Item 7. Management’s Discussion and Analysis
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the Consolidated Financial Statements and related Notes thereto set forth in Item 8 of this report.
Discussion of the year ended December 31, 2024, compared to the year ended December 31, 2023 is included in Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2024, and is incorporated by reference into this Form 10-K.
Overview
We design, develop, manufacture, market and sell medical products for interventional and diagnostic procedures. For financial reporting purposes, we report our operations in two operating segments: cardiovascular and endoscopy. Our cardiovascular segment consists of four product categories: peripheral intervention, cardiac intervention, custom procedural solutions, and OEM. Within these product categories, we sell a variety of products, including cardiology and radiology devices (which assist in diagnosing and treating coronary arterial disease, peripheral vascular disease and other nonvascular 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 year ended December 31, 2025, we reported sales of $1.516 billion, up $159.4 million or 11.8%, compared to 2024 sales of $1.357 billion. Our revenue results for the year ended December 31, 2025 were driven primarily by demand in the U.S. and favorable international sales trends, particularly in Europe, the Middle East and Africa (“EMEA”) region.
Gross profit as a percentage of sales was 48.7% for the year ended December 31, 2025 as compared to 47.4% for the year ended December 31, 2024.
Net income for the year ended December 31, 2025 was $128.5 million, or $2.13 per share, as compared to $120.4 million, or $2.03 per share, for the year ended December 31, 2024.
In May 2025, we completed a merger transaction with Biolife Delaware, L.L.C. (“Biolife”), a manufacturer of unique patented hemostatic devices under the brand names StatSeal® and WoundSeal®. In November 2025, pursuant to the terms of an asset purchase agreement between Merit and Pentax of America, Inc., we acquired the C2 CryoBalloon® device and related technology.
In February 2024, we introduced our “Continued Growth initiatives” Program with muti-year 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.
Results of Operations
The following table sets forth certain operational data as a percentage of sales for the years indicated:
2025
2024
2023
Net sales
100
%
100
%
100
%
Gross profit
48.7
47.4
46.4
Selling, general and administrative expenses
30.0
29.5
29.7
Research and development expenses
6.4
6.4
6.6
Contingent consideration expense
0.1
0.0
0.1
Acquired in-process research and development expense
—
—
0.1
Income from operations
12.2
11.5
9.9
Other expense — net
(0.9)
(0.4)
(0.9)
Income before income taxes
11.3
11.1
8.9
Net income
8.5
8.9
7.5
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Sales
Listed below are the sales by product category within each operating segment for the years ended December 31, 2025, 2024 and 2023 (in thousands, other than percentage changes):
% Change
2025
% Change
2024*
2023*
Cardiovascular
Peripheral Intervention
8.8
%
$
579,840
10.2
%
$
532,770
$
483,265
Cardiac Intervention
21.7
%
448,914
3.4
%
368,951
356,650
Custom Procedural Solutions
4.6
%
209,333
3.3
%
200,033
193,717
OEM
2.5
%
204,955
7.0
%
199,990
186,928
Total
10.9
%
1,443,042
6.7
%
1,301,744
1,220,560
Endoscopy
Endoscopy Devices
33.0
%
72,864
48.8
%
54,770
36,806
Total
11.8
%
$
1,515,906
7.9
%
$
1,356,514
$
1,257,366
*Commencing January 1, 2025, we reorganized our sales teams and product categories to include revenues from the sale of our spine devices under our OEM product category. Revenue figures for 2024 and 2023 have been recast to reflect this realignment of our portfolio of spine products, representing approximately $22.6 million and $22.4 million in revenue, respectively, within the OEM product category to provide comparability between the reported periods.
Cardiovascular Sales. Our cardiovascular sales for the year ended December 31, 2025 were $1.443 billion, up 10.9%, when compared to the year ended December 31, 2024 of $1.302 billion. Sales for the year ended December 31, 2025 were favorably affected by increased sales of:
(a) Cardiac intervention products, which increased by $80.0 million, or 21.7%, from the corresponding period of 2024. This increase was driven primarily by $35.3 million in incremental sales associated with products acquired from Cook in November 2024, $11.9 million in sales associated with products acquired in connection with the Biolife Merger in May 2025 and increased sales of our intervention, cardiac rhythm management/electrophysiology (“CRM/EP”), angiography, access and fluid management products.
(b) Peripheral intervention products, which increased by $47.1 million, or 8.8%, from the corresponding period of 2024. This increase was driven primarily by increased sales of our embolotherapy, radar localization, access, delivery systems and drainage products .
(c) Custom procedural solutions products, which increased by $9.3 million, or 4.6% from the corresponding period of 2024. This increase was driven primarily by increased sales of our kits, trays and critical care products .
(d) OEM products, which increased by $5.0 million, or 2.5% from the corresponding period of 2024. This increase was driven primarily by increased sales of our intervention, CRM/EP, kits and peripheral intervention products, offset partially by decreased sales of our access and coated tube and wire products.
Endoscopy Sales. Our endoscopy sales for the year ended December 31, 2025 were $72.9 million, up 33.0%, when compared to sales for the year ended December 31, 2024 of $54.8 million. Sales for the year ended December 31, 2025 were favorably affected by increased sales of our EsophyX® Z+ device acquired from Endogastric Solutions, Inc. in July 2024 .
Geographic Sales
Listed below are sales by geography for the years ended December 31, 2025, 2024 and 2023 (in thousands, other than percentage changes):
% Change
2025
% Change
2024
2023
United States
13.6
%
$
909,466
10.2
%
$
800,780
$
726,989
International
9.1
%
606,440
4.8
%
555,734
530,377
Total
11.8
%
$
1,515,906
7.9
%
$
1,356,514
$
1,257,366
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United States Sales: U.S. sales for the year ended December 31, 2025 were $909.5 million, or 60.0% of net sales, up 13.6% when compared to 2024. The increase in our domestic sales in 2025 was driven primarily by our U.S. direct, endoscopy, and OEM businesses.
International Sales . International sales for the year ended December 31, 2025 were $606.4 million, or 40.0% of net sales, up 9.1% when compared to 2024. The increase in our international sales during 2025 was primarily a result of higher sales in EMEA, which increased $37.9 million or 15.3%, higher Rest of World (“ROW”) sales which increased $7.0 million or 12.2%, and higher sales in our Asia Pacific region, which increased $5.8 million or 2.3%, compared to the corresponding period of 2024.
Our international sales are subject to foreign currency exchange rate fluctuations between the natural currency of a foreign country and the U.S. Dollar. Foreign currency exchange rate fluctuations, calculated by using the applicable average foreign exchange rates for the prior year increased sales 0.3% for the year ended December 31, 2025 compared to 2024.
Gross Profit
Our gross profit as a percentage of sales was 48.7%, 47.4%, and 46.4% for the years ended December 31, 2025, 2024 and 2023, respectively. The increase in gross profit as a percentage of sales for 2025, as compared to 2024, was primarily due to favorable changes in pricing and product mix, partially offset by higher intangible amortization expense as a percentage of sales associated with acquisitions and unfavorable manufacturing variances.
Operating Expenses
Selling, General and Administrative Expenses . Our selling, general and administrative (“SG&A”) expenses as a percentage of sales were 30.0%, 29.5% and 29.7% for the years ended December 31, 2025, 2024 and 2023, respectively. SG&A expenses increased $55.5 million, or 13.9%, for the year ended December 31, 2025 compared to 2024. The increase in SG&A expenses for the year ended December 31, 2025 compared to the year ended December 31, 2024 was primarily due to an increase in labor-related costs including (i) variable compensation associated with performance-based bonus programs, commissions associated with sales growth, as well as an increase in expense associated with both performance and non-performance based equity awards; and (ii) headcount additions to support investment in the business and growth from acquisitions, including those in connection with the Cook Transaction and the Biolife Merger. In addition, higher marketing, advertising, and travel expenditures contributed to the year‑over‑year increase in 2025.
Research and Development Expenses . Our research and development (“R&D”) expenses as a percentage of sales were 6.4%, 6.4% and 6.6% for the years ended December 31 2025, 2024, and 2023, respectively. R&D expenses increased by $9.9 million or 11.3% to $97.4 million for the year ended December 31, 2025, compared to $87.5 million in 2024. The increase in R&D expenses for the year ended December 31, 2025 compared to the year ended December 31, 2024 was primarily related to increased labor-related costs including variable compensation associated with bonus and equity award programs and increased consulting services and clinical trials.
Contingent Consideration Expense . For the years ended December 31, 2025, 2024 and 2023, we recorded $1.0 million, $0.4 million and $1.7 million, respectively, of net contingent consideration expense from changes in the estimated fair value of our contingent consideration obligations stemming from our previously disclosed business acquisitions. The expense in each fiscal year relates to changes in the probability and timing of achieving certain revenue and operational milestones, as well as expense for the passage of time.
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Operating Income
Our operating profit by operating segment for the years ended December 31, 2025, 2024 and 2023 was as follows (in thousands):
Operating Income
2025
2024
2023
Cardiovascular
$
166,133
$
150,150
$
114,440
Endoscopy
18,587
5,543
9,504
Total operating income
$
184,720
$
155,693
$
123,944
Cardiovascular Operating Income. Our cardiovascular operating income for the year ended December 31, 2025 was $166.1 million, compared to cardiovascular operating income of $150.2 million for the year ended December 31, 2024. This increase in cardiovascular operating income was primarily related to increased sales and gross profit, partially offset by increased SG&A and R&D expenses.
Endoscopy Operating Income. Our endoscopy operating income for the year ended December 31, 2025 was $18.6 million, compared to operating income of $5.5 million for the year ended December 31, 2024. This increase in endoscopy operating income relative to 2024 was primarily due to increased sales and gross profit.
Other Income (Expense)
Our other expense for the years ended December 31, 2025, 2024 and 2023 was $13.8 million, $5.7 million, and $11.9 million, respectively. The increase in other expense for 2025 compared to 2024 was principally the result of a decrease in interest income associated with decreased average cash and cash equivalents during the period, partially offset by reduced interest expense associated with borrowings under the Amended Fourth A&R Credit Agreement.
Effective Tax Rate
Our provision for income taxes for the years ended December 31, 2025, 2024 and 2023 was a tax expense of $42.4 million, $29.6 million and $17.7 million, respectively, which resulted in an effective income tax rate of 24.8%, 19.8%, and 15.8%, respectively. The increase in the effective income tax rate for 2025 compared to 2024 was primarily the result of decreased benefit from discrete items such as share-based compensation and contingent liabilities and increased permanent tax differences in various jurisdictions and items related to the budget reconciliation package enacted during the period and retroactive to the beginning of the year.
Net Income
Our net income for the years ended December 31, 2025, 2024 and 2023 was $128.5 million, $120.4 million, and $94.4 million, respectively. The increase in net income for 2025, when compared to 2024, was primarily related to higher sales and higher gross margin as a percentage of sales; partially offset by higher SG&A, R&D, other expense and income tax expense .
Liquidity and Capital Resources
Capital Commitments and Contractual Obligations
Our most significant contractual obligations as of December 31, 2025 included total long-term debt obligations of $747.5 million, interest payments on this debt, contingent consideration liabilities of $4.5 million, of which $3.2 million is recorded in current liabilities, and operating lease liabilities of $87.5 million, of which $10.9 million is recorded in current liabilities. Additional information about these obligations is contained in Notes 8, 15 and 17 to our consolidated financial statements set forth in Item 8 of this report.
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Cash Flows
At December 31, 2025 and 2024, we had cash, cash equivalents and restricted cash of $448.5 million and $378.8 million respectively, of which $66.0 million and $50.6 million, respectively, were held by foreign subsidiaries. We do not consider our foreign earnings to be permanently reinvested. As of December 31, 2025 and 2024, approximately $2.1 million and $2.1 million respectively, of our cash and cash equivalents represents restricted cash for the payment of certain import and other taxes for our subsidiary in China. 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 December 31, 2025 and 2024, cash and cash equivalents, including restricted cash, held by our subsidiary in China was $20.0 million and $18.1 million, respectively.
Cash flows provided by operating activities. We generated cash from operating activities of $297.4 million, $220.8 million and $145.2 million during the years ended December 31, 2025, 2024 and 2023, respectively. Net cash provided by operating activities increased $76.6 million for the year ended December 31, 2025 compared to the year ended December 31, 2024. Significant changes in operating assets and liabilities affecting cash flows during these years included:
● Net income was $128.5 million and $120.4 million for the years ended December 31, 2025 and 2024, respectively.
● Depreciation and amortization was $123.2 million and $102.7 million for the years ended December 31, 2025 and 2024, respectively, primarily due to an increase in intangible assets as a result of acquisitions.
● Cash paid for income taxes was $31.4 million and $45.0 million for the years ended December 31, 2025 and 2024, respectively, primarily as the result of increased taxes payable and an increased portion of our total tax expense relating to deferred tax expense.
● Stock-based compensation expense was $43.5 million and $28.5 million for the years ended December 31, 2025 and 2024, respectively. The increase in stock-based compensation expense during 2025 is primarily associated with the increase in the Company’s stock price and grants of restricted stock units.
● Cash used for inventories was $21.6 million and $2.3 million for the years ended December 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 flows used in investing activities. We used cash in investing activities of $247.4 million, $368.7 million, and $175.3 million for the years ended December 31, 2025, 2024 and 2023, respectively. We invested in capital expenditures for property and equipment of $81.7 million, $35.1 million, and $34.3 million for the years ended December 31, 2025, 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 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 $80 to $100 million in 2026 for property and equipment.
Cash outflows invested in acquisitions for the year ended December 31, 2025 were $144.8 million and were primarily related to payments required by our merger agreement with Biolife LLC ($120.0 million) and our asset purchase agreement with Pentax of America, Inc. ($19 million). Cash outlfows invested in acquisitions for the year ended December 31, 2024 were $320.2 million and were primarily related to payments required by our asset purchase agreements with Cook Medical Holdings LLC ($210.0 million), Endogastric Solutions, Inc. ($105.0 million) and Scholten Surgical Instruments, Inc. ($3.0 million). Cash outflows invested in acquisitions for the year ended December 31, 2023 were $134.5 million and were primarily related to payments required by our asset purchase agreements with AngioDynamics, Inc. ($100 million), Bluegrass Vascular Technologies, Inc. ($32.7 million) and ART ($1.5 million).
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Cash flows provided by (used in) financing activities. Cash provided by (used in) financing activities for the years ended December 31, 2025, 2024 and 2023 was $16.0 million, $(60.0) million, and $559.3 million, respectively. In 2025 we had cash proceeds from the issuance of common stock of $28.2 million. In 2024 we decreased our net borrowings under our Amended Fourth A&R Credit Agreement by $99.1 million and had cash proceeds from the issuance of common stock of $40.9 million. In 2023 we issued convertible debt of $747.5 million, paid $66.5 million for the purchase of capped call options, and decreased our net borrowings under our Amended Fourth A&R Credit Agreement by $99.1 million.
As of December 31, 2025, we had outstanding borrowings of $747.5 million and issued letter of credit guarantees of $2.8 million, with additional available borrowings of approximately $697 million under the Amended Fourth A&R Credit Agreement, based on the leverage ratio required pursuant to the Amended Fourth A&R Credit Agreement. Our interest rate as of December 31, 2025 and 2024 was a fixed rate of 3.0% on our Convertible Notes. See Note 8 Debt to our consolidated financial statements set forth in Item 8 of this report for additional details regarding the Amended Fourth A&R Credit Agreement and 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. In the event we pursue and complete significant transactions or acquisitions in the future, additional funds may be required to meet our strategic needs, which may require us to raise additional funds in the debt or equity markets.
Critical Accounting Policies and Estimates
Our significant accounting policies are summarized in Note 1 Organization and Summary of Significant Accounting Policies to our consolidated financial statements set forth in Item 8 of this report. While these significant accounting policies affect the reporting of our financial condition and results of operations, the SEC has requested that all registrants address their most critical accounting policies. The SEC has indicated that a “critical accounting policy” is one which is both important to the representation of the registrant’s financial condition and results and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. We base our estimates on past experience and on various other assumptions our management believes to be reasonable under the circumstances, the results of which form the basis for making judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results will differ and may differ materially from these estimates under different assumptions or conditions. Additionally, changes in accounting estimates could occur in the future from period to period. The following paragraphs identify our most critical accounting policies:
Inventory Obsolescence. Our management reviews inventory quantities on hand and records provisions for estimated excess, slow moving and obsolete inventory. Based on this review, we provide adjustments for any slow-moving finished good products or raw materials that we believe will expire prior to being sold or used to produce a finished good and any products that are unmarketable. This review of inventory quantities for unmarketable and/or slow moving products is based on forecasted product demand derived from our historical experience of product sales and production raw material usage. If market conditions become less favorable than those projected by our management, additional inventory write-downs may be required. During the years ended December 31, 2025, 2024 and 2023, we recorded obsolescence expense of approximately $11.2 million, $10.6 million, and $11.5 million, respectively, and wrote off approximately $9.0 million, $12.0 million, and $11.9 million, respectively. Based on this historical trend, we believe that our inventory balances as of December 31, 2025 have been accurately adjusted for any unmarketable and/or slow moving products that may expire prior to being sold.
Valuation of Goodwill and Intangible Assets. We allocate any excess purchase price over the fair value of the net tangible and identifiable intangible assets acquired in a business combination to goodwill. We base the fair value of identifiable intangible assets acquired in a business combination on valuations that use information and assumptions that a market participant would use, including assumptions for estimated revenue projections, growth rates, cash flows, discount rates, useful life, and other relevant assumptions.
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We test our goodwill balances for impairment annually as of July 1, or whenever impairment indicators arise. When impairment indicators are identified, we may elect to perform an optional qualitative assessment to determine whether it is more likely than not that the fair value of our reporting units has fallen below their carrying value. Our election to perform a qualitative impairment assessment for an individual reporting unit in a given year is influenced by a number of factors, including, but not limited to, the size of the reporting unit's goodwill, the significance of the excess of the reporting unit's estimated fair value over carrying value at the last quantitative assessment date, the amount of time since the last quantitative analysis was performed, and other performance and market indicators. During a qualitative assessment, if we determine that it is not more likely than not that the implied fair value of the goodwill is less than its carrying amount, no further testing is necessary. If we do not perform a qualitative assesment, or we determine that it is more likely than not that the implied fair value of the goodwill is less than its carrying amount, we perform a quantitative assessment, which uses a combination of a guideline public company market-based approach and a discounted cash flow income-based approach. The quantitative assessment considers whether the carrying amount of a reporting unit exceeds its fair value, in which case an impairment charge is recorded to the extent the reporting unit’s carrying value exceeds its fair value. This analysis requires significant judgment, including estimation of the amount, timing and duration of future cash flows, which is based on internal forecasts, and a determination of a discount rate based on our weighted average cost of capital. During our annual impairment test performed during the third quarter of 2025, we evaluated each of our four reporting units using a qualitative assessment. As a result of the assessment, we determined that it was not more likely than not that the implied fair value was less than its carrying amount for each of our four reporting units, and no detailed quantitative assessment was necessary.
We evaluate long-lived assets, including amortizing intangible assets, for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. We perform the impairment analysis at the asset group for which the lowest level of identifiable cash flows is largely independent of the cash flows of other assets and liabilities. We first compare undiscounted cash flows to the carrying amount of the asset group to determine if impairment exists, and then determine the fair value of our amortizing assets based on estimated future cash flows discounted back to their present value using a discount rate that reflects the risk profiles of the underlying activities. This analysis requires similar significant judgments as those discussed above regarding goodwill. In-process technology intangible assets, which are not subject to amortization until projects reach commercialization, are assessed for impairment at least annually and more frequently if events occur that would indicate a potential reduction in the fair value of the assets below their carrying value.
We did not have any goodwill or intangible asset impairments for the years ended December 31, 2025, 2024 and 2023. See Note 5 Goodwill and Intangible Assets to our consolidated financial statements set forth in Item 8 of this report for additional details regarding goodwill and intangible asset balances.
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