to increased labor-related costs associated with headcount, increased loss for disposal of equipment associated with restructuring, increased travel associated with acquisitions and restrictions continuing to lift post-COVID 19 pandemic, as well as increased marketing costs to promote sales, offset partially by a decrease in consulting costs in connection with the Foundations for Growth program.

Research and Development Expenses.

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.

Research and development (”R&D”) expenses for the three-month period ended September 30, 2023 were $19.6 million, up 2.2%, when compared to R&D expenses in the corresponding period of 2022 of $19.2 million.

R&D expenses for the nine-month period ended September 30, 2023 were $61.1 million, up 10.9%, when compared to R&D expenses in the corresponding period of 2022 of $55.1 million.

The increases in R&D expenses for the three and nine-month periods ended September 30, 2023 compared to the corresponding periods in 2022 were largely due to increased labor-related costs, increased costs associated with clinical trials and R&D development projects, and for the nine-month period ended September 30, 2023, higher regulatory costs.

Impairment Charges .

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.

For the three-month periods ended September 30, 2023 and 2022, we recognized no impairment charges.

For the nine-month period ended September 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 nine-month period ended September 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 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.

For the three and nine-month periods ended September 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 $0.6 million and $2.2 million, respectively, compared to contingent consideration expense of $0.9 million and $4.7 million for the three and nine-month periods ended September 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”).

For the three-month periods ended September 30, 2023 and 2022, we recognized no acquired in-process research and development costs.

For the nine-month period ended September 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 nine-month period ended September 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 and six-month periods ended June 30, 2023 and 2022 (in thousands):

The following table sets forth our operating income by financial reporting segment 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,

Operating Income

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Cardiovascular Operating Income.

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 .

Our cardiovascular operating income for the three-month period ended September 30, 2023 was $32.6 million, compared to cardiovascular operating income in the corresponding period of 2022 of $17.4 million.

The increase in cardiovascular operating income during the three-month period ended September 30, 2023 compared to the corresponding period of 2022 was primarily a result of higher sales ($306.1 million compared to $278.9 million), higher gross margin and lower SG&A and acquired in-process research and development charges, partially offset by higher R&D expenses .

Our cardiovascular operating income for the nine-month period ended September 30, 2023 was $83.0 million, compared to cardiovascular operating income in the corresponding period of 2022 of $51.8 million.

The increase in cardiovascular operating income during the nine-month period ended September 30, 2023 compared to the corresponding period of 2022 was primarily a result of higher sales ($905.3 million compared to $832.6 million), 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 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.

Our endoscopy operating income for the three-month period ended September 30, 2023 was $2.5 million, compared to endoscopy operating income of $1.2 million for the corresponding period of 2022.

Our endoscopy operating income for the nine-month period ended September 30, 2023 was $7.4 million, compared to endoscopy operating income of $5.3 million for the corresponding period of 2022.

The increase in endoscopy operating income for the three and nine-month periods ended September 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 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.

Our other expense for the three-month periods ended September 30, 2023 and 2022 was $4.9 million and $1.1 million, respectively.

The change in other expense was primarily related to an increase in interest expense associated with increased borrowings and rising interest rates.

Our other expense for the nine-month periods ended September 30, 2023 and 2022 was $9.7 million and $4.7 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 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 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.

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 tax 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 net income for the three-month periods ended September 30, 2023 and 2022 was $25.8 million and $15.3 million, respectively.

The increase in our net income for the three-month period ended September 30, 2023 was primarily the result of higher sales, higher gross margin as a percentage of sales, and lower SG&A expenses, partially offset by higher R&D expenses and higher income tax expense.

Our net income for the nine-month periods ended September 30, 2023 and 2022 was $66.8 million and $41.1 million, respectively.

The increase in our net income for the nine-month period ended September 30, 2023 was the result of several principal factors, including higher sales, higher gross margin as a percentage of sales, lower impairment charges, contingent consideration expense and 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

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.

As of September 30, 2023 and December 31, 2022, our current assets exceeded current liabilities by $398.2 million and $308.4 million, respectively, and we had cash, cash equivalents and restricted cash of $60.7 million and $60.6 million, respectively, of which $54.4 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 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.

As of September 30, 2023, and December 31, 2022, we had cash, cash equivalents and restricted cash of $24.9 million and $26.1 million, respectively, within our subsidiary in China.

Cash flows provided by operating activities .

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.

We generated cash from operating activities of $82.9 million and $86.3 million during the nine-month periods ended September 30, 2023 and 2022, respectively.

Significant factors affecting operating cash flows during these periods included:

● 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 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.

● Net income was $66.8 million and $41.1 million for the nine-month periods ended September 30, 2023 and 2022, respectively.

● Cash used for inventories was ($34.4) million and ($30.7) million for the nine-month periods ended September 30, 2023 and 2022, respectively.

The increase in inventory was principally 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 provided by (used for) accounts payable was ($20.3) million and $9.8 million for the nine-month periods ended September 30, 2023 and 2022, respectively, primarily due to an increase in operating expenses and timing of vendor payments.

● Cash paid for income taxes was ($24.9) million and ($14.0) million for the nine-month periods ended September 30, 2023 and 2022, respectively, primarily due to increases in income before tax.

Cash flows used in investing activities.

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.

We used cash in investing activities of $167.0 million and $40.1 million for the nine-month periods ended September 30, 2023 and 2022, respectively.

We used cash for capital expenditures of property and equipment of $27.2 million and $32.5 million in the nine-month periods ended September 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 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 outflows invested in acquisitions for the nine-month period ended September 30, 2023 were $138.3 million and were primarily related to payments required by our asset purchase agreements with AngioDynamics ($100 million), Bluegrass ($32.7 million) and ART ($1.5 million), and our transaction with Solo Pace ($4.0 million).

Cash outflows invested in acquisitions for the nine-month period ended September 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 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.

Cash provided by (used in) financing activities for the nine-month periods ended September 30, 2023 and 2022 was $86.5 million and ($54.5) million, respectively.

During the nine-month period ended September 30, 2023 we increased our net borrowings by approximately $88.9 million to finance the acquisitions of AngioDynamics and Bluegrass.

During the nine-month period ended September 30, 2022 we decreased our net borrowings by approximately $26.3 million by paying down our debt.

We also paid contingent consideration of $32.8 million,

principally as a consequence of our achievement of sales milestones related to our acquisitions of Cianna Medical and Vascular Insights, LLC, which were reflected within financing activities.

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 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.

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

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.

In the nine-month period ended September 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

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Solely for convenience, such trademarks and tradenames sometimes appear without any “™” or “®” symbol.

However, failure to include such symbols is not intended to suggest, in any way, that we will not assert our rights or the rights of any applicable licensor, to these trademarks and tradenames.

However, failure to

include such symbols is not intended to suggest, in any way, that we will not assert our rights or the rights of any applicable licensor, to these trademarks and tradenames.

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