Item 2. Management’s Discussion and Analysis
ITEM 2. 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 condensed notes thereto, which are included in Part I of this report. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to inherent risks and uncertainties that may adversely impact our operations and financial results. These risks and uncertainties are discussed in Part I, Item 1A “Risk Factors” in the 2025 Annual Report on Form 10-K.
OVERVIEW
We are a leading manufacturer and marketer of proprietary medical devices used in interventional, diagnostic and therapeutic procedures, particularly in cardiology, radiology, oncology, critical care and endoscopy. Our business consists of two product categories: foundational and therapeutic. Within each of these product categories, we sell a variety of products organized as product platforms. Our foundational product category includes product platforms such as access devices, procedural solutions, OEM products, and vascular intervention. Our therapeutic product category includes product platforms such as cardiac therapies, oncology, renal therapies, vascular intervention, OEM products and endoscopy.
For the three-month period ended March 31, 2026, we reported sales of $381.9 million, an increase of $26.5 million or 7% compared to sales for the three-month period ended March 31, 2025 of $355.4 million. Foreign currency fluctuations (net of hedging) increased our net sales by $7.9 million for the three-month period ended March 31, 2026, assuming applicable foreign exchange rates in effect during the comparable prior-year periods.
Gross profit as a percentage of sales remained at 48.4% for the three-month period ended March 31, 2026 compared to 48.4% for the three-month period ended March 31, 2025.
Net income for the three-month period ended March 31, 2026 was $41.0 million, or $0.68 per share, compared to net income of $30.1 million, or $0.49 per share, for the three-month period ended March 31, 2025.
Recent Developments and Trends
In addition to the trends identified in the 2025 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 2026 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, 2026 were driven primarily by demand in both our domestic and international regions.
● As of March 31, 2026, we had cash, cash equivalents, and restricted cash of $490.2 million and net available borrowing capacity under our Amended Fourth A&R Credit Agreement of approximately $697 million.
● On February 20, 2026, the U.S. Supreme Court ruled that tariffs imposed under the International Emergency Economic Powers Act ("IEEPA") were not authorized by the statute. The Company is the importer of record for certain raw materials and products that were previously subject to such tariffs under IEEPA. Significant uncertainty remains regarding how and when any amounts may be recovered. We are evaluating the ruling and potential actions available to us. Because the process, timing, and amount of any recovery are uncertain, we have not recorded any potential benefit from a refund at this time.
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RESULTS OF OPERATIONS
The following table sets forth certain operational data as a percentage of sales for the periods indicated:
Three Months Ended
March 31,
2026
2025
Net sales
100
%
100
%
Gross profit
48.4
48.4
Selling, general and administrative expenses
31.0
30.2
Research and development expenses
5.9
6.3
Contingent consideration (benefit) expense
(0.0)
0.3
Income from operations
11.6
11.5
Other income (expense) — net
2.5
(0.9)
Income before income taxes
14.0
10.7
Net income
10.7
8.5
Sales
Sales for the three-month period ended March 31, 2026 increased by 7%, or $26.5 million, compared to the corresponding period in 2025. Listed below are the sales by product category for the three-month periods ended March 31, 2026 and 2025 (in thousands, other than percentage changes):
Three Months Ended
March 31,
% Change
2026
2025
Foundational
6.3
%
$
255,479
$
240,382
Therapeutic
9.9
%
126,398
114,969
Total
7.5
%
$
381,877
$
355,351
Foundational Sales. Our foundational sales for the three-month period ended March 31, 2026 were $255.5 million, up 6.3% when compared to the corresponding period of 2025 of $240.4 million. Sales for the three-month period ended March 31, 2026 were favorably affected by increased sales within our access platform, including sales of our StatSeal and WoundSeal products acquired from Biolife, and our vascular intervention platforms, partially offset by decreased sales within our OEM and procedural solutions platforms.
Therapeutic Sales . Our therapeutic sales for the three-month period ended March 31, 2026 were $126.4 million, up 9.9% when compared to sales in the corresponding period of 2025 of $115.0 million. Sales for the three-month period ended March 31, 2026 compared to the corresponding period in 2025 were favorably affected by increased sales within our cardiac therapies, endoscopy, vascular intervention and oncology platforms, with increases in our endoscopy sales partially attributable to the acquisition of the C2 Cryoballoon from Pentax. Such increases were partially offset by decreased sales within our OEM and renal therapies platforms.
Geographic Sales
Listed below are sales by geography for the three-month periods ended March 31, 2026 and 2025 (in thousands, other than percentage changes):
Three Months Ended
March 31,
% Change
2026
2025
Domestic
6.1
%
$
226,516
$
213,564
International
9.6
%
155,361
141,787
Total
7.5
%
$
381,877
$
355,351
Domestic Sales. Domestic sales for the three-month period ended March 31, 2026 were $226.5 million, or 59.3% of net sales, up 6.1% when compared to the corresponding period of 2025.
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International Sales . International sales for the three-month period ended March 31, 2026 were $155.4 million, or 40.7% of net sales, up 9.6% when compared to the corresponding period in 2025 of $141.8 million. The increase in our international sales for the three-month period ended March 31, 2026, compared to the corresponding period of 2025 included increased sales in each of our Europe, the Middle East and Africa, Rest of World and Asia Pacific regions .
Gross Profit
Our gross profit as a percentage of sales remained at 48.4% for the three-month period ended March 31, 2026, compared to 48.4% for the three-month period ended March 31, 2025.
Operating Expenses
Selling, General and Administrative Expense. Selling, general and administrative (“SG&A”) expenses increased $10.7 million, or 10.0%, for the three-month period ended March 31, 2026 compared to the corresponding period of 2025. As a percentage of sales, SG&A expenses were 31.0% for the three-month period ended March 31, 2026, compared to 30.2% for the corresponding period of 2025. For the three-month period ended March 31, 2026, SG&A expenses increased compared to the corresponding period of 2025, primarily due to an increase in labor-related costs including (i) commissions associated with sales growth and (ii) headcount additions to support investment in the business and growth from acquisitions, including those in connection with the Biolife Merger. Additional drivers of the increase were costs associated with the pending View Point Acquisition and company conferences.
Research and Development Expenses. Research and development (“R&D”) expenses for the three-month period ended March 31, 2026 were $22.6 million, up 0.6%, when compared to R&D expenses in the corresponding period of 2025 of $22.5 million. For the three-month period ended March 31, 2026, R&D expenses did not materially change compared to the corresponding period of 2025.
Contingent Consideration (Benefit) Expense . For the three-month period ended March 31, 2026, 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 $(0.2) million, compared to contingent consideration expense of $1.0 million for the three-month period ended March 31, 2025. Expense in each period related to changes in the probability and timing of achieving certain revenue and operational milestones, as well as expense for the passage of time.
Operating Income
Our operating income for the three-month period ended March 31, 2026 was $44.2 million, compared to operating income in the corresponding period of 2025 of $41.0 million. The increase in operating income during the three-month period ended March 31, 2026 compared to the corresponding period of 2025 was primarily a result of increased sales ($381.9 million compared to $355.4 million), partially offset by an increase in SG&A expense.
Other (Income) Expense – Net
Our other (income) expense for the three months ended March 31, 2026 and 2025 was $(9.4) million and $3.1 million, respectively. The change in other (income) expense for the three-month period ended March 31, 2026 compared to the corresponding periods of 2025 was primarily related to a gain of approximately $12.5 million associated with the sale of the DualCap® product line to Health Line in February 2026.
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Effective Tax Rate
Our provision for income taxes for the three-month periods ended March 31, 2026 and 2025 was a tax expense of $12.6 million and $7.8 million, respectively, which resulted in an effective tax rate of 23.4% and 20.6%, respectively. The increase in the effective income tax rate for the three-month period ended March 31, 2026, when compared to the prior-year period, was primarily due to decreased benefit from discrete items such as share-based compensation and the tax impacts of recent acquisition and divestiture activity. The increase in income tax expense for the three-month period ended March 31, 2026, when compared to the prior-year period, was primarily due to increased pre-tax book income and rate impact items previously listed. Our effective tax rate differs from the U.S. statutory rate primarily due to the impact of NCTI and Subpart F inclusions, state income taxes, foreign taxes, other nondeductible permanent items and discrete items (such as share-based compensation).
Net Income
Our net income for the three-month periods ended March 31, 2026 and 2025 was $41.0 million and $30.1 million, respectively. The increase in our net income for the three-month period ended March 31, 2026 was the result of several principal factors, including increased sales and other income, partially offset by increased SG&A expenses and income tax expense.
LIQUIDITY AND CAPITAL RESOURCES
Capital Commitments, Contractual Obligations and Cash Flows
As of March 31, 2026 and December 31, 2025, our current assets exceeded current liabilities by $884.9 million and $800.4 million, respectively, and we had cash, cash equivalents and restricted cash of $490.2 million and $448.5 million, respectively, of which $65.1 million and $66.0 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. federal income tax . As a result, earnings of our foreign subsidiaries are not considered to be permanently reinvested. 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, 2026, and December 31, 2025, we had cash, cash equivalents and restricted cash of $14.1 million and $20.0 million, respectively, within our subsidiary in China.
Cash flows provided by operating activities . We generated cash from operating activities of $40.7 million and $40.6 million during the three-month periods ended March 31, 2026 and 2025, respectively. Significant factors affecting operating cash flows during these periods included:
● Net income was $41.0 million and $30.1 million for the three-month periods ended March 31, 2026 and 2025, respectively.
● Depreciation and amortization was $30.5 million and $29.3 million for the three-month periods ended March 31, 2026 and 2025, respectively. The increase in depreciation and amortization for the three-month period ended March 31, 2026 was primarily associated with the amortization of developed technology and other intangible assets acquired in connection with the Biolife Merger and C2 Acquisition.
● Cash used for inventories was $22.7 million and $10.6 million for the three-month periods ended March 31, 2026 and 2025, respectively. The increase in inventories during 2026 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 $33.3 million and $20.7 million for the three-month periods ended March 31, 2026 and 2025, respectively, due primarily to the timing of payments made under our corporate bonus plan.
● Cash provided by (used for) other long-term obligations was $15.0 million and $(0.7) million for the three-month periods ended March 31, 2026 and 2025, respectively, due primarily to an increase in deferred revenue associated with revenue from contracts with customers under or OEM product platform in 2026.
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Cash flows provided by (used in) investing activities. Cash provided by (used in) in investing activities was $7.7 million and $(29.6) million for the three-month periods ended March 31, 2026 and 2025, respectively. We used cash for capital expenditures of property and equipment of $16.0 million and $21.1 million in the three-month periods ended March 31, 2026 and 2025, respectively. Capital expenditures in each period were primarily related to investments in property and equipment to support development and production of our products, and include 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 for the acquisition of equity investments and issuance of notes receivable were $7.1 million for the three-month period ended March 31, 2025. Cash outflows invested in acquisitions were $1.0 million for each of the three-month periods ended March 31, 2026 and 2025 and were related to the first and second deferred payments from our asset purchase agreement with Scholten Surgical Instruments, Inc. Cash inflows from divestitures were $25.5 million for the three month period ended March 31, 2026 and were related to the sale of the DualCap® product line to Health Line.
Cash flows (used in) provided by financing activities. Cash (used in) provided by financing activities for the three-month periods ended March 31, 2026 and 2025 was $(6.3) million and $7.0 million, respectively. For the three-month period ended March 31, 2026, we had cash used in financing activities of $2.1 million primarily attributable to the payment of milestone-based contingencies associated with the C2 Acquisition. We had cash (outflows) inflows from the issuance of Common Stock of $(4.1) million and $7.0 million, net of taxes paid in exchange for common stock, for the three-month periods ended March 31, 2026 and 2025, respectively, related to the exercise of non-qualified stock options and release of time and performance-based stock awards.
As of March 31, 2026, 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, 2026 and December 31, 2025 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. In the event we pursue and complete significant transactions or acquisitions in the future, additional funds may be required to meet our strategic needs, which may require us to raise additional funds in the debt or equity markets.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our financial results are affected by the selection and application of accounting policies and methods. In the three-month period ended March 31, 2026 there were no changes to the application of critical accounting policies previously disclosed in Part II, Item 7 of our 2025 Annual Report on Form 10-K.
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CAUTIONARY NOTICE REGARDING FORWARD-LOOKING 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 preceded 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, revenue, revenue growth or other future 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; and
• 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 Merit’s actual results to differ from our management’s expectations in any forward-looking statements: risks and uncertainties associated with Merit’s acquisition of View Point and the OneMark Tissue Localization System and related technology; risks and uncertainties associated with Merit’s integration of the View Point business, assets and operations into its operations and its ability to achieve anticipated financial results, product development and other anticipated benefits of the acquisition; uncertainties as to whether Merit will achieve revenue or other financial performance consistent with its forecasts projected for the View Point acquisition; risks and uncertainties associated with Merit’s executive succession and leadership transition; risks and uncertainties regarding trade policies or related actions implemented by the United States or other countries, including existing, proposed, prospective or invalidated tariffs, duties or other measures; risks and uncertainties associated with Merit’s integration of businesses or assets acquired from third parties, including the business and assets acquired in connection with the C2 Acquisiton in November 2025, the Biolife Merger in May 2025, and the businesses and assets 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 operating and financial results, product development and other anticipated benefits of such acquisitions; 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; U.S. and global political, economic, competitive, reimbursement and regulatory conditions; modification or limitation of, or policies and procedures associated with, governmental or private insurance reimbursement policies; 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; prospective financial obligations or other uncertainties associated with Merit’s divestiture of its DualCap® anti-microbial cap product line in February 2026; fluctuations in interest or foreign currency exchange rates and inflation; cybersecurity events; government scrutiny and regulation of the medical device industry; difficulties relating to development, testing and regulatory approval, clearance and maintenance of Merit’s products; the safety, efficacy and
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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; risks and possible effects of any 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 Merit’s 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; labor 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 that may affect our business, operations or financial condition, see Part I, Item 1A. “Risk Factors” in the 2025 Annual Report on Form 10-K filed with the SEC which we updated in Part II, Item 1A. “Risk Factors” in this report.
All subsequent forward-looking statements attributable to Merit or persons acting on its behalf are expressly qualified in their entirety by these cautionary statements. Financial estimates are subject to change and are not intended to be relied upon as predictions of future operating results. Those estimates and all other forward-looking statements included in this report are made only as of the date of this report, and except as otherwise required by applicable law, Merit assumes no obligation to update or disclose revisions to estimates and all other forward-looking statements.
NOTICE REGARDING TRADEMARKS
This report includes trademarks, tradenames and service marks that are our property or the property of others. Solely for convenience, such trademarks and tradenames sometimes appear without any “™” or “®” symbol. However, failure to include such symbols is not intended to suggest, in any way, that we will not assert our rights or the rights of any applicable licensor, to these trademarks and tradenames.