What changed in this filing

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Item 1. Financial Statements

2024-04-30 compared with 2023-10-26 · 201 added, 301 removed, 531 unchanged (49% of the section changed)

4 unchanged sentences

(In thousands)

September 30,

Current assets:

27 unchanged sentences

(In thousands)

September 30,

LIABILITIES AND STOCKHOLDERS’ EQUITY

2 unchanged sentences

Accrued expenses

Current portion of long-term debt

Short-term operating lease liabilities

12 unchanged sentences

Stockholders' equity:

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

no shares issued

Common stock, no par value;

100,000 shares authorized;

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

Preferred stock — 5,000 shares authorized;

no shares issued as of March 31, 2024 and December 31, 2023

Common stock, no par value — 100,000 shares authorized;

issued and outstanding as of March 31, 2024 - 58,102 and December 31, 2023 - 57,858

Retained earnings

8 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

Cost of sales

2 unchanged sentences

Research and development

Impairment charges

Contingent consideration expense

Acquired in-process research and development

Contingent consideration (benefit) expense

Total operating expenses

15 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

Other comprehensive income:

Other comprehensive income (loss):

Cash flow hedges

2 unchanged sentences

Income tax benefit (expense)

Total other comprehensive loss

Total other comprehensive income (loss)

Total comprehensive income

6 unchanged sentences

Balance — January 1, 2024

Other comprehensive income

Other comprehensive loss

Stock-based compensation expense

4 unchanged sentences

Balance — March 31, 2024

Other comprehensive income

Stock-based compensation expense

Options exercised

Issuance of common stock under Employee Stock Purchase Plan

Shares issued from time-vested restricted stock units

Balance — June 30, 2023

Other comprehensive loss

Stock-based compensation expense

Options exercised

Issuance of common stock under Employee Stock Purchase Plan

Shares surrendered in exchange for payment of payroll tax liabilities

Shares surrendered in exchange for exercise of stock options

Balance — September 30, 2023

See condensed notes to consolidated financial statements.

MERIT MEDICAL SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands - unaudited)

Accumulated Other

8 unchanged sentences

Balance — March 31, 2023

Other comprehensive loss

Stock-based compensation expense

Options exercised

Issuance of common stock under Employee Stock Purchase Plan

Shares issued from time-vested restricted stock units

Balance — June 30, 2022

Other comprehensive loss

Stock-based compensation expense

Options exercised

Issuance of common stock under Employee Stock Purchase Plan

Shares surrendered in exchange for payment of payroll tax liabilities

Shares surrendered in exchange for exercise of stock options

Balance — September 30, 2022

See condensed notes to consolidated financial statements.

3 unchanged sentences

(In thousands - unaudited)

Nine Months Ended

September 30,

Three Months Ended

CASH FLOWS FROM OPERATING ACTIVITIES:

1 unchanged sentence

Depreciation and amortization

Loss on disposition of business

Loss on sale or abandonment of property and equipment

Write-off of certain intangible assets and other long-term assets

Acquired in-process research and development

Amortization of right-of-use operating lease assets

7 unchanged sentences

Prepaid expenses and other current assets

Prepaid income taxes

Income tax refund receivables

12 unchanged sentences

Proceeds from the sale of property and equipment

Payments from disposition of business

Issuance of note receivables

Cash paid in acquisitions, net of cash acquired

5 unchanged sentences

(In thousands - unaudited)

Nine Months Ended

September 30,

Three Months Ended

CASH FLOWS FROM FINANCING ACTIVITIES:

2 unchanged sentences

Payments on long-term debt

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 provided by (used in) financing activities

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

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

Net increase (decrease) in cash, cash equivalents and restricted cash

Net decrease in cash, cash equivalents and restricted cash

CASH, CASH EQUIVALENTS AND RESTRICTED CASH:

11 unchanged sentences

Acquisition purchases in accrued expenses and other long-term obligations

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

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

5 unchanged sentences

The interim consolidated financial statements of Merit Medical Systems, Inc.

("Merit,"

"we"

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

("Merit," "we" or "us") for the three-month periods ended March 31, 2024 and 2023 are not audited.

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

In the opinion of our management, the accompanying consolidated financial statements contain all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of our financial position as of September 30, 2023 and December 31, 2022, and our results of operations and cash flows for the three and nine-month periods ended September 30, 2023 and 2022.

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

In the opinion of our management, the accompanying consolidated financial statements contain all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of our financial position as of March 31, 2024 and December 31, 2023, and our results of operations and cash flows for the three-month periods ended March 31, 2024 and 2023.

The results of operations for the three-month periods ended March 31, 2024 and 2023 are not necessarily indicative of the results for a full-year period.

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

These interim consolidated financial statements should be read in conjunction with the financial statements and risk factors included in our Annual Report on Form 10-K for the year ended December 31, 2023 (the “2023 Annual Report on Form 10-K”).

Recently 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.

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.

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

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

Recently Issued Accounting Standards.

In November 2023, the Financial Accounting Standards Board (“FASB’) issued Accounting Standard Update (“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, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures , 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.

9 unchanged sentences

Our cardiovascular segment consists of four product categories:

peripheral intervention, cardiac intervention, custom procedural solutions, and original equipment manufacturer (“OEM”).

peripheral intervention, cardiac intervention, custom procedural solutions, and OEM.

Within these product categories, we sell a variety of products, including cardiology and radiology devices (which assist in diagnosing and treating coronary arterial disease, peripheral vascular disease and other non-vascular diseases), as well as embolotherapeutic, cardiac rhythm management, electrophysiology, critical care, breast cancer localization and guidance, biopsy, and interventional oncology and spine devices.

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

The following tables present revenue from contracts with customers by reporting segment, product category and geographical region for the three and nine-month periods ended September 30, 2023 and 2022 (in thousands):

The following table presents revenue from contracts with customers by reporting segment, product category and geographical region for the three-month periods ended March 31, 2024 and 2023 (in thousands):

Three Months Ended

September 30, 2023

September 30, 2022

United States

International

United States

International

Cardiovascular

Peripheral Intervention

Cardiac Intervention

Custom Procedural Solutions

Endoscopy Devices

Nine Months Ended

September 30, 2023

September 30, 2022

March 31, 2024

March 31, 2023

United States

8 unchanged sentences

Acquisitions.

On March 8, 2024, we entered into an asset purchase agreement with Scholten Surgical Instruments, Inc.

(“SSI”) to acquire the assets associated with the Biptomoe, Novatome, and Sensatome devices.

The total purchase price of the SSI assets included an up-front payment of $ 3 million, and three deferred payments, including (1) $ 1 million payable upon the earlier of (a) the first anniversary of the closing date or (b) the date on which Merit can independently manufacture the purchased devices (“Deferred Payment Date”), (2) $ 1 million payable upon the first anniversary of the Deferred Payment Date, and (3) $ 1 million payable upon the second anniversary of the Deferred Payment Date.

We have accounted for this transaction as an asset purchase, and recorded the amount paid and deferred payments as a developed technology intangible asset, which we are amortizing over eight years .

During March 2024, we paid $ 0.3 million to acquire additional 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 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 approximately 19.9 % of the outstanding capital stock at the date of this investment.

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 acquisition as a business combination.

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

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

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

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

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 $ 6.7 million for the three-month period ended March 31, 2024.

It is not practical to separately report earnings related to the acquisition, as we began to immediately integrate the acquisition into the existing operations, sales distribution networks and management structure of our cardiovascular business segment.

Acquisition-related costs associated with the AngioDynamics acquisition, which were included in selling, general and administrative expenses in the consolidated statements of income, in the 2023 Annual Report on Form 10-K, were approximately $ 4.9 million.

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

Assets Acquired

5 unchanged sentences

Total net assets acquired

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

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.

5 unchanged sentences

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

We accounted for this acquisition as a business combination.

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 were included in selling, general and administrative expenses in the accompanying consolidated statements of income, were not material.

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

Acquisition-related costs associated with the Bluegrass acquisition, which were included in selling, general and administrative expenses in the consolidated statements of income included in the 2023 Annual Report on Form 10-K, were not material.

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

Assets Acquired

6 unchanged sentences

The pro forma effects to 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 Advanced Radiation Therapy, LLC (“ART”), related to intellectual property rights for soft tissue markers.

The total purchase price of the ART assets included an up-front payment of $ 750,000 , a deferred payment of $ 750,000 payable upon the first to occur of (1) shipment and installation of two commercial production winders used 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 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.

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

September 30, 2023

Inventories at March 31, 2024 and December 31, 2023 consisted of the following (in thousands):

March 31, 2024

December 31, 2023

4 unchanged sentences

Goodwill and Intangible Assets.

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

The change in the carrying amount of goodwill for the three-month period ended March 31, 2024 is detailed as follows (in thousands):

Goodwill balance at January 1

Effect of foreign exchange

Additions and adjustments as the result of acquisitions

Goodwill balance at September 30

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

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

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

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

September 30, 2023

Goodwill balance at March 31

Total accumulated goodwill impairment losses aggregated $ 8.3 million as of March 31, 2024 and December 31, 2023, respectively.

We did no t have any goodwill impairments for the three-month periods ended March 31, 2024 or 2023.

The total goodwill balances as of March 31, 2024 and December 31, 2023 were related to our cardiovascular segment.

Other intangible assets at March 31, 2024 and December 31, 2023 consisted of the following (in thousands):

March 31, 2024

Gross Carrying

7 unchanged sentences

Customer lists

Aggregate amortization expense for the three and nine-month periods ended September 30, 2023 was $ 15.4 million and $ 41.1 million, respectively.

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

Aggregate amortization expense for the three-month periods ended March 31, 2024 and 2023 was $ 14.6 million and $ 12.3 million, respectively.

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

1 unchanged sentence

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

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

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

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

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

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

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

We did no t identify indicators of impairment for our intangible assets based on our qualitative assessment for the three-month periods ended March 31, 2024 and 2023, respectively.

Estimated amortization expense for developed technology and other intangible assets for the next five years consisted of the following as of March 31, 2024 (in thousands):

Estimated Amortization Expense

1 unchanged sentence

Income Taxes.

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

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

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

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

Our provision for income taxes for the three-month periods ended March 31, 2024 and 2023 was a tax expense of $ 6.1 million and $ 4.8 million, respectively, which resulted in an effective tax rate of 17.8 % and 18.8 %, respectively.

The decrease in the effective income tax rate for the three-month period ended March 31, 2024, when compared to the prior-year period, was primarily due to increased benefit from discrete items such as share-based compensation and payroll tax credits, and the increase in the income tax expense when compared to the prior-year period was primarily due to increased pre-tax book income.

Our effective tax rate differs from the U.S.

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

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.

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

The Organization for Economic Cooperation and Development (“OECD”) Pillar Two 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 Two 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.

While we expect our effective income tax rate and cash income tax payments could increase in future years as a result of the global minimum tax, we do not anticipate a material impact to our fiscal 2024 consolidated results of operations.

Our assessment could be affected by legislative guidance and future enactment of additional provisions within the Pillar Two framework.

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

Revolving Credit Facility and Long-Term Debt.

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

September 30, 2023

Principal balances outstanding under our long-term debt obligations as of March 31, 2024 and December 31, 2023 consisted of the following (in thousands):

March 31, 2024

December 31, 2023

Revolving credit loans

Convertible notes

Less unamortized debt issuance costs

2 unchanged sentences

Long-term portion

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

Future minimum principal payments on our long-term debt, as of March 31, 2024, were as follows (in thousands):

Future Minimum

Principal Payments

Remaining 2024

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.

3 unchanged sentences

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.

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

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

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, as amended) 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.

1 unchanged sentence

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 is collateralized by substantially all our assets.

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.

1 unchanged sentence

Covenant Requirement

Consolidated Total Leverage Ratio (1)

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 of any fiscal quarter end.

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

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

As of September 30, 2023, we had outstanding borrowings of $ 287.1 million and issued letter of credit guarantees of $ 3.8 million under the Fourth Amended Credit Agreement, with additional available borrowings of approximately $ 558 million, based on the maximum net leverage ratio and the aggregate revolving credit commitment pursuant to the Fourth Amended Credit Agreement.

Our interest rate as of September 30, 2023 was a fixed rate of 2.89 % with respect to $ 75 million of the principal amount, as a result of an interest rate swap (see Note 9), and a variable floating rate of 6.67 % with respect to $ 212.1 million of the principal amount.

(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, as amended 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.

We believe we were in compliance with all covenants set forth in the Fourth Amended Credit Agreement as of March 31, 2024.

As of March 31, 2024, we had outstanding borrowings of $ 75.0 million and issued letter of credit guarantees of $ 2.7 million under the Fourth Amended Credit Agreement, with additional available borrowings of approximately $ 657 million, based on the maximum net leverage ratio and the aggregate revolving credit commitment pursuant to the Fourth Amended Credit Agreement.

Our interest rate as of March 31, 2024 was a fixed rate of 3.39 % with respect to the principal amount, as a result of an interest rate swap (see Note 9).

Our interest rate as of December 31, 2023 was a fixed rate of 3.39 % on $ 75 million as a result of an interest rate swap and a variable floating rate of 7.21 % on $ 24.1 million.

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

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

Future Minimum

Principal Payments

Remaining 2023

Total future minimum principal payments

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 indenture governing the Convertible Notes (the “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 Transactions, as described below.

The initial conversion rate of the notes will be 11.5171 shares of our common stock (the “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) in cash at a fundamental change repurchase price of 100 % of their principal amount plus accrued and unpaid interest up 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 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;

(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 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 March 31, 2024, 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 Common Stock, or a combination of cash and shares of 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 Transactions

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 Common Stock initially underlying the Convertible Notes and are generally expected to reduce potential dilution to the 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 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 Common 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 the risks attributable to those fluctuations by entering into derivative contracts.

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In order to mitigate a portion of the risk attributable to such variability, 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 varies in accordance with changes in the benchmark interest rate.

Derivative Instruments Designated as Cash Flow Hedges

Derivatives Designated as Cash Flow Hedges

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

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

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

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

On March 31, 2024 and December 31, 2023, our interest rate swap qualified as a cash flow hedge.

The fair value of our interest rate swap as of March 31, 2024 was an asset of $ 1.1 million, which was partially offset by $ 0.3 million in deferred taxes.

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

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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.

Derivative Instruments Designated as Cash Flow Hedges

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 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.

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

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

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

Derivative Instruments Not Designated as Cash Flow Hedges

As of March 31, 2024 and December 31, 2023, we had entered into foreign currency forward contracts, which qualified as cash flow hedges, with aggregate notional amounts of $ 139.2 million and $ 141.1 million, respectively.

Derivatives Not Designated as Cash Flow Hedges

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

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

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

As of March 31, 2024 and December 31, 2023, we had entered into foreign currency forward contracts related to those balance sheet accounts with aggregate notional amounts of $ 92.7 million and $ 108.4 million, respectively.

Balance Sheet Presentation of Derivative Instruments.

As of September 30, 2023 and December 31, 2022, all derivative instruments, both those designated as hedging instruments and those that were not designated as hedging instruments, were recorded at fair value on a gross basis on our consolidated balance sheets.

As of March 31, 2024 and December 31, 2023, all derivative instruments, both those designated as hedging instruments and those that were not designated as hedging instruments, were recorded at fair value on a gross basis on our consolidated balance sheets.

We are not subject to any master netting agreements.

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Balance Sheet Location

September 30, 2023

March 31, 2024

December 31, 2023

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Prepaid expenses and other assets

Interest rate swaps

Other assets (long-term)

Foreign currency forward contracts

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Balance Sheet Location

September 30, 2023

March 31, 2024

December 31, 2023

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Reclassified from AOCI

Three Months Ended September 30,

Derivative instrument

Location in statements of income

Interest rate swaps

Interest expense

Foreign currency forward contracts

Cost of sales

Amount of Gain/(Loss)

Consolidated Statements

Amount of Gain/(Loss)

Recognized in OCI

Reclassified from AOCI

Nine Months Ended September 30,

Three Months Ended March 31,

Derivative instrument

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Cost of sales

As of September 30, 2023, $ 4.0 million, or $ 3.0 million after taxes, was expected to be reclassified from AOCI to earnings in revenue and cost of sales over the succeeding twelve months.

As of September 30, 2023, $ 2.3 million, or $ 1.8 million after taxes, was expected to be reclassified from AOCI to earnings in interest expense over the succeeding twelve months.

As of March 31, 2024, $ 3.4 million, or $ 2.6 million after taxes, was expected to be reclassified from AOCI to earnings in revenue and cost of sales over the succeeding twelve months.

As of March 31, 2024, $ 1.1 million, or $ 0.9 million after taxes, was expected to be reclassified from AOCI to earnings in interest expense over the succeeding twelve months.

Derivative Instruments Not Designated as Hedging Instruments

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

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Derivative Instrument

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Commitments and Contingencies.

In the ordinary course of business, we are involved in various proceedings, legal actions and claims.

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

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

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

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 the matter described below.

These matters generally involve inherent uncertainties and often require prolonged periods of time to resolve.

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

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

The estimates are based on consultation with legal counsel, previous settlement experience, settlement strategies and the potential availability of insurance coverage.

The estimates are based on consultation with legal counsel, previous settlement experience and settlement strategies.

If actual outcomes are less favorable than those estimated by management, additional expense may be incurred, which could unfavorably affect our financial position, results of operations and cash flows.

The ultimate cost to us with respect to such proceedings, actions and claims could be materially different than the amount of the current estimates and accruals and could have a material adverse effect on our financial position, results of operations and cash flows.

We have received requests from the Division of Enforcement of the U.S.

Securities and Exchange Commission (“SEC”) seeking the voluntary production of information relating to the business activities of Merit’s subsidiary in China, including interactions with hospitals and health care officials in China.

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

It is possible that the ultimate resolution of the foregoing matter, or similar matters, if resolved in a manner unfavorable to us, may be materially adverse to our business, financial condition, results of operations or liquidity.

The ultimate cost to us with respect to actions and claims could be materially different than the amount of the current estimates and accruals and could have a material adverse effect on our financial position, results of operations and cash flows.

Unless included in our legal accrual, we are unable to estimate a reasonably possible loss or range of loss associated with any individual material legal proceeding.

Legal costs for these matters, such as outside counsel fees and expenses, are charged to expense in the period incurred.

We have received requests from the Division of Enforcement of the U.S.

We are cooperating with the requests and investigating the matter.

Currently, we are unable to predict the scope, timing, significance or outcome of the SEC Inquiry or estimate a reasonably possible loss or range of loss associated with the matter.

It is possible that the ultimate resolution of the SEC Inquiry, if resolved in a manner unfavorable to us, may be materially adverse to our business, financial position, results of operations or liquidity.

In management's opinion, based on its examination of these matters, its experience to date and discussion with counsel, other than the SEC Inquiry, we are not currently involved in any legal proceedings which, individually or in the aggregate, could have a material adverse effect on our financial position, results of operations or cash flows.

Our management regularly assesses the risks of legal proceedings in which we are involved, and management’s view of these matters may change in the future.

Earnings Per Common Share (EPS).

The computation of weighted average shares outstanding and the basic and diluted earnings per common share for the three and nine-month periods ended September 30, 2023 and 2022 consisted of the following (in thousands, except per share amounts):

The computation of weighted average shares outstanding and the basic and diluted earnings per common share for the three-month periods ended March 31, 2024 and 2023 consisted of the following (in thousands, except per share amounts):

Three Months Ended

Nine Months Ended

September 30,

Average common shares outstanding

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(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 Common Stock or a combination of cash and shares of 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 price of the Common Stock for the period ended March 31, 2024 was used as the basis for determining the dilutive effect on EPS.

The average closing price for the Common Stock on March 31, 2024 did not exceed the conversion price of $ 86.83 , and therefore all associated shares were deemed anti-dilutive.

Stock-Based Compensation Expense.

Stock-based compensation expense before income tax expense for the three and nine-month periods ended September 30, 2023 and 2022 consisted of the following (in thousands):

Stock-based compensation expense before income tax expense for the three-month periods ended March 31, 2024 and 2023 consisted of the following (in thousands):

Three Months Ended

Nine Months Ended

September 30,

Cost of sales

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Restricted stock units

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

Cash-settled performance-based awards

Total selling, general and administrative

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Nonqualified Stock Options

During the nine-month periods ended September 30, 2023 and 2022, we granted stock options representing 401,535 and 203,606 shares of our common stock, respectively.

During the three-month period ended March 31, 2023, we granted stock options representing 293,294 shares of our Common Stock.

We did not grant any stock options during the three-month period ended March 31, 2024.

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

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

Nine Months Ended

September 30,

Three Months Ended

Risk-free interest rate

3.7 % - 4.5 %

1.4 % - 3.4 %

Expected option term

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Expected price volatility

44.6 % - 47.1 %

46.2 % - 47.4 %

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

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

As of September 30, 2023, the total remaining unrecognized compensation cost related to non-vested stock options was $ 22.5 million, which was expected to be recognized over a weighted average period of 2.3 years.

As of March 31, 2024, the total remaining unrecognized compensation cost related to non-vested stock options was $ 17.6 million, which was expected to be recognized over a weighted average period of 2.3 years.

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

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

During the three-month periods ended March 31, 2024 and 2023, we granted performance stock units which represent up to 364,810 and 301,230 shares of Common Stock, respectively.

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

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

Nine Months Ended

September 30,

Three Months Ended

Risk-free interest rate

3.9 % - 4.6 %

1.6 % - 2.7 %

Performance period

2.6 - 2.8 years

Expected dividend yield

Expected price volatility

31.4 % - 32.6 %

38.5 % - 46.2 %

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

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

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 metrics.

Compensation expense is recognized using the grant-date fair value for the number of shares that are likely to be awarded based on the performance metrics.

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

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

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

Liability Awards

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

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

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

As of March 31, 2024, the total remaining unrecognized compensation cost related to stock-settled performance stock units was $ 21.5 million, which is expected to be recognized over a weighted average period of 2.3 years.

Cash-Settled Performance-Based Awards

During the three-month periods ended March 31, 2024 and 2023, we granted performance stock units to our Chief Executive Officer that provide for settlement in cash upon achievement of specific metrics (“Liability Awards”), with total target cash incentives in the amount of $ 1.6 million and $ 1.3 million, respectively.

The Liability Awards entitle him to a target cash payment based upon our level of rTSR performance and achievement of other performance metrics, as defined in the award agreements.

During the three-month periods ended March 31, 2024 and 2023, we granted additional performance stock units to certain employees that provide for settlement in cash upon our achievement of specified financial metrics.

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

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

Compensation expense is recognized for the cash payment likely to be 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 and $ 4.3 million for Liability Awards granted during the three-month periods ended March 31, 2024 and 2023, respectively.

The settlement generally occurs at the end of three-year performance periods based upon the same performance metrics and vesting period as our performance stock units.

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

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

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

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

As of March 31, 2024, the total remaining unrecognized compensation cost related to Liability Awards was $ 5.1 million, which is expected to be recognized over a weighted average period of 2.2 years.

Restricted Stock Units

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

During the three-month period ended March 31, 2024 we granted restricted stock units to certain employees representing 134,553 shares of Common Stock.

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

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

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

Restricted stock units granted to each employee are subject to such employee’s continued employment through the vesting date, which is four years from the date of grant.

As of March 31, 2024, the total remaining unrecognized compensation cost related to restricted stock units was $ 9.3 million, which will be recognized over a weighted average period of 3.8 years.

Segment Reporting.

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Our chief operating decision maker is our Chief Executive Officer.

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

Financial information relating to our reportable operating segments and reconciliations to the consolidated totals for the three and nine-month periods ended September 30, 2023 and 2022, were as follows (in thousands):

Financial information relating to our reportable operating segments and reconciliations to the consolidated totals for the three-month periods ended March 31, 2024 and 2023, were as follows (in thousands):

Three Months Ended

Nine Months Ended

September 30,

Cardiovascular

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

Our financial assets and (liabilities) carried at fair value and measured on a recurring basis as of September 30, 2023 and December 31, 2022 consisted of the following (in thousands):

Our financial assets and (liabilities) carried at fair value and measured on a recurring basis as of March 31, 2024 and December 31, 2023 consisted of the following (in thousands):

Fair Value Measurements Using

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unobservable inputs

September 30, 2023

March 31, 2024

Marketable securities (1)

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

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

(4) The fair value of the foreign currency contract liabilities (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 accrued expenses or other long-term obligations in the consolidated balance sheets.

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

(4) The fair value of the foreign currency contract liabilities (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 accrued expense or other long-term obligation in the consolidated balance sheets.

Certain of our past 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.

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

Changes in the fair value of our contingent consideration liabilities during the three and nine-month periods ended September 30, 2023 and 2022 consisted of the following (in thousands):

Changes in the fair value of our contingent consideration liabilities during the three-month periods ended March 31, 2024 and 2023 consisted of the following (in thousands):

Three Months Ended

Nine Months Ended

September 30,

Beginning balance

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Contingent payments made

Effect of foreign exchange

Ending balance

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

As of March 31, 2024, $ 2.8 million in contingent consideration liability was included in other long-term obligations and $ 0.4 million in contingent consideration liability was included in accrued expenses in our consolidated balance sheet.

As of December 31, 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.

Payments related to the settlement of the contingent consideration liability recognized at fair value as of the applicable acquisition date of $ 3.5 million and $ 32.9 million for the nine-month periods ended September 30, 2023 and 2022, respectively, have been reflected as a cash outflow from financing activities in the accompanying consolidated statements of cash flows.

Payments related to increases in the contingent consideration liability subsequent to the date of acquisition of $ 12.7 million and $ 1.8 million for the nine-month period ended September 30, 2023 and 2022, respectively, are reflected as operating cash flows.

The recurring Level 3 measurement of our contingent consideration liabilities included the following significant unobservable inputs at September 30, 2023 and December 31, 2022 (amounts in thousands):

Payments related to the settlement of the contingent consideration liability recognized at fair value as of the applicable acquisition date of $ 78,000 and $ 2.6 million for the three-month periods ended March 31, 2024 and 2023, respectively, have been reflected as a cash outflow from financing activities in the accompanying consolidated statements of cash flows.

Payments related to increases in the contingent consideration liability subsequent to the date of acquisition of $ 27,000 and $ 26,000 for the three-month period ended March 31, 2024 and 2023, respectively, are reflected as operating cash flows.

The recurring Level 3 measurement of our contingent consideration liabilities included the following significant unobservable inputs at March 31, 2024 and December 31, 2023 (amounts in thousands):

Fair value at

September 30,

Contingent consideration liability

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

Contingent Payments to Related Parties

As a former shareholder of Cianna Medical Inc.

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

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

Fair Value of Other Assets (Liabilities)

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 use Level 1 inputs.

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 company in which we have invested.

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.

Impairment Charges

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, intangible assets and goodwill in connection with impairment evaluations.

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

Equity Investments.

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

Intangible Assets.

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

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

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

During the three-month periods ending March 31, 2024 and 2023, respectively, we recorded no impairment charges.

Our equity investments in privately held companies were $ 19.4 million and $ 19.1 million at March 31, 2024 and December 31, 2023, respectively, which are included within other long-term assets in our consolidated balance sheets.

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.

Current Expected Credit Losses

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

As of September 30, 2023 and December 31, 2022, we had an allowance for current expected credit losses of $ 328,000 and $ 281,000 , respectively, associated with these notes receivable.

Our outstanding long-term notes receivable, including accrued interest and an allowance for current expected credit losses, were $ 8.5 million and $ 3.2 million as of March 31, 2024 and December 31, 2023, respectively.

Long-term notes receivable issued were $ 6.2 million for the three-month period ended March 31, 2024 and were related to loans issued to Selio Medical Limited (“Selio”) of $ 1.7 million, Solo Pace Inc.

(“Solo Pace”) of $ 1.5 million and Fluidx of $ 3.0 million.

As of March 31, 2024 and December 31, 2023, we had an allowance for current expected credit losses of $ 1.4 million and $ 0.6 million, respectively, associated with these notes receivable.

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

The table below presents a rollforward of the allowance for current expected credit losses on our notes receivable for the three and nine-month periods ended September 30, 2023 and 2022 (in thousands):

The table below presents a roll-forward of the allowance for current expected credit losses on our notes receivable for the three-month periods ended March 31, 2024 and 2023 (in thousands):

Three Months Ended

Nine Months Ended

September 30,

Beginning balance

2 unchanged sentences

Accumulated Other Comprehensive Income (Loss).

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

Cash Flow Hedges

Foreign Currency Translation

Balance as of July 1, 2023

Other comprehensive income (loss)

Reclassifications to:

Cost of sales

Interest expense

Net other comprehensive loss

Balance as of September 30, 2023

Cash Flow Hedges

Foreign Currency Translation

Balance as of July 1, 2022

Other comprehensive income (loss)

Reclassifications to:

Cost of sales

Interest expense

Net other comprehensive income (loss)

Balance as of September 30, 2022

The changes in each component of accumulated other comprehensive income (loss) for the three-month periods ended March 31, 2024 and 2023 were as follows:

Cash Flow Hedges

6 unchanged sentences

Net other comprehensive income (loss)

Balance as of September 30, 2023

Balance as of March 31, 2024

Cash Flow Hedges

5 unchanged sentences

Interest expense

Other expense - net

Net other comprehensive income (loss)

Balance as of September 30, 2022

Balance as of March 31, 2023

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

What changed 10-Q

Item 1. Financial Statements