Company Quick10K Filing
Quick10K
Merit Medical Systems
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$57.48 55 $3,160
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-06-20 Regulation FD, Exhibits
8-K 2019-05-23 Officers, Shareholder Vote
8-K 2019-04-23 Earnings, Regulation FD, Exhibits
8-K 2019-03-11 Officers
8-K 2018-12-20 Officers
8-K 2018-12-14 M&A, Regulation FD, Exhibits
8-K 2018-11-14 M&A, Off-BS Arrangement, Regulation FD, Exhibits
8-K 2018-10-25 Earnings, Regulation FD, Exhibits
8-K 2018-10-01 Enter Agreement, Regulation FD, Exhibits
8-K 2018-07-25 Enter Agreement, Other Events, Exhibits
8-K 2018-07-24 Regulation FD, Exhibits
8-K 2018-07-23 Earnings, Officers, Regulation FD, Exhibits
8-K 2018-06-06 Regulation FD, Exhibits
8-K 2018-05-31 Officers, Amend Bylaw, Shareholder Vote, Regulation FD, Exhibits
8-K 2018-04-25 Earnings, Regulation FD, Exhibits
8-K 2018-02-28 Earnings, Regulation FD, Exhibits
8-K 2018-02-21 M&A, Off-BS Arrangement, Regulation FD, Exhibits
OUT Outfront Media 3,540
FORM Formfactor 1,250
SASR Sandy Spring Bancorp 1,240
HX Hexindai 142
ACHV Achieve Life Sciences 28
FAMI Farmmi 27
HLYK Healthlynked 0
BNET Bion Environmental Technologies 0
MTUU Mitu Resources 0
EMYB Embassy Bancorp 0
MMSI 2019-03-31
Part I - Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Dicslosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 6. Exhibits
EX-10.2 a2019executivebonuspla.htm
EX-10.3 vascularinsight-ex103.htm
EX-31.1 mmsi-3312019x10qxex311.htm
EX-31.2 mmsi-3312019x10qxex312.htm
EX-32.1 mmsi-3312019x10qxex321.htm
EX-32.2 mmsi-3312019x10qxex322.htm

Merit Medical Systems Earnings 2019-03-31

MMSI 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Document
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Table of Contents

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 FORM 10-Q
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2019
 
 
OR
 
 
o
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
 
a2017mmsilogoaa19.jpg
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
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 such filing requirements for the past 90 days.  Yes x  No o
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 x  No o
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 x
Accelerated Filer o
Non-Accelerated Filer  o
Smaller Reporting Company o
Emerging Growth Company o
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. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o  No x
Indicate the number of shares outstanding of each of the Registrant’s classes of common stock, as of the latest practicable date.
Common Stock
 
55,004,915
Title or class
 
Number of Shares
Outstanding at April 30, 2019
 


Table of Contents

TABLE OF CONTENTS

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



Table of Contents

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2019 AND DECEMBER 31, 2018
(In thousands)

 
March 31,
 
December 31,
 
2019
 
2018
ASSETS
(unaudited)
 
 
CURRENT ASSETS:
 
 
 
Cash and cash equivalents
$
49,522

 
$
67,359

Trade receivables — net of allowance for uncollectible accounts — 2019 — $2,406 and 2018 — $2,355
146,488

 
137,174

Other receivables
10,694

 
11,879

Inventories
198,922

 
197,536

Prepaid expenses and current other assets
11,220

 
11,326

Prepaid income taxes
3,620

 
3,627

Income tax refund receivables
1,317

 
933

 
 
 
 
Total current assets
421,783

 
429,834

 
 
 
 
PROPERTY AND EQUIPMENT:
 
 
 
Land and land improvements
26,764

 
26,801

Buildings
152,974

 
151,251

Manufacturing equipment
225,402

 
221,029

Furniture and fixtures
55,378

 
54,765

Leasehold improvements
34,221

 
33,678

Construction-in-progress
61,304

 
53,491

 
 
 
 
Total property and equipment
556,043

 
541,015

 
 
 
 
Less accumulated depreciation
(215,279
)
 
(209,563
)
 
 
 
 
Property and equipment — net
340,764

 
331,452

 
 
 
 
OTHER ASSETS:
 
 
 
Intangible assets:
 
 
 
Developed technology — net of accumulated amortization — 2019 — $113,765 and 2018 — $102,357
371,603

 
383,147

Other — net of accumulated amortization — 2019 — $52,469 and 2018 — $49,136
77,104

 
79,566

Goodwill
334,951

 
335,433

Deferred income tax assets
3,083

 
3,001

Right-of-use operating lease assets
80,453

 

Other assets
60,052

 
57,579

 
 
 
 
Total other assets
927,246

 
858,726

 
 
 
 
TOTAL
$
1,689,793

 
$
1,620,012

See condensed notes to consolidated financial statements.
 
 
(continued)


3

Table of Contents

MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2019 AND DECEMBER 31, 2018
(In thousands)

 
March 31,
 
December 31,
 
2019
 
2018
LIABILITIES AND STOCKHOLDERS’ EQUITY
(unaudited)
 
 
 
 
 
 
CURRENT LIABILITIES:
 
 
 
Trade payables
$
51,680

 
$
54,024

Accrued expenses
91,310

 
96,173

Current portion of long-term debt
22,000

 
22,000

Short-term operating lease liability
11,825

 

Income taxes payable
1,644

 
3,146

 
 
 
 
Total current liabilities
178,459

 
175,343

 
 
 
 
LONG-TERM DEBT
362,187

 
373,152

 
 
 
 
DEFERRED INCOME TAX LIABILITIES
56,324

 
56,363

 
 
 
 
LONG-TERM INCOME TAXES PAYABLE
392

 
392

 
 
 
 
LIABILITIES RELATED TO UNRECOGNIZED TAX BENEFITS
3,013

 
3,013

 
 
 
 
DEFERRED COMPENSATION PAYABLE
12,480

 
11,219

 
 
 
 
DEFERRED CREDITS
2,227

 
2,261

 
 
 
 
LONG-TERM OPERATING LEASE LIABILITY
72,243

 

 
 
 
 
OTHER LONG-TERM OBLIGATIONS
62,357

 
65,494

 
 
 
 
Total liabilities
749,682

 
687,237

 
 
 
 
COMMITMENTS AND CONTINGENCIES (Notes 5, 10, 11, 14 and 15)


 


 
 
 
 
STOCKHOLDERS’ EQUITY:
 
 
 
Preferred stock — 5,000 shares authorized as of March 31, 2019 and December 31, 2018; no shares issued

 

Common stock, no par value; shares authorized — 2019 and 2018 - 100,000; issued and outstanding as of March 31, 2019 - 54,995 and December 31, 2018 - 54,893
574,946

 
571,383

Retained earnings
369,713

 
363,425

Accumulated other comprehensive loss
(4,548
)
 
(2,033
)
 
 
 
 
Total stockholders’ equity
940,111

 
932,775

 
 
 
 
TOTAL
$
1,689,793

 
$
1,620,012

See condensed notes to consolidated financial statements.
 
 
(concluded)


4

Table of Contents

MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2019 AND 2018
(In thousands, except per share amounts - unaudited)

 
Three Months Ended March 31,
 
2019
 
2018
NET SALES
$
238,349

 
$
203,035

 
 
 
 
COST OF SALES
133,713

 
114,979

 
 
 
 
GROSS PROFIT
104,636

 
88,056

 
 
 
 
OPERATING EXPENSES:
 
 
 
Selling, general and administrative
78,270

 
64,913

Research and development
16,043

 
14,322

Contingent consideration expense
775

 
40

Acquired in-process research and development
25

 

 
 
 
 
Total operating expenses
95,113

 
79,275

 
 
 
 
INCOME FROM OPERATIONS
9,523

 
8,781

 
 
 
 
OTHER INCOME (EXPENSE):
 
 
 
Interest income
357

 
146

Interest expense
(2,764
)
 
(2,398
)
Other expense - net
(270
)
 
(170
)
 
 
 
 
Total other expense — net
(2,677
)
 
(2,422
)
 
 
 
 
INCOME BEFORE INCOME TAXES
6,846

 
6,359

 
 
 
 
INCOME TAX EXPENSE
651

 
1,090

 
 
 
 
NET INCOME
$
6,195

 
$
5,269

 
 
 
 
EARNINGS PER COMMON SHARE:
 
 
 
Basic
$
0.11

 
$
0.10

 
 
 
 
Diluted
$
0.11

 
$
0.10

 
 
 
 
AVERAGE COMMON SHARES:
 
 
 
Basic
54,917

 
50,277

 
 
 
 
Diluted
56,490

 
51,910

 
 
 
 
See condensed notes to consolidated financial statements.
 
 
 

5

Table of Contents

MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2019 AND 2018
(In thousands - unaudited)
 
Three Months Ended March 31,
 
2019
 
2018
Net income
$
6,195

 
$
5,269

Other comprehensive income (loss):
 
 
 
Cash flow hedges
(2,577
)
 
1,992

Income tax benefit (expense)
663

 
(512
)
Foreign currency translation adjustment
(615
)
 
2,592

Income tax benefit
14

 

Total other comprehensive income (loss)
(2,515
)
 
4,072

Total comprehensive income
$
3,680

 
$
9,341

 
 
 
 
See condensed notes to consolidated financial statements.
 
 



6

Table of Contents

MERIT MEDICAL SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2019 AND 2018
(In thousands - unaudited)
 
 
 
 
 
 
 
 
 
Accumulated Other
 
 
 
Common Stock
 
Retained
 
Comprehensive
 
Total
 
Shares
 
Amount
 
Earnings
 
Loss
BALANCE — January 1, 2019
$
932,775

 
54,893

 
$
571,383

 
$
363,425

 
$
(2,033
)
 
 
 
 
 
 
 
 
 
 
Net income
6,195

 
 
 
 
 
6,195

 
 
Reclassify deferred gain on sale-leaseback upon adoption of ASC 842
93

 
 
 
 
 
93

 
 
Other comprehensive loss
(2,515
)
 
 
 
 
 
 
 
(2,515
)
Stock-based compensation expense
1,766

 
 
 
1,766

 
 
 
 
Options exercised
1,365

 
95

 
1,365

 
 
 
 
Issuance of common stock under Employee Stock Purchase Plans
432

 
7

 
432

 
 
 
 
 


 
 
 
 
 
 
 
 
BALANCE — March 31, 2019
$
940,111

 
54,995

 
$
574,946

 
$
369,713

 
$
(4,548
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Accumulated Other
 
 
 
Common Stock
 
Retained
 
Comprehensive
 
Total
 
Shares
 
Amount
 
Earnings
 
Income
BALANCE — January 1, 2018
$
676,334

 
50,248

 
$
353,392

 
$
321,408

 
$
1,534

 
 
 
 
 
 
 
 
 
 
Net income
5,269

 
 
 
 
 
5,269

 
 
Other comprehensive income
4,072

 
 
 
 
 
 
 
4,072

Stock-based compensation expense
1,256

 
 
 
1,256

 
 
 
 
Options exercised
1,286

 
91

 
1,286

 
 
 
 
Issuance of common stock under Employee Stock Purchase Plans
294

 
7

 
294

 
 
 
 
 


 
 
 
 
 
 
 
 
BALANCE — March 31, 2018
$
688,511

 
50,346

 
$
356,228

 
$
326,677

 
$
5,606

 
 
 
 
 
 
 
 
 
 
See condensed notes to consolidated financial statements.
 
 
 
 
 
 
 
 


7

Table of Contents

MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2019 AND 2018
(In thousands - unaudited)
 
Three Months Ended March 31,
 
2019
 
2018
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net income
$
6,195

 
$
5,269

 
 
 
 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
22,348

 
15,284

Loss on sales and/or abandonment of property and equipment
288

 
351

Amortization of right-of-use operating lease assets
2,964

 

Write-off of patents and intangible assets

 
57

Acquired in-process research and development
25

 

Amortization of deferred credits
(35
)
 
(36
)
Amortization of long-term debt issuance costs
201

 
201

Stock-based compensation expense
1,766

 
1,256

Changes in operating assets and liabilities, net of effects from acquisitions:
 
 
 
Trade receivables
(11,557
)
 
(13,166
)
Other receivables
1,070

 
898

Inventories
(1,340
)
 
(5,388
)
Prepaid expenses and other current assets
19

 
(1,223
)
Prepaid income taxes
(53
)
 
(72
)
Income tax refund receivables
(442
)
 
(205
)
Other assets
(2,092
)
 
(491
)
Trade payables
(878
)
 
8,409

Accrued expenses
(3,450
)
 
(2,395
)
Income taxes payable
(879
)
 
(480
)
Deferred compensation payable
1,261

 
3

Operating lease liabilities
(3,054
)
 

Other long-term obligations
1,148

 
(337
)
 
 
 
 
Total adjustments
7,310

 
2,666

 
 
 
 
Net cash provided by operating activities
13,505

 
7,935

 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
Capital expenditures for:
 
 
 
Property and equipment
(18,255
)
 
(16,239
)
Intangible assets
(853
)
 
(885
)
Proceeds from the sale of property and equipment
3

 
3

Cash paid in acquisitions, net of cash acquired
(1,942
)
 
(100,195
)
 
 
 
 
Net cash used in investing activities
(21,047
)
 
(117,316
)
 
 
 
 
See condensed notes to consolidated financial statements.
 
 
(continued)


8

Table of Contents

MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2019 AND 2018
(In thousands - unaudited)
 
Three Months Ended March 31,
 
2019
 
2018
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
Proceeds from issuance of common stock
$
1,733

 
$
1,511

Proceeds from issuance of long-term debt
43,119

 
256,971

Payments on long-term debt
(54,119
)
 
(148,971
)
Contingent payments related to acquisitions
(554
)
 
(15
)
 
 
 
 
Net cash provided by (used in) financing activities
(9,821
)
 
109,496

 
 
 
 
EFFECT OF EXCHANGE RATES ON CASH
(474
)
 
1,720

 
 
 
 
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(17,837
)
 
1,835

 
 
 
 
CASH AND CASH EQUIVALENTS:
 
 
 
Beginning of period
67,359

 
32,336

 
 
 
 
End of period
$
49,522

 
$
34,171

 
 
 
 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
 
 
 
Cash paid during the period for:
 
 
 
Interest (net of capitalized interest of $241 and $146, respectively)
$
2,721

 
$
2,383

 
 
 
 
Income taxes
$
1,934

 
$
1,810

 
 
 
 
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES
 
 
 
Property and equipment purchases in accounts payable
$
4,588

 
$
1,752

 
 
 
 
Right-of-use operating lease assets obtained in exchange for operating lease liabilities
$
1,162

 
$

 
 
 
 
See condensed notes to consolidated financial statements.
 
 
(concluded)



9

Table of Contents

MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
1. Basis of Presentation. The interim consolidated financial statements of Merit Medical Systems, Inc. ("Merit," "we" or "us") for the three-month periods ended March 31, 2019 and 2018 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 March 31, 2019 and December 31, 2018, and our results of operations and cash flows for the three-month periods ended March 31, 2019 and 2018. The results of operations for the three-month periods ended March 31, 2019 and 2018 are not necessarily indicative of the results for a full-year period. These interim consolidated financial statements should be read in conjunction with the financial statements included in our Annual Report on Form 10-K (the "2018 Form 10-K") for the year ended December 31, 2018, which was filed with the Securities and Exchange Commission (the "SEC") on March 1, 2019.


2. Inventories. Inventories at March 31, 2019 and December 31, 2018, consisted of the following (in thousands):

 
March 31,
 
December 31,
 
2019
 
2018
Finished goods
$
117,112

 
$
117,703

Work-in-process
20,192

 
14,380

Raw materials
61,618

 
65,453

 
 
 
 
Total Inventories
$
198,922

 
$
197,536


 

3. Stock-Based Compensation Expense. The stock-based compensation expense before income tax expense for the three months ended March 31, 2019 and 2018, consisted of the following (in thousands):
 
Three Months Ended March 31,
 
2019
 
2018
Cost of sales
$
252

 
$
184

Research and development
192

 
124

Selling, general and administrative
1,322

 
948

Stock-based compensation expense before taxes
$
1,766

 
$
1,256



We recognize stock-based compensation expense (net of a forfeiture rate) for those awards which are expected to vest on a straight-line basis over the requisite service period. We estimate the forfeiture rate based on our historical experience and expectations about future forfeitures. As of March 31, 2019, the total remaining unrecognized compensation cost related to non-vested stock options, net of expected forfeitures, was approximately $32.8 million and was expected to be recognized over a weighted average period of 3.48 years.

During the three-month period ended March 31, 2019, we granted stock-based awards representing 909,603 shares of our common stock. During the three-month period ended March 31, 2018, we granted stock-based awards representing 492,002 shares of our common stock. We use the Black-Scholes methodology to value the stock-based compensation expense for options. In applying the Black-Scholes methodology to the option grants, the fair value of our stock-based awards granted was estimated using the following assumptions for the periods indicated below:


10

Table of Contents

 
Three Months Ended March 31,
 
2019
 
2018
Risk-free interest rate
2.42% - 2.56%
 
2.63%
Expected option term
3.0 - 5.0 years
 
5.0 years
Expected dividend yield
 
Expected price volatility
28.93% - 33.69%
 
34.32%


The average risk-free interest rate is determined using the U.S. Treasury rate in effect as of the date of grant, based on the expected term of the stock options. We determine the expected term of the stock options using the historical exercise behavior of employees. The expected price volatility was determined using a weighted average of daily historical volatility of our stock price over the corresponding expected option term and implied volatility based on recent trends of the daily historical volatility. For options with a vesting period, compensation expense is recognized on a straight-line basis over the service period, which corresponds to the vesting period. 


4. Earnings Per Common Share (EPS). The computation of weighted average shares outstanding and the basic and diluted earnings per common share for the following periods consisted of the following (in thousands, except per share amounts):

 
Net
Income
 
Shares
 
Per Share
Amount
Three-month period ended March 31, 2019:
 

 
 

 
 

Basic EPS
$
6,195

 
54,917

 
$
0.11

Effect of dilutive stock options
 

 
1,573

 
 

 
 
 
 
 
 
Diluted EPS
$
6,195

 
56,490

 
$
0.11

 
 
 
 
 
 
Stock options excluded from the calculation of common stock equivalents as the impact was anti-dilutive
 
 
976

 
 
 
 
 
 
 
 
Three-month period ended March 31, 2018:
 

 
 

 
 

Basic EPS
$
5,269

 
50,277

 
$
0.10

Effect of dilutive stock options
 

 
1,633

 
 

 
 
 
 
 
 
Diluted EPS
$
5,269

 
51,910

 
$
0.10

 
 
 
 
 
 
Stock options excluded from the calculation of common stock equivalents as the impact was anti-dilutive
 
 
184

 
 




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5. Acquisitions. On March 28, 2019, we paid $2 million to acquire convertible participating preferred shares of Fluidx Medical Technology, LLC ("Fluidx"), owner of certain technology proposed to be used in the development of embolic and adhesive agents for use in arterial, venous, vascular graft and cardiovascular applications inside and outside the heart and related appendages. Our investment in Fluidx has been recorded as an equity investment accounted for at cost and reflected within other assets in the accompanying consolidated balance sheets because we are not able to exercise significant influence over the operations of Fluidx. Our total current investment in Fluidx represents an ownership of approximately 12.7% of the outstanding equity interests of Fluidx.

On December 14, 2018, we consummated an acquisition transaction contemplated by an asset purchase agreement with Vascular Insights, LLC and VI Management, Inc. (combined "Vascular Insights") and acquired Vascular Insight's intellectual property rights, inventory and certain other assets, including, the ClariVein® IC system and the ClariVein OC system. The ClariVein systems are specialty infusion and occlusion catheter systems with rotating wire tips designed for the controlled 360-degree dispersion of physician-specified agents to the targeted treatment area. We accounted for this acquisition as a business combination. The purchase consideration included an upfront payment of $40 million, and we are obligated to pay up to an additional $20 million based on achieving certain revenue milestones specified in the asset purchase agreement. The sales and results of operations related to this acquisition have been included in our cardiovascular segment. During the three-month period ended March 31, 2019, net sales of products acquired from Vascular Insights were approximately $1.5 million. It is not practical to separately report earnings related to the products acquired from Vascular Insights, as we cannot split out sales costs related solely to the products we acquired from Vascular Insights, principally because our sales representatives sell multiple products (including the products we acquired from Vascular Insights) in our cardiovascular business segment. Acquisition-related costs associated with the Vascular Insights acquisition, which were included in selling, general and administrative expenses during the year ended December 31, 2018, were not material. We are in the process of finalizing the net working capital adjustment pursuant to the asset purchase agreement. The purchase price was preliminarily allocated as follows (in thousands):
 
Inventories
$
1,353

 
Intangibles
 
 
Developed technology
32,750

 
Customer list
840

 
Trademarks
1,410

 
Goodwill
21,847

 
 
 
 
Total net assets acquired
$
58,200



We are amortizing the developed technology intangible asset acquired from Vascular Insights over 12 years, the related trademarks over nine years and the customer list on an accelerated basis over eight years. The total weighted-average amortization period for these acquired intangible assets is approximately 11.8 years.

On November 13, 2018, we consummated an acquisition transaction contemplated by a merger agreement to acquire Cianna Medical, Inc. ("Cianna Medical"). The purchase consideration consisted of an upfront payment of $135 million plus a final working capital adjustment of approximately $1.2 million in cash, with potential earn-out payments of up to an additional $15 million for achievement of supply chain and scalability metrics and up to an additional $50 million for the achievement of sales milestones. Cianna Medical developed the first non-radioactive, wire-free breast cancer localization system. Its SCOUT® and SAVI® Brachy technologies are FDA-cleared and address unmet needs in the delivery of radiation therapy, tumor localization and surgical guidance. We accounted for this acquisition as a business combination. During the three-month period ended March 31, 2019, net sales of Cianna Medical products were approximately $12.8 million. It is not practical to separately report earnings related to the products acquired from Cianna Medical, as we cannot split out sales costs related solely to the products we acquired from Cianna Medical, principally because our sales representatives sell multiple products (including the products we acquired from Cianna Medical) in our cardiovascular business segment. Acquisition-related costs associated with the Cianna Medical acquisition, which were included in selling, general and administrative expenses during the year ended December 31, 2018, were approximately $3.5 million. The following table summarizes the preliminary purchase price allocated to the net assets acquired from Cianna Medical (in thousands):

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Assets Acquired
 
Trade receivables
$
6,151

Inventories
5,803

Prepaid expenses and other current assets
315

Property and equipment
1,047

Other long-term assets
14

Intangibles
 
Developed technology
134,510

Customer lists
3,330

Trademarks
7,080

Goodwill
65,802

Total assets acquired
224,052

 
 
Liabilities Assumed
 
Trade payables
(1,497
)
Accrued expenses
(2,384
)
Other long-term liabilities
(1,527
)
Deferred income tax liabilities
(30,363
)
Total liabilities assumed
(35,771
)
 
 
Total net assets acquired
$
188,281



We are amortizing the developed technology intangible assets of Cianna Medical over 11 years, the related trademarks over ten years and the customer lists on an accelerated basis over eight years. The total weighted-average amortization period for these acquired intangible assets is approximately 10.7 years.

On May 23, 2018, we entered into an asset purchase agreement with DirectACCESS Medical, LLC (“DirectACCESS”) to acquire its assets, including, certain product distribution agreements for the FirstChoice™ Ultra High Pressure PTA Balloon Catheter. We accounted for this acquisition as a business combination. The purchase price for the assets was approximately $7.3 million. The sales and results of operations related to the acquisition have been included in our cardiovascular segment since the acquisition date and were not material. Acquisition-related costs associated with the DirectACCESS acquisition, which were included in selling, general and administrative expenses during the year ended December 31, 2018, were not material. The purchase price was preliminarily allocated as follows (in thousands):
Inventories
$
971

Intangibles
 
Developed technology
4,840

Customer list
120

Trademarks
400

Goodwill
938

 
 
Total net assets acquired
$
7,269



We are amortizing the developed technology intangible asset of DirectACCESS over ten years, the related trademarks over ten years and the customer list on an accelerated basis over five years. The total weighted-average amortization period for these acquired intangible assets is approximately 9.9 years.
    
On February 14, 2018, we acquired certain divested assets from Becton, Dickinson and Company ("BD"), for an aggregate purchase price of $100.3 million. The assets acquired include the soft tissue core needle biopsy products sold under the tradenames of Achieve® Programmable Automatic Biopsy System, Temno® Biopsy System, Tru-Cut® Biopsy Needles as well as Aspira® Pleural Effusion Drainage Kits, and the Aspira® Peritoneal Drainage System. We accounted for this acquisition as a business

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combination. During the three-month periods ended March 31, 2019 and 2018, our net sales of BD products were approximately $11.6 million and $6.3 million, respectively. It is not practical to separately report earnings related to the products acquired from BD, as we cannot split out sales costs related solely to the products we acquired from BD, principally because our sales representatives sell multiple products (including the products we acquired from BD) in our cardiovascular business segment. Acquisition-related costs associated with the BD acquisition, which were included in selling, general and administrative expenses during the year ended December 31, 2018, were approximately $1.8 million. The following table summarizes the purchase price allocated to the assets acquired from BD (in thousands):
Inventories
$
5,804

Property and equipment
748

Intangibles
 
Developed technology
74,000

Customer list
4,200

Trademarks
4,900

In-process technology
2,500

Goodwill
9,728

 
 
Total net assets acquired
$
101,880



We are amortizing the developed technology intangible assets acquired from BD over eight years, the related trademarks over nine years and the customer lists on an accelerated basis over seven years. The total weighted-average amortization period for these acquired intangible assets is eight years.

The following table summarizes our consolidated results of operations for the three-month period ended March 31, 2018, as well as unaudited pro forma consolidated results of operations as though the acquisition of Cianna Medical and Vascular Insights had occurred on January 1, 2017 (in thousands, except per common share amounts):
 
 
Three Months Ended
 
 
March 31, 2018
 
 
As Reported
 
Pro Forma
Net sales
 
$
203,035

 
$
222,440

Net income
 
5,269

 
(2,050
)
Earnings per common share:
 
 
 
 
Basic
 
$
0.10

 
$
(0.04
)
Diluted
 
$
0.10

 
$
(0.04
)

* The pro forma results for the three-month period ended March 31, 2019 are not included in the table above because the
operating results for the Cianna Medical and Vascular Insights acquisitions were included in our consolidated statements of income for this period.

The unaudited pro forma information set forth above is for informational purposes only and includes adjustments related to the step-up of acquired inventories, amortization expense of acquired intangible assets and interest expense on long-term debt. The pro forma information should not be considered indicative of actual results that would have been achieved if the acquisition of Cianna Medical and Vascular Insights had occurred on January 1, 2017, or results that may be obtained in any future period. The pro forma consolidated results of operations do not include the acquisition of assets from BD because it was deemed impracticable to obtain information to determine net income associated with the acquired product lines which represent a small product line of a large, consolidated company without standalone financial information. The pro forma consolidated results of operations do not include the DirectACCESS acquisition as we do not deem the pro forma effect of this transaction to be material.
    
The goodwill arising from the acquisitions discussed above consists largely of the synergies and economies of scale we hope to achieve from combining the acquired assets and operations with our historical operations. The goodwill recognized from certain acquisitions is expected to be deductible for income tax purposes.

6. Revenue from Contracts with Customers.


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In accordance with Accounting Standards Update ("ASU") 2014-09, Revenue from Contracts with Customers (Topic 606) ("ASC 606"), 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.

Disaggregation of Revenue

The disaggregation of revenue is based on type of product and geographical region. For descriptions of our product offerings and segments, see Note 13 in our 2018 Form 10-K.

The following tables present revenue from contracts with customers for the three months ended March 31, 2019 and 2018 (in thousands):

 
Three Months Ended March 31, 2019
 
Three Months Ended March 31, 2018
 
United States
 
International
 
Total
 
United States
 
International
 
Total
Cardiovascular
 
 
 
 
 
 
 
 
 
 
 
Stand-alone devices
$
53,400

 
$
42,027

 
$
95,427

 
$
44,010

 
$
39,236

 
$
83,246

Cianna Medical
12,849

 

 
12,849

 

 

 

Custom kits and procedure trays
22,055

 
10,888

 
32,943

 
22,318

 
10,954

 
33,272

Inflation devices
7,972

 
14,045

 
22,017

 
7,668

 
14,751

 
22,419

Catheters
19,412

 
23,627

 
43,039

 
15,270

 
18,595

 
33,865

Embolization devices
4,706

 
7,121

 
11,827

 
5,033

 
7,554

 
12,587

CRM/EP
10,098

 
2,280

 
12,378

 
8,838

 
1,628

 
10,466

Total
130,492

 
99,988

 
230,480

 
103,137

 
92,718

 
195,855

 
 
 
 
 
 
 
 
 
 
 
 
Endoscopy
 
 
 
 
 
 
 
 
 
 
 
Endoscopy devices
7,568

 
301

 
7,869

 
6,918

 
262

 
7,180

 
 
 
 
 
 
 
 
 
 
 
 
Total
$
138,060

 
$
100,289

 
$
238,349

 
$
110,055

 
$
92,980

 
$
203,035





7. Segment Reporting. We report our operations in two operating segments: cardiovascular and endoscopy. Our cardiovascular segment consists of cardiology and radiology medical device products which assist in diagnosing and treating coronary artery disease, peripheral vascular disease and other non-vascular diseases and includes embolotherapeutic, cardiac rhythm management ("CRM"), electrophysiology ("EP"), critical care, interventional oncology and spine devices, and our Cianna Medical product line. Our endoscopy segment focuses on the gastroenterology, pulmonary and thoracic surgery specialties, with a portfolio consisting primarily of stents, dilation balloons, certain inflation devices, guide wires, and other disposable products, as well as the products related to our distribution agreement with NinePoint Medical Inc. ("NinePoint Medical"). We evaluate the performance of our operating segments based on net sales and operating income. 

Financial information relating to our reportable operating segments and reconciliations to the consolidated totals for the three-month periods ended March 31, 2019 and 2018, are as follows (in thousands):


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Three Months Ended March 31,
 
2019
 
2018
Net Sales
 

 
 

Cardiovascular
$
230,480

 
$
195,855

Endoscopy
7,869

 
7,180

Total net sales
$
238,349

 
$
203,035

 
 
 
 
Operating Income
 
 
 
Cardiovascular
7,619

 
6,397

Endoscopy
1,904

 
2,384

Total operating income
9,523

 
8,781

 
 
 
 
Total other expense - net
(2,677
)
 
(2,422
)
 
 
 
 
Income tax expense
651

 
1,090

 
 
 
 
Net income
$
6,195

 
$
5,269

 
 
 
 



8. Recently Issued Financial Accounting Standards.

Recently Adopted

In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-02, Leases (Topic 842) ("ASC 842"), which requires lessees to recognize right-of-use ("ROU") assets and related lease liabilities on the balance sheet for all leases greater than one year in duration. We adopted ASC 842 on January 1, 2019 using a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach did not require any transition accounting for leases that expired before the earliest comparative period presented. The adoption of this standard resulted in the recording of ROU assets and lease liabilities for all of our lease agreements with original terms of greater than one year. The adoption of ASC 842 did not have a significant impact on our consolidated statements of operations or cash flows. See Note 14 for the required disclosures relating to our lease agreements.

In June 2018, the FASB issued ASU 2018-07, Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, which simplifies the accounting for nonemployee share-based payment transactions by expanding the scope of ASC Topic 718, Compensation - Stock Compensation, to include share-based payment transactions for acquiring goods and services from nonemployees. Under the new standard, most of the guidance on stock compensation payments to nonemployees would be aligned with the requirements for share-based payments granted to employees. This standard became effective for us on January 1, 2019. The adoption of this standard did not have a material impact on our consolidated financial statements.

In February 2018, the FASB issued ASU 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from U.S. federal tax legislation commonly referred to as the Tax Cuts and Jobs Act, which was enacted in December 2017 (the "2017 Tax Act"). ASU 2018-02 became effective for us on January 1, 2019. The adoption of this standard did not have a material impact on our consolidated financial statements.

In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, which expands and refines hedge accounting for both financial and non-financial risk components, aligns the recognition and presentation of the effects of hedging instruments and hedge items in the financial statements, and includes certain targeted improvements to ease the application of current guidance related to the assessment of hedge effectiveness. ASU 2017-12 became effective for us on January 1, 2019. The adoption of this standard did not have a material impact on our consolidated financial statements.

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We do not believe any other issued and not yet effective accounting standards will be relevant to our consolidated financial statements.


9. Income Taxes. Our provision for income taxes for the three months ended March 31, 2019 and 2018 was a tax expense of approximately $651,000 and $1.1 million, respectively, which resulted in an effective tax rate of 9.5% and 17.1%, respectively. The decrease in the income tax expense and effective income tax rate for the first quarter of 2019 as compared to the first quarter of 2018 was primarily due to an increase in the discrete tax benefit related to share-based payment awards.


10. Revolving Credit Facility and Long-Term Debt. Principal balances outstanding under our long-term debt obligations as of March 31, 2019 and December 31, 2018, consisted of the following (in thousands):
 
March 31, 2019
 
December 31, 2018
2016 Term loan
$
68,750

 
$
72,500

2016 Revolving credit loans