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Item 2. Management’s Discussion and Analysis

2024-08-01 compared with 2024-04-30 · 119 added, 71 removed, 79 unchanged (71% of the section changed)

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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.

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.

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

For the three-month period ended June 30, 2024, we reported sales of $338.0 million, an increase of $17.9 million or 5.6% compared to sales for the three-month period ended June 30, 2023 of $320.1 million.

For the six-month period ended June 30, 2024, we reported sales of $661.5 million, an increase of $43.9 million or 7.1% compared to sales for the six-month period ended June 30, 2023 of $617.6 million.

Foreign currency fluctuations (net of hedging) decreased our net sales by ($3.0) million and ($4.7) million, respectively, for the three and six-month periods ended June 30, 2024, assuming applicable foreign exchange rates in effect during the comparable prior-year periods.

Gross profit as a percentage of sales was 47.7% for the three-month periods ending June 30, 2023 and 2024.

Gross profit as a percentage of sales increased to 47.3% for the six-month period ended June 30, 2024 compared to 47.1% for the six-month period ended June 30, 2023.

Net income for the three-month period ended June 30, 2024 was $35.7 million, or $0.61 per share, compared to net income of $20.2 million, or $0.35 per share, for the three-month period ended June 30, 2023.

Net income for the six-month period ended June 30, 2024 was $64.0 million, or $1.09 per share, compared to net income of $40.9 million, or $0.70 per share, for the six-month period ended June 30, 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 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.

● Our revenue results during the three-month period ended June 30, 2024 were driven primarily by demand in the U.S.

and favorable international sales trends, particularly in our Europe, Middle East and Africa (“EMEA”) and Rest of World (“ROW”) regions.

● 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 Merit for long-term, sustainable growth and enhanced profitability.

● As of June 30, 2024, we had cash, cash equivalents, and restricted cash of $638.7 million and net available borrowing capacity of approximately $680 million.

RESULTS OF OPERATIONS

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Three Months Ended

Six Months Ended

Selling, general and administrative expenses

Research and development expenses

Contingent consideration (benefit) expense

Impairment charges

Contingent consideration expense

Acquired in-process research and development expense

Income from operations

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Income before income taxes

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):

Sales for the three-month period ended June 30, 2024 increased by 5.6%, or $17.9 million, compared to the corresponding period in 2023.

Sales for the six-month period ended June 30, 2024 increased by 7.1%, or $43.9 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 and six-month periods ended June 30, 2024 and 2023 (in thousands, other than percentage changes):

Three Months Ended

Six Months Ended

Cardiovascular

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Cardiovascular Sales.

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:

Our cardiovascular sales for the three-month period ended June 30, 2024 were $327.8 million, up 5.3% when compared to the corresponding period of 2023 of $311.3 million.

Sales for the three-month period ended June 30, 2024 were favorably affected by increased sales of:

(a) Peripheral intervention products, which increased by $13.3 million, or 10.6%, from the corresponding period of 2023.

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

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

(b) Cardiac intervention products, which increased by $0.1 million, or 0.1%, from the corresponding period of 2023.

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

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

(c) Custom procedural solutions products, which increased by $1.0 million, or 2.1%, 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.

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.

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

(d) OEM products, which increased by $2.1 million, or 4.9%, from the corresponding period of 2023.

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

Our cardiovascular sales for the six-month period ended June 30, 2024 were $641.2 million, up 7.0% when compared to the corresponding period of 2023 of $599.3 million.

Sales for the six-month period ended June 30, 2024 were favorably affected by increased sales of:

Peripheral intervention products, which increased by $34.2 million, or 14.3%, from the corresponding period of 2023.

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

Cardiac intervention products, which increased by $5.4 million, or 3.0%, from the corresponding period of 2023.

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

Custom procedural solutions products, which increased by $2.1 million, or 2.2%, from the corresponding period of 2023.

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 $0.2 million, or 0.2%, from the corresponding period of 2023.

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

Endoscopy Sales .

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 .

Our endoscopy sales for the three-month period ended June 30, 2024 were $10.2 million, up 16.0% when compared to sales in the corresponding period of 2023 of $8.8 million.

Sales for the three-month period ended June 30, 2024 compared to the corresponding period in 2023 were favorably affected by increased sales of our EndoMAXX fully covered esophageal stent, other stents, Elation Pulmonary Balloon Dilators , and ReSolve Thoracostomy Trays .

Our endoscopy sales for the six-month period ended June 30, 2024 were $20.3 million, up 10.6%, when compared to sales in the corresponding period of 2023 of $18.4 million.

Sales for the six-month period ended June 30, 2024 compared to the corresponding period in 2023 were favorably affected by increased sales of our other stents, ReSolve Thoracostomy Trays, and Elation Pulmonary Balloon Dilators , offset partially by decreased sales of our AERO Tracheobronchial Stent and probes.

Geographic Sales

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

Listed below are sales by geography for the three and six-month periods ended June 30, 2024 and 2023 (in thousands, other than percentage changes):

Three Months Ended

Six Months Ended

United States

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United States Sales.

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 oncology businesses.

sales for the three-month period ended June 30, 2024 were $194.7 million, or 57.6% of net sales, up 8.4% when compared to the corresponding period of 2023.

The increase in our domestic sales for the three-month period ended June 30, 2024, compared to the corresponding period of 2023 was driven primarily by our U.S.

Direct and Endoscopy businesses.

sales for the six-month period ended June 30, 2024 were $380.8 million, or 57.6% of net sales, up 8.5% when compared to the corresponding period of 2023.

The increase in our domestic sales for the six-month period ended June 30, 2024, compared to the corresponding period of 2023 was driven primarily by our U.S.

Direct, Oncology and Endoscopy businesses.

International 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 .

International sales for the three-month period ended June 30, 2024 were $143.3 million, or 42.4% of net sales, up 2.0% when compared to the corresponding period of 2023 of $140.5 million.

The increase in our international sales for the three-month period ended June 30, 2024, compared to the corresponding period of 2023 included increased sales in our EMEA operations of $2.7 million or 4.5% and in our ROW operations of $2.1 million or 17.1%, offset partially by decreased sales in our Asia Pacific (“APAC”) operations of ($1.9) million or (2.8%).

International sales for the six-month period ended June 30, 2024 were $280.8 million, or 42.4% of net sales, up 5.3% when compared to the corresponding period of 2023 of $266.7 million.

The increase in our international sales for the six-month period ended June 30, 2024, compared to the six-month period ended June 30, 2023, included increased sales in our EMEA operations of $5.7 million or 4.8%, in our ROW operations of $5.0 million or 22.0%, and in our APAC operations of $3.4 million or 2.7%.

Our gross profit as a percentage of sales was 47.7% for both the three-month periods ended June 30, 2024 and 2023.

The consistency in gross profit percentage was primarily due to increased sales combined with favorable changes in standard cost and product mix and lower obsolescence expense, offset by higher intangible amortization expense as a percentage of sales associated with acquisitions.

Our gross profit as a percentage of sales increased to 47.3% for the six-month period ended June 30, 2024, compared to 47.1% for the six-month period ended June 30, 2023.

The increase in gross profit percentage was primarily due to an increase in sales combined with favorable changes in standard cost and product mix, partially offset by unfavorable manufacturing variances and higher intangible amortization expense as a percentage of sales associated with acquisitions.

Operating Expenses

Selling, General and Administrative Expense.

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.

Selling, general and administrative ("SG&A") expenses decreased ($6.3) million, or (6.3)%, for the three-month period ended June 30, 2024 compared to the corresponding period of 2023.

As a percentage of sales, SG&A expenses were 28.0% for the three-month period ended June 30, 2024, compared to 31.5% for the corresponding period of 2023.

For the three-month period ended June 30, 2024, SG&A expenses decreased compared to the corresponding period of 2023, primarily due to a decrease in loss on abandonment of property and equipment expense associated with the 2023 write-off of equipment related to our Spine business, a d ecrease in consulting costs in connection with the Foundations for Growth Program which was completed in 2023, a decrease in acquisition-related expenses associated with due diligence projects, and a decrease in costs associated with idle facilities during line transfers, offset partially by increased labor costs in our sales and marketing operations due to increased headcount to support growth and increased advertising and promotional expenses.

SG&A expenses decreased ($2.1) million, or (1.1)%, for the six-month period ended June 30, 2024 compared to the corresponding period of 2023.

As a percentage of sales, SG&A expenses were 28.6% for the six-month period ended June 30, 2024, compared to 30.9% for the corresponding period of 2023.

For the six-month period ended June 30, 2024, SG&A expenses decreased compared to the corresponding period of 2023 primarily due to a decrease in loss on abandonment of property and equipment expense associated with the 2023 write-off of equipment related to our Spine business, a decrease in consulting costs in connection with the Foundations for Growth Program which was completed in 2023, and a decrease in acquisition-related expenses associated with due diligence projects, offset partially by an increase in labor-related costs in our sales and marketing operations due to increased headcount to support growth, an increase of variable compensation linked to company performance , an increase of stock-based compensation expense associated with new equity grants, and an increased investment in advertising and promotional expenses.

Research and Development Expenses.

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.

Research and development (”R&D”) expenses for the three-month period ended June 30, 2024 were $20.3 million, up 0.7%, when compared to R&D expenses in the corresponding period of 2023 of $20.1 million.

For the three-month period ended June 30, 2024, R&D expenses increased compared to the corresponding period of 2023 primarily due to increased facility and support costs and increased materials for projects, offset partially by decreased regulatory costs related to implementation of the Medical Device Regulation in the E.U.

and decreased costs related to clinical studies.

R&D expenses for the six-month period ended June 30, 2024 were $41.7 million, up 0.7%, when compared to R&D expenses in the corresponding period of 2023 of $41.4 million.

For the six-month period ended June 30, 2024, R&D expenses increased compared to the corresponding period of 2023 primarily due to increased labor costs due to increased headcount, increased materials for projects, and increased costs related to clinical studies, offset partially by lower regulatory costs related to implementation of the Medical Device Regulation in the E.U .

Impairment Charges .

For the three and six-month periods ended June 30, 2024, we recognized no impairment charges.

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

Contingent Consideration Expense .

For the three and six-month periods ended June 30, 2024, 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 $0.3 million and $0.2 million compared to contingent consideration expense of $1.1 million and $1.6 million for the three and six-month periods ended June 30, 2023, respectively.

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

Acquired In-process Research and Development.

For the three and six-month periods ended June 30, 2024, we recognized no acquired in-process research and development costs.

For the three and six-month periods ended June 30, 2023 we recognized $1.6 million in acquired in-process research and development costs primarily associated with the assets we acquired from Advanced Radiation Therapy, LLC (“ART”) on May 1, 2023.

Operating Income

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):

The following table sets forth our operating income by financial reporting segment for the three and six-month periods ended June 30, 2024 and 2023 (in thousands):

Three Months Ended

Six Months Ended

Operating Income

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Cardiovascular Operating Income.

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 .

Our cardiovascular operating income for the three-month period ended June 30, 2024 was $42.9 million, compared to cardiovascular operating income in the corresponding period of 2023 of $26.5 million.

The increase in cardiovascular operating income during the three-month period ended June 30, 2024 compared to the corresponding period of 2023 was primarily a result of higher sales ($327.8 million compared to $311,3 million), lower SG&A expenses, lower acquired in-process research and development charges, lower impairment charges, and lower contingent consideration expense, partially offset by higher R&D expenses .

Our cardiovascular operating income for the six-month period ended June 30, 2024 was $75.8 million, compared to cardiovascular operating income in the corresponding period of 2023 of $50.4 million.

The increase in cardiovascular operating income during the six-month period ended June 30, 2024 compared to the corresponding period of 2023 was primarily a result of higher sales ($641.2 million compared to $599.3 million), higher gross margin, lower SG&A, lower acquired in-process research and development charges, lower impairment charges, and lower contingent consideration expense, partially offset by higher R&D expenses .

Endoscopy Operating Income .

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.

Our endoscopy operating income for the three-month period ended June 30, 2024 was $3.0 million, compared to endoscopy operating income of $2.3 million for the corresponding period of 2023.

Our endoscopy operating income for the six-month period ended June 30, 2024 was $6.0 million, compared to endoscopy operating income of $4.8 million for the corresponding period of 2023.

The increase in endoscopy operating income for the three and six-month periods ended June 30, 2024 compared to the corresponding periods of 2023 was primarily a result of increased sales and lower SG&A expenses as a percentage of sales.

Other Expense – Net

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.

Our other expense for the three-month periods ended June 30, 2024 and 2023 was $0.1 million and $3.9 million, respectively.

Our other expense for the six-month periods ended June 30, 2024 and 2023 was $1.7 million and $4.8 million, respectively.

The changes in other expense for the three and six-month periods ended June 30, 2024 compared to the corresponding periods of 2023 were primarily related to increased interest expense associated with the Convertible Note offering completed in December 2023, partially offset by an increase in interest income associated with higher cash and cash equivalents balances.

Effective Tax Rate

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.

Our provision for income taxes for the three-month periods ended June 30, 2024 and 2023 was a tax expense of $10.1 million and $4.7 million, respectively, which resulted in an effective tax rate of 22.1% and 18.7%, respectively.

Our provision for income taxes for the six-month periods ended June 30, 2024 and 2023 was a tax expense of $16.2 million and $9.5 million, respectively, which resulted in an effective tax rate of 20.2% and 18.8%, respectively.

The increase in the effective income tax rate for the three and six-month periods ended June 30, 2024, when compared to the prior-year periods, was primarily due to decreased benefit from discrete items such as share-based compensation and deferred compensation and decreased foreign tax credit utilization.

The increase in the income tax expense for the three and six-month periods ended June 30, 2024, when compared to the prior-year period, was primarily due to increased pre-tax book income.

Our net income for the three-month periods ended June 30, 2024 and 2023 was $35.7 million and $20.2 million, respectively.

The increase in our net income for the three-month period ended June 30, 2024 was primarily the result of higher sales, lower SG&A expenses, lower impairment charges, lower acquired in-process research and development charges , and lower contingent consideration expense, partially offset by higher R&D expenses and higher income tax expense.

Our net income for the six-month periods ended June 30, 2024 and 2023 was $64.0 million and $40.9 million, respectively.

The increase in our net income for the six-month period ended June 30, 2024 was the result of several principal factors, including higher sales and gross margin, lower SG&A expenses, lower impairment charges, lower acquired in-process research and development charges , and lower contingent consideration expense, partially offset by higher R&D expenses and higher income tax expense.

LIQUIDITY AND CAPITAL RESOURCES

Capital Commitments, Contractual Obligations and Cash Flows

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.

As of June 30, 2024 and December 31, 2023, our current assets exceeded current liabilities by $976.3 million and $904.9 million, respectively, and we had cash, cash equivalents and restricted cash of $638.7 million and $589.1 million, respectively, of which $54.0 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 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.

As of June 30, 2024, and December 31, 2023, we had cash, cash equivalents and restricted cash of $22.0 million and $17.6 million, respectively, within our subsidiary in China.

Cash flows provided by operating activities .

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.

We generated cash from operating activities of $104.7 million and $31.8 million during the six-month periods ended June 30, 2024 and 2023, respectively.

Significant factors affecting operating cash flows during these periods included:

● 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.

● Net income was $64.0 million and $40.9 million for the six-month periods ended June 30, 2024 and 2023, respectively.

● Cash provided by (used for) inventories was approximately $3.1 million and ($35.5) million for the six-month periods ended June 30, 2024 and 2023, respectively.

The 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 accrued expenses was ($2.8) million and ($10.3) million for the six-month periods ended June 30, 2024 and 2023, respectively, due primarily to the timing and payment of compensation-related accruals, partially offset by an increase in accrued interest associated with the convertible debt.

● Cash paid for income taxes was $(22.6) million and $(17.8) million for the six-month periods ended June 30, 2024 and 2023, respectively, due primarily due to an increase in the income tax expense related to increased pre-tax book income .

Cash flows used in investing activities.

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.

We used cash in investing activities of $38.5 million and $157.8 million for the six-month periods ended June 30, 2024 and 2023, respectively.

We used cash for capital expenditures of property and equipment of $22.3 million and $18.6 million in the six-month periods ended June 30, 2024 and 2023, respectively.

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

Historically, we have incurred significant expenses in connection with facility construction, production automation, product development and the introduction of new products.

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

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 outflows for the issuance of notes receivable were $6.2 million for the six-month period ended June 30, 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 six-month period ended June 30, 2024 were $8.5 million and were related to assets acquired from SSI ($3.0 million), our investments in Fluidx ($0.3 million) and CrannMed ($3.2 million), and payment of the first deferred payment from our asset purchase agreement with Restore Endosystems, LLC ($2.0 million).

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

Cash flows used in financing activities.

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.

Cash (used in) provided by financing activities for the six-month periods ended June 30, 2024 and 2023 was ($14.9) million and $141.0 million, respectively.

For the six-month period ended June 30, 2024, we decreased our net borrowings under our Amended Fourth A&R Credit Agreement by ($24.1) million.

During the six-month period ended June 30, 2023 we increased our net borrowings by approximately $141.8 million to finance the acquisitions of AngioDynamics and Bluegrass.

We had cash proceeds from the issuance of common stock of $10.9 million and $9.5 million for the six-month periods ended June 30, 2024 and 2023, respectively, related to the exercise of non-qualified stock options.

We completed payment of contingent consideration of ($0.1) million and ($3.4) million for the six-month periods ended June 30, 2024 and 2023, respectively, principally related to sales milestone payments connected to our acquisition of Brightwater Medical, Inc.

As of June 30, 2024, we had outstanding borrowings of $822.5 million and had issued letter of credit guarantees of $2.4 million, with additional available borrowings of approximately $680 million under the Amended Fourth A&R Credit Agreement, based on the maximum net leverage ratio and the aggregate revolving credit commitment pursuant to the Amended Fourth A&R Credit Agreement.

Our interest rate as of June 30, 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 Amended Fourth A&R 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.

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

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.

In the six-month period ended June 30, 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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All subsequent forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements.

Our actual results will likely differ, and may differ materially, from anticipated results.

Financial estimates are subject to change and are not intended to be relied upon as predictions of future operating results.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis