What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-04-24 compared with 2024-10-30 · 130 added, 139 removed, 71 unchanged (79% of the section changed)

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

For the three-month period ended September 30, 2024, we reported sales of $339.8 million, an increase of $24.6 million or 7.8% compared to sales for the three-month period ended September 30, 2023 of $315.2 million.

For the nine-month period ended September 30, 2024, we reported sales of $1,001.4 million, an increase of $68.5 million or 7.3% compared to sales for the nine-month period ended September 30, 2023 of $932.9 million.

Foreign currency fluctuations (net of hedging) decreased our net sales by ($0.3) million and ($5.0) million, respectively, for the three and nine-month periods ended September 30, 2024, assuming applicable foreign exchange rates in effect during the comparable prior-year periods.

Gross profit as a percentage of sales increased to 46.4% for the three-month period ended September 30, 2024 compared to 45.1% for the three-month period ended September 30, 2023.

Gross profit as a percentage of sales increased to 47.0% for the nine-month period ended September 30, 2024 compared to 46.5% for the nine-month period ended September 30, 2023.

Net income for the three-month period ended September 30, 2024 was $28.4 million, or $0.48 per share, compared to net income of $25.8 million, or $0.44 per share, for the three-month period ended September 30, 2023.

Net income for the nine-month period ended September 30, 2024 was $92.4 million, or $1.57 per share, compared to net income of $66.8 million, or $1.14 per share, for the nine-month period ended September 30, 2023.

For the three-month period ended March 31, 2025, we reported sales of $355.4 million, an increase of $31.8 million or 9.8% compared to sales for the three-month period ended March 31, 2024 of $323.5 million.

Foreign currency fluctuations (net of hedging) decreased our net sales by $(3.4) million for the three-month period ended March 31, 2025, assuming applicable foreign exchange rates in effect during the comparable prior-year periods.

Gross profit as a percentage of sales increased to 48.4% for the three-month period ended March 31, 2025 compared to 46.9% for the three-month period ended March 31, 2024.

Net income for the three-month period ended March 31, 2025 was $30.1 million, or $0.49 per share, compared to net income of $28.2 million, or $0.48 per share, for the three-month period ended March 31, 2024.

Recent Developments and Trends

In addition to the trends identified in the 2024 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 2025 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, 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 Asia Pacific (“APAC”) 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.

● On July 1, 2024, we completed the acquisition of certain assets from EndoGastric Solutions, Inc., which included the EsophyX® Z+, a device intended for the treatment of chronic gastroesophageal reflux disease.

● We entered into an asset purchase agreement for the acquisition of the lead management portfolio of medical devices and certain related asset from Cook Medical Holdings LLC;

closing of the acquisition is expected to occur on November 1, 2024.

● As of September 30, 2024, we had cash, cash equivalents, and restricted cash of $525.3 million and net available borrowing capacity under our Fourth A&R Credit Agreement of approximately $697 million.

● Our revenue results during the three-month period ended March 31, 2025 were driven primarily by demand in the U.S.

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

● As of March 31, 2025, we had cash, cash equivalents, and restricted cash of $397.6 million and net available borrowing capacity under our Fourth A&R Credit Agreement of approximately $697 million.

● The United States recently announced changes to its trade policies, including increasing tariffs on imports, in some cases significantly, and potentially negotiating or terminating existing trade agreements.

These actions have prompted retaliatory tariffs and other measures by a number of countries.

In April 2025, actions were taken by the U.S.

and certain other countries to modify the timing, rates and/or other aspects of certain of these tariffs.

However, some of the new tariffs remain in effect, including significant tariffs between the U.S.

and China, a significant market for our products and a source of a portion of our manufacturing inputs.

While the long-term effects remain uncertain, we continue to closely monitor the evolving trade policy environment which presents a mix of impacts, including, among other impacts, the potential for increased production costs and higher pricing to our customers, either of which could negatively affect our business, results of operations and financial condition.

See Part II, Item 1A.

Risk Factors in this report.

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

Income from operations

1 unchanged sentence

Income before income taxes

Sales for the three-month period ended September 30, 2024 increased by 7.8%, or $24.6 million, compared to the corresponding period in 2023.

Sales for the nine-month period ended September 30, 2024 increased by 7.3%, or $68.5 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 nine-month periods ended September 30, 2024 and 2023 (in thousands, other than percentage changes):

Sales for the three-month period ended March 31, 2025 increased by 9.8%, or $31.8 million, compared to the corresponding period in 2024.

Listed below are the sales by product category within each of our financial reporting segments for the three-month periods ended March 31, 2025 and 2024 (in thousands, other than percentage changes):

Three Months Ended

Nine Months Ended

September 30,

Cardiovascular

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Endoscopy Devices

*Commencing January 1, 2025, we reorganized our sales teams and product categories to include the sale of our spine devices under our OEM product categories.

Revenue figures for 2024 have been recast to reflect the realignment of Merit’s portfolio of spine products, representing approximately $5.3 million in revenue, within the OEM product category to provide comparability between the reported periods.

Cardiovascular Sales.

Our cardiovascular sales for the three-month period ended September 30, 2024 were $322.9 million, up 5.5% when compared to the corresponding period of 2023 of $306.1 million.

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

Our cardiovascular sales for the three-month period ended March 31, 2025 were $338.7 million, up 8.1% when compared to the corresponding period of 2024 of $313.4 million.

Sales for the three-month period ended March 31, 2025 were favorably affected by increased sales of:

(a) Peripheral intervention products, which increased by $7.2 million, or 5.5%, from the corresponding period of 2024.

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

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

(b) Cardiac intervention products, which increased by $9.6 million, or 10.6%, from the corresponding period of 2024.

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 intervention and hemostasis products.

(c) Custom procedural solutions products, which increased by $2.1 million, or 4.4%, from the corresponding period of 2023.

This increase was driven primarily by increased sales of our critical care products.

(d) OEM products, which increased by $3.4 million, or 8.5%, from the corresponding period of 2023.

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

Our cardiovascular sales for the nine-month period ended September 30, 2024 were $964.0 million, up 6.5% when compared to the corresponding period of 2023 of $905.3 million.

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

Peripheral intervention products, which increased by $43.7 million, or 11.9%, from the corresponding period of 2023.

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

Cardiac intervention products, which increased by $7.1 million, or 2.7%, from the corresponding period of 2023.

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

Custom procedural solutions products, which increased by $4.3 million, or 2.9%, 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.

OEM products, which increased by $3.6 million, or 2.9%, from the corresponding period of 2023.

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

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

The foregoing increase in sales for the three-month period ended March 31, 2025 was partially offset by decreased sales of:

(d) Custom procedural solutions products, which decreased by $(0.6) million, or (1.2)%, from the corresponding period of 2024.

This decrease was driven primarily by decreased sales of our kits.

Endoscopy Sales .

Our endoscopy sales for the three-month period ended September 30, 2024 were $17.0 million, up 85.8% when compared to sales in the corresponding period of 2023 of $9.1 million.

Sales for the three-month period ended September 30, 2024 compared to the corresponding period in 2023 were favorably affected by $6.8 million in sales of the EsophyX® Z+ device acquired from EGS in July 2024 as well as increased sales of our EndoMAXX fully covered esophageal stent and ReSolve Thoracostomy Trays .

Our endoscopy sales for the nine-month period ended September 30, 2024 were $37.3 million, up 35.6%, when compared to sales in the corresponding period of 2023 of $27.5 million.

Sales for the nine-month period ended September 30, 2024 compared to the corresponding period in 2023 were favorably affected by $6.8 million in sales of the EsophyX® Z+ device acquired from EGS in July 2024 as well as by increased sales of our EndoMAXX fully covered esophageal stent , Elation Pulmonary Balloon Dilators , BIG60F Alpha™ inflation device, and AERO Tracheobronchial Stent .

Our endoscopy sales for the three-month period ended March 31, 2025 were $16.6 million, up 64.2% when compared to sales in the corresponding period of 2024 of $10.1 million.

Sales for the three-month period ended March 31, 2025 compared to the corresponding period in 2024 were favorably affected by $6.6 million in sales of the EsophyX® Z+ device acquired from EGS in July 2024.

Geographic Sales

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

Listed below are sales by geography for the three-month periods ended March 31, 2025 and 2024 (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, 2024 were $206.5 million, or 60.8% of net sales, up 10.1% when compared to the corresponding period of 2023.

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

Direct and Endoscopy businesses.

sales for the nine-month period ended September 30, 2024 were $587.3 million, or 58.6% of net sales, up 9.1% when compared to the corresponding period of 2023.

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

Direct and Endoscopy businesses.

sales for the three-month period ended March 31, 2025 were $213.6 million, or 60.1% of net sales, up 14.8% when compared to the corresponding period of 2024.

The increase in our domestic sales for the three-month period ended March 31, 2025, compared to the corresponding period of 2024 was driven primarily by our U.S.

Direct, OEM and Endoscopy businesses.

International Sales .

International sales for the three-month period ended September 30, 2024 were $133.4 million, or 39.2% of net sales, up 4.4% when compared to the corresponding period of 2023 of $127.7 million.

The increase in our international sales for the three-month period ended September 30, 2024, compared to the corresponding period of 2023 included increased sales in our EMEA operations of $3.3 million or 5.9%, in our Rest of World (“ROW”) operations of $1.8 million or 14.3%, and in our APAC operations of $0.6 million or 0.9%.

International sales for the nine-month period ended September 30, 2024 were $414.1 million, or 41.4% of net sales, up 5.0% when compared to the corresponding period of 2023 of $394.4 million.

The increase in our international sales for the nine-month period ended September 30, 2024, compared to the nine-month period ended September 30, 2023, included increased sales in our EMEA operations of $8.9 million or 5.2%, in our ROW operations of $6.8 million or 19.2%, and in our APAC operations of $4.0 million or 2.1%.

Our gross profit as a percentage of sales increased to 46.4% for the three-month period ended September 30, 2024, compared to 45.1% for the three-month period ended September 30, 2023.

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

Our gross profit as a percentage of sales increased to 47.0% for the nine-month period ended September 30, 2024, compared to 46.5% for the nine-month period ended September 30, 2023.

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

International sales for the three-month period ended March 31, 2025 were $141.8 million, or 39.9% of net sales, up 3.2% when compared to the corresponding period of 2024 of $137.4 million.

The increase in our international sales for the three-month period ended March 31, 2025, compared to the corresponding period of 2024 included increased sales in our ROW operations of $2.4 million or 17.7% and our EMEA operations of $2.3 million or 3.7%, partially offset by decreased sales in our APAC operations of $(0.3) million or (0.5)%.

Our gross profit as a percentage of sales increased to 48.4% for the three-month period ended March 31, 2025, compared to 46.9% for the three-month period ended March 31, 2024.

The increase in gross profit percentage was primarily due to an increase in sales combined with favorable changes in product mix, partially offset by 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 $12.8 million, or 14.7%, for the three-month period ended September 30, 2024 compared to the corresponding period of 2023.

As a percentage of sales, SG&A expenses were 29.3% for the three-month period ended September 30, 2024, compared to 27.6% for the corresponding period of 2023.

For the three-month period ended September 30, 2024, SG&A expenses increased compared to the corresponding period of 2023, primarily due to an increase in labor related costs associated with headcount additions and employee termination benefits in connection with the integration activities for the EGS Acquisition, increased consulting and legal costs associated with acquisition due diligence, increased advertising and promotional expenses.

SG&A expenses increased $10.7 million, or 3.9%, for the nine-month period ended September 30, 2024 compared to the corresponding period of 2023.

As a percentage of sales, SG&A expenses were 28.8% for the nine-month period ended September 30, 2024, compared to 29.8% for the corresponding period of 2023.

For the nine-month period ended September 30, 2024, SG&A expenses increased compared to the corresponding period of 2023 primarily due to an increase in labor-related costs in our sales and marketing operations due to increased headcount to support growth and acquisitions, 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.

Selling, general and administrative ("SG&A") expenses increased $13.1 million, or 13.8%, for the three-month period ended March 31, 2025 compared to the corresponding period of 2024.

As a percentage of sales, SG&A expenses were 30.2% for the three-month period ended March 31, 2025, compared to 29.2% for the corresponding period of 2024.

For the three-month period ended March 31, 2025, SG&A expenses increased compared to the corresponding period of 2024, primarily due to an increase in labor-related costs associated with headcount additions, including those in connection with the EGS and Cook Acquisitions, and increased advertising and promotional expenses.

Research and Development Expenses.

Research and development (”R&D”) expenses for the three-month period ended September 30, 2024 were $20.5 million, up 4.5%, when compared to R&D expenses in the corresponding period of 2023 of $19.6 million.

For the three-month period ended September 30, 2024, R&D expenses increased compared to the corresponding period of 2023 primarily due to increased labor costs due to increased headcount and increased materials for projects, offset partially by decreased regulatory costs related to clinical studies.

R&D expenses for the nine-month period ended September 30, 2024 were $62.3 million, up 1.9%, when compared to R&D expenses in the corresponding period of 2023 of $61.1 million.

For the nine-month period ended September 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 nine-month periods ended September 30, 2024, we recognized no impairment charges.

F or the three-month period ended September 30, 2023, 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.

Contingent Consideration Expense .

For the three and nine-month periods ended September 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 $0.1 million and $0.3 million, respectively, compared to contingent consideration expense of $0.6 million and $2.2 million for the three and nine-month periods ended September 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 nine-month periods ended September 30, 2024, we recognized no acquired in-process research and development costs.

For the three-month period ended September 30, 2023, 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 Advanced Radiation Therapy, LLC (“ART”) on May 1, 2023.

Research and development (”R&D”) expenses for the three-month period ended March 31, 2025 were $22.5 million, up 4.6%, when compared to R&D expenses in the corresponding period of 2024 of $21.5 million.

For the three-month period ended March 31, 2025, R&D expenses increased compared to the corresponding period of 2024 primarily due to increased R&D activity, partially offset by a decrease in regulatory costs associated with clinical trials.

Contingent Consideration Expense (Benefit) .

For the three-month period ended March 31, 2025, we recognized contingent consideration expense from changes in the estimated fair value of our contingent consideration obligations stemming from our previously disclosed business acquisitions of $1.0 million, compared to contingent consideration benefit of $ (0.1) million for the three-month period ended March 31, 2024.

Expense (benefit) 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, 2024 and 2023 (in thousands):

The following table sets forth our operating income by financial reporting segment for the three-month periods ended March 31, 2025 and 2024 (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, 2024 was $37.6 million, compared to cardiovascular operating income in the corresponding period of 2023 of $32.6 million.

The increase in cardiovascular operating income during the three-month period ended September 30, 2024 compared to the corresponding period of 2023 was primarily a result of higher sales ($322.9 million compared to $306.1 million), higher gross margin, and lower contingent consideration expense, partially offset by higher SG&A and R&D expenses .

Our cardiovascular operating income for the nine-month period ended September 30, 2024 was $113.4 million, compared to cardiovascular operating income in the corresponding period of 2023 of $83.0 million.

The increase in cardiovascular operating income during the nine-month period ended September 30, 2024 compared to the corresponding period of 2023 was primarily a result of higher sales ($964.0 million compared to $905.3 million), higher gross margin, lower acquired in-process research and development charges, lower impairment charges, and lower contingent consideration expense, partially offset by higher SG&A and R&D expenses .

Endoscopy Operating Income (Loss) .

Our endoscopy operating loss for the three-month period ended September 30, 2024 was ($0.3) million, compared to endoscopy operating income of $2.5 million for the corresponding period of 2023.

Our endoscopy operating income for the nine-month period ended September 30, 2024 was $5.8 million, compared to endoscopy operating income of $7.4 million for the corresponding period of 2023.

The decrease in endoscopy operating income for the three and nine-month periods ended September 30, 2024 compared to the corresponding periods of 2023 was primarily a result of increased SG&A expenses associated with higher labor related costs due to headcount additions and employee termination benefits in connection with the integration activities for the EGS Acquisition, partially offset by increased sales.

Our cardiovascular operating income for the three-month period ended March 31, 2025 was $38.5 million, compared to cardiovascular operating income in the corresponding period of 2024 of $32.9 million.

The increase in cardiovascular operating income during the three-month period ended March 31, 2025 compared to the corresponding period of 2024 was primarily a result of higher sales ($338.7 million compared to $313.4 million) and higher gross margin , partially offset by higher SG&A, R&D and contingent consideration expenses .

Endoscopy Operating Income .

Our endoscopy operating income for the three-month period ended March 31, 2025 was $2.5 million, compared to endoscopy operating income of $3.0 million for the corresponding period of 2024.

The decrease in endoscopy operating income for the three-month period ended March 31, 2025 compared to the corresponding period of 2024 was primarily a result of a lower gross margin due to increased amortization expense associated with the EGS acquisition and increased SG&A expenses associated with higher labor related costs due to headcount additions in connection with the integration activities for the EGS Acquisition, partially offset by increased sales.

Other Expense – Net

Our other expense for the three-month periods ended September 30, 2024 and 2023 was $0.6 million and $4.9 million, respectively.

Our other expense for the nine-month periods ended September 30, 2024 and 2023 was $2.3 million and $9.7 million, respectively.

The changes in other expense for the three and nine-month periods ended September 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.

Our other expense for the three-month periods ended March 31, 2025 and 2024 was $3.1 million and $1.6 million, respectively.

The increase in other expense for the three-month period ended March 31, 2025 compared to the corresponding period of 2024 were primarily related to decreased interest income associated with reduced cash and cash equivalent balances, partially offset by a decrease in interest expense as a result of having no outstanding amounts due under the term loan of our Amended Fourth A&R Credit Agreement for the three-month period ended March 31, 2025.

Effective Tax Rate

Our provision for income taxes for the three-month periods ended September 30, 2024 and 2023 was a tax expense of $8.2 million and $4.4 million, respectively, which resulted in an effective tax rate of 22.4% and 14.5%, respectively.

Our provision for income taxes for the nine-month periods ended September 30, 2024 and 2023 was a tax expense of $24.4 million and $13.8 million, respectively, which resulted in an effective tax rate of 20.9% and 17.2%, respectively.

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

The increase in the income tax expense for the nine-month period ended September 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 September 30, 2024 and 2023 was $28.4 million and $25.8 million, respectively.

The increase in our net income for the three-month period ended September 30, 2024 was primarily a result of higher sales, higher gross margin associated and lower contingent consideration expense, partially offset by higher SG&A and R&D expenses and higher income tax expense.

Our net income for the nine-month periods ended September 30, 2024 and 2023 was $92.4 million and $66.8 million, respectively.

The increase in our net income for the nine-month period ended September 30, 2024 was the result of several principal factors, including higher sales and gross margin, lower impairment charges, lower acquired in-process research and development charges , and lower contingent consideration expense, 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, 2025 and 2024 was a tax expense of $7.8 million and $6.1 million, respectively, which resulted in an effective tax rate of 20.6% and 17.8%, respectively.

The increase in the effective income tax rate for the three-month period ended March 31, 2025, when compared to the prior-year period, was primarily due to decreased benefit from discrete items such as deferred compensation and the impact of increased foreign income inclusions.

Our net income for the three-month periods ended March 31, 2025 and 2024 was $30.1 million and $28.2 million, respectively.

The increase in our net income for the three-month period ended March 31, 2025 was the result of several principal factors, including higher sales and gross margin, partially offset by higher SG&A and R&D expenses, contingent consideration expense, other expenses and income tax expense.

LIQUIDITY AND CAPITAL RESOURCES

Capital Commitments, Contractual Obligations and Cash Flows

As of September 30, 2024 and December 31, 2023, our current assets exceeded current liabilities by $877.2 million and $904.9 million, respectively, and we had cash, cash equivalents and restricted cash of $525.3 million and $589.1 million, respectively, of which $55.8 million and $48.7 million, respectively, were held by foreign subsidiaries.

As of March 31, 2025 and December 31, 2024, our current assets exceeded current liabilities by $761.8 million and $707.4 million, respectively, and we had cash, cash equivalents and restricted cash of $397.6 million and $378.8 million, respectively, of which $57.2 million and $50.6 million, respectively, were held by foreign subsidiaries.

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

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

As of September 30, 2024, and December 31, 2023, we had cash, cash equivalents and restricted cash of $23.1 million and $17.6 million, respectively, within our subsidiary in China.

As of March 31, 2025, and December 31, 2024, we had cash, cash equivalents and restricted cash of $21.5 million and $18.1 million, respectively, within our subsidiary in China.

Cash flows provided by operating activities .

We generated cash from operating activities of $152.1 million and $82.9 million during the nine-month periods ended September 30, 2024 and 2023, respectively.

We generated cash from operating activities of $40.6 million and $36.2 million during the three-month periods ended March 31, 2025 and 2024, respectively.

Significant factors affecting operating cash flows during these periods included:

● Net income was $92.4 million and $66.8 million for the nine-month periods ended September 30, 2024 and 2023, respectively.

● Cash used for inventories was approximately $2.8 million and $34.4 million for the nine-month periods ended September 30, 2024 and 2023, respectively.

● Net income was $30.1 million and $28.2 million for the three-month periods ended March 31, 2025 and 2024, respectively.

● Depreciation and amortization was approximately $29.3 million and $23.6 million for the three-month periods ended March 31, 2025 and 2024, respectively.

The increase in depreciation and amortization for the three months ended March 31, 2025 was primarily associated with the amortization of developed technology and other intangible assets acquired from EGS and Cook.

● Cash used for inventories was approximately $10.6 million and $0.4 million for the three-month periods ended March 31, 2025 and 2024, respectively.

The increase in inventories during 2025 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 trade payables was $6.5 million and $20.3 million for the nine-month periods ended September 30, 2024 and 2023, respectively, due primarily to the timing of payments.

● Cash provided by (used for) trade payables was $4.5 million and $(14.1) million for the three-month periods ended March 31, 2025 and 2024, respectively, due primarily to the timing of payments.

● Cash used for accrued expenses was $20.7 million and $8.9 million for the three-month periods ended March 31, 2025 and 2024, respectively.

The increase in cash used for accrued expenses between the periods was primarily related to a semi-annual payment of interest associated with the Convertible Notes which commenced August 1, 2024.

Cash flows used in investing activities.

We used cash in investing activities of $154.2 million and $167.0 million for the nine-month periods ended September 30, 2024 and 2023, respectively.

We used cash for capital expenditures of property and equipment of $31.7 million and $27.2 million in the nine-month periods ended September 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.

We used cash in investing activities of $29.6 million and $22.1 million for the three-month periods ended March 31, 2025 and 2024, respectively.

We used cash for capital expenditures of property and equipment of $21.1 million and $11.7 million in the three-month periods ended March 31, 2025 and 2024, respectively.

Capital expenditures in each period were primarily related to investments in property and equipment to support development and production of our products, and in 2025 includes costs for the construction of a new distribution facility in South Jordan, Utah.

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 million in 2024 for property and equipment.

Cash outflows for the issuance of notes receivable were $6.6 million for the nine-month period ended September 30, 2024 and were related to loans issued to Selio of $1.7 million, Solo Pace of $2.0 million and Fluidx of $3.0 million.

Cash outflows invested in acquisitions for the nine-month period ended September 30, 2024 were $113.7 million and were related to assets acquired from EGS ($105.0 million), 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 nine-month period ended September 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) provided by financing activities.

Cash (used in) provided by financing activities for the nine-month periods ended September 30, 2024 and 2023 was $(62.4) million and $86.5 million, respectively.

For the nine-month period ended September 30, 2024, we decreased our net borrowings under our Amended Fourth A&R Credit Agreement by $(76.1) million.

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.

We had cash proceeds from the issuance of common stock of $15.4 million and $11.5 million for the nine-month periods ended September 30, 2024 and 2023, respectively, related to the exercise of non-qualified stock options.

We completed payment of contingent consideration of $(0.2) million and $(3.5) million for the nine-month periods ended September 30, 2024 and 2023, respectively, principally related to sales milestone payments connected to our acquisitions of Brightwater Medical, Inc.

in 2019 and Cianna Medical, Inc.

As of September 30, 2024, we had outstanding borrowings of $770.5 million and had issued letter of credit guarantees of $2.4 million, with additional available borrowings of approximately $697 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 September 30, 2024 was a fixed rate of 3.0% on our Convertible Notes and a variable rate of 6.70% with respect to the principal amount outstanding under the Amended Fourth A&R Credit Agreement.

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 anticipate that we will spend approximately $90 to $100 million in 2025 for property and equipment.

Cash outflows for the acquisition of equity investments and issuance of notes receivable were $7.1 million and $6.5 million for the three-month periods ended March 31, 2025 and 2024, respectively.

Cash outflows invested in acquisitions were $1.0 million for the three-month period ended March 31, 2025 and were related to the first deferred payment from our asset purchase agreement with SSI.

Cash outflows invested in acquisitions were $3.0 million for the three months ended March 31, 2024 and were related to the initial payment for the acquisition of assets from SSI.

Cash flows provided by (used in) financing activities.

Cash provided by (used in) financing activities for the three-month periods ended March 31, 2025 and 2024 was $7.0 million and $(18.0) million, respectively.

For the three-month period ended March 31, 2024, we had cash used in financing activities primarily attributable to repayment of net borrowings under our Amended Fourth A&R Credit Agreement in an aggregate amount of $24.1 million.

We had cash proceeds from the issuance of Common Stock of $13.2 million and $7.7 million for the three-month periods ended March 31, 2025 and 2024, respectively, related to the exercise of non-qualified stock options.

As of March 31, 2025, we had outstanding borrowings of $747.5 million and had issued letter of credit guarantees of $2.9 million, with additional available borrowings of approximately $697 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 March 31, 2025 and December 31, 2024 was a fixed rate of 3.0% on our Convertible Notes.

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.

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

In the nine-month period ended September 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.

In the three-month period ended March 31, 2025 there were no changes to the application of critical accounting policies previously disclosed in Part II, Item 7 of our 2024 Annual Report on Form 10-K.

CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS

This report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

All statements in this report, other than statements of historical fact, are “forward-looking statements” for purposes of these provisions, including any projections of earnings, revenues or other financial items, any statements of the plans and objectives of our management for future operations, any statements concerning proposed new products or services, any statements regarding the integration, development or commercialization of the business or any assets acquired from other parties, any statements regarding future economic conditions or performance, and any statements of assumptions underlying any of the foregoing.

In some cases, forward-looking statements can be identified by the use of terminology such as “may,” “will,” “expects,” “plans,” “anticipates,” “intends,” “seeks,” “believes,” “estimates,” “potential,” “forecasts,” “continue,” or other forms of these words or similar words or expressions, or the negative thereof or other comparable terminology.

All subsequent forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements.

This report contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

Forward-looking statements include, among others:

• statements proceeded or followed by, or that include the words, “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “intends,” “seeks,” “believes,” “estimates,” “projects,” “forecasts,” “potential,” “target,” “continue,” “upcoming,” “optimistic” or other forms of these words or similar words or expressions, or the negative thereof or other comparable terminology;

• statements that address our future operating performance or events or developments that we expect or anticipate will occur, including, without limitation, any statements regarding our projected earnings, revenues or other financial measures, our plans and objectives for future operations, our proposed new products or services, the integration, development or commercialization of the business or any assets acquired from other parties, future economic conditions or performance, the implementation of, and results which may be achieved through, Merit’s Continued Growth Initiatives Program or other business optimization initiatives, and any statements of assumptions underlying any of the foregoing;

• statements regarding our past performance, efforts, or results about which inferences or assumptions may be made, including statements proceeded or followed by the words "preliminary," "initial," "potential," "possible," "diligence," "industry-leading," "compliant," "indications," or "early feedback" or other forms of these words or similar words or expressions, or the negative thereof or other comparable terminology.

The forward-looking statements contained in this report are based on our management’s current expectations and assumptions regarding future events or outcomes.

If underlying expectations or assumptions prove inaccurate, or risks or uncertainties materialize, actual results will likely differ, and could differ materially, from our expectations reflected in any forward-looking statements.

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

Investors are cautioned not to unduly rely on any such forward-looking statements.

The following are some of the important risks and uncertainties that could cause our actual results to differ from our expectations in any forward-looking statements:

inherent risks and uncertainties associated with Merit’s integration of businesses or products acquired from third parties, including the businesses and products acquired from Cook Medical Holdings LLC in November 2024 and from EndoGastric Solutions, Inc.

in July 2024, and Merit’s ability to achieve the anticipated financial results, product development and other anticipated benefits of such acquisitions;

shifts in trade policies in the U.S.

or other countries, including new or modified tariffs or other measures;

effects of the Convertible Notes on Merit’s net income and earnings per share performance;

disruptions in Merit’s supply chain, manufacturing or sterilization processes;

and global political, economic, competitive, reimbursement and regulatory conditions;

reduced availability of, and price increases associated with, components and other raw materials;

increases in transportation expenses;

risks relating to Merit’s potential inability to successfully manage growth through acquisitions generally, including the inability to effectively integrate acquired operations or products or commercialize technology developed internally or acquired through completed, proposed or future transactions;

fluctuations in interest or foreign currency exchange rates and inflation;

cybersecurity events;

difficulties relating to development, testing and regulatory approval, clearance and maintenance of Merit’s products;

the safety, efficacy and patient and physician adoption of Merit’s products;

the ability to fully enroll and the outcomes of ongoing and future clinical trials and market studies relating to Merit’s products;

litigation and other judicial proceedings affecting Merit;

consequences associated with a Corporate Integrity Agreement executed between Merit and the U.S.

Department of Justice;

failure to comply with U.S.

and foreign laws and regulations;

restrictions on Merit’s liquidity or business operations resulting from its debt agreements;

infringement of Merit’s technology or the assertion that Merit’s technology infringes the rights of other parties;

product recalls and product liability claims;

potential for significant adverse changes in governing regulations;

changes in tax laws and regulations in the United States or other jurisdictions or exposure to additional tax liabilities which may adversely affect our effective tax rate;

termination of relationships with Merit’s suppliers, or failure of such suppliers to perform;

development of new products and technology that could render Merit’s existing or future products obsolete;

market acceptance of new products;

failure to comply with applicable environmental laws;

changes in key personnel;

shortages and increases in labor costs;

price and product competition;

extreme weather events;

and geopolitical events.

For a further discussion of the risks and uncertainties and other factors affecting our business, see Part I, Item 1A.

“Risk Factors” in our 2024 Annual Report on Form 10-K filed with the SEC, which we update in Part II, Item 1A.

“Risk Factors” in this report and may further update in subsequent Quarterly Reports on Form 10-Q that we will file hereafter.

All subsequent forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements.

All forward-looking statements included in this report are made as of the date hereof and are based on information available to us as of such date.

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If we do update or correct one or more forward-looking statements, investors and others should not conclude that we will make additional updates or corrections.

Although we believe that the expectations reflected in the forward-looking statements contained herein are reasonable, there can be no assurance that such expectations or any of the forward-looking statements will prove to be correct, and actual results will likely differ, and could differ materially, from those projected or assumed in the forward-looking statements.

Investors are cautioned not to unduly rely on any such forward-looking statements.

NOTICE REGARDING TRADEMARKS

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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