MERIT MEDICAL SYSTEMS INC [MMSI] Filings

10-Q 1 mmsi-20240630x10q.htm 10-Q

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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, 2024

☐ 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 value	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 July 30, 2024
Common Stock, no par value		58,208,536

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TABLE OF CONTENTS

PART I.	FINANCIAL INFORMATION	3

Item 1.	Financial Statements (Unaudited)	3

	Consolidated Balance Sheets	3

	Consolidated Statements of Income	5

	Consolidated Statements of Comprehensive Income	6

	Consolidated Statements of Stockholders’ Equity	7

	Consolidated Statements of Cash Flows	9

	Condensed Notes to Consolidated Financial Statements	11

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	32

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	40

Item 4.	Controls and Procedures	41

PART II.	OTHER INFORMATION	41

Item 1.	Legal Proceedings	41

Item 1A.	Risk Factors	41

Item 5.	Other information	43

Item 6.	Exhibits	44

SIGNATURES		45

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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	2024		2023
		(unaudited)
Current assets:
Cash and cash equivalents	$	636,658	$	587,036
Trade receivables — net of allowance for credit losses — 2024 — $9,276 and 2023 — $9,023		182,415		177,885
Other receivables		10,612		10,517
Inventories		298,224		303,871
Prepaid expenses and other current assets		26,179		24,286
Prepaid income taxes		4,123		4,016
Income tax refund receivables		4,335		859
Total current assets		1,162,546		1,108,470

Property and equipment:
Land and land improvements		25,952		26,017
Buildings		191,030		191,491
Manufacturing equipment		330,290		316,930
Furniture and fixtures		64,755		63,044
Leasehold improvements		58,595		53,638
Construction-in-progress		61,060		61,439
Total property and equipment		731,682		712,559
Less accumulated depreciation		(345,743)		(329,036)
Property and equipment — net		385,939		383,523

Other assets:
Intangible assets:
Developed technology — net of accumulated amortization — 2024 — $346,763 and 2023 — $321,488		264,195		283,999
Other — net of accumulated amortization — 2024 — $80,628 and 2023 — $76,887		39,227		41,884
Goodwill		381,433		382,240
Deferred income tax assets		7,013		7,288
Right-of-use operating lease assets		69,903		63,047
Other assets		61,583		54,793
Total other assets		823,354		833,251

Total assets	$	2,371,839	$	2,325,244


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	2024		2023
		(unaudited)
Current liabilities:
Trade payables	$	55,573	$	65,944
Accrued expenses		117,574		120,447
Short-term operating lease liabilities		11,743		12,087
Income taxes payable		1,325		5,086
Total current liabilities		186,215		203,564

Long-term debt		801,321		823,013
Deferred income tax liabilities		5,510		5,547
Long-term income taxes payable		347		347
Liabilities related to unrecognized tax benefits		1,912		1,912
Deferred compensation payable		18,588		17,167
Deferred credits		1,553		1,605
Long-term operating lease liabilities		58,036		56,259
Other long-term obligations		15,912		13,830
Total liabilities		1,089,394		1,123,244

Commitments and contingencies

Stockholders' equity:
Preferred stock — 5,000 shares authorized; no shares issued as of June 30, 2024 and December 31, 2023		—		—
Common stock, no par value — 100,000 shares authorized; issued and outstanding as of June 30, 2024 - 58,192 and December 31, 2023 - 57,858		658,724		638,150
Retained earnings		639,150		575,184
Accumulated other comprehensive loss		(15,429)		(11,334)
Total stockholders’ equity		1,282,445		1,202,000

Total liabilities and stockholders’ equity	$	2,371,839	$	2,325,244


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,
	2024		2023		2024		2023
Net sales	$	338,003	$	320,056	$	661,511	$	617,621
Cost of sales		176,903		167,274		348,696		326,477
Gross profit		161,100		152,782		312,815		291,144

Operating expenses:
Selling, general and administrative		94,585		100,927		189,013		191,071
Research and development		20,263		20,129		41,745		41,443
Impairment charges		—		270		—		270
Contingent consideration expense		306		1,094		189		1,615
Acquired in-process research and development		—		1,550		—		1,550
Total operating expenses		115,154		123,970		230,947		235,949

Income from operations		45,946		28,812		81,868		55,195

Other income (expense):
Interest income		7,561		221		14,837		352
Interest expense		(7,679)		(3,682)		(15,725)		(5,693)
Other income (expense) — net		15		(451)		(789)		546
Total other expense — net		(103)		(3,912)		(1,677)		(4,795)

Income before income taxes		45,843		24,900		80,191		50,400

Income tax expense		10,117		4,655		16,225		9,452

Net income	$	35,726	$	20,245	$	63,966	$	40,948

Earnings per common share
Basic	$	0.61	$	0.35	$	1.10	$	0.71
Diluted	$	0.61	$	0.35	$	1.09	$	0.70

Weighted average shares outstanding
Basic		58,139		57,537		58,049		57,445
Diluted		58,740		58,473		58,653		58,329

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,
	2024		2023		2024		2023
Net income	$	35,726	$	20,245	$	63,966	$	40,948
Other comprehensive income (loss):
Cash flow hedges		(1,711)		3,422		1,261		1,731
Income tax benefit (expense)		404		(821)		(298)		(415)
Foreign currency translation adjustment		(1,688)		(1,201)		(5,092)		724
Income tax benefit (expense)		22		(15)		34		(34)
Total other comprehensive income (loss)		(2,973)		1,385		(4,095)		2,006
Total comprehensive income	$	32,753	$	21,630	$	59,871	$	42,954

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 Loss		Total

Balance — January 1, 2024	57,858	$	638,150	$	575,184	$	(11,334)	$	1,202,000
Net income					28,240				28,240
Other comprehensive loss							(1,122)		(1,122)
Stock-based compensation expense			4,934						4,934
Options exercised	213		7,394						7,394
Issuance of common stock under Employee Stock Purchase Plan	5		336						336
Shares issued from time-vested restricted stock units	47		—						—
Shares surrendered in exchange for payment of payroll tax liabilities	(21)		(1,592)						(1,592)
Balance — March 31, 2024	58,102		649,222		603,424		(12,456)		1,240,190
Net income					35,726				35,726
Other comprehensive loss							(2,973)		(2,973)
Stock-based compensation expense			6,301						6,301
Options exercised	66		2,913						2,913
Issuance of common stock under Employee Stock Purchase Plan	4		288						288
Shares issued from time-vested restricted stock units	20		—						—
Balance — June 30, 2024	58,192	$	658,724	$	639,150	$	(15,429)	$	1,282,445

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 Loss		Total
Balance — January 1, 2023	57,306	$	675,174	$	480,773	$	(11,550)	$	1,144,397
Net income					20,703				20,703
Other comprehensive income							621		621
Stock-based compensation expense			3,498						3,498
Options exercised	123		3,726						3,726
Issuance of common stock under Employee Stock Purchase Plan	4		302						302
Shares issued from time-vested restricted stock units	61		—						—
Shares surrendered in exchange for payment of payroll tax liabilities	(22)		(1,592)						(1,592)
Balance — March 31, 2023	57,472		681,108		501,476		(10,929)		1,171,655
Net income					20,245				20,245
Other comprehensive income							1,385		1,385
Stock-based compensation expense			4,980						4,980
Options exercised	128		5,154						5,154
Issuance of common stock under Employee Stock Purchase Plan	4		281						281
Shares issued from time-vested restricted stock units	30		—						—
Balance — June 30, 2023	57,634	$	691,523	$	521,721	$	(9,544)	$	1,203,700


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,
	2024		2023
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	63,966	$	40,948
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		47,690		42,316
Loss on sale or abandonment of property and equipment		79		4,677
Write-off of certain intangible assets and other long-term assets		280		328
Acquired in-process research and development		—		1,550
Amortization of right-of-use operating lease assets		6,063		5,935
Fair value adjustments related to contingent consideration liabilities		189		1,615
Amortization of deferred credits		(52)		(52)
Amortization of long-term debt issuance costs		2,954		462
Stock-based compensation expense		12,245		9,549
Changes in operating assets and liabilities, net of acquisitions and divestitures:
Trade receivables		(6,901)		(5,980)
Other receivables		(499)		287
Inventories		3,119		(35,502)
Prepaid expenses and other current assets		(2,306)		78
Income tax refund receivables		(3,621)		(3,577)
Other assets		(2,968)		(1,558)
Trade payables		(7,096)		(7,253)
Accrued expenses		(2,804)		(10,295)
Income taxes payable		(3,869)		(4,896)
Deferred compensation payable		1,421		1,154
Operating lease liabilities		(5,962)		(5,711)
Other long-term obligations		2,794		(2,244)
Total adjustments		40,756		(9,117)
Net cash, cash equivalents, and restricted cash provided by operating activities		104,722		31,831

CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for:
Property and equipment		(22,309)		(18,556)
Intangible assets		(1,576)		(1,047)
Proceeds from the sale of property and equipment		2		201
Issuance of note receivables		(6,162)		—
Cash paid in acquisitions and investments, net of cash acquired		(8,493)		(138,349)
Net cash, cash equivalents, and restricted cash used in investing activities	$	(38,538)	$	(157,751)


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,
	2024		2023
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock	$	10,931	$	9,463
Proceeds from issuance of long-term debt		—		460,283
Payments on long-term debt		(24,063)		(318,471)
Long-term debt issuance costs		—		(5,240)
Contingent payments related to acquisitions		(142)		(3,434)
Payment of taxes related to an exchange of common stock		(1,592)		(1,592)
Net cash, cash equivalents, and restricted cash (used in) provided by financing activities		(14,866)		141,009
Effect of exchange rates on cash, cash equivalents, and restricted cash		(1,750)		(1,497)
Net increase in cash, cash equivalents and restricted cash		49,568		13,592

CASH, CASH EQUIVALENTS AND RESTRICTED CASH:
Beginning of period		589,144		60,558
End of period	$	638,712	$	74,150

RECONCILIATION OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH TO THE CONSOLIDATED BALANCE SHEETS:
Cash and cash equivalents		636,658		72,084
Restricted cash reported in prepaid expenses and other current assets		2,054		2,066
Total cash, cash equivalents and restricted cash	$	638,712	$	74,150

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest (net of capitalized interest of $428 and $597, respectively)	$	4,404	$	3,681
Income taxes		22,619		17,787

SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Property and equipment purchases in accounts payable	$	5,411	$	4,291
Acquisition purchases in accrued expenses and other long-term obligations		4,553		3,635
Right-of-use operating lease assets obtained in exchange for operating lease liabilities		8,167		3,399


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, 2024 and 2023 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. 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, 2024 and December 31, 2023, and our results of operations and cash flows for the three and six-month periods ended June 30, 2024 and 2023. The results of operations for the three and six-month periods ended June 30, 2024 and 2023 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, 2023 (the “2023 Annual Report on Form 10-K”).

2. Recently Issued Accounting Standards. In November 2023, the Financial Accounting Standards Board (“FASB’) issued Accounting Standard Update (“ASU”) 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires a public entity to disclose significant segment expenses and other segment items on an annual and interim basis and to provide in interim periods all disclosures about reportable segment’s profit or loss and assets that are currently required annually. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The provisions of this update must be applied retrospectively to all periods presented in the financial statements. We are currently assessing the anticipated impact of this standard on our consolidated financial statements.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, to improve annual basis income tax disclosures related to (1) rate reconciliation, (2) income taxes paid, and (3) other disclosures related to pretax income (or loss) and income tax expense (or benefit) from continuing operations. ASU 2023-09 is effective for fiscal years beginning after December 15, 2025, with early adoption permitted. These amendments are to be applied on a prospective basis. Retrospective application is permitted. We are currently evaluating the impact this standard will have on our consolidated financial statement disclosures.

We currently believe there are no other issued and not yet effective accounting standards that are 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 2023 Annual Report on Form 10-K.

Disaggregation of Revenue

Our revenue is disaggregated based on reporting segment, product category and geographic region. We design, develop, manufacture and market medical products for interventional, diagnostic and therapeutic 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.

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The following table presents revenue from contracts with customers by reporting segment, product category and geographic region for the three and six-month periods ended June 30, 2024 and 2023 (in thousands):

Three Months Ended