What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2024-02-28 compared with 2023-02-24 · 299 added, 243 removed, 955 unchanged (36% of the section changed)

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We have audited the accompanying consolidated balance sheets of Merit Medical Systems, Inc.

and subsidiaries (the "Company") as of December 31, 2022 and 2021, the related consolidated statements of income (loss), comprehensive income (loss), stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2022, and the related notes and the schedule listed in the Index at Item 15 (collectively referred to as the "financial statements").

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

and subsidiaries (the "Company") as of December 31, 2023 and 2022, the related consolidated statements of income, comprehensive income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2023, and the related notes and the schedule listed in the Index at Item 15 (collectively referred to as the "financial statements").

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America ("U.S.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 28, 2024, expressed an unqualified opinion on the Company's internal control over financial reporting.

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We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

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The Company reviews inventories on hand and records provisions based on estimated excess, slow moving and obsolete inventories.

The inventories valuation reviews include an assessment of future product demand based on historical sales and raw material usage and product expiration.

As of December 31, 2022, the Company’s inventories were $266.0 million.

During the year ended December 31, 2022, the Company recorded obsolescence expense of approximately $9.8 million.

We identified the provision for estimated excess, slow moving and obsolete inventories as a critical audit matter because of management’s significant judgment and estimates in determining the provision for estimated excess, slow moving and obsolete inventories primarily around future product demand based on historical sales.

The valuation of inventories includes an assessment of future product demand based on historical sales and raw material usage and product expiration.

This required a high degree of auditor judgment and an increased extent of effort.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to management’s estimates of the valuation of excess and obsolete inventories included the following, among others:

Our audit procedures related to management’s estimates of the valuation of excess, slow moving and obsolete inventories included the following, among others:

● We tested the effectiveness of controls over the provision for estimated excess, slow moving and obsolete inventories.

● We evaluated management’s ability to accurately estimate the provision for estimated excess, slow moving and obsolete inventories by comparing actual write-downs of inventories to management’s historical estimates.

● We evaluated the reasonableness of the Company's provision for estimated excess, slow moving and obsolete inventories, considering future product demand based on historical sales and raw material usage and product expiration and the underlying assumptions.

● We tested the accuracy and completeness of the underlying data used in the Company’s calculations of the valuation of excess and obsolete inventories, including historical usage, quantities on hand, expiration dates, and pricing.

● We tested the calculation of the estimated excess, slow moving and obsolete inventories, on a sample basis, including the completeness and accuracy of the data used in the calculation, such as future product demand based on historical sales and raw material usage and product expiration.

● We assessed the reasonableness of the assumptions used in the calculations of the provision for estimated excess, slow moving and obsolete inventories by developing an independent expectation and comparing our independent expectation to the results of the Company’s calculations.

● We tested the mathematical accuracy of the Company’s calculations of excess, slow moving and obsolete inventories.

Intangible Assets – Bluegrass and AngioDynamics Developed Technology – Refer to Note 3 to the financial statements

Critical Audit Matter Description

On May 4, 2023, the Company entered into an asset purchase agreement to acquire specific assets related to catheter products from Bluegrass Vascular Technologies, Inc.

(“Bluegrass”).

The Company accounted for this acquisition under the acquisition method of accounting for business combinations.

Accordingly, the purchase price was allocated to the tangible and intangibles assets acquired based on their respective fair values, including developed technology intangible assets of $28 million.

On June 8, 2023, the Company entered into an asset purchase agreement with AngioDynamics, Inc.

(“AngioDynamics”) to acquire the assets associated with a portfolio of catheter products.

The Company accounted for this acquisition under the acquisition method of accounting for business combinations.

Accordingly, the purchase price was allocated to the tangible and intangible assets acquired based on their respective fair values, including developed technology intangible assets of $65.2 million.

The determination of the fair value of the developed technology intangible assets required management to make significant estimates and assumptions related to future cash flows and the discount rate.

We identified the valuation of the acquired developed technology intangible assets from Bluegrass and AngioDynamics as a critical audit matter because of the significant estimates and assumptions management made to determine the fair value of these assets.

This required a high degree of auditor judgment and an increased extent of effort, including the involvement of our fair value specialists, when performing audit procedures to evaluate the reasonableness of management’s forecasts of future cash flows and the discount rate.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the estimates of future cash flows and discount rate for the acquired Bluegrass and AngioDynamics developed technology intangible assets included the following, among others:

● We tested the effectiveness of internal controls over the valuation of the developed technology intangible assets, including those over estimates of future cash flows and the selection of the discount rate.

● We assessed the reasonableness of management’s estimated cash flows by inquiring of management regarding its processes for developing estimated financial information and comparing the estimates to historical results achieved by the acquired assets, historical results of the Company and other acquisitions completed in recent years, and comparable peer companies.

● We performed sensitivity analyses of the significant assumptions used in the developed technology valuation models to evaluate the change in fair value resulting from changes in the significant assumptions.

● With the assistance of our fair value specialists, we (1) evaluated the reasonableness of the valuation methodology;

(2) evaluated the reasonableness of the discount rate through comparing the data underlying the determination of the discount rate to independent sources and developing a range of independent estimates and comparing those to the discount rates selected by management;

and (3) tested the mathematical accuracy of the discounted cash flow calculation.

● We evaluated whether the estimated revenue growth rates and cash flows were consistent with evidence obtained in other areas of the audit, including a retrospective review of actual post-acquisition financial results.

/s/ DELOITTE & TOUCHE LLP

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AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (LOSS)

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share amounts)

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Impairment charges

Contingent consideration expense (benefit)

Contingent consideration expense

Acquired in-process research and development

Total operating expenses

Income (loss) from operations

Income from operations

Other income (expense):

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Total other expense — net

Income (loss) before income taxes

Income tax expense (benefit)

Net income (loss)

Earnings (loss) per common share

Income before income taxes

Income tax expense

Earnings per common share

Weighted average shares outstanding

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AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

Net income (loss)

Other comprehensive income (loss):

Other comprehensive income:

Cash flow hedges

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Income tax benefit (expense)

Total other comprehensive loss

Total comprehensive income (loss)

Total other comprehensive income (loss)

Total comprehensive income

See notes to consolidated financial statements.

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Accumulated Other

Comprehensive Income (Loss)

Comprehensive Loss

BALANCE — January 1, 2021

Cumulative effect adjustment upon adoption of ASU 2016-13, Credit Losses

Other comprehensive loss

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Issuance of common stock under Employee Stock Purchase Plans

Shares issued from time-vested restricted stock units

Shares surrendered in exchange for payment of payroll tax liabilities

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BALANCE — December 31, 2022

Other comprehensive loss

Other comprehensive income

Stock-based compensation expense

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Shares issued from time-vested restricted stock units

Purchase of capped call option

Shares surrendered in exchange for payment of payroll tax liabilities

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CASH FLOWS FROM OPERATING ACTIVITIES:

Net income (loss)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

Loss (gain) on disposition of business

(Gain) loss on disposition of business

Loss on sale or abandonment of property and equipment

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Amortization of right-of-use operating lease assets

Adjustments related to contingent consideration liabilities

Fair value adjustments related to contingent consideration liabilities

Amortization of deferred credits

Amortization of long-term debt issuance costs

Amortization and write-off of long-term debt issuance costs

Deferred income taxes

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Payments on long-term debt

Purchase of capped call option

Long-term debt issuance costs

Contingent payments related to acquisitions

Payment of taxes related to an exchange of common stock

Net cash, cash equivalents, and restricted cash used in financing activities

Net cash, cash equivalents, and restricted cash provided by (used in) financing activities

Effect of exchange rates on cash, cash equivalents, and restricted cash

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Property and equipment purchases in accounts payable

Current note receivable converted to equity investment

Proceeds from sale of business in other receivables

Acquisition purchases in accrued expenses and other long-term obligations

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We export sales to dealers and have direct or modified direct sales forces in the U.S., Canada, Western Europe, Australia, Brazil, Japan, China, Malaysia, South Korea, UAE, India, New Zealand and South Africa (see Note 13).

Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States.

Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S.

The following is a summary of the more significant of such policies.

Use of Estimates in Preparing Financial Statements .

The preparation of financial statements in conformity with accounting principles generally accepted in the United States ("U.S.

GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

The preparation of financial statements in conformity with U.S.

GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

Actual results could differ from those estimates.

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We consider interest-bearing deposits with an original maturity date of three months or less to be cash equivalents.

As of December 31, 2021 , approximately $ 1.9 million, respectively, of our cash and cash equivalents represents restricted cash for the payment of certain import and other taxes for our subsidiary in China.

As of December 31, 2023 and 2022, we had restricted cash for the payment of certain import and other taxes for our subsidiary in China of $ 2.1 million and $ 2.1 million, respectively, which was reported within prepaid expenses and other assets on our consolidated balance sheets.

Receivables .

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Inventory costs include material, labor and manufacturing overhead.

We review inventories on hand and record provisions based on estimated excess, slow moving and obsolete inventory, as well as inventories with a carrying value in excess of net realizable value.

We review inventories on hand and record provisions based on estimated excess, slow moving and obsolete inventories, as well as inventories with a carrying value in excess of net realizable value.

The regular and systematic review of the valuation of inventories includes an assessment of future product demand based on historical sales and raw material usage and product expiration.

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When impairment indicators are identified, we may elect to perform an optional qualitative assessment to determine whether it is more likely than not that the fair value of our reporting units has fallen below their carrying value.

During our annual impairment test, we utilize four reporting units in evaluating goodwill for impairment

using a quantitative assessment, which uses a combination of a guideline public company market-based approach and a discounted cash flow income-based approach.

During our annual impairment test, we utilize four reporting units in evaluating goodwill for impairment using a quantitative assessment, which uses a combination of a guideline public company market-based approach and a discounted cash flow income-based approach.

The quantitative assessment considers whether the carrying amount of a reporting unit exceeds its fair value, in which case an impairment charge is recorded to the extent the reporting unit’s carrying value exceeds its fair value.

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We analyze our investments in privately held companies to determine if they should be accounted for using the equity method based on our ability to exercise significant influence over operating and financial policies of the investment.

Our share of earnings associated with equity method investments is reported within other income (expense) in our consolidated statements of income (loss).

Our share of earnings associated with equity method investments is reported within other income (expense) in our consolidated statements of income.

Investments not accounted for under the equity method of accounting are accounted for at cost minus impairment, if applicable, plus or minus changes in valuation resulting from observable transactions for identical or similar investments.

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We re-measure the estimated liability each quarter based upon changes in revenue estimates, changes in the probability of achieving relevant milestones and changes in the discount rate or expected period of payment.

Changes in the estimated fair value are recorded through operating expense in our consolidated statements of income (loss).

Changes in the estimated fair value are recorded through operating expense in our consolidated statements of income.

Revenue Recognition .

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Revenue is recorded at the net sales price, which includes estimates of variable consideration such as product returns, rebates, discounts, and other adjustments.

The estimates of variable consideration are based on historical payment experience, historical and

projected sales data, and current contract terms.

The estimates of variable consideration are based on historical payment experience, historical and projected sales data, and current contract terms.

Variable consideration is included in revenue only to the extent that it is probable that a significant reversal of the revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved.

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We do not have material contract assets or contract liabilities.

Reserves are recorded as a reduction in net sales and are not considered material to our consolidated statements of income (loss) for the years ended December 31, 2022, 2021 and 2020.

Reserves are recorded as a reduction in net sales and are not considered material to our consolidated statements of income for the years ended December 31, 2023, 2022 and 2021.

In addition, we invoice our customers for taxes assessed by governmental authorities, such as sales tax and value-added taxes.

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Cost of Sales .

We include product costs (i.e.

material, direct labor and overhead costs), shipping and handling expense, product royalty expense, developed technology amortization expense, production-related depreciation expense and product license agreement expense in cost of sales.

We include product costs (i.e., material, direct labor and overhead costs), shipping and handling expense, product royalty expense, developed technology amortization expense, production-related depreciation expense and product license agreement expense in cost of sales.

Research and Development .

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Earnings per Common Share .

Net income (loss) per common share is computed by both the basic method, which uses the weighted average number of our common shares outstanding, and the diluted method, which includes the dilutive common shares from stock options and restricted stock units as calculated using the treasury stock method.

Net income per common share is computed by both the basic method, which uses the weighted average number of our common shares outstanding, and the diluted method, which includes the potentially dilutive common equivalent shares outstanding.

Performance stock units are considered contingently issuable awards and are excluded from the weighted average basic share calculation.

These awards are included in the weighted average dilutive share calculation, to the extent they are dilutive, based on the number of shares, if any, that would be issuable as of the end of the reporting period assuming the end of the reporting period is also the end of the performance period.

For Convertible Notes, the dilutive effect is calculated using the if-converted method.

Fair Value Measurements .

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Fair value measurements do not include transaction costs.

A fair value hierarchy is used to prioritize the quality and reliability of the information

used to determine fair values.

A fair value hierarchy is used to prioritize the quality and reliability of the information used to determine fair values.

Categorization within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

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Dollars at year-end rates of exchange and results of operations are translated at average rates for the year.

Gains and losses resulting from these translations are included in accumulated other comprehensive income (loss) as a separate component of stockholders’ equity.

Transactional exchange gains or losses are included in other income (expense) in determining net income (loss) for the period.

Gains and losses resulting from these translations are included in accumulated other comprehensive loss as a separate component of stockholders’ equity.

Transactional exchange gains or losses are included in other income (expense) in determining net income for the period.

Derivatives .

We use forward contracts to mitigate our exposure to volatility in foreign exchange rates, and we use interest rate swaps to hedge changes in the benchmark interest rate related to our Third Amended Credit Agreement described in Note 8.

We use forward contracts to mitigate our exposure to volatility in foreign exchange rates, and we use an interest rate swap to hedge changes in the benchmark interest rate related to our Fourth Amended Credit Agreement described in Note 8.

All derivatives are recognized in the consolidated balance sheets at fair value.

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We do not purchase or hold derivative financial instruments for speculative or trading purposes (see Note 9).

New Financial Accounting Standards.

R ecently Adopted Financial Accounting Standards.

In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2020-04, Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting , which provides temporary optional expedients and exceptions in accounting for modifications of contracts that reference the London interbank offered rate (“LIBOR”) or another reference rate expected to be discontinued as a result of reference rate reform.

In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848):

Scope , which amends the scope of ASU 2020-04.

Entities can elect not to apply certain modification accounting requirements to contracts affected by what the guidance calls “reference rate reform” if certain criteria are met.

An entity that makes this election would not have to remeasure the contracts at the modification date or reassess a previous accounting determination.

Also, entities can elect various optional expedients that would allow them to continue applying hedge accounting for hedging relationships affected by reference rate reform if certain criteria are met.

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.

ASU 2020-04 and ASU 2021-01 were effective as of March 12, 2020;

ASU 2022-06 was effective upon its issuance in December 2022.

The provisions of these updates may be applied prospectively to transactions through December 31, 2024, when reference rate reform activity is expected to be completed.

As of December 31, 2022, we had not modified any contracts as a result of reference rate reform.

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

We currently believe that all other issued and not yet effective accounting standards are not materially relevant to our financial statements.

During 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 hedge (see Note 9).

The adoption of this guidance did not have a material impact on our consolidated financial statements.

Recently Issued Accounting Standards.

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures , which requires a public entity to disclose significant segment expenses and other segment items on an annual and interim basis and to provide in interim periods all disclosures about reportable segment’s profit or loss and assets that are currently required annually.

ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024.

Early adoption is permitted.

The provisions of this update must be applied retrospectively to all periods presented in the financial statements.

We are currently assessing the anticipated impact of this standard on our consolidated financial statements.

In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures , which amends Income Taxes (Topic 740) .

The FASB issued this update to improve annual basis income tax disclosures related to (1) rate reconciliation, (2) income taxes paid, and (3) other disclosures related to pretax income (or loss) and income tax expense (or benefit) from continuing operations.

ASU 2023-09 is effective for fiscal years beginning after December 15, 2025, with early adoption permitted.

These amendments are to be applied on a prospective basis.

Retrospective application is permitted.

We are currently evaluating the impact this standard will have on our consolidated financial statement disclosures.

We currently believe there are no other issued and not yet effective accounting standards that are materially relevant to our financial statements.

Disaggregation of Revenue.

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2023 Acquisitions

On June 8, 2023, we entered into an asset purchase agreement with AngioDynamics, Inc.

(“AngioDynamics”) to acquire the assets associated with a portfolio of dialysis catheter products and the BioSentry® Biopsy Tract Sealant System for a purchase price of $ 100 million.

We accounted for this transaction under the acquisition method of accounting as a business combination.

The sales related to the acquisition have been included in our cardiovascular segment since the acquisition date and were approximately $ 14.4 million for the year ended December 31, 2023.

It is not practical to separately report earnings related to the acquisition, as we began to immediately integrate the acquisition into existing operations, sales distribution networks and management structure of 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 $ 4.9 million for the year ended December 31, 2023.

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

Assets Acquired

Prepaid expenses

Property and equipment

Intangible assets

Developed technology

Customer list

Total net assets acquired

We are amortizing the AngioDynamics developed technology intangible assets over ten years , the trademark intangible assets over 11 years , and the customer list intangible asset on an accelerated basis over ten 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 on 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 due to the unavailability of the information provided to the Company, management’s inability to reasonably estimate the amounts from the carve out of assets and differing fiscal year-end of the acquired business.

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, for a purchase price of approximately $ 32.7 million.

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.

We accounted for this transaction under the acquisition method of accounting as a business combination.

The sales and results of operations related to the acquisition have been included in our cardiovascular segment since the acquisition date and were not material.

Acquisition-related costs associated with the Bluegrass acquisition, which are included in selling, general and administrative expenses in the accompanying consolidated statements of income, are not material.

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

Assets Acquired

Intangible assets

Developed technology

Total net assets acquired

We are amortizing the Bluegrass developed technology intangible asset over 15 years and the related trademarks over 13 years .

We have estimated the weighted average life of the intangible assets acquired from Bluegrass to be 14.9 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 on our consolidated results of operations of the Bluegrass acquisition are not material.

On May 1, 2023, we entered into an asset purchase agreement to acquire certain assets from 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 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.

We have accounted for this transaction as an asset purchase and recorded $ 1.5 million of acquired in-process research and development expense associated with the upfront payment and completion of the milestone related to the installation of the commercial production winders.

The final payment will be capitalized as a developed technology intangible asset when paid upon completion of the regulatory approval milestone under the terms of the asset purchase agreement.

The payments are reported within operating expenses because the technological feasibility of the underlying research and development project has not yet been reached and such technology has no identified future alternative use as of the date of acquisition.

We entered into a stock purchase agreement on January 11, 2023, and an exclusive distribution agreement on April 5, 2023, with Solo Pace Inc.

("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 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.

2022 Acquisitions

On October 3, 2022, we entered into an asset purchase agreement with BioTrace Medical, Inc., developer of the Tempo® Temporary Pacing Lead device, for a purchase price of $ 2.5 million.

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

During April 2022, we paid $ 1.4 million to acquire shares of series A preferred stock of Fluidx Medical Technology, Inc.("Fluidx"), owner of certain technology proposed to be used in the development of embolic and adhesive agents for use in arterial, venous, vascular graft and cardiovascular applications inside and outside the heart and related appendages.

During April 2022, we paid $ 1.4 million to acquire shares of Series A Preferred Stock of Fluidx Medical Technology, Inc.

("Fluidx"), owner of certain technology proposed to be used in the development of embolic and adhesive agents for use in arterial, venous, vascular graft and cardiovascular applications inside and outside the heart and related appendages.

We had previously purchased, and continue to hold, $ 4.7 million of participating preferred shares of Fluidx.

Our investments have been recorded as equity investments accounted for at cost and reflected within Other assets in the accompanying consolidated balance sheets because we are not able to exercise significant influence over the operations of Fluidx.

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

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

2021 Acquisitions

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Our investment has been recorded as an equity investment accounted for at cost and reflected within other assets in the accompanying consolidated balance sheets because we are not able to exercise significant influence over the operations of Fluidx.

Our total current investment in Fluidx represents an ownership of 15.0 % of the outstanding stock.

2020 Acquisitions

On November 6, 2020, we entered into a unit purchase agreement to acquire KA Medical, LLC (“KA Medical”).

Subject to the terms and conditions of the unit purchase agreement, we paid $ 14.6 million in cash, net of cash acquired, including adjustments for working capital and deferred payments of $ 4 million.

KA Medical developed the Micro Plug Set, a self-expanding nitinol vascular occlusion device, which is FDA-cleared and CE marked.

We accounted for this acquisition as a business combination.

The sales and results of operations related to the acquisition have been included in our cardiovascular segment since the acquisition date and were not material for the years ended December 31, 2022, 2021 and 2020.

Acquisition-related costs associated with the KA Medical acquisition, which were included in selling, general and

administrative expenses, were not material.

During the fourth quarter of 2021, certain immaterial measurement period adjustments were recorded to our purchase price allocation.

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

Assets Acquired

Trade receivables

Other receivables

Property and equipment

Other long-term assets

Intangible assets

Developed technology

Total assets acquired

Liabilities Assumed

Trade payables

Accrued expenses

Total liabilities assumed

Total net assets acquired

We are amortizing the developed technology intangible asset acquired from KA Medical over 17 years .

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

We do not deem the pro forma effects to our consolidated results of operations of the KA Medical acquisition to be material.

Our total current investment in Fluidx represents an ownership of approximately 15.0 % of the outstanding stock at the date of this investment.

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

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Estimated amortization expense for the developed technology and other intangible assets for the next five years consists of the following as of December 31, 2023 (in thousands):

Year Ending December 31,

Estimated Amortization Expense

During the years ended December 31, 2022, 2021 and 2020, we identified indicators of impairment associated with certain acquired intangible assets based on our qualitative assessment that carrying amounts may not be recoverable, which required us to then complete a quantitative impairment assessment.

The primary indicators of impairment were planned closure and restructuring activities and uncertainty about future product development and commercialization associated with certain acquired technologies, due in part to the economic impacts of the COVID-19 pandemic in 2021 and 2020.

During the year ended December 31, 2022 , we recorded total impairment charges related to our intangible assets of $ 1.7 million for our divestiture on April 30, 2022 of the STD Pharmaceutical Products Limited (“STD Pharmaceutical”) business acquired in our August 2019 acquisition of Fibrovein Holdings Limited.

During the year ended December 31, 2021 , we recorded total impairment charges related to our intangible assets of $ 1.6 million for the remaining carrying value of ArraVasc license agreements.

During the year ended December 31, 2020 , we recorded total impairment charges related to our intangible assets of $ 28.7 million which included a partial impairment charge of $ 8.2 million of intangible assets from our acquisition of STD Pharmaceutical , a partial impairment charge of $ 8.0 million of intangible assets from our acquisition of certain assets from Laurane Medical S.A.S , a partial impairment charge of $ 4.8 million related to our license agreements with ArraVasc Limited , and other intangible asset impairments charges of $ 7.7 million related to intangible assets from our acquisition of certain assets from DirectACCESS Medical, LLC, in-process technology intangible assets of Sontina Medical LLC

acquired in connection with our acquisition of certain divested assets from Becton, Dickinson and Company, and a customer list intangible asset from our acquisition of ITL Healthcare Pty Ltd (“ITL”).

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed into law.

The $2.2 trillion economic stimulus bill contains numerous tax law changes.

We evaluated the tax changes to determine what provisions would apply to us.

As permitted by the CARES Act, we have deferred payment of the employer’s portion of social security payroll tax payments and made a payment equal to one half of the deferred amount during the year ended December 31, 2021.

The remaining half was paid during the year ended December 31, 2022.

We evaluate our intangible assets for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable.

D uring the year ended December 31, 2023, we recorded no impairment charges related to our intangible assets.

During the year ended December 31, 2021 , we recorded total impairment charges related to our intangible assets of $ 1.6 million for the remaining carrying value of ArraVasc license agreements, which pertained to our cardiovascular segment.

The primary indicators of impairment were restructuring activities and uncertainty about future product development and commercialization associated with certain acquired technologies.

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

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

For the years ended December 31, 2022, 2021 and 2020, income (loss) before income taxes is broken out between U.S.

and foreign-sourced operations and consisted of the following (in thousands):

The Organization for Economic Cooperation and Development (“OECD”) Pillar 2 global minimum tax rules, which generally provide for a minimum effective tax rate of 15%, are intended to apply for tax years beginning in 2024.

On February 2, 2023, the OECD issued administrative guidance providing transition and safe harbor rules around the implementation of the Pillar 2 global minimum tax.

Under a transitional safe harbor released July 17, 2023, the undertaxed profits rule top-up tax in the jurisdiction of a company's ultimate parent entity will be zero for each fiscal year of the transition period if that jurisdiction has a corporate tax rate of at least 20%.

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

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.

For the years ended December 31, 2023, 2022 and 2021, income before income taxes is broken out between U.S.

and foreign-sourced operations consisted of the following (in thousands):

The components of the provision for income taxes for the years ended December 31, 2023, 2022 and 2021, consisted of the following (in thousands):

Current expense (benefit):

Current expense:

Total current expense

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Total deferred benefit

Total income tax expense (benefit)

The difference between the income tax expense (benefit) reported and amounts computed by applying the statutory federal rate of 21.0 % to pretax income (loss) for the years ended December 31, 2022, 2021 and 2020, consisted of the following (in thousands):

Computed federal income tax expense (benefit) at applicable statutory rate of 21 %

State income tax benefit

Total income tax expense

The difference between the income tax expense reported and amounts computed by applying the statutory federal rate of 21.0 % to pretax income for the years ended December 31, 2023, 2022 and 2021, consisted of the following (in thousands):

Computed federal income tax expense at applicable statutory rate of 21 %

State income tax expense (benefit)

Tax effect of international items

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Valuation allowance

DOJ settlement

Remeasurement of state deferred taxes

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Other — including the effect of graduated rates

Total income tax expense (benefit)

Total income tax expense

Deferred income tax assets and liabilities at December 31, 2023 and 2022, consisted of the following temporary differences and carry-forward items (in thousands):

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Federal R&D tax credit

UT R&D Credit

State R&D tax credits

IRC Section 174 capitalized R&D

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Valuation allowance

Net deferred income tax liabilities

Net deferred income tax assets (liabilities)

Deferred income tax assets

Deferred income tax liabilities

Net deferred income tax liabilities

Net deferred income tax assets (liabilities)

Deferred tax assets and liabilities are netted on the balance sheet by separate tax jurisdictions.

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The valuation allowance is primarily related to state credit carryforwards, non-US net operating loss carryforwards, and capital loss carryforwards for which we believe it is more likely than not that the deferred tax assets will not be realized.

The valuation allowance increased by $ 2.7 million during the year ended December 31, 2022, increased by $ 573,000 during the year ended December 31, 2021, and increased by $ 5.6 million during the year ended December 31, 2020.

The valuation allowance increased by $ 213,000 during the year ended December 31, 2023, increased by $ 2.7 million during the year ended December 31, 2022, and increased by $ 573,000 during the year ended December 31, 2021.

As of December 31, 2023, we had U.S federal net operating loss carryforwards of $ 24.7 million, which were generated by Cianna Medical, Vascular Access Technologies, Inc., DFINE Inc., and Biosphere Medical, Inc., prior to our acquisition of these companies.

These net operating loss carryforwards are subject to annual limitations under Internal Revenue Code Section 382.

If unused $ 29.6 million of the NOLs will expire between 2025 and 2037.

Of the NOLs incurred post-2017, $ 97,000 can be carried forward indefinitely.

If unused, $ 24.7 million of the net operating losses will expire between 2025 and 2037.

We anticipate that we will utilize all current net operating loss carryforwards prior to their expiration dates over the next 12 years .

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The total liability for unrecognized tax benefits at December 31, 2023, including interest and penalties, was $ 1.9 million, of which $ 1.9 million would favorably impact our effective tax rate if recognized.

At December 31, 2022, none of the total liability was presented as a reduction to non-current deferred income tax assets on our consolidated balance sheet.

The total liability for unrecognized tax benefits at December 31, 2022, including interest and penalties, was $ 1.9 million, of which $ 1.9 million would favorably impact our effective tax rate if recognized.

At December 31, 2021, $ 1.0 million of the total liability was presented as a reduction to non-current deferred income tax assets on our consolidated balance sheet.

At December 31, 2023 and 2022, none of the total liability was presented as a reduction to non-current deferred income tax assets on our consolidated balance sheet.

As of December 31, 2023 and 2022, we had accrued $ 290,000 and $ 336,000 respectively, in total interest and penalties related to unrecognized tax benefits.

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During the years ended December 31, 2023, 2022 and 2021, our liability for unrecognized tax benefit was increased (decreased) for interest and penalties by $( 46,000 ), $ 14,000 , and $ 46,000 , respectively.

We estimate it is reasonably possible that within the next 12 months the total liability for unrecognized tax benefits may decrease, including expirations related to statutes of limitation, up to $ 109,000 .

We estimate it is reasonably possible that within the next 12 months the total liability for unrecognized tax benefits may increase, including expirations related to statutes of limitation, up to $ 7,000 .

A reconciliation of the beginning and ending amount of liabilities associated with uncertain tax benefits for the years ended December 31, 2023, 2022 and 2021, consisted of the following (in thousands):

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Other accrued expenses

REVOLVING CREDIT FACILITY AND LONG-TERM DEBT

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

Revolving credit loans

Convertible notes

Less unamortized debt issuance costs

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Long-term portion

Third Amended and Restated Credit Agreement

On July 31, 2019, we entered into a Third Amended and Restated Credit Agreement (the "Third Amended Credit Agreement").

The Third Amended Credit Agreement is a syndicated loan agreement with Wells Fargo Bank, National Association and other parties.

The Third Amended Credit Agreement amends and restates in its entirety our previously outstanding Second Amended and Restated Credit Agreement and all amendments thereto.

The Third Amended Credit Agreement provides for a term loan of $ 150 million and a revolving credit commitment up to an aggregate amount of $ 600 million, inclusive of sub-facilities for multicurrency borrowings, standby letters of credit and swingline loans.

On July 31, 2024, all principal, interest and other amounts outstanding under the Third Amended Credit Agreement are payable in full.

At any time prior to the maturity date, we may repay any amounts owing under all term loans and revolving credit loans in whole or in part, without premium or penalty, other than breakage fees (as defined in the Third Amended Credit Agreement).

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

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

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

Interest on each loan featuring the Base Rate is due and payable on the last business day of each calendar quarter;

interest on each loan featuring the Eurocurrency Rate is due and payable on the last day of each interest period applicable thereto, and if such interest period extends over three months, at the end of each three-month interval during such interest period.

The Third Amended Credit Agreement is collateralized by substantially all of our assets.

The Third Amended Credit Agreement contains affirmative and negative covenants, representations and warranties, events of default and other terms customary for loans of this nature.

In particular, the Third Amended Credit Agreement requires that we maintain certain financial covenants, as follows:

Covenant Requirement

Consolidated Total Leverage Ratio (1)

Consolidated Interest Coverage Ratio (2)

Facility Capital Expenditures (3)

(1) Maximum Consolidated Total Net Leverage Ratio (as defined in the Third Amended Credit Agreement) as of any fiscal quarter end.

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

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

As of December 31, 2022, we believe we were in compliance with all covenants set forth in the Third Amended Credit Agreement.

As of December 31, 2022, we had outstanding borrowings of $ 198.2 million and issued letter of credit guarantees of $ 3.2 million under the Third Amended Credit Agreement, with additional available borrowings of approximately $ 523 million, based on the leverage ratio required pursuant to the Third Amended Credit Agreement.

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 (see Note 9) and a variable floating rate of 5.38 % on $ 123.2 million.

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

The foregoing fixed rates are exclusive of potential future changes in the applicable margin.

Certain of the interest rates applicable to our Third Amended Credit Agreement, and applicable to hedging instruments we have purchased to offset interest rate risk under our Third Amended Credit Agreement, are LIBOR-based.

We anticipate replacement rates will be identified, as provided for in our Third Amended Credit Agreement, as LIBOR-based rates become unavailable.

Future Payments

Future minimum principal payments on our long-term debt as of December 31, 2023, are as follows (in thousands):

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Total future minimum principal payments

Fourth Amended and Restated Credit Agreement

On June 6, 2023, we entered into a Fourth Amended and Restated Credit Agreement (the "Fourth Amended Credit Agreement").

The Fourth Amended Credit Agreement is a syndicated loan agreement with Wells Fargo Bank, National Association and other parties.

The Fourth Amended Credit Agreement amended and restated in its entirety our previously outstanding Third Amended and Restated Credit Agreement and all amendments thereto.

The Fourth Amended Credit Agreement provides for a term loan of $ 150 million and a revolving credit commitment of up to an aggregate amount of $ 700 million, inclusive of sub-facilities for multicurrency borrowings, standby letters of credit and swingline loans.

On June 6, 2028, all principal, interest and other amounts outstanding under the Fourth Amended Credit Agreement are payable in full.

At any time prior to the maturity date, we may repay any amounts owing under all term loans and revolving credit loans in whole or in part, without premium or penalty.

On December 5, 2023, we executed an amendment to the Fourth Amended Credit Agreement (the "Fourth Amended Credit Agreement, as amended") to facilitate the issuance of our Convertible Notes described below.

Among other things, the amendment also updated the definition of the Applicable Margin used in determining the interest rates and amended the financial covenants, all as described below.

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

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 (as defined in the Fourth Amended Credit Agreement, as amended), or (d) Adjusted Daily Simple SONIA plus the Applicable Margin (as defined in the Fourth Amended Credit Agreement, as amended).

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

Interest on each loan featuring the Base Rate and each Daily Simple SONIA Loan is due and payable on the last business day of each calendar month;

interest on each loan featuring the Eurocurrency Rate and each Term SOFR Loan is due and payable on the last day of each interest period applicable thereto, and if such interest period extends over three months, at the end of each three-month interval during such interest period.

The Fourth Amended Credit Agreement, as amended is collateralized by substantially all of our assets.

The Fourth Amended Credit Agreement contains affirmative and negative covenants, representations and warranties, events of default and other terms customary for loans of this nature.

In particular, the Fourth Amended Credit Agreement requires that we maintain certain financial covenants, as follows:

Covenant Requirement

Consolidated Total Net Leverage Ratio (1)

Consolidated Senior Secured Net Leverage Ratio (2)

Consolidated Interest Coverage Ratio (3)

(1) Maximum Consolidated Total Net Leverage Ratio (as defined in the Fourth Amended Credit Agreement, as amended) as of any fiscal quarter end.

(2) Maximum Consolidated Senior Secured Net Leverage Ratio (as defined in the Fourth Amended Credit Agreement, as amended) as of any fiscal quarter end.

(3) 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, as amended) for any period of four consecutive fiscal quarters.

As of December 31, 2023, we believe we were in compliance with all covenants set forth in the Fourth Amended Credit Agreement, as amended.

As of December 31, 2023, we had outstanding borrowings of $ 99.1 million and issued letter of credit guarantees of $ 2.7 million under the Fourth Amended Credit Agreement, as amended, with additional available borrowings of approximately $ 626 million, based on the leverage ratio required pursuant to the Fourth Amended Credit Agreement, as amended.

Our interest rate as of December 31, 2023 was a fixed rate of 3.39 % 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 7.21 % on $ 24.1 million.

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 are exclusive of potential future changes in the applicable margin.

Convertible Notes

In December 2023, we issued Convertible Notes which bear interest at 3.00 % per year, payable semi-annually in arrears on February 1 and August 1 of each year, beginning on August 1, 2024.

The Convertible Notes are senior unsecured obligations (as defined in the Note Indenture) of the Company and will mature on February 1, 2029, unless earlier repurchased, redeemed or converted in accordance with their terms prior to such date.

The net proceeds from the sale of the Convertible Notes were approximately $ 724.8 million after deducting offering and issuance costs and before the costs of the Capped Call transaction, as described below.

The initial conversion rate of the notes will be 11.5171 shares of common stock per $ 1,000 principal amount of notes equivalent to an initial conversion price of approximately $ 86.83 per share of common stock, subject to adjustments as provided in the Indenture upon the occurrence of certain specified events.

In addition, Holders of the Convertible Notes (“Holders”) will have the right to require the Company to repurchase all or a part of their notes upon the occurrence of a “fundamental change” (as defined in the indenture governing the Convertible Notes) in cash at a fundamental change repurchase price of 100 % of their principal amount plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date.

Conversion can occur at the option of the Holders at any time on or after October 1, 2028.

Prior to October 1, 2028, Holders may only elect to convert the Convertible Notes under the following circumstances:

(1) During the five business day period after any ten consecutive trading day period in which, for each day of that period, the trading price per $1,000 principal amount of the Convertible Notes for such trading day was less than 98 % of the product of the last reported sale price of the Company’s common stock and the applicable conversion rate on such trading day;

(2) The Company issues to common stockholders any rights, options, or warrants, entitling them, for a period of not more than 60 days, to purchase shares of common stock at a price per share less than the average closing sale price of 10 consecutive trading days, or the Company’s election to make a distribution to common stockholders exceeding 10 % of the previous day’s closing sale price;

(3) Upon the occurrence of a Fundamental Change, as set forth in the indenture governing the Convertible Notes;

(4) During any calendar quarter (and only during such calendar quarter) beginning after March 31, 2024, if, the last reported sale price per share of the Company’s common stock exceeds 130 % of the applicable conversion price on each applicable trading day for at least 20 trading days (whether or not consecutive) in the period of the 30 consecutive trading day period ending on, and including, the last trading day of the immediately preceding calendar quarter;

or (5) Prior to the related redemption date if the Company calls any Convertible Notes for redemption.

As of December 31, 2023, none of the conditions permitting the holders of the Convertible Notes to convert their notes early had been met, therefore, they are classified as long-term.

On or after February 7, 2027, we may redeem for cash all or part of the Convertible Notes, at our option, if the last reported sales price of common stock has been at least 130 % of the conversion price then in effect for at least 20 trading days (whether or not consecutive), including the trading day immediately preceding the date on which we provide notice of redemption, during any 30 consecutive trading days ending on, and including, the trading day immediately before the date we send the related notice of the redemption.

Upon conversion, the Company will (1) pay cash up to the aggregate principal amount of the Convertible Notes to be converted and (2) pay or deliver, as the case may be, cash, shares of its common stock, or a combination of cash and shares of our common stock, at the Company’s election, in respect of the remainder, if any, of its conversion obligation in excess of the aggregate principal amount of the Convertible Notes being converted.

Capped Call Transaction

In December 2023, in connection with the pricing of the Convertible Notes, Merit entered into privately negotiated capped call transactions (“Capped Call Transactions”) with certain of the initial purchasers and/or their respective affiliates and certain other financial institutions.

The Capped Call Transactions cover, subject to customary anti-dilution adjustments, the number of shares of Merit’s common stock initially underlying the Convertible Notes and are generally expected to reduce potential dilution to Merit’s common stock upon any conversion of Convertible Notes and/or offset any cash payments Merit is required to make in excess of the principal amount of converted Convertible Notes, as the case may be, with such reduction and/or offset subject to a cap, based on a cap price initially equal to approximately $ 114.68 per share of Merit’s common stock, subject to certain adjustments under the terms of the Capped Call Transactions.

The cost of the Capped Call Transactions was approximately $ 66.5 million.

The Capped Call Transactions do not meet the criteria for separate accounting as a derivative as they are indexed to the Company's stock.

The premiums paid for the Capped Call Transactions have been included as a net reduction to common stock within stockholders' equity.

Our earnings and cash flows are subject to fluctuations due to changes in interest rates and foreign currency exchange rates, and we seek to mitigate a portion of these risks by entering into derivative contracts.

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Interest Rate Risk .

Our debt bears interest at variable interest rates and, therefore, we are subject to variability in the cash paid for interest expense.

In order to mitigate a portion of this risk, we use a hedging strategy to reduce the variability of cash flows in the interest payments associated with a portion of the variable-rate debt outstanding under our Third Amended Credit Agreement that is solely due to changes in the benchmark interest rate.

Our debt under the Fourth Amended Credit Agreement bears interest at variable interest rates and, therefore, we are subject to variability in the cash paid for interest expense.

In order to mitigate a portion of this risk, we use a hedging strategy to reduce the variability of cash flows in the interest payments associated with a portion of the variable-rate debt outstanding under our Fourth Amended Credit Agreement that is solely due to changes in the benchmark interest rate.

Derivatives Designated as Cash Flow Hedges

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The interest rate swap expired on July 6, 2021.

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

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

On December 23, 2019, we entered into a pay-fixed, receive-variable interest rate swap with a notional amount of $ 75 million with Wells Fargo.

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 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.

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The fair value of our interest rate swap at December 31, 2023 was an asset of $ 1.5 million, partially offset by $ 0.4 million in deferred taxes.

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

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

Foreign Currency Risk .

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We do not use derivative financial instruments for trading or speculative purposes.

We are not subject to any credit risk contingent features related to our derivative contracts, and counterparty risk is managed by allocating derivative contracts among several major financial institutions.

We do not believe we are subject to any credit risk contingent features related to our derivative contracts, and we seek to manage counterparty risk by allocating derivative contracts among several major financial institutions.

Derivatives Designated as Cash Flow Hedges

For derivative instruments that are designated and qualify as cash flow hedges, the gain or loss on the derivative instrument is temporarily reported as a component of other comprehensive income (loss) and then reclassified into earnings in the same line item associated with the forecasted transaction and in the same period or periods during which the hedged transaction affects earnings.

For derivative instruments that are designated and qualify as cash flow hedges, the gain or loss on the derivative instrument is temporarily reported as a component of other comprehensive income and then reclassified into earnings in the same line item associated with the forecasted transaction and in the same period or periods during which the hedged transaction affects earnings.

We entered into forward contracts on various foreign currencies to manage the risk associated with forecasted exchange rates which impact revenues, cost of sales, and operating expenses in various international markets.

The objective of the hedges is to reduce the variability of cash flows associated with the forecasted purchase or sale of foreign currencies.

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

As of December 31, 2023 and 2022, we had entered into foreign currency forward contracts, which qualified as cash flow hedges, with aggregate notional amounts of $ 141.1 million and $ 87.8 million, respectively.

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

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

As of December 31, 2023 and 2022, we had entered into foreign currency forward contracts related to those balance sheet accounts with aggregate notional amounts of $ 108.4 million and $ 92.4 million, respectively.

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December 31, 2022

Interest rate swaps

Interest rate swap

Prepaid expenses and other assets

Interest rate swap

Other assets (long-term)

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(Liabilities)

Interest rate swaps

Other long-term obligations

Foreign currency forward contracts

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Derivatives Designated as Cash Flow Hedges

Derivative instruments designated as cash flow hedges had the following effects, before income taxes, on other comprehensive income ("OCI") in our consolidated statements of comprehensive income (loss) and consolidated balance sheets (in thousands):

Amount of Gain/(Loss)

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Foreign currency forward contracts

Derivative instruments designated as cash flow hedges had the following effects, before income taxes, on AOCI and net earnings in our consolidated statements of income (loss), consolidated statements of comprehensive income (loss) and consolidated balance sheets (in thousands):

Derivative instruments designated as cash flow hedges had the following effects, before income taxes, on AOCI and net earnings in our consolidated statements of income, consolidated statements of comprehensive income and consolidated balance sheets (in thousands):

Consolidated Statements

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Derivatives Not Designated as Hedging Instruments

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

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

Year ended December 31,

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As of December 31, 2023, we had entered into a number of agreements to license or acquire rights to certain intellectual property which require us to make royalty payments during the term of the agreements generally based on a percentage of sales.

During the years ended December 31, 2022, 2021 and 2020, total royalty expense approximated $ 7.3 million, $ 7.6 million and $ 7.1 million, respectively, and is recorded in cost of sales on the consolidated statement of income (loss).

During the years ended December 31, 2023, 2022 and 2021, total royalty expense approximated $ 8.6 million, $ 7.3 million and $ 7.6 million, respectively, and is recorded in cost of sales on the consolidated statements of income.

Minimum contractual commitments under royalty agreements to be paid within twelve months of December 31, 2023 were not significant.

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In the ordinary course of business, we are involved in various claims and litigation matters.

T hese proceedings, actions and claims may involve product liability, intellectual property, contract disputes, employment, governmental

inquiries or other matters, including those more fully described below.

T hese proceedings, actions and claims may involve product liability, intellectual property, contract disputes, employment, governmental inquiries or other matters, including those more fully described below.

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

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EARNINGS PER COMMON SHARE (EPS)

The computation of weighted average shares outstanding and the basic and diluted earnings (loss) per common share for the following periods consisted of the following (in thousands, except per share amounts):

Net income (loss)

The computation of weighted average shares outstanding and the basic and diluted earnings per common share for the years ended December 31, 2023, 2022 and 2021, consisted of the following (in thousands, except per share amounts):

Average common shares outstanding

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Equity awards excluded as the impact was anti-dilutive (1)

_______________________________________________

(1) Does not reflect the impact of incremental repurchases under the treasury stock method.

Convertible Notes

For our Convertible Notes issued in December 2023, the dilutive effect is calculated using the if-converted method.

Upon surrender of the Convertible Notes for conversion, Merit will pay cash up to the aggregate principal amount of the Notes to be converted and pay or deliver, as the case may be, cash, shares of Merit’s common stock or a combination of cash and shares of Merit’s common stock, at Merit’s election, in respect of the remainder, if any, of Merit’s conversion obligation in excess of the aggregate principal amount of the Convertible Notes being converted.

Under the if-converted method, we include the number of shares required to satisfy the remaining conversion obligation, assuming all the Convertible Notes were converted.

The average closing prices of our common stock for the year ended December 31, 2023 were used as the basis for determining the dilutive effect on EPS.

The average closing prices for our common stock did not exceed the conversion price of $ 86.83 , and therefore all associated shares were anti-dilutive.

EMPLOYEE STOCK PURCHASE PLAN, STOCK OPTIONS AND WARRANTS

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2018 Long-Term Incentive Plan, which was subsequently amended effective December 14, 2018 (the “2018 Incentive Plan”) to supplement the Merit Medical Systems, Inc.

2006 Long-Term Incentive plan (the "2006 Incentive Plan").

The 2018 Incentive Plan provides for the granting of stock options, stock appreciation rights, restricted stock, stock units (including restricted stock units) and performance awards (including performance stock units).

Options may be granted to directors, officers, outside consultants and key employees and may be granted upon such terms and such conditions as the Compensation Committee of our Board of Directors determines.

may be granted to directors, officers, outside consultants and key employees and may be granted upon such terms and such conditions as the Compensation Committee of our Board of Directors determines.

Options typically vest on an annual basis over a three to five-year life with a contractual life of seven years .

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Restricted stock units

Cash-settled performance-based share-based awards ("Liability Awards")

Total selling, general and administrative

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Expected option term

4.0 - 5.0 years

Expected dividend yield

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Stock-Settled Performance-Based Restricted Stock Units (“PSUs”) and Time-Vested Restricted Stock Units (“RSUs”)

Since 2020, we have granted PSUs to certain of our executive officers.

Conversion of PSUs occurs at the end of one , two and three-year performance periods, or one year after the agreement date, whichever is later.

The conversion ratio is based upon attaining targeted levels of free cash flow (“FCF”) and relative shareholder return as compared to the Russell 2000 Index (“rTSR”), as defined in the award agreements.

In 2020, our Board of Directors amended PSUs granted in 2020 with a one-year performance period to adjust the performance targets and reduce the maximum FCF multiplier to 100 % for the one-year awards, which lowered the potential shares of our common stock to be granted pursuant to the one-year awards by 25,415 shares.

We accounted for this amendment in accordance with ASC 718 as a “Type I” modification.

The payout for each PSU is equal to one share of common stock multiplied by a FCF multiplier (between 50 % and 100 % in the case of the 2020 one-year awards, as amended, or 50 % and 200 % in the case of all other PSU awards) and a rTSR multiplier (between 75 % and 125 %).

Since 2020, we have granted PSUs which vest at the end of one , two and three-year performance periods, or one year after the agreement date, whichever is later.

T he number of shares delivered upon vesting at the end of the performance periods are based upon performance against specified financial performance metrics and relative total shareholder return as compared to the Russell 2000 Index (“rTSR”), as defined in the award agreements.

PSUs convey no shareholder rights unless and until shares are issued in settlement of the award.

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Compensation expense is recognized using the grant-date fair value for the number of shares that are probable of being awarded based on the performance conditions.

Each reporting period, this probability assessment is updated, and cumulative catchups are recorded based on the level of FCF that is expected to be achieved.

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

We grant RSUs to our non-employee directors, which are subject to continued service through the vesting date, which is one year from the date of grant.

Each reporting period, this probability assessment is updated, and cumulative catchups are recorded based on the performance metrics that are expected to be achieved.

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

We have granted RSUs to our non-employee directors, which are subject to continued service through the vesting date, which is one year from the date of grant.

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

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The actual number of shares which vest is determined based on the satisfaction of performance conditions and the application of an rTSR multiplier between 75 % and 125 % .

(2) Represents the application of an rTSR multiplier of 125 % to awards vested in 2022 based on the performance of our common stock and the terms of the awards.

(2) Represents the application of an rTSR multiplier of 125 % to certain awards vested in 2023 based on the performance of our common stock and the terms of the awards.

The following table summarizes PSUs and RSUs granted during the years ended December 31, 2023, 2022, and 2021 (units and shares in thousands):

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(2) Includes the impact of the maximum potential rTSR multiplier of 125 % .

(3) Includes the impact of the 2020 amendment which reduced the maximum FCF multiplier for one-year awards from 200 % to 100 % .

During the years ended December 31, 2023, 2022 and 2021, there were approximately 61,000 , 44,000 and 26,000 shares, respectively, that vested under PSUs, prior to the reduction of shares withheld to satisfy tax withholding obligations.

Vested shares were calculated based upon achievement of the maximum performance multiplier, as amended, of 200 % and 100 % for 2022 and 2021, respectively, and an rTSR multiplier of 125 %.

There were no shares that vested under PSUs during the year ended December 31, 2020.

Vested shares were calculated based upon achievement of the financial performance multipliers and market conditions related to the rTSR multiplier.

During the years ended December 31, 2023, 2022 and 2021, there were approximately 31,000 , 26,000 and 34,000 shares, respectively, that vested under RSUs.

There were no shares that vested under RSUs during the year ended December 31, 2020.

The fair value of each PSU was estimated as of the grant date using the following assumptions for awards granted in the years ended December 31, 2023, 2022 and 2021:

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1.6 % - 2.7 %

0.1 % - 0.3 %

Performance period

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38.5 % - 46.2 %

43.7 % - 49.3 %

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

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

The expected volatility was based on a weighted average volatility of our stock

price and the average volatility of our compensation peer group's volatilities.

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

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

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Cash-Settled Performance-Based Share-Based Awards (“Liability Awards”)

During the years ended December 31, 2022, 2021 and 2020, we granted liability awards to certain executive officers.

These awards entitle them to cash payments equal to a total target cash incentive of $ 1.0 million, $ 1.0 million, and $ 1.0 million, respectively, multiplied by rTSR and FCF multipliers, as defined in the award agreements.

In 2020, our Board of Directors amended the liability awards with a one-year performance period.

The potential maximum payout of these liability awards is 125 % of the target cash incentive for the 2020 one-year award, as amended, and 250 % of the target cash incentive for all other liability awards, resulting in a total potential maximum payout of $ 2.5 million and $ 2.5 million for liability awards granted during the years ended December 31, 2022 and 2021, respectively.

During the years ended December 31, 2023, 2022 and 2021, we granted liability awards to our Chief Executive Officer with total target cash incentives in the amount of $ 1.3 million, $ 1.0 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 years ended December 31, 2023, 2022 and 2021, 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.

The potential maximum payout of these liability awards is 250 % of the target cash incentive, resulting in a total potential maximum payout of $ 4.3 million, $ 2.5 million and $ 2.5 million for liability awards granted during the years ended December 31, 2023, 2022 and 2021, respectively.

Settlement generally occurs at the end of one , two and three-year performance periods based upon the same performance metrics and vesting period as our performance stock units.

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

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

The fair value of these awards is remeasured at each reporting period until the awards are settled.

As of December 31, 2023, our recorded liabilities associated with these awards was $ 3.4 million, and we had remaining unrecognized compensation cost related to cash-settled performance-based share-based awards of $ 3.1 million, which is expected to be recognized over a weighted average period of 1.8 years.

During 2022 and 2021, we paid $ 833,000 and $ 417,000 , respectively, in connection with liability awards, and no awards were forfeited.

There were no liability awards vested or forfeited in the year ended December 31, 2020.

During 2023, 2022 and 2021, we paid $ 1.7 million, $ 833,000 and $ 417,000 , respectively, in connection with liability awards, and no awards were forfeited.

SEGMENT REPORTING AND FOREIGN OPERATIONS

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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.

We evaluate the performance of our operating segments based on net sales and operating income (loss).

Our chief operating decision maker is our Chief Executive Officer.

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

See Note 2 to our consolidated financial statements set forth in Item 8 of this report for a detailed breakout of our sales by operating segment and product category, disaggregated between domestic and international sales.

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Total net sales

Income (loss) from operations

Income from operations

Cardiovascular

Total income (loss) from operations

Total income from operations

Total other expense — net

Income tax expense (benefit)

Net income (loss)

Income tax expense

Total assets by operating segment at December 31, 2023, 2022 and 2021, consisted of the following (in thousands):

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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)

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December 31, 2022

Interest rate contract liability, long-term (2)

Marketable securities (1)

Interest rate contract asset, long-term (2)

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

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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 contracts is determined using Level 2 fair value inputs and is recorded as accrued expenses or other long-term obligations in the consolidated balance sheets.

(2) The fair value of the interest rate contracts is determined using Level 2 fair value inputs and is recorded as prepaid and other current assets or other long-term assets 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 and other assets or other long-term assets in the consolidated balance sheets.

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Certain of our business combinations involve the potential for the payment of future contingent consideration, generally based on a percentage of future product sales or upon attaining specified future revenue or other milestones.

Contingent consideration liabilities are re-measured to fair value at each reporting period, with the change in fair value recognized

within operating expenses in the accompanying consolidated statements of income (loss).

Contingent consideration liabilities are re-measured to fair value at each reporting period, with the change in fair value recognized within operating expenses in the accompanying consolidated statements of income.

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.

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As of December 31, 2023, $ 3.0 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 related to contingent liabilities.

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

Cash payments related to the settlement of the contingent consideration liability recognized at fair value as of the applicable acquisition date been reflected as a cash outflow from financing activities in the accompanying consolidated statements of cash flows.

Payments related to increases in the contingent consideration liability subsequent to the date of acquisition of $ 1.8 million for the year ended December 31, 2022 are reflected as operating cash flows.

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 related to contingent liabilities.

Cash payments related to the settlement of the contingent consideration liability recognized at fair value as of the applicable acquisition date 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 $ 12.8 million and $ 1.8 million for the years ended December 31, 2023 and 2022 are reflected as operating cash flows.

The recurring Level 3 measurement of our contingent consideration liabilities includes the following significant unobservable inputs at December 31, 2023 and 2022 (amounts in thousands):

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Discount rate

12.0 % - 16.0 %

Projected year of payments

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Discount rate

5.1 % - 14.0 %

Projected year of payments

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Our determination of the fair value of contingent consideration liabilities could change in future periods based upon our ongoing evaluation of these significant unobservable inputs.

We intend to record any such change in fair value to operating expenses in our consolidated statements of income (loss).

We intend to record any such change in fair value to operating expenses in our consolidated statements of income.

Contingent Payments to Related Parties.

During the years ended December 31, 2022 and 2020, we made contingent payments of approximately $ 1.6 million and $ 800,000 to a former director of Merit and former shareholder of Cianna Medical which we acquired in 2018.

We made no such payments in 2021.

In 2023, the Company expects to make additional payments consistent with prior years.

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

As a former shareholder of Cianna Medical, the former Merit director may be eligible for additional payments for the achievement of sales milestones specified in our merger agreement with Cianna Medical.

As a former shareholder of Cianna Medical, a former Merit director was eligible for payments for the achievement of sales milestones specified in our merger agreement with Cianna Medical completed in 2018.

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 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 year ended December 31, 2022, we made contingent payments of approximately $ 1.6 million to the former director, and no such payments during 2021 .

Fair Value of Other Financial Instruments

The carrying amount of cash and cash equivalents, receivables, and trade payables approximate fair value because of the immediate, short-term maturity of these financial instruments.

Our long-term debt re-prices frequently due to variable rates and entails no significant changes in credit risk and, as a result, we believe the fair value of long-term debt approximates carrying value.

Our long-term debt under our Fourth Amended Credit Agreement re-prices frequently due to variable rates and entails no significant changes in credit risk and, as a result, we believe the fair value of long-term debt approximates carrying value.

We believe the fair value our long-term debt under our convertible notes approximates carrying value as the notes were issued in December 2023.

The fair value of assets and liabilities whose carrying value approximates fair value is determined using Level 2 inputs, with the exception of cash and cash equivalents, which are Level 1 inputs.

Impairment Charges

We recognize or disclose the fair value of certain assets, such as non-financial assets, primarily property and equipment, intangible assets and goodwill in connection with impairment evaluations.

We recognize or disclose the fair value of certain assets, such as non-financial assets, primarily property and equipment, right-of-use operating lease assets, equity investments in privately held companies, intangible assets and goodwill in connection with impairment evaluations.

All of our nonrecurring valuations use significant unobservable inputs and therefore fall under Level 3 of the fair value hierarchy.

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

Consequently, we recorded impairment losses during the years ended December 31, 2021 and 2020 of $ 1.4 million and $ 1.5 million, respectively, which is equal to the excess of the carrying value of the assets over their estimated fair value.

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

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

Consequently, we recorded an impairment loss during the year ended December 31, 2021 of $ 1.4 million, which is equal to the excess of the carrying value of the assets over their estimated fair value.

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

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

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

We had no such losses during the year ended December 31, 2022.

We had no such losses during the years ended December 31, 2023 and 2022.

Property and Equipment.

D uring the year ended December 31, 2021 , we had losses of $ 1.3 million related to the measurement of property and equipment at fair value based on the planned discontinuance of the Advocate™ Peripheral Angioplasty Balloon product line, sold under our license agreements with ArraVasc, which pertained to our cardiovascular segment.

During the year ended December 31, 2020 , we had losses of $ 359,000 related to the measurement of certain property and equipment measured at fair value based on restructuring activities associated with the suspension of our distribution agreement with NinePoint, which pertained to our endoscopy segment.

We had no such losses during the year ended December 31, 2022.

We had no such losses during the years ended December 31, 2023 and 2022.

Equity Investments, Purchase Options and Notes Receivable.

During the year ended December 31, 2023, we recorded impairment charges of $ 0.3 million associated with our previously held equity investment in Bluegrass in connection with the Bluegrass asset acquisition completed on May 4, 2023 (see Note 3).

During the year ended December 31, 2022, we recognized $ 0.5 million of impairment expense related to our equity method investment in XableCath, as business ceased operations.

During the year ended December 31, 2020, we recognized $ 2.5 million of impairment expense related to our equity method investment in the 19.5 percent ownership in preferred shares of Fusion Medical, Inc.

(“Fusion”) due to uncertainty about future product development and commercialization associated with the technologies and a charge of $ 3.5 million related to Bluegrass Vascular due to our decision not to exercise our option to purchase the company.

We had no such losses during the year ended December 31, 2021.

We had no such losses during the years ended December 31, 2021.

Our equity investments in privately held companies were $ 19.1 million and $ 15.6 million at December 21, 2023 and 2022, respectively, which are included within other long-term assets in our consolidated balance sheets.

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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.

During the year ended December 31, 2021, we collected $ 2.8 million from Bluegrass Vascular Technologies, Inc.

pursuant to the terms of a note receivable, which represents the entire principal balance and all accrued interest payable pursuant to that note.

The table below presents a rollforward of the allowance for current expected credit losses on our notes receivable for the years ended December 31, 2023 and 2022 (in thousands):

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Foreign Currency Translation

January 1, 2020

Other comprehensive income (loss)

BALANCE — January 1, 2021

Other comprehensive loss

Reclassifications to:

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Net other comprehensive income (loss)

December 31, 2020

BALANCE — December 31, 2021

Other comprehensive income (loss)

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Net other comprehensive income (loss)

December 31, 2021

Other comprehensive income (loss)

BALANCE — December 31, 2022

Other comprehensive income

Reclassifications to:

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Net other comprehensive income (loss)

December 31, 2022

BALANCE — December 31, 2023

We have operating leases for facilities used for manufacturing, research and development, sales and distribution, and office space, as well as leases for manufacturing and office equipment, vehicles, and land.

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Generally, our lease agreements do not specify an implicit rate.

Therefore, we estimate our incremental borrowing rate, which is defined as the interest rate we would pay to borrow on a collateralized basis, considering such factors as length

of lease term and the risks of the economic environment in which the leased asset operates.

Therefore, we estimate our incremental borrowing rate, which is defined as the interest rate we would pay to borrow on a collateralized basis, considering such factors as length of lease term and the risks of the economic environment in which the leased asset operates.

As of December 31, 2023, 2022 and 2021, our lease agreements had the following remaining lease term and discount rates:

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Imputed interest

As of December 31, 2022, we had additional operating leases for office space that had not yet commenced.

These leases will commence during 2023 and are not deemed material.

As of December 31, 2023, we had entered into an agreement related to an operating lease in Mexico for manufacturing space that had not yet commenced.

The lease will commence in March 2024 with average annual maturities of approximately $ 700,000 expected for a period of approximately 11 years .

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

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-K

Item 8. Financial Statements and Supplementary Data