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Item 2. Management’s Discussion and Analysis

2024-04-30 compared with 2023-10-26 · 71 added, 132 removed, 79 unchanged (72% of the section changed)

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These risks and uncertainties are discussed in Part I, Item 1A “Risk Factors” in the 2023 Annual Report on Form 10-K and in Part II, Item 1A “Risk Factors” in this report.

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

For financial reporting purposes, we report our operations in two operating segments:

cardiovascular and endoscopy.

We are a leading manufacturer and marketer of proprietary medical devices used in interventional, diagnostic and therapeutic procedures, particularly in cardiology, radiology, oncology, critical care and endoscopy.

Our cardiovascular segment consists of four product categories:

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

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

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

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

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

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

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

Net income for the nine-month period ended September 30, 2023 was $66.8 million, or $1.14 per share, compared to net income of $41.1 million, or $0.71 per share, for the nine-month period ended September 30, 2022.

For the three-month period ended March 31, 2024, we reported sales of $323.5 million, an increase of $25.9 million or 8.7% compared to sales for the three-month period ended March 31, 2023 of $297.6 million.

Foreign currency fluctuations (net of hedging) decreased our net sales by $1.7 million for the three-month period ended March 31, 2024, assuming applicable foreign exchange rates in effect during the comparable prior-year period.

Gross profit as a percentage of sales increased to 46.9% for the three-month period ended March 31, 2024 compared to 46.5% for the three-month period ended March 31, 2023.

Net income for the three-month period ended March 31, 2024 was $28.2 million, or $0.48 per share, compared to net income of $20.7 million, or $0.36 per share, for the three-month period ended March 31, 2023.

Recent Developments and Trends

In addition to the trends identified in the 2023 Annual Report on Form 10-K under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Overview,” our business in 2024 has been impacted, and we believe will continue to be impacted, by the following recent developments and trends:

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

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

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

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

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

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

● Our revenue results during the three-month period ended March 31, 2024 were driven primarily by demand in the U.S.

and favorable international sales trends, particularly in our Asia Pacific (“APAC”) region.

● On February 28, 2024, we introduced our “Continued Growth Initiatives” Program and related financial targets for the three-year period ending December 31, 2026, which reflects our commitment to better-position the Company for long-term, sustainable growth and enhanced profitability.

● As of March 31, 2024, we had cash, cash equivalents, and restricted cash of $584.0 million and net available borrowing capacity of approximately $657 million.

RESULTS OF OPERATIONS

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Three Months Ended

Nine Months Ended

September 30,

Selling, general and administrative expenses

Research and development expenses

Impairment charges

Contingent consideration expense

Acquired in-process research and development expense

Contingent consideration (benefit) expense

Income from operations

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Income before income taxes

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

Sales for the nine-month period ended September 30, 2023 increased by 8.8%, or $75.3 million, compared to the corresponding period in 2022.

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

Sales for the three-month period ended March 31, 2024 increased by 8.7%, or $25.9 million, compared to the corresponding period in 2023.

Listed below are the sales by product category within each of our financial reporting segments for the three-month periods ended March 31, 2024 and 2023 (in thousands, other than percentage changes):

Three Months Ended

Nine Months Ended

September 30,

Cardiovascular

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Cardiovascular Sales.

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

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

Our cardiovascular sales for the three-month period ended March 31, 2024 were $313.4 million, up 8.8% when compared to the corresponding period of 2023 of $288.0 million.

Sales for the three-month period ended March 31, 2024 were favorably affected by increased sales of:

(a) Peripheral intervention products, which increased by $20.8 million, or 18.3%, from the corresponding period of 2023.

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

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

(b) Cardiac intervention products, which increased by $5.4 million, or 6.3%, from the corresponding period of 2023.

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

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

(c) Custom procedural solutions products, which increased by $1.1 million, or 2.3%, from the corresponding period of 2023.

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

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

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

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

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

Peripheral intervention products, which increased by $40.7 million, or 12.4%, from the corresponding period of 2022.

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

Cardiac intervention products, which increased by $10.3 million, or 4.0%, from the corresponding period of 2022.

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

Custom procedural solutions products, which increased by $4.7 million, or 3.3%, from the corresponding period of 2022.

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

OEM products, which increased by $17.2 million, or 16.2%, from the corresponding period of 2022.

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

The foregoing increase in sales for the three-month period ended March 31, 2024 was partially offset by decreased sales of:

(d) OEM products, which decreased by ($1.9) million, or (4.6)%, from the corresponding period of 2023.

This decrease was driven primarily by decreased sales of our intervention, access, fluid management, and coating products to our OEM customers, offset partially by increased sales of our kits, CRM/EP, and critical care products to those customers.

Endoscopy Sales .

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

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

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

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

Our endoscopy sales for the three-month period ended March 31, 2024 were $10.1 million, up 5.7% when compared to sales in the corresponding period of 2023 of $9.6 million.

Sales for the three-month period ended March 31, 2024 compared to the corresponding period in 2023 were favorably affected by increased sales of our other stents and Elation® Pulmonary Balloon Dilator, offset partially by decreased sales of our probes and EndoMAXX fully covered esophageal stent .

Geographic Sales

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

Listed below are sales by geography for the three-month periods ended March 31, 2024 and 2023 (in thousands, other than percentage changes):

Three Months Ended

Nine Months Ended

September 30,

United States

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United States Sales.

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

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

sales for the three-month period ended March 31, 2024 were $186.1 million, or 57.5% of net sales, up 8.6% when compared to the corresponding period of 2023.

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

Direct and OEM operations.

Direct and oncology businesses.

International Sales .

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

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

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

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

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

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

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

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

International sales for the three-month period ended March 31, 2024 were $137.4 million, or 42.5% of net sales, up 8.9% when compared to the corresponding period of 2023 of $126.2 million.

The increase in our international sales for the three-month period ended March 31, 2024, compared to the three-month period ended March 31, 2023, included increased sales in our Europe, the Middle East and Africa operations of $3.0 million or 5.1%, in our “Rest of World” operations of $2.9 million or 27.6%, and in our APAC operations of $5.3 million or 9.3%.

Our gross profit as a percentage of sales increased to 46.9% for the three-month period ended March 31, 2024, compared to 46.5% for the three-month period ended March 31, 2023.

The increase in gross profit percentage was primarily due to an increase in sales combined with favorable changes in product mix and lower freight costs as a percentage of sales due to focus on increasing ocean freight and lowering air shipments, partially offset by higher intangible amortization expense as a percentage of sales associated with acquisitions and an increase in provisions for estimated excess, slow moving and obsolete inventories .

Operating Expenses

Selling, General and Administrative Expense.

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

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

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

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

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

For the nine-month period ended

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

Selling, general and administrative ("SG&A") expenses increased $4.3 million, or 4.8%, for the three-month period ended March 31, 2024 compared to the corresponding period of 2023.

As a percentage of sales, SG&A expenses were 29.2% for the three-month period ended March 31, 2024, compared to 30.3% for the corresponding period of 2023.

For the three-month period ended March 31, 2024, SG&A expenses increased compared to the corresponding period of 2023 primarily due to increased labor-related costs in our sales and marketing operations and higher variable compensation linked to company performance , offset partially by a decrease in consulting costs in connection with the Foundations for Growth Program which was completed in 2023 and lower severance costs.

Research and Development Expenses.

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

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

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

Impairment Charges .

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

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

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

Contingent Consideration Expense .

For the three and nine-month periods ended September 30, 2023, we recognized contingent consideration expense from changes in the estimated fair value of our contingent consideration obligations stemming from our previously disclosed business acquisitions of $0.6 million and $2.2 million, respectively, compared to contingent consideration expense of $0.9 million and $4.7 million for the three and nine-month periods ended September 30, 2022, respectively.

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

Acquired In-process Research and Development.

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

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

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

Research and development (”R&D”) expenses for the three-month period ended March 31, 2024 were $21.5 million, up 0.8%, when compared to R&D expenses in the corresponding period of 2023 of $21.3 million.

The increase in R&D expenses for the three-month period ended March 31, 2024 compared to the corresponding period in 2023 was largely due to increased costs associated with clinical trials and increased labor-related costs, offset partially by lower regulatory costs related to implementation of the Medical Device Regulation in the E.U.

Contingent Consideration (Benefit) Expense .

For the three-month period ended March 31, 2024, we recognized contingent consideration benefit from changes in the estimated fair value of our contingent consideration obligations stemming from our previously disclosed business acquisitions of $(0.1) million compared to contingent consideration expense of $0.5 million for the three-month period ended March 31, 2023, respectively.

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

Operating Income

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

The following table sets forth our operating income by financial reporting segment for the three-month periods ended March 31, 2024 and 2023 (in thousands):

Three Months Ended

Nine Months Ended

September 30,

Operating Income

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Cardiovascular Operating Income.

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

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

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

The increase in cardiovascular operating income during the nine-month period ended September 30, 2023 compared to the corresponding period of 2022 was primarily a result of higher sales ($905.3 million compared to $832.6 million), higher gross margin, lower impairment charges, lower contingent consideration expense, and lower acquired in-process research and development charges, partially offset by higher SG&A and R&D expenses .

Our cardiovascular operating income for the three-month period ended March 31, 2024 was $32.9 million, compared to cardiovascular operating income in the corresponding period of 2023 of $23.9 million.

The increase in cardiovascular operating income during the three-month period ended March 31, 2024 compared to the corresponding period of 2023 was primarily a result of higher sales ($313.4 million compared to $288.0 million), higher gross margin and lower contingent consideration expense, partially offset by higher SG&A expenses .

Endoscopy Operating Income .

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

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

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

Our endoscopy operating income for the three-month period ended March 31, 2024 was $3.0 million, compared to endoscopy operating income of $2.4 million for the corresponding period of 2023.

The increase in endoscopy operating income for the three-month period ended March 31, 2024 compared to the corresponding periods of 2023 was primarily a result of increased sales and gross margin, offset partially by higher SG&A expenses.

Other Expense – Net

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

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

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

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

Our other expense for the three-month periods ended March 31, 2024 and 2023 was $1.6 million and $0.9 million, respectively.

The change in other expense was primarily related to increased interest expense associated with the new convertible debt offering completed in December 2023 and increased realized and unrealized foreign currency losses, partially offset by an increase in interest income associated with higher cash levels of cash.

Effective Tax Rate

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

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

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

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

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

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

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

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

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 increase in the income tax expense for the three-month period ended March 31, 2024, when compared to the prior year period, was primarily due to increased pre-tax book income.

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.

Our net income for the three-month periods ended March 31, 2024 and 2023 was $28.2 million and $20.7 million, respectively.

The increase in our net income for the three-month period ended March 31, 2024 was the result of several principal factors, including higher sales and higher gross margin as a percentage of sales, partially offset by higher SG&A and higher income tax expense.

LIQUIDITY AND CAPITAL RESOURCES

Capital Commitments, Contractual Obligations and Cash Flows

As of September 30, 2023 and December 31, 2022, our current assets exceeded current liabilities by $398.2 million and $308.4 million, respectively, and we had cash, cash equivalents and restricted cash of $60.7 million and $60.6 million, respectively, of which $54.4 million and $49.6 million, respectively, were held by foreign subsidiaries.

As of March 31, 2024 and December 31, 2023, our current assets exceeded current liabilities by $921.9 million and $904.9 million, respectively, and we had cash, cash equivalents and restricted cash of $584.0 million and $589.1 million, respectively, of which $51.2 million and $48.7 million, respectively, were held by foreign subsidiaries.

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

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

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

As of March 31, 2024, and December 31, 2023, we had cash, cash equivalents and restricted cash of $20.5 million and $17.6 million, respectively, within our subsidiary in China.

Cash flows provided by operating activities .

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

We generated cash from operating activities of $36.2 million and $14.5 million during the three-month periods ended March 31, 2024 and 2023, respectively.

Significant factors affecting operating cash flows during these periods included:

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

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

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

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

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

● Net income was $28.2 million and $20.7 million for the three-month periods ended March 31, 2024 and 2023, respectively.

● Cash used for inventories was approximately ($0.4) million and ($23.0) million for the three-month periods ended March 31, 2024 and 2023, respectively.

T he increase in inventories during 2023 was principally associated with our strategy to proactively invest in our inventory balances to encourage high customer service levels, as well as to build bridge inventory for production line transfers and increases in safety stock due to vendor supply delays.

● Cash used for accounts payable was ($14.1) million and ($3.0) million for the three-month periods ended March 31, 2024 and 2023, respectively, and the increase was primarily due to an increase in operating expenses and timing of vendor payments.

Cash flows used in investing activities.

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

We used cash for capital expenditures of property and equipment of $27.2 million and $32.5 million in the nine-month periods ended September 30, 2023 and 2022, respectively.

We used cash in investing activities of $22.1 million and $14.9 million for the three-month periods ended March 31, 2024 and 2023, respectively.

We used cash for capital expenditures of property and equipment of $11.7 million and $12.8 million in the three-month periods ended March 31, 2024 and 2023, respectively.

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

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We anticipate that we will spend approximately $50 to $60 million in 2024 for property and equipment.

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

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

Cash outflows for the issuance of notes receivable were $6.2 million for the three-month period ended March 31, 2024 and were related to loans issued to Selio of $1.7 million, Solo Pace of $1.5 million and Fluidx of $3.0 million.

Cash outflows invested in acquisitions for the three-month period ended March 31, 2024 were $3.3 million and were related to assets acquired from SSI and our investment in Fluidx.

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

Cash flows used in financing activities.

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

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

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

We also paid contingent consideration of $32.8 million,

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

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

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

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

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

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

Cash used in financing activities for the three-month periods ended March 31, 2024 and 2023 was $18.0 million and $0.5 million, respectively.

For the three-month period ended March 31, 2024, we decreased our net borrowings under our Fourth Amended Credit Agreement by $24.1 million.

We had cash proceeds from the issuance of common stock of $7.7 million and $4.0 million for the three-month periods ended March 31, 2024 and 2023, respectively, related to the exercise of non-qualified stock options.

We completed payment of contingent consideration of $0.1 million and $2.6 million for the three-month periods ended March 31, 2024 and 2023, respectively, principally related to sales milestone payments connected to our acquisition of Brightwater Medical, Inc.

As of March 31, 2024, we had outstanding borrowings of $822.5 million and issued letter of credit guarantees of $2.7 million, with additional available borrowings of approximately $657 million under the Fourth Amended Credit Agreement, 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 3.0% on our Convertible Notes and a fixed rate of 3.39% with respect to the principal amount outstanding under the Fourth Amended Credit Agreement as a result of an interest rate swap.

Our interest rate as of December 31, 2023 was a fixed rate of 3.0% on our Convertible Notes, 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.

We currently believe that our existing cash balances, anticipated future cash flows from operations and borrowings under our long-term debt agreements will be adequate to fund our current and currently planned future operations for the next twelve months and the foreseeable future.

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

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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

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

In the three-month period ended March 31, 2024 there were no changes to the application of critical accounting policies previously disclosed in Part II, Item 7 of the 2023 Annual Report on Form 10-K.

CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS

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What changed 10-Q

Item 2. Management’s Discussion and Analysis