MERIT MEDICAL SYSTEMS INC [MMSI] Filings

10-Q 1 mmsi-20220630x10q.htm 10-Q

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dengu%911Y2022

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2022

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

Commission File Number 0-18592

MERIT MEDICAL SYSTEMS, INC.

(Exact name of registrant as specified in its charter)

Utah		87-0447695
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

1600 West Merit Parkway, South Jordan, Utah 84095

(Address of principal executive offices, including zip code)

Registrant’s telephone number, including area code: (801) 253-1600

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol	Name of exchange on which registered
Common Stock, no par	MMSI	NASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer ☒

Accelerated Filer ☐

Non-Accelerated Filer ☐

Smaller Reporting Company ☐

Emerging Growth Company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the Registrant’s classes of common stock, as of the latest practicable date.

Title or class		Shares outstanding as of August 3, 2022
Common Stock, no par		56,764,012

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TABLE OF CONTENTS

PART I.	FINANCIAL INFORMATION	3

Item 1.	Financial Statements (Unaudited)	3

	Consolidated Balance Sheets as of June 30, 2022 and December 31, 2021	3

	Consolidated Statements of Income for the three and six months ended June 30, 2022 and 2021	5

	Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2022 and 2021	6

	Consolidated Statements of Stockholders’ Equity for the three and six months ended June 30, 2022 and 2021	7

	Consolidated Statements of Cash Flows for the six months ended June 30, 2022 and 2021	9

	Condensed Notes to Consolidated Financial Statements	11

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	37

Item 4.	Controls and Procedures	37

PART II.	OTHER INFORMATION	38

Item 1.	Legal Proceedings	38

Item 1A.	Risk Factors	38

Item 6.	Exhibits	41

SIGNATURES		42

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PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands)


	June 30,		December 31,
ASSETS	2022		2021
		(unaudited)
Current assets:
Cash and cash equivalents	$	63,003	$	67,750
Trade receivables — net of allowance for credit losses — 2022 — $7,738 and 2021 — $6,767		158,801		152,301
Other receivables		10,627		17,763
Inventories		233,154		221,922
Prepaid expenses and other current assets		23,050		16,149
Prepaid income taxes		3,532		3,550
Income tax refund receivables		464		2,777
Total current assets		492,631		482,212

Property and equipment:
Land and land improvements		25,163		25,287
Buildings		188,550		190,044
Manufacturing equipment		286,257		277,976
Furniture and fixtures		62,620		61,446
Leasehold improvements		48,813		46,341
Construction-in-progress		54,409		51,182
Total property and equipment		665,812		652,276
Less accumulated depreciation		(294,361)		(280,618)
Property and equipment — net		371,451		371,658

Other assets:
Intangible assets:
Developed technology — net of accumulated amortization — 2022 — $254,031 and 2021 — $234,016		254,557		276,833
Other — net of accumulated amortization — 2022 — $66,591 and 2021 — $65,053		39,671		42,436
Goodwill		359,692		361,741
Deferred income tax assets		5,861		6,080
Right-of-use operating lease assets		64,353		65,913
Other assets		43,303		41,421
Total other assets		767,437		794,424

Total assets	$	1,631,519	$	1,648,294


See condensed notes to consolidated financial statements.	(continued)

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MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands)


	June 30,		December 31,
LIABILITIES AND STOCKHOLDERS’ EQUITY	2022		2021
		(unaudited)
Current liabilities:
Trade payables	$	59,441	$	55,624
Accrued expenses		111,955		159,014
Current portion of long-term debt		10,313		8,438
Short-term operating lease liabilities		10,444		10,668
Income taxes payable		3,437		2,536
Total current liabilities		195,590		236,280

Long-term debt		235,703		234,397
Deferred income tax liabilities		31,195		31,503
Long-term income taxes payable		347		347
Liabilities related to unrecognized tax benefits		932		932
Deferred compensation payable		15,562		18,111
Deferred credits		1,762		1,815
Long-term operating lease liabilities		59,646		61,526
Other long-term obligations		17,475		23,584
Total liabilities		558,212		608,495

Commitments and contingencies

Stockholders' equity:
Preferred stock — 5,000 shares authorized as of June 30, 2022 and December 31, 2021; no shares issued		—		—
Common stock, no par value; shares authorized — 2022 and 2021 - 100,000; issued and outstanding as of June 30, 2022 - 56,745 and December 31, 2021 - 56,570		651,926		641,533
Retained earnings		432,100		406,257
Accumulated other comprehensive loss		(10,719)		(7,991)
Total stockholders’ equity		1,073,307		1,039,799

Total liabilities and stockholders’ equity	$	1,631,519	$	1,648,294


See condensed notes to consolidated financial statements.	(concluded)

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MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share amounts - unaudited)


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2022		2021		2022		2021
Net sales	$	294,976	$	280,325	$	570,391	$	529,238
Cost of sales		159,909		156,186		314,417		293,205
Gross profit		135,067		124,139		255,974		236,033

Operating expenses:
Selling, general and administrative		85,487		91,563		169,502		172,587
Research and development		18,466		17,593		35,853		33,867
Impairment charges		—		4,283		1,672		4,283
Contingent consideration expense		1,187		1,805		3,787		2,207
Acquired in-process research and development		6,671		—		6,671		—
Total operating expenses		111,811		115,244		217,485		212,944

Income from operations		23,256		8,895		38,489		23,089

Other income (expense):
Interest income		96		92		201		564
Interest expense		(1,348)		(1,386)		(2,350)		(2,923)
Other expense — net		(1,303)		(736)		(1,468)		(1,171)
Total other expense — net		(2,555)		(2,030)		(3,617)		(3,530)

Income before income taxes		20,701		6,865		34,872		19,559

Income tax expense		5,403		1,949		9,029		3,685

Net income	$	15,298	$	4,916	$	25,843	$	15,874

Earnings per common share
Basic	$	0.27	$	0.09	$	0.46	$	0.28
Diluted	$	0.27	$	0.09	$	0.45	$	0.28

Weighted average shares outstanding
Basic		56,691		56,061		56,642		55,890
Diluted		57,600		57,277		57,565		57,128

See condensed notes to consolidated financial statements.

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MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands - unaudited)


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2022		2021		2022		2021
Net income	$	15,298	$	4,916	$	25,843	$	15,874
Other comprehensive income (loss):
Cash flow hedges		6,425		999		9,332		3,920
Income tax benefit (expense)		(1,572)		(248)		(2,284)		(972)
Foreign currency translation adjustment		(8,979)		1,800		(9,772)		(2,662)
Income tax benefit (expense)		60		(203)		(4)		332
Total other comprehensive income (loss)		(4,066)		2,348		(2,728)		618
Total comprehensive income	$	11,232	$	7,264	$	23,115	$	16,492

See condensed notes to consolidated financial statements.

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MERIT MEDICAL SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands - unaudited)


	Common Stock			Retained		Accumulated Other
	Shares	Amount		Earnings		Comprehensive Income (Loss)		Total
Balance — January 1, 2022	56,570	$	641,533	$	406,257	$	(7,991)	$	1,039,799
Net income					10,545				10,545
Other comprehensive income							1,338		1,338
Stock-based compensation expense			4,212						4,212
Options exercised	52		1,320						1,320
Issuance of common stock under Employee Stock Purchase Plan	5		320						320
Shares issued from time-vested restricted stock units	44		—						—
Shares surrendered in exchange for payment of payroll tax liabilities	(16)		(1,015)						(1,015)
Balance — March 31, 2022	56,655		646,370		416,802		(6,653)		1,056,519
Net income					15,298				15,298
Other comprehensive loss							(4,066)		(4,066)
Stock-based compensation expense			3,952						3,952
Options exercised	58		1,303						1,303
Issuance of common stock under Employee Stock Purchase Plan	6		301						301
Shares issued from time-vested restricted stock units	26		—						—
Balance — June 30, 2022	56,745	$	651,926	$	432,100	$	(10,719)	$	1,073,307


See condensed notes to consolidated financial statements.	(continued)

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MERIT MEDICAL SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands - unaudited)


	Common Stock			Retained		Accumulated Other
	Shares	Amount		Earnings		Comprehensive Income (Loss)		Total
Balance — January 1, 2021	55,623	$	606,224	$	357,803	$	(5,452)	$	958,575
Net income					10,958				10,958
Other comprehensive loss							(1,730)		(1,730)
Stock-based compensation expense			3,310						3,310
Options exercised	291		5,897						5,897
Issuance of common stock under Employee Stock Purchase Plan	5		263						263
Shares issued from time-vested restricted stock units	25		—						—
Shares surrendered in exchange for payment of payroll tax liabilities	(9)		(488)						(488)
Shares surrendered in exchange for exercise of stock options	(2)		(93)						(93)
Balance — March 31, 2021	55,933		615,113		368,761		(7,182)		976,692
Net income					4,916				4,916
Other comprehensive income							2,348		2,348
Stock-based compensation expense			2,765						2,765
Options exercised	253		5,455						5,455
Issuance of common stock under Employee Stock Purchase Plan	4		258						258
Shares issued from time-vested restricted stock units	34		—						—
Balance — June 30, 2021	56,224	$	623,591	$	373,677	$	(4,834)	$	992,434


See condensed notes to consolidated financial statements.	(concluded)

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MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands - unaudited)


	Six Months Ended
	June 30,
	2022		2021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	25,843	$	15,874
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		40,902		42,417
Loss on disposition of business		1,254		—
Loss on sale or abandonment of property and equipment		112		242
Write-off of certain intangible assets and other long-term assets		1,733		4,368
Acquired in-process research and development		6,671		—
Amortization of right-of-use operating lease assets		5,121		6,074
Adjustments and payments related to contingent consideration liability		1,999		2,207
Amortization of deferred credits		(54)		(54)
Amortization of long-term debt issuance costs		302		302
Stock-based compensation expense		9,093		6,732
Changes in operating assets and liabilities, net of acquisitions and divestitures:
Trade receivables		(9,472)		(7,833)
Other receivables		6,457		(793)
Inventories		(14,766)		3,185
Prepaid expenses and other current assets		(2,155)		(3,823)
Income tax refund receivables		(4)		(9)
Other assets		1,768		(685)
Trade payables		3,713		5,639
Accrued expenses		(20,966)		9,206
Income taxes payable		1,114		(860)
Deferred compensation payable		(2,549)		247
Operating lease liabilities		(5,609)		(6,259)
Other long-term obligations		287		263
Total adjustments		24,951		60,566
Net cash, cash equivalents, and restricted cash provided by operating activities		50,794		76,440

CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for:
Property and equipment		(16,763)		(12,817)
Intangible assets		(912)		(1,469)
Proceeds from the sale of property and equipment		59		884
Payments from disposition of business		(971)		—
Cash paid in acquisitions, net of cash acquired		(4,712)		(1,858)
Net cash, cash equivalents, and restricted cash used in investing activities	$	(23,299)	$	(15,260)


See condensed notes to consolidated financial statements.	(continued)

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MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands - unaudited)


	Six Months Ended
	June 30,
	2022		2021
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock	$	3,244	$	11,780
Proceeds from issuance of long-term debt		127,688		32,657
Payments on long-term debt		(124,563)		(91,535)
Contingent payments related to acquisitions		(32,798)		(489)
Payment of taxes related to an exchange of common stock		(1,015)		(488)
Net cash, cash equivalents, and restricted cash used in financing activities		(27,444)		(48,075)
Effect of exchange rates on cash, cash equivalents, and restricted cash		(2,564)		(349)
Net increase (decrease) in cash, cash equivalents and restricted cash		(2,513)		12,756

CASH, CASH EQUIVALENTS AND RESTRICTED CASH:
Beginning of period		67,750		56,916
End of period	$	65,237	$	69,672

RECONCILIATION OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH TO THE CONSOLIDATED BALANCE SHEETS:
Cash and cash equivalents		63,003		69,672
Restricted cash reported in prepaid expenses and other current assets		2,234		—
Total cash, cash equivalents and restricted cash	$	65,237	$	69,672

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest (net of capitalized interest of $302 and $234, respectively)	$	2,317	$	2,923
Income taxes		7,863		4,611

SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Property and equipment purchases in accounts payable	$	3,555	$	1,014
Acquisition purchases in other long-term obligations		(3,526)		—
Merit common stock surrendered (0 and 2 shares, respectively) in exchange for exercise of stock options		—		93
Right-of-use operating lease assets obtained in exchange for operating lease liabilities		4,746		361


See condensed notes to consolidated financial statements.	(concluded)

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MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Basis of Presentation and Other Items. The interim consolidated financial statements of Merit Medical Systems, Inc. ("Merit," "we" or "us") for the three and six-month periods ended June 30, 2022 and 2021 are not audited. Our consolidated financial statements are prepared in accordance with the requirements for unaudited interim periods and, consequently, do not include all disclosures required to be made in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). In the opinion of our management, the accompanying consolidated financial statements contain all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of our financial position as of June 30, 2022 and December 31, 2021, and our results of operations and cash flows for the three and six-month periods ended June 30, 2022 and 2021. The results of operations for the three and six-month periods ended June 30, 2022 and 2021 are not necessarily indicative of the results for a full-year period. Amounts presented in this report are rounded, while percentages and earnings per share amounts presented are calculated from the underlying amounts. These interim consolidated financial statements should be read in conjunction with the financial statements and risk factors included in our Annual Report on Form 10-K for the year ended December 31, 2021 (the “2021 Annual Report on Form 10-K”).

2. Recently Issued Financial Accounting Standards. In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides temporary optional expedients and exceptions in accounting for modifications of contracts that reference the London interbank offered rate (“LIBOR”) or another reference rate expected to be discontinued as a result of reference rate reform. In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope, which amended the scope of ASU 2020-04. ASU 2020-04 and ASU 2021-01 became effective as of March 12, 2020, and the provisions of these updates may be applied prospectively to transactions through December 31, 2022, when reference rate reform activity is expected to be completed. As of June 30, 2022, we had not modified any contracts as a result of reference rate reform. We are currently assessing the anticipated impact of these standards on our consolidated financial statements.

We currently believe that all other issued and not yet effective accounting standards are not materially relevant to our financial statements.

3. Revenue from Contracts with Customers. We recognize revenue when a customer obtains control of promised goods. The amount of revenue recognized reflects the consideration we expect to receive in exchange for these goods. Our revenue recognition policies have not changed from those disclosed in Note 1 to our consolidated financial statements in Item 8 of the 2021 Annual Report on Form 10-K.

Disaggregation of Revenue

Our revenue is disaggregated based on reporting segment, product category and geographical region. We design, develop, manufacture and market 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 original equipment manufacturer (“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 non-vascular diseases), as well as embolotherapeutic, cardiac rhythm management, electrophysiology, critical care, breast cancer localization and guidance, biopsy, and interventional oncology and spine devices. Our endoscopy segment consists of gastroenterology and pulmonology devices which assist in the palliative treatment of expanding esophageal, tracheobronchial and biliary strictures caused by malignant tumors.

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The following tables present revenue from contracts with customers by reporting segment, product category and geographical region for the three and six-month periods ended June 30, 2022 and 2021 (in thousands):


	Three Months Ended						Three Months Ended
	June 30, 2022						June 30, 2021
	United States		International		Total		United States		International		Total
Cardiovascular
Peripheral Intervention	$	65,795	$	45,160	$	110,955	$	63,235	$	42,365	$	105,600
Cardiac Intervention		33,909		55,665		89,574		33,217		52,436		85,653
Custom Procedural Solutions		27,318		21,775		49,093		27,392		21,244		48,636
OEM