Table of Contents
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 March 31, 2025
OR
☐ 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 April 22, 2025
59,099,536
TABLE OF CONTENTS
PART I.
FINANCIAL INFORMATION
3
Item 1.
Financial Statements (Unaudited)
Consolidated Balance Sheets
Consolidated Statements of Income
5
Consolidated Statements of Comprehensive Income
6
Consolidated Statements of Stockholders’ Equity
7
Consolidated Statements of Cash Flows
8
Condensed Notes to Consolidated Financial Statements
10
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
29
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
36
Item 4.
Controls and Procedures
PART II.
OTHER INFORMATION
37
Legal Proceedings
Item 1A.
Risk Factors
Item 5.
Other information
38
Item 6.
Exhibits
39
SIGNATURES
40
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
March 31,
December 31,
ASSETS
2025
2024
(unaudited)
Current assets:
Cash and cash equivalents
$
395,529
376,715
Trade receivables — net of allowance for credit losses — 2025 — $10,708 and 2024 — $9,729
199,550
190,243
Other receivables
17,116
16,588
Inventories
317,936
306,063
Prepaid expenses and other current assets
25,007
28,544
Prepaid income taxes
3,417
3,286
Income tax refund receivables
80
2,335
Total current assets
958,635
923,774
Property and equipment:
Land and land improvements
27,058
25,846
Buildings
193,561
192,296
Manufacturing equipment
345,272
340,864
Furniture and fixtures
62,673
61,321
Leasehold improvements
59,447
58,770
Construction-in-progress
63,722
58,673
Total property and equipment
751,733
737,770
Less accumulated depreciation
(361,409)
(351,605)
Property and equipment — net
390,324
386,165
Other assets:
Intangible assets:
Developed technology — net of accumulated amortization — 2025 — $395,575 and 2024 — $377,993
414,348
431,766
Other — net of accumulated amortization — 2025 — $87,986 and 2024 — $85,343
64,628
66,499
Goodwill
464,360
463,511
Deferred income tax assets
16,100
16,044
Right-of-use operating lease assets
87,722
65,508
Other assets
71,856
65,336
Total other assets
1,119,014
1,108,664
Total assets
2,467,973
2,418,603
See condensed notes to consolidated financial statements.
(continued)
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Trade payables
63,759
68,502
Accrued expenses
118,679
134,077
Short-term operating lease liabilities
9,435
10,331
Income taxes payable
4,950
3,492
Total current liabilities
196,823
216,402
Long-term debt
730,673
729,551
Deferred income tax liabilities
247
240
Liabilities related to unrecognized tax benefits
2,118
Deferred compensation payable
18,617
19,197
Deferred credits
1,476
1,502
Long-term operating lease liabilities
77,549
54,783
Other long-term obligations
12,047
15,451
Total liabilities
1,039,550
1,039,244
Commitments and contingencies
Stockholders' equity:
Preferred stock — 5,000 shares authorized; no shares issued as of March 31, 2025 and December 31, 2024
—
Common stock, no par value — 100,000 shares authorized; issued and outstanding as of March 31, 2025 - 59,078 and December 31, 2024 - 58,743
718,111
703,219
Retained earnings
725,688
695,541
Accumulated other comprehensive loss
(15,376)
(19,401)
Total stockholders’ equity
1,428,423
1,379,359
Total liabilities and stockholders’ equity
(concluded)
4
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts - unaudited)
Three Months Ended
Net sales
355,351
323,508
Cost of sales
183,331
171,793
Gross profit
172,020
151,715
Operating expenses:
Selling, general and administrative
107,486
94,428
Research and development
22,478
21,482
Contingent consideration expense (benefit)
1,023
(117)
Total operating expenses
130,987
115,793
Income from operations
41,033
35,922
Other income (expense):
Interest income
3,790
7,276
Interest expense
(6,568)
(8,046)
Other expense — net
(297)
(804)
Total other expense — net
(3,075)
(1,574)
Income before income taxes
37,958
34,348
Income tax expense
7,811
6,108
Net income
30,147
28,240
Earnings per common share
Basic
0.51
0.49
Diluted
0.48
Weighted average shares outstanding
58,897
57,958
61,278
58,567
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands - unaudited)
Other comprehensive income (loss):
Cash flow hedges
(2,386)
2,972
Income tax benefit (expense)
563
(702)
Foreign currency translation adjustment
5,854
(3,404)
(6)
12
Total other comprehensive income (loss)
4,025
(1,122)
Total comprehensive income
34,172
27,118
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Common Stock
Retained
Accumulated Other
Shares
Amount
Earnings
Comprehensive Loss
Total
Balance — January 1, 2025
58,743
Other comprehensive income
Stock-based compensation expense
7,885
Options exercised
281
14,610
Issuance of common stock under Employee Stock Purchase Plan
424
Shares issued from time-vested restricted stock units
130
Shares surrendered in exchange for payment of payroll tax liabilities
(62)
(6,145)
Shares surrendered in exchange for exercise of stock options
(18)
(1,882)
Balance — March 31, 2025
59,078
Balance — January 1, 2024
57,858
638,150
575,184
(11,334)
1,202,000
Other comprehensive loss
4,934
213
7,394
336
47
(21)
(1,592)
Balance — March 31, 2024
58,102
649,222
603,424
(12,456)
1,240,190
CONSOLIDATED STATEMENTS OF CASH FLOWS
CASH FLOWS FROM OPERATING ACTIVITIES:
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
29,292
23,599
Loss on sale or abandonment of property and equipment
87
35
Write-off of certain intangible assets and other long-term assets
32
202
Amortization of right-of-use operating lease assets
2,984
3,122
Fair value adjustments related to contingent consideration liabilities
Amortization of deferred credits
(26)
Amortization and write-off of long-term debt issuance costs
1,414
1,477
9,078
5,234
Changes in operating assets and liabilities, net of acquisitions:
Trade receivables
(7,560)
(4,182)
(284)
(705)
(10,599)
(382)
2,041
765
2,143
305
(176)
(2,947)
4,453
(14,148)
(20,747)
(8,891)
1,918
3,651
(580)
1,061
Operating lease liabilities
(3,335)
(2,931)
(733)
2,854
Total adjustments
10,425
7,976
Net cash, cash equivalents, and restricted cash provided by operating activities
40,572
36,216
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for:
Property and equipment
(21,061)
(11,682)
Intangible assets
(457)
(861)
Cash paid for notes receivable and other investments
(7,117)
(6,508)
Cash paid in acquisitions, net of cash acquired
(1,000)
(3,000)
Net cash, cash equivalents, and restricted cash used in investing activities
(29,635)
(22,051)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock
13,152
7,730
Payments on long-term debt
(24,063)
Contingent payments related to acquisitions
(52)
(78)
Payment of taxes related to an exchange of common stock
Net cash, cash equivalents, and restricted cash provided by (used in) financing activities
6,955
(18,003)
Effect of exchange rates on cash, cash equivalents, and restricted cash
936
(1,319)
Net increase (decrease) in cash, cash equivalents and restricted cash
18,828
(5,157)
CASH, CASH EQUIVALENTS AND RESTRICTED CASH:
Beginning of period
378,767
589,144
End of period
397,595
583,987
RECONCILIATION OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH TO THE CONSOLIDATED BALANCE SHEETS:
581,921
Restricted cash reported in prepaid expenses and other current assets
2,066
Total cash, cash equivalents and restricted cash
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest (net of capitalized interest of $282 and $207, respectively)
12,361
2,393
Income taxes
3,784
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Property and equipment purchases in accounts payable
3,813
5,163
Acquisition purchases in accrued expenses and other long-term obligations
4,020
6,417
Merit common stock surrendered (18 and 0 shares, respectively) in exchange for exercise of stock options
1,882
Right-of-use operating lease assets obtained in exchange for operating lease liabilities
24,871
7,759
9
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-month periods ended March 31, 2025 and 2024 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, 2025 and December 31, 2024, and our results of operations and cash flows for the three-month periods ended March 31, 2025 and 2024. The results of operations for the three-month periods ended March 31, 2025 and 2024 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, 2024 (the “2024 Annual Report on Form 10-K”).
We elected to change the presentation of investments in privately held companies within the statements of cash flows to be included within Cash paid for notes receivable and other investments. Previously, amounts paid to acquire such investments were presented within Cash paid in acquisitions, net of cash acquired. The change in presentation had no material impact on previously reported financial information and comparative periods have been adjusted to reflect this change in presentation.
2. Recently Issued Accounting Standards. 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, 2024, 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.
In November 2024, the FASB issued ASU 2024-03, Disaggregation of Income Statement Expenses, which requires a public entity to disclose certain operating expenses disaggregated into categories, such as purchases of inventory, employee compensation, depreciation, and intangible asset amortization on an annual and interim basis. ASU 2024-03 is effective for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027, with early adoption permitted. The provisions within the update may be applied retrospectively for all periods presented in the financial statements. While we are still evaluating the specific impacts and adoption method, we anticipate this guidance will have a significant impact on our consolidated financial statement disclosures.
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 2024 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.
The following tables present revenue from contracts with customers by reporting segment, product category and geographic region for the three-month periods ended March 31, 2025 and 2024 (in thousands):
March 31, 2025
March 31, 2024*
United States
International
Cardiovascular
Peripheral Intervention
80,157
57,122
137,279
74,804
55,262
130,066
Cardiac Intervention
41,399
58,342
99,741
35,337
54,839
90,176
Custom Procedural Solutions
29,228
18,714
47,942
29,254
19,269
48,523
OEM
47,028
6,723
53,751
37,150
7,459
44,609
197,812
140,901
338,713
176,545
136,829
313,374
Endoscopy
Endoscopy Devices
15,752
886
16,638
9,549
585
10,134
213,564
141,787
186,094
137,414
*Commencing January 1, 2025, we reorganized our sales teams and product categories to include the sale of our spine devices under our OEM product categories. Revenue figures for 2024 have been recast to reflect the realignment of Merit’s portfolio of spine products, representing approximately $5.3 million in revenue, within the OEM product category to provide comparability between the reported periods.
11
4. Acquisitions and Investments. On November 1, 2024, pursuant to the terms of the Asset Purchase Agreement (the “Cook Purchase Agreement”) dated September 18, 2024 between Merit and Cook Medical Holdings LLC, (“Cook”), we acquired Cook’s lead management business, which is composed of a comprehensive end-to-end portfolio of medical devices and accessories used in lead management procedures for patients who need a pacemaker or an implantable cardioverter-defibrillator lead removed or replaced. We acquired the portfolio for a purchase price of $210 million, plus the assumption of certain liabilities. We accounted for this transaction under the acquisition method of accounting as a business combination. The sales related to the acquisition have been included in our Cardiovascular segment since the acquisition date and were $9.2 million for the three-month period ended March 31, 2025. It is not practical to separately report earnings related to the acquisition, as we began to immediately integrate the acquisition into the existing operations, sales distribution networks and management structure of our cardiovascular business segment. Acquisition-related costs associated with the transaction, which were included in selling, general and administrative expenses in the consolidated statements of income were approximately $5.4 million during the year ended December 31, 2024. The purchase price was allocated as follows (in thousands):
Assets Acquired
Developed technology
126,100
Trademarks
7,100
Customer list
11,100
65,897
Total assets acquired
210,197
Liabilities Assumed
197
Total liabilities assumed
Total net assets acquired
210,000
We are amortizing Cook developed technology intangible assets over ten years, the trademark intangible assets over 12 years, and the customer list intangible asset on an accelerated basis over 12 years. We have estimated the weighted average life of the intangible assets acquired from Cook to be 10.3 years. The goodwill consists largely of the synergies expected from combining operations and is expected to be deductible for income tax purposes. The pro forma effects on our consolidated results of operations of the Cook acquisition are not material in relation to reported sales and it was deemed impracticable to obtain information to determine earnings associated with the acquired product lines which represent only a small portion of the product lines of a large, consolidated company without standalone financial information.
On July 1, 2024, we entered into an Asset Purchase Agreement (the “EGS Purchase Agreement”) with EndoGastric Solutions, Inc. (“EGS”), pursuant to which we acquired the EsophyX® Z+ device and various assets related thereto (collectively, the “EGS Acquisition”), which are designed to deliver a durable, minimally invasive non-pharmacological treatment option for patients suffering from gastroesophageal reflux disease. We acquired the purchased assets identified under the EGS Purchase Agreement for a purchase price of $105 million. We accounted for the EGS Acquisition under the acquisition method of accounting as a business combination. The sales related to the EGS Acquisition have been included in our endoscopy segment since the acquisition date and were $6.6 million for the three-month period ended March 31, 2025. It is not practical to separately report earnings related to the EGS Acquisition, as we began to immediately integrate the acquisition into the existing operations, sales distribution networks and management structure of our endoscopy business segment. Acquisition-related costs associated with the EGS Acquisition, which were included in selling, general and administrative expenses in the consolidated statements of were approximately $3.4 million during the year ended December 31, 2024. The purchase price was allocated as follows (in thousands):
2,568
3,553
99
258
72,800
5,400
6,600
16,997
108,275
494
2,752
3,246
105,029
We are amortizing the EGS developed technology intangible assets over ten years, the trademark intangible assets over 11 years, and the customer list intangible asset on an accelerated basis over 11 years. We have estimated the weighted average life of the intangible assets acquired from EGS to be 10.1 years. The goodwill consists largely of the synergies expected from combining operations and is expected to be deductible for income tax purposes. The pro forma effects to our consolidated results of operations of the EGS Acquisition are not material in relation to reported sales.
On March 8, 2024, we entered into an asset purchase agreement with Scholten Surgical Instruments, Inc. (“SSI”) to acquire the assets associated with the Bioptome, Novatome, and Sensatome devices. The total purchase price of the SSI assets included an up-front payment of $3 million, and three deferred payments, including (i) $1 million payable upon the earlier of (a) the first anniversary of the closing date or (b) the date on which Merit can independently manufacture the purchased devices (“Deferred Payment Date”), (ii) $1 million payable upon the first anniversary of the Deferred Payment Date, and (iii) $1 million payable upon the second anniversary of the Deferred Payment Date. We have accounted for this transaction as an asset purchase, and recorded the amount paid and deferred payments as a developed technology intangible asset, which we are amortizing over eight years.
13
5. Inventories. Inventories at March 31, 2025 and December 31, 2024 consisted of the following (in thousands):
December 31, 2024
Finished goods
163,368
168,437
Work-in-process
36,162
27,114
Raw materials
118,406
110,512
Total inventories
6. Goodwill and Intangible Assets. The change in the carrying amount of goodwill by segment for the three-month period ended March 31, 2025 is detailed as follows (in thousands):
Goodwill balance at January 1
446,514
Effect of foreign exchange
849
Goodwill balance at March 31
447,363
Total accumulated goodwill impairment losses aggregated to $8.3 million as of March 31, 2025 and December 31, 2024, respectively. We did not have any goodwill impairments for the three-month periods ended March 31, 2025 or 2024.
Other intangible assets at March 31, 2025 and December 31, 2024 consisted of the following (in thousands):
Gross Carrying
Accumulated
Net Carrying
Amortization
Patents
32,163
(13,278)
18,885
Distribution agreements
3,250
(3,013)
237
License agreements
11,580
(9,330)
2,250
47,627
(25,170)
22,457
Customer lists
57,994
(37,195)
20,799
152,614
(87,986)
31,489
(12,824)
18,665
(2,994)
256
11,557
(9,125)
2,432
47,613
(24,177)
23,436
57,933
(36,223)
21,710
151,842
(85,343)
Aggregate amortization expense for developed technology and other intangible assets for the three-month periods ended March 31, 2025 and 2024 was $20.0 million and $14.6 million, respectively.
We evaluate long-lived assets, including amortizing intangible assets, for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. We perform the impairment analysis at the asset group for which the lowest level of identifiable cash flows is largely independent of the cash flows of other assets and liabilities. If a triggering event is identified, we determine the fair value of our amortizing assets based on estimated future cash flows discounted back to their present value using a discount rate that reflects the risk profiles of the underlying activities. We did not identify indicators of impairment for our intangible assets based on our consideration of triggering events for the three-month periods ended March 31, 2025 and 2024, respectively.
14
Estimated amortization expense for developed technology and other intangible assets for the next five years consisted of the following as of March 31, 2025 (in thousands):
Year ending December 31,
Estimated Amortization Expense
Remaining 2025
62,428
2026
72,797
2027
69,127
2028
67,728
2029
56,158
7. Income Taxes. Our provision for income taxes for the three-month periods ended March 31, 2025 and 2024 was a tax expense of $7.8 million and $6.1 million, respectively, which resulted in an effective tax rate of 20.6% and 17.8%, respectively. The increase in the effective income tax rate for the three-month period ended March 31, 2025, when compared to the prior-year period, was primarily due to decreased benefit from discrete items such as deferred compensation and increased impact of foreign income inclusions. The increase in income tax expense for the three-month period ended March 31, 2025, when compared to the prior-year period, was primarily due to increased pre-tax book income. Our effective tax rate differs from the U.S. statutory rate primarily due to the impact of global intangible low-taxed income (“GILTI”) and Subpart F inclusions, state income taxes, foreign taxes, other nondeductible permanent items and discrete items (such as share-based compensation).
The Organization for Economic Cooperation and Development (“OECD”) Pillar Two global minimum tax rules, which generally provide for a minimum effective tax rate of 15%, are intended to apply for tax years beginning in 2024. On February 2, 2023, the OECD issued administrative guidance providing transition and safe harbor rules around the implementation of the Pillar Two global minimum tax. Under a transitional safe harbor released July 17, 2023, the undertaxed profits rule top-up tax in the jurisdiction of a company's ultimate parent entity will be zero for each fiscal year of the transition period, if that jurisdiction has a corporate tax rate of at least 20%. The safe harbor transition period will apply to fiscal years beginning on or before December 31, 2025 and ending before December 31, 2026. While we expect our effective income tax rate and cash income tax payments could increase in future years as a result of the global minimum tax, we do not anticipate a material impact to our fiscal 2025 consolidated results of operations. Our assessment could be affected by legislative guidance and future enactment of additional provisions within the Pillar Two framework. We are closely monitoring developments and evaluating the impact these new rules are anticipated to have on our tax rate, including eligibility to qualify for these safe harbor rules.
8. Debt. Principal balances outstanding under our long-term debt obligations as of March 31, 2025 and December 31, 2024 consisted of the following (in thousands):
Convertible notes
747,500
Less unamortized debt issuance costs
(16,827)
(17,949)
Total long-term debt
Less current portion
Long-term portion
Future minimum principal payments on our long-term debt, as of March 31, 2025, were as follows (in thousands):
Year Ending
Future Minimum
Principal Payments
Total future minimum principal payments
15
Fourth Amended and Restated Credit Agreement
On June 6, 2023, we entered into a Fourth Amended and Restated Credit Agreement (the "Fourth A&R Credit Agreement"). The Fourth A&R Credit Agreement is a syndicated loan agreement with Wells Fargo Bank, National Association and other parties. The Fourth A&R Credit Agreement amended and restated in its entirety our previously outstanding Third Amended and Restated Credit Agreement and all amendments thereto. The Fourth A&R Credit Agreement provides for a term loan of $150 million and a revolving credit commitment of up to an aggregate amount of $700 million, inclusive of sub-facilities for multicurrency borrowings, standby letters of credit and swingline loans. On June 6, 2028, all principal, interest and other amounts outstanding under the Fourth A&R Credit Agreement are payable in full. At any time prior to the maturity date, we may repay any amounts owing under all term loans and revolving credit loans in whole or in part, without premium or penalty.
On December 5, 2023, we executed an amendment to the Fourth A&R Credit Agreement (as amended, the "Amended Fourth A&R Credit Agreement”) to facilitate the issuance of our Convertible Notes described below. Among other things, the amendment also updated the definition of the Applicable Margin used in determining the interest rates and amended the financial covenants, all as described below.
Term loans made under the Amended Fourth A&R Credit Agreement, as amended, bear interest, at our election, at either (i) the Base Rate plus the Applicable Margin (as defined in the Amended Fourth A&R Credit Agreement) or, (ii) Adjusted Term SOFR plus the Applicable Margin (as defined in the Amended Fourth A&R Credit Agreement). Revolving credit loans bear interest, at our election, at either (a) the Base Rate plus the Applicable Margin, (b) Adjusted Term SOFR plus the Applicable Margin, (c) Adjusted Eurocurrency Rate plus the Applicable Margin (as defined in the Amended Fourth A&R Credit Agreement), or (d) Adjusted Daily Simple SONIA plus the Applicable Margin (as defined in the Amended Fourth A&R Credit Agreement). Swingline loans bear interest at the Base Rate plus the Applicable Margin. Interest on each loan featuring the Base Rate and each Daily Simple SONIA Loan is due and payable on the last business day of each calendar month; interest on each loan featuring the Eurocurrency Rate and each Term SOFR Loan is due and payable on the last day of each interest period applicable thereto, and if such interest period extends over three months, at the end of each three-month interval during such interest period.
The Amended Fourth A&R Credit Agreement is collateralized by substantially all of our assets. The Amended Fourth A&R Credit Agreement contains affirmative and negative covenants, representations and warranties, events of default and other terms customary for loans of this nature. In particular, the Amended Fourth A&R Credit Agreement requires that we maintain certain financial covenants, as follows:
Covenant Requirement
Consolidated Total Net Leverage Ratio (1)
5.0 to 1.0
Consolidated Senior Secured Net Leverage Ratio (2)
3.0 to 1.0
Consolidated Interest Coverage Ratio (3)
We were in compliance with these financial covenants set forth in the Amended Fourth A&R Credit Agreement as of March 31, 2025.
As of March 31, 2025, we had no outstanding borrowings and issued letter of credit guarantees of $2.9 million under the Amended Fourth A&R Credit Agreement, with additional available borrowings of approximately $697 million, based on the maximum net leverage ratio required pursuant to the Amended Fourth A&R Credit Agreement.
16
Convertible Notes
In December 2023, we issued convertible notes which bear interest at 3.00% per year, payable semi-annually in arrears on February 1 and August 1 of each year, which commenced August 1, 2024 (the “Convertible Notes”). The Convertible Notes are senior unsecured obligations (as defined in the indenture governing the Convertible Notes (the “Indenture”)) of Merit and will mature on February 1, 2029, unless repurchased, redeemed or converted in accordance with their terms prior to such date. The net proceeds from the sale of the Convertible Notes were approximately $724.8 million after deducting offering and issuance costs and before the costs of the Capped Call Transactions, as described below.
The initial conversion rate of the notes will be 11.5171 shares of our common stock (the “Common Stock”) per $1,000 principal amount of notes, which equates to an initial conversion price of approximately $86.83 per share of Common Stock, subject to adjustments as provided in the Indenture upon the occurrence of certain specified events.
Conversion can occur at the option of the holders of the Convertible Notes (“Holders”) at any time on or after October 1, 2028. Prior to October 1, 2028, Holders may only elect to convert the Convertible Notes under the following circumstances: (1) During the five business day period after any ten consecutive trading day period in which, for each day of that period, the trading price per $1,000 principal amount of the Convertible Notes for such trading day was less than 98% of the product of the last reported sale price of the Common Stock and the applicable conversion rate on such trading day; (2) Merit issues to common shareholders any rights, options, or warrants, entitling them, for a period of not more than 60 days, to purchase shares of Common Stock at a price per share less than the average closing sale price of 10 consecutive trading days, or Merit’s election to make a distribution to common shareholders exceeding 10% of the previous day’s closing sale price; (3) Upon the occurrence of a Fundamental Change, as set forth in the Indenture; (4) During any calendar quarter (and only during such calendar quarter) beginning after March 31, 2024, if, the last reported sale price per share of the Common Stock exceeds 130% of the applicable conversion price on each applicable trading day for at least 20 trading days (whether or not consecutive) in the period of the 30 consecutive trading day period ending on, and including, the last trading day of the immediately preceding calendar quarter; or (5) Prior to the related redemption date if Merit calls any Convertible Notes for redemption. As of March 31, 2025, none of the conditions permitting the Holders to convert their Convertible Notes early had been met. Therefore, the Convertible Notes are classified as long-term debt obligations.
Upon conversion, Merit will (1) pay cash up to the aggregate principal amount of the Convertible Notes to be converted and (2) pay or deliver, as the case may be, cash, shares of Common Stock, or a combination of cash and shares of Common Stock, at Merit’s election, in respect of the remainder, if any, of its conversion obligation in excess of the aggregate principal amount of the Convertible Notes being converted.
In addition, Holders will have the right to require Merit to repurchase all or a part of their notes upon the occurrence of a “fundamental change” (as defined in the Indenture) in cash at a fundamental change repurchase price of 100% of their principal amount plus accrued and unpaid interest up to, but excluding, the fundamental change repurchase date.
On or after February 7, 2027, we may redeem for cash all or part of the Convertible Notes, at our option, if the last reported sales price of Common Stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive), including the trading day immediately preceding the date on which we provide notice of redemption, during any 30 consecutive trading days ending on, and including, the trading day immediately before the date we send the related notice of the redemption.
Capped Call Transactions
In December 2023, in connection with the pricing of the Convertible Notes, Merit entered into privately negotiated capped call transactions (“Capped Call Transactions”) with certain of the initial purchasers and/or their respective affiliates and certain other financial institutions. The Capped Call Transactions cover, subject to customary anti-dilution adjustments, the number of shares of Common Stock initially underlying the Convertible Notes and are generally expected to reduce potential dilution to the Common Stock upon any conversion of Convertible Notes and/or offset any cash payments Merit is required to make in excess of the principal amount of converted Convertible Notes, as the case may be, with such reduction and/or offset subject to a cap, based on a cap price initially equal to approximately $114.68 per share of Common Stock, subject to certain adjustments under the terms of the Capped Call Transactions. The cost of the Capped Call Transactions was approximately $66.5 million. The Capped Call Transactions do not meet the criteria for separate
17
accounting as a derivative as they are indexed to the Common Stock. The premiums paid for the Capped Call Transactions have been included as a net reduction to Common Stock within stockholders' equity.
9. Derivatives.
General. Our earnings and cash flows are subject to fluctuations due to changes in interest rates and foreign currency exchange rates, and we seek to mitigate a portion of the risks attributable to those fluctuations by entering into derivative contracts. The derivative instruments we use are interest rate swaps and foreign currency forward contracts. We recognize derivative instruments as either assets or liabilities at fair value in the accompanying consolidated balance sheets, regardless of whether hedge accounting is applied. We report cash flows arising from our hedging instruments consistent with the classification of cash flows from the underlying hedged items. Accordingly, cash flows associated with our derivative contracts are classified as operating activities in the accompanying consolidated statements of cash flows.
We formally document, designate and assess the effectiveness of transactions that receive hedge accounting treatment initially and on an ongoing basis. For qualifying hedges, the change in fair value is deferred in accumulated other comprehensive income, a component of stockholders’ equity in the accompanying consolidated balance sheets, and recognized in earnings at the same time the hedged item affects earnings. Changes in the fair value of derivative instruments not designated as hedging instruments are recorded in earnings throughout the term of the derivative.
Derivatives Designated as Cash Flow Hedges
In December 2019, we entered into a pay-fixed, receive-variable interest rate swap with a notional amount of $75 million with Wells Fargo wherein we fixed the one-month SOFR rate on that portion of our borrowings under the Amended Fourth A&R Credit Agreement. The term of the interest rate swap expired on July 31, 2024.
Foreign Currency Risk. We operate on a global basis and are exposed to the risk that our financial condition, results of operations, and cash flows could be adversely affected by changes in foreign currency exchange rates. To reduce the potential effects of foreign currency exchange rate movements on net earnings, we enter into derivative financial instruments in the form of foreign currency exchange forward contracts with major financial institutions. Our policy is to enter into foreign currency derivative contracts with maturities of up to two years. We are exposed to foreign currency exchange rate risk with respect to transactions and balances denominated in various currencies, with our most significant exposure related to transactions and balances denominated in Chinese Renminbi and Euros, among others. We do not use derivative financial instruments for trading or speculative purposes. We do not believe we are subject to any credit risk contingent features related to our derivative contracts, and we seek to manage counterparty risk by allocating derivative contracts among several major financial institutions.
For derivative instruments that are designated and qualify as cash flow hedges, the gain or loss on the derivative instrument is temporarily reported as a component of other comprehensive income and then reclassified into earnings in the same line item associated with the forecasted transaction and in the same period or periods during which the hedged transaction affects earnings. We entered into forward contracts on various foreign currencies to manage the risk associated with forecasted exchange rates which impact revenues, cost of sales, and operating expenses in various international markets. The objective of the forward contracts is to reduce the variability of cash flows associated with the forecasted purchase or sale of the foreign currencies. As of March 31, 2025 and December 31, 2024, we had entered into foreign currency forward contracts, which qualified as cash flow hedges, with aggregate notional amounts of $179.9 million and $117.5 million, respectively.
18
Derivatives Not Designated as Cash Flow Hedges
We forecast our net exposure in various receivables and payables to fluctuations in the value of various currencies, and we enter into foreign currency forward contracts to mitigate a portion of that exposure. As of March 31, 2025 and December 31, 2024, we had entered into foreign currency forward contracts related to those balance sheet accounts with aggregate notional amounts of $100.6 million and $95.7 million, respectively.
Balance Sheet Presentation of Derivative Instruments. As of March 31, 2025 and December 31, 2024, all derivative instruments, both those designated as hedging instruments and those that were not designated as hedging instruments, were recorded at fair value on a gross basis on our consolidated balance sheets. We are not subject to any master netting agreements.
The fair value of derivative instruments on a gross basis was as follows on the dates indicated (in thousands):
Fair Value of Derivative Instruments Designated as Hedging Instruments
Balance Sheet Location
Assets
Foreign currency forward contracts
Prepaid expenses and other assets
2,120
3,771
Other assets (long-term)
526
1,064
(Liabilities)
(1,533)
(1,332)
(427)
(287)
Fair Value of Derivative Instruments Not Designated as Hedging Instruments
1,839
2,595
(877)
(1,288)
Income Statement Presentation of Derivative Instruments.
Derivative Instruments Designated as Cash Flow Hedges
Derivative instruments designated as cash flow hedges had the following effects, before income taxes, on other comprehensive income (“OCI”), accumulated other comprehensive income (“AOCI”), and net earnings in our consolidated statements of income, consolidated statements of comprehensive income and consolidated balance sheets (in thousands):
Amount of Gain/(Loss)
Consolidated Statements
Recognized in OCI
of Income
Reclassified from AOCI
Three Months Ended March 31,
Derivative instrument
Location in statements of income
Interest rate swap
348
702
(1,897)
4,166
Revenue
1,021
413
(183,331)
(171,793)
(532)
427
As of March 31, 2025, $1.1 million, or $0.8 million after taxes, was expected to be reclassified from AOCI to earnings in revenue and cost of sales over the succeeding twelve months.
19
Derivative Instruments Not Designated as Hedging Instruments
The following gains/(losses) from these derivative instruments were recognized in our consolidated statements of income for the periods presented (in thousands):
Derivative Instrument
Other income (expense) — net
(158)
883
10. Commitments and Contingencies.
Litigation. In the ordinary course of business, we are involved in various claims and litigation matters. These proceedings, actions and claims may involve product liability, intellectual property, contract disputes, employment, governmental inquiries or other matters, including the matter described below. These matters generally involve inherent uncertainties and often require prolonged periods of time to resolve. In certain proceedings, the claimants may seek damages as well as other compensatory and equitable relief that could result in the payment of significant claims and settlements and/or the imposition of injunctions or other equitable relief. For legal matters for which our management had sufficient information to reasonably estimate our future obligations, a liability representing management’s best estimate of the probable loss, or the minimum of the range of probable losses when a best estimate within the range is not known, is recorded. The estimates are based on consultation with legal counsel, previous settlement experience and settlement strategies. If actual outcomes are less favorable than those estimated by management, additional expense may be incurred, which could unfavorably affect our financial position, results of operations and cash flows. The ultimate cost to us with respect to actions and claims could be materially different than the amount of the current estimates and accruals and could have a material adverse effect on our financial position, results of operations and cash flows. Unless included in our legal accrual, we are unable to estimate a reasonably possible loss or range of loss associated with any individual material legal proceeding. Legal costs for these matters, such as outside counsel fees and expenses, are charged to expense in the period incurred.
SEC Inquiry
Commencing in January 2022, we have received requests from the Division of Enforcement of the U.S. Securities and Exchange Commission (“SEC”) seeking the voluntary production of information relating to the business activities of Merit’s subsidiary in China, including interactions with hospitals and health care officials in China (the “SEC Inquiry”). We are cooperating with the requests, investigating the matter and are in discussions with the SEC Staff regarding a potential resolution to the matter. Currently, we are unable to predict the scope, timing, significance or outcome of the SEC Inquiry or estimate a reasonably possible loss or range of loss associated with the matter. It is possible that the ultimate resolution of the SEC Inquiry, if resolved in a manner unfavorable to us, may be materially adverse to our business, financial position, results of operations or liquidity.
In management's opinion, based on its examination of these matters, its experience to date and discussions with counsel, other than the SEC Inquiry, we are not currently involved in any legal proceedings which, individually or in the aggregate, could have a material adverse effect on our financial position, results of operations or cash flows. Our management regularly assesses the risks of legal proceedings in which we are involved, and management’s view of these matters may change in the future.
20
11. Earnings Per Common Share (EPS). The computation of weighted average shares outstanding and the basic and diluted earnings per common share for the three-month periods ended March 31, 2025 and 2024 consisted of the following (in thousands, except per share amounts):
Average common shares outstanding
Basic EPS
Effect of dilutive stock awards
1,018
609
Effect of dilutive convertible notes
1,363
Total potential shares outstanding
Diluted EPS
Equity awards excluded as the impact was anti-dilutive (1)
84
1,216
For our Convertible Notes, the dilutive effect has been calculated using the if-converted method. Upon surrender of the Convertible Notes for conversion, Merit will pay cash up to the aggregate principal amount of the Notes to be converted and pay or deliver, as the case may be, cash, shares of Common Stock or a combination of cash and shares of Common Stock, at Merit’s election, in respect of the remainder, if any, of Merit’s conversion obligation in excess of the aggregate principal amount of the Convertible Notes being converted. Under the if-converted method, we include the number of shares required to satisfy the remaining conversion obligation, assuming all the Convertible Notes were converted. The convertible notes only have an impact on diluted earnings per share when the average share price of our Common Stock exceeds the conversion price of $86.83. The average closing price of the Common Stock for the three-month periods ended March 31, 2025 and 2024, respectively, was used as the basis for determining the dilutive effect on EPS.
21
12. Stock-Based Compensation Expense. Stock-based compensation expense before income tax expense for the three-month periods ended March 31, 2025 and 2024 consisted of the following (in thousands):
Nonqualified stock options
346
362
Restricted stock units
282
Total cost of sales
628
326
436
343
Total research and development
669
1,283
1,682
Performance-based restricted stock units
3,581
1,867
1,724
587
Cash-settled performance-based awards
1,193
300
Total selling, general and administrative
7,781
4,436
Stock-based compensation expense before taxes
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.
Nonqualified Stock Options
During the three months ended March 31, 2025 and 2024, we did not grant any stock options. As of March 31, 2025, the total remaining unrecognized compensation cost related to non-vested stock options was $9.0 million, which was expected to be recognized over a weighted average period of 1.5 years.
Stock-Settled Performance-Based Restricted Stock Units (“Performance Stock Units”)
During the three-month periods ended March 31, 2025 and 2024, we granted Performance Stock Units which represented awards of up to 290,120 and 364,810 shares of Common Stock, respectively. Settlement of the Performance Stock Units into shares of Common Stock occurs at the end of the relevant performance periods. The actual number of shares of Common Stock issuable at the end of the performance periods is based upon Company performance towards specified financial performance targets and relative total shareholder return as compared to the Russell 2000 Index (“rTSR”), all as more specifically set forth in the Performance Stock Unit award agreements.
22
We use Monte-Carlo simulations to estimate the grant-date fair value of the Performance Stock Units linked to total shareholder return. The fair value of each performance stock unit was estimated as of the grant date using the following assumptions for awards granted in the periods indicated below:
Risk-free interest rate
4.0%
4.4%
Performance period
2.8 years
Expected dividend yield
Expected price volatility
28.0%
31.1%
The risk-free interest rate of return was determined using the U.S. Treasury rate at the time of grant with a term equal to the expected term of the award. The expected volatility was based on the weighted average volatility of our stock price and the average volatility of our compensation peer group's stock price. The expected dividend yield was assumed to be zero because, at the time of the grant, we had no plans to declare a dividend.
Compensation expense is recognized using the grant-date fair value for the number of shares that are likely to be awarded based on the performance metrics. Each reporting period, this probability assessment is updated, and cumulative adjustments are recorded based on the financial performance metrics expected to be achieved. At the end of the performance period, cumulative expense is calculated based on the actual performance metrics achieved. As of March 31, 2025, the total remaining unrecognized compensation cost related to stock-settled Performance Stock Units was $38.8 million, which is expected to be recognized over a weighted average period of 1.8 years.
Cash-Settled Performance-Based Awards
During the three-month periods ended March 31, 2025 and 2024, we granted Performance Stock Units to our Chief Executive Officer that provide for settlement in cash upon achievement of specific metrics (“Liability Awards”), with total target cash incentives in the amount of $1.7 million and $1.6 million, respectively. The Liability Awards entitle him to a target cash payment based upon our level of rTSR performance and achievement of other performance metrics, as defined in the award agreements.
During the three-month periods ended March 31, 2025 and 2024, we granted additional Performance Stock Units to certain employees that provide for settlement in cash upon our achievement of specified financial metrics. The cash payable upon vesting at the end of the service period is based upon performance against specified financial performance targets and relative total shareholder return as compared to the rTSR, as defined in the award agreements. Compensation expense is recognized in an amount equal to the cash payment likely to be awarded based on the performance metrics.
The potential maximum payout of these Liability Awards is 250% of the target cash incentive, resulting in a total potential maximum payout of $4.8 million and $4.5 million for Liability Awards granted during the three-month periods ended March 31, 2025 and 2024, respectively. The settlement generally occurs at the end of three-year performance periods based upon the same performance metrics and vesting period as our Performance Stock Units.
The fair value of these Liability Awards is measured at each reporting period until the awards are settled. As of March 31, 2025 and December 31, 2024, the recorded balance associated with these Liability Awards is $3.8 million and $5.1 million, respectively, which have been classified as liabilities and reported in accrued expenses and other long-term obligations within our consolidated balance sheets. As of March 31, 2025, the total remaining unrecognized compensation cost related to Liability Awards was $7.1 million, which was expected to be recognized over a weighted average period of 1.9 years.
Restricted Stock Units
During the three-month periods ended March 31, 2025 and 2024, we granted restricted stock units to certain employees and non-employee directors representing 109,515 and 134,553 shares of Common Stock, respectively. The expense recognized for restricted stock units is equal to the closing stock price on the date of grant, which is recognized over the vesting period. Restricted stock units granted to each employee are subject to such employee’s continued employment
23
through the vesting date, which is four years from the date of grant. Restricted stock units granted to each non-employee director are subject to such director’s continued service through the vesting date, which is one year from the grant date. As of March 31, 2025, the total remaining unrecognized compensation cost related to restricted stock units was $31.4 million, which was expected to be recognized over a weighted average period of 3.1 years.
13. Segment Reporting. We report our operations in two operating segments: cardiovascular and endoscopy. Our cardiovascular segment consists of four product categories: peripheral intervention, cardiac intervention, custom procedural solutions, and OEM. Within these product categories, we sell a variety of products, including cardiology and radiology devices (which assist in diagnosing and treating coronary arterial disease, peripheral vascular disease and other 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. Our chief operating decision maker is our Chief Executive Officer, who uses segment profit or loss to assess performance and allocate resources to each segment, primarily through periodic budgeting and segment performance reviews. See Note 3, Revenues from Contracts with Customers for a detailed breakout of our sales by operating segment and product category, disaggregated between domestic and international sales. Total assets by segment are not used by the CODM to assess performance or allocate resources to the Company’s segments; therefore, total assets by segment are not disclosed.
Financial information relating to our reportable operating segments and reconciliations to the consolidated totals for the three-month periods ended March 31, 2025 and 2024, were as follows (in thousands):
March 31, 2024
Consolidated
Cost of sales standard(1)
138,440
4,363
133,066
3,109
Cost of sales other(2)
37,784
2,744
35,302
316
Selling, general and administrative expenses
100,974
6,512
91,300
3,128
Research and development expenses
21,954
524
20,916
566
Other operating expenses(3)
38,538
2,495
32,907
3,015
Total depreciation and amortization by operating segment for the three-month periods ended March 31, 2025 and 2024, consisted of the following (in thousands):
26,970
23,388
2,322
211
24
14. Fair Value Measurements.
Assets (Liabilities) Measured at Fair Value on a Recurring Basis
Our financial assets and (liabilities) carried at fair value and measured on a recurring basis as of March 31, 2025 and December 31, 2024 consisted of the following (in thousands):
Fair Value Measurements Using
Total Fair
Quoted prices in
Significant other
Significant
Value at
active markets
observable inputs
unobservable inputs
(Level 1)
(Level 2)
(Level 3)
Money market funds (1)
30,330
Foreign currency contract assets, current and long-term (2)
4,485
Foreign currency contract liabilities, current and long-term (3)
(2,837)
Contingent consideration liabilities
(4,429)
10,034
Marketable securities (4)
92
7,430
(2,907)
(3,486)
25
Certain of our past business combinations involve the potential for the payment of future contingent consideration, generally based on a percentage of future product sales or upon attaining specified future revenue or other milestones. The contingent consideration liability is re-measured at the estimated fair value at the end of each reporting period with the change in fair value recognized within operating expenses in the accompanying consolidated statements of income for such period. We measure the initial liability and re-measure the liability on a recurring basis using Level 3 inputs as defined under authoritative guidance for fair value measurements. Changes in the fair value of our contingent consideration liabilities during the three-month periods ended March 31, 2025 and 2024 consisted of the following (in thousands):
Beginning balance
3,486
3,447
Contingent consideration expense
Contingent payments made
(80)
(105)
Ending balance
4,429
3,225
As of March 31, 2025, $1.6 million in contingent consideration liability was included in other long-term obligations and $2.8 million in contingent consideration liability was included in accrued expenses in our consolidated balance sheet. As of December 31, 2024, $3.1 million in contingent consideration liability was included in other long-term obligations and $0.4 million in contingent consideration liability was included in accrued expenses in our consolidated balance sheet.
Payments related to the settlement of the contingent consideration liability recognized at fair value as of the applicable acquisition date of $0.1 million and $0.1 million for the three-month periods ended March 31, 2025 and 2024, respectively, have been reflected as a cash outflow from financing activities in the accompanying consolidated statements of cash flows. Payments related to increases in the contingent consideration liability subsequent to the date of acquisition are reflected as operating cash flows.
The recurring Level 3 measurement of our contingent consideration liabilities included the following significant unobservable inputs at March 31, 2025 and December 31, 2024 (amounts in thousands):
Fair value at
Valuation
Weighted
Contingent consideration liability
technique
Unobservable inputs
Range
Average(1)
Revenue-based royalty payments contingent liability
1,876
Discounted cash flow
Discount rate
14.0% - 16.0%
14.7%
Projected year of payments
2025-2034
Revenue milestones contingent liability
90
Monte Carlo simulation
12.0%
2025-2041
2041
Regulatory approval contingent liability
2,463
Scenario-based method
6.0%
Probability of milestone payment
100.0%
Projected year of payment
26
2,217
14.6%
88
13.0%
2025-2040
2039
1,181
50.0%
2025-2026
The contingent consideration liability is re-measured to fair value each reporting period. Significant increases or decreases in projected revenues, based on our most recent internal operational budgets and long-range strategic plans, discount rates or the time until payment is made would have resulted in a significantly lower or higher fair value measurement. Our determination of the fair value of the contingent consideration liability could change in future periods based upon our ongoing evaluation of these significant unobservable inputs. We intend to record any such change in the fair value of contingent consideration liability to operating expenses in our consolidated statements of income.
Fair Value of Other Assets (Liabilities)
The carrying amount of cash and cash equivalents, receivables, and trade payables approximate fair value because of the immediate, short-term maturity of these financial instruments. Our long-term debt under our Amended Fourth A&R Credit Agreement re-prices frequently due to variable rates and entails no significant changes in credit risk and, as a result, we believe the fair value of long-term debt approximates carrying value. The fair value of our long-term debt under our Convertible Notes was $1,016.6 million as of March 31, 2025 and was determined based on quoted prices in markets that are not active, which is considered a Level 2 valuation input. The fair value of assets and liabilities whose carrying value approximates fair value is determined using Level 2 inputs, with the exception of cash and cash equivalents, which use Level 1 inputs.
We recognize or disclose the fair value of certain assets, such as non-financial assets, primarily property and equipment, right-of-use operating lease assets, equity investments, intangible assets and goodwill in connection with impairment evaluations. Such assets are reported at carrying value and are not subject to recurring fair value measurements. We review our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Fair value is generally determined based on discounted future cash flow. All our nonrecurring valuations use significant unobservable inputs and therefore fall under Level 3 of the fair value hierarchy.
Our equity investments in privately-held companies were $25.9 million and $22.8 million at March 31, 2025 and December 31, 2024, respectively, which are included within other long-term assets in our consolidated balance sheets. We analyze our investments in privately-held companies to determine if they should be accounted for using the equity method based on our ability to exercise significant influence over operating and financial policies of the investment. Investments not accounted for under the equity method of accounting are accounted for at cost minus impairment, if applicable, plus or minus changes in valuation resulting from observable transactions for identical or similar investments. For the three-month periods ended March 31, 2025 and 2024, we recorded no impairment charges related to our equity investments.
27
Current Expected Credit Losses
Our outstanding long-term notes receivable, including accrued interest and an allowance for current expected credit losses, were $13.5 million and $9.4 million as of March 31, 2025 and December 31, 2024, respectively. Long-term notes receivable increased $4.0 million for the three-month period ended March 31, 2025 related to a loan issued to Protaryx Medical Inc. (“Protaryx”). As of March 31, 2025 and December 31, 2024, we had an allowance for current expected credit losses of $1.6 million and $1.4 million, respectively, associated with these notes receivable. We assess the allowance for current expected credit losses on an individual security basis, due to the limited number of securities, using a probability of default model, which is based on relevant information about past events, including historical experience, current conditions and reasonable and supportable forecasts that affect the expected collectability of securities, and other security specific factors.
The table below presents a roll-forward of the allowance for current expected credit losses on our notes receivable for the three-month periods ended March 31, 2025 and 2024 (in thousands):
1,366
568
Provision for credit loss expense
268
820
1,634
1,388
15. Accumulated Other Comprehensive Income (Loss). The changes in each component of accumulated other comprehensive income (loss) for the three-month periods ended March 31, 2025 and 2024 were as follows:
Cash Flow Hedges
Foreign Currency Translation
Balance as of January 1, 2025
2,765
(22,166)
Other comprehensive income (loss)
3,957
557
Reclassifications to:
(1,021)
532
Net other comprehensive income (loss)
(1,823)
5,848
Balance as of March 31, 2025
942
(16,318)
Balance as of January 1, 2024
1,662
(12,996)
4,514
1,110
(690)
(413)
2,270
(3,392)
Balance as of March 31, 2024
3,932
(16,388)
28
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 2024 Annual Report on Form 10-K and in Part II, Item 1A “Risk Factors” in this report.
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 cardiovascular segment consists of four product categories: peripheral intervention, cardiac intervention, custom procedural solutions, and OEM. Within these product categories, we sell a variety of products, including cardiology and radiology devices (which assist in diagnosing and treating coronary arterial disease, peripheral vascular disease and other 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.
For the three-month period ended March 31, 2025, we reported sales of $355.4 million, an increase of $31.8 million or 9.8% compared to sales for the three-month period ended March 31, 2024 of $323.5 million. Foreign currency fluctuations (net of hedging) decreased our net sales by $(3.4) million for the three-month period ended March 31, 2025, assuming applicable foreign exchange rates in effect during the comparable prior-year periods.
Gross profit as a percentage of sales increased to 48.4% for the three-month period ended March 31, 2025 compared to 46.9% for the three-month period ended March 31, 2024.
Net income for the three-month period ended March 31, 2025 was $30.1 million, or $0.49 per share, compared to net income of $28.2 million, or $0.48 per share, for the three-month period ended March 31, 2024.
Recent Developments and Trends
In addition to the trends identified in the 2024 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 2025 has been impacted, and we believe will continue to be impacted, by the following recent developments and trends:
RESULTS OF OPERATIONS
The following table sets forth certain operational data as a percentage of sales for the periods indicated:
100
%
48.4
46.9
30.2
29.2
6.3
6.6
0.3
(0.0)
11.5
11.1
(0.9)
(0.5)
10.7
10.6
8.5
8.7
Sales
Sales for the three-month period ended March 31, 2025 increased by 9.8%, or $31.8 million, compared to the corresponding period in 2024. Listed below are the sales by product category within each of our financial reporting segments for the three-month periods ended March 31, 2025 and 2024 (in thousands, other than percentage changes):
% Change
2024*
5.5
(1.2)
20.5
8.1
64.2
9.8
Cardiovascular Sales. Our cardiovascular sales for the three-month period ended March 31, 2025 were $338.7 million, up 8.1% when compared to the corresponding period of 2024 of $313.4 million. Sales for the three-month period ended March 31, 2025 were favorably affected by increased sales of:
30
The foregoing increase in sales for the three-month period ended March 31, 2025 was partially offset by decreased sales of:
Endoscopy Sales. Our endoscopy sales for the three-month period ended March 31, 2025 were $16.6 million, up 64.2% when compared to sales in the corresponding period of 2024 of $10.1 million. Sales for the three-month period ended March 31, 2025 compared to the corresponding period in 2024 were favorably affected by $6.6 million in sales of the EsophyX® Z+ device acquired from EGS in July 2024.
Geographic Sales
Listed below are sales by geography for the three-month periods ended March 31, 2025 and 2024 (in thousands, other than percentage changes):
14.8
3.2
United States Sales. U.S. sales for the three-month period ended March 31, 2025 were $213.6 million, or 60.1% of net sales, up 14.8% when compared to the corresponding period of 2024. The increase in our domestic sales for the three-month period ended March 31, 2025, compared to the corresponding period of 2024 was driven primarily by our U.S. Direct, OEM and Endoscopy businesses.
International Sales. International sales for the three-month period ended March 31, 2025 were $141.8 million, or 39.9% of net sales, up 3.2% when compared to the corresponding period of 2024 of $137.4 million. The increase in our international sales for the three-month period ended March 31, 2025, compared to the corresponding period of 2024 included increased sales in our ROW operations of $2.4 million or 17.7% and our EMEA operations of $2.3 million or 3.7%, partially offset by decreased sales in our APAC operations of $(0.3) million or (0.5)%.
Gross Profit
Our gross profit as a percentage of sales increased to 48.4% for the three-month period ended March 31, 2025, compared to 46.9% for the three-month period ended March 31, 2024. The increase in gross profit percentage was primarily due to an increase in sales combined with favorable changes in product mix, partially offset by higher intangible amortization expense as a percentage of sales associated with acquisitions.
Operating Expenses
Selling, General and Administrative Expense. Selling, general and administrative ("SG&A") expenses increased $13.1 million, or 13.8%, for the three-month period ended March 31, 2025 compared to the corresponding period of 2024. As a percentage of sales, SG&A expenses were 30.2% for the three-month period ended March 31, 2025, compared to 29.2% for the corresponding period of 2024. For the three-month period ended March 31, 2025, SG&A expenses increased compared to the corresponding period of 2024, primarily due to an increase in labor-related costs associated with headcount additions, including those in connection with the EGS and Cook Acquisitions, and increased advertising and promotional expenses.
Research and Development Expenses. Research and development (”R&D”) expenses for the three-month period ended March 31, 2025 were $22.5 million, up 4.6%, when compared to R&D expenses in the corresponding period of 2024 of $21.5 million. For the three-month period ended March 31, 2025, R&D expenses increased compared to the corresponding period of 2024 primarily due to increased R&D activity, partially offset by a decrease in regulatory costs associated with clinical trials.
31
Contingent Consideration Expense (Benefit). For the three-month period ended March 31, 2025, we recognized contingent consideration expense from changes in the estimated fair value of our contingent consideration obligations stemming from our previously disclosed business acquisitions of $1.0 million, compared to contingent consideration benefit of $ (0.1) million for the three-month period ended March 31, 2024. Expense (benefit) 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
The following table sets forth our operating income by financial reporting segment for the three-month periods ended March 31, 2025 and 2024 (in thousands):
Total operating income
Cardiovascular Operating Income. Our cardiovascular operating income for the three-month period ended March 31, 2025 was $38.5 million, compared to cardiovascular operating income in the corresponding period of 2024 of $32.9 million. The increase in cardiovascular operating income during the three-month period ended March 31, 2025 compared to the corresponding period of 2024 was primarily a result of higher sales ($338.7 million compared to $313.4 million) and higher gross margin, partially offset by higher SG&A, R&D and contingent consideration expenses.
Endoscopy Operating Income. Our endoscopy operating income for the three-month period ended March 31, 2025 was $2.5 million, compared to endoscopy operating income of $3.0 million for the corresponding period of 2024. The decrease in endoscopy operating income for the three-month period ended March 31, 2025 compared to the corresponding period of 2024 was primarily a result of a lower gross margin due to increased amortization expense associated with the EGS acquisition and increased SG&A expenses associated with higher labor related costs due to headcount additions in connection with the integration activities for the EGS Acquisition, partially offset by increased sales.
Other Expense – Net
Our other expense for the three-month periods ended March 31, 2025 and 2024 was $3.1 million and $1.6 million, respectively. The increase in other expense for the three-month period ended March 31, 2025 compared to the corresponding period of 2024 were primarily related to decreased interest income associated with reduced cash and cash equivalent balances, partially offset by a decrease in interest expense as a result of having no outstanding amounts due under the term loan of our Amended Fourth A&R Credit Agreement for the three-month period ended March 31, 2025.
Effective Tax Rate
Our provision for income taxes for the three-month periods ended March 31, 2025 and 2024 was a tax expense of $7.8 million and $6.1 million, respectively, which resulted in an effective tax rate of 20.6% and 17.8%, respectively. The increase in the effective income tax rate for the three-month period ended March 31, 2025, when compared to the prior-year period, was primarily due to decreased benefit from discrete items such as deferred compensation and the impact of increased foreign income inclusions.
Net Income
Our net income for the three-month periods ended March 31, 2025 and 2024 was $30.1 million and $28.2 million, respectively. The increase in our net income for the three-month period ended March 31, 2025 was the result of several principal factors, including higher sales and gross margin, partially offset by higher SG&A and R&D expenses, contingent consideration expense, other expenses and income tax expense.
LIQUIDITY AND CAPITAL RESOURCES
Capital Commitments, Contractual Obligations and Cash Flows
As of March 31, 2025 and December 31, 2024, our current assets exceeded current liabilities by $761.8 million and $707.4 million, respectively, and we had cash, cash equivalents and restricted cash of $397.6 million and $378.8 million, respectively, of which $57.2 million and $50.6 million, respectively, were held by foreign subsidiaries. We currently believe future 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, we are not permanently reinvested with respect to our historic unremitted foreign earnings. 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, 2025, and December 31, 2024, we had cash, cash equivalents and restricted cash of $21.5 million and $18.1 million, respectively, within our subsidiary in China.
Cash flows provided by operating activities. We generated cash from operating activities of $40.6 million and $36.2 million during the three-month periods ended March 31, 2025 and 2024, respectively. Significant factors affecting operating cash flows during these periods included:
Cash flows used in investing activities. We used cash in investing activities of $29.6 million and $22.1 million for the three-month periods ended March 31, 2025 and 2024, respectively. We used cash for capital expenditures of property and equipment of $21.1 million and $11.7 million in the three-month periods ended March 31, 2025 and 2024, respectively. Capital expenditures in each period were primarily related to investments in property and equipment to support development and production of our products, and in 2025 includes costs for the construction of a new distribution facility in South Jordan, Utah. Historically, we have incurred significant expenses in connection with facility construction, production automation, product development and the introduction of new products. We anticipate that we will spend approximately $90 to $100 million in 2025 for property and equipment.
Cash outflows for the acquisition of equity investments and issuance of notes receivable were $7.1 million and $6.5 million for the three-month periods ended March 31, 2025 and 2024, respectively. Cash outflows invested in acquisitions were $1.0 million for the three-month period ended March 31, 2025 and were related to the first deferred payment from our asset purchase agreement with SSI. Cash outflows invested in acquisitions were $3.0 million for the three months ended March 31, 2024 and were related to the initial payment for the acquisition of assets from SSI.
33
Cash flows provided by (used in) financing activities. Cash provided by (used in) financing activities for the three-month periods ended March 31, 2025 and 2024 was $7.0 million and $(18.0) million, respectively. For the three-month period ended March 31, 2024, we had cash used in financing activities primarily attributable to repayment of net borrowings under our Amended Fourth A&R Credit Agreement in an aggregate amount of $24.1 million. We had cash proceeds from the issuance of Common Stock of $13.2 million and $7.7 million for the three-month periods ended March 31, 2025 and 2024, respectively, related to the exercise of non-qualified stock options.
As of March 31, 2025, 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, 2025 and December 31, 2024 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, 2025 there were no changes to the application of critical accounting policies previously disclosed in Part II, Item 7 of our 2024 Annual Report on Form 10-K.
34
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:
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 our actual results to differ from our expectations in any forward-looking statements: inherent risks and uncertainties associated with Merit’s integration of businesses or products acquired from third parties, including the businesses and products 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 financial results, product development and other anticipated benefits of such acquisitions; shifts in trade policies in the U.S. or other countries, including new or modified tariffs or other measures; 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; 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; fluctuations in interest or foreign currency exchange rates and inflation; cybersecurity events; difficulties relating to development, testing and regulatory approval, clearance and maintenance of Merit’s products; the safety, efficacy and 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; consequences associated with a Corporate Integrity Agreement executed between Merit and the U.S. Department of Justice; 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 our 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 affecting our business, see Part I, Item 1A. “Risk Factors” in our 2024 Annual Report on Form 10-K filed with the SEC, which we update in Part II, Item 1A. “Risk Factors” in this report and may further update in subsequent Quarterly Reports on Form 10-Q that we will file hereafter.
All subsequent forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. All forward-looking statements included in this report are made as of the date hereof and are based on information available to us as of such date. We assume no obligation to update any forward-looking statement. If we do update or correct one or more forward-looking statements, investors and others should not conclude that we will make additional updates or corrections.
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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Quantitative and qualitative disclosures about currency exchange rate risk and interest rate risk are included in Part II, Item 7A "Quantitative and Qualitative Disclosures About Market Risk" in the 2024 Annual Report on Form 10-K. In the three-month period ended March 31, 2025, there were no material changes from the information provided therein.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management is responsible for establishing and maintaining adequate disclosure controls and procedures for our company. Consequently, our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 under the Exchange Act as of March 31, 2025. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs. Based on that evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures are designed at a reasonable assurance level and are effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
During the three-month period ended March 31, 2025, there were no changes in our internal control over financial reporting that materially affected, or were reasonably likely to materially affect, our internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934).
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Note 10, Commitments and Contingencies set forth in the notes to our consolidated financial statements included in Part I, Item 1 of this report.
ITEM 1A. RISK FACTORS
In addition to other information set forth in this report, readers should carefully consider the factors discussed in Part I, Item 1A. "Risk Factors" of our 2024 Annual Report on Form 10-K, as updated and supplemented below. Any of the risk factors disclosed in our reports could materially affect our business, financial condition or future results. The risks described here and in our 2024 Annual Report on Form 10-K are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition and/or operating results. The discussion of the risk factor below updates the corresponding disclosure under the same heading in the 2024 Annual Report on Form 10-K and may contain material changes to the corresponding risk factor discussion in our 2024 Annual Report on Form 10-K.
Changes in economic and geopolitical conditions, domestic and foreign trade policies, monetary policies and other factors beyond our control may adversely impact our business, operations and financial condition.
Our operations and performance are significantly impacted by global, regional and U.S. economic and geopolitical conditions. The global macroeconomic environment continues to be challenging due to the effects of inflation, instability in global credit markets, uncertainty regarding global central bank monetary policy, instability in the geopolitical environment in many parts of the world, current economic challenges in China, and other factors. Periods of diplomatic or armed conflict, such as the ongoing conflict in Ukraine, tensions in the Middle East and China-Taiwan relations, may result in (i) new and rapidly evolving sanctions and trade restrictions, which may impair trade with sanctioned individuals and countries, and (ii) negative impacts to regional trade ecosystems among our customers, partners, and us. Non-compliance with sanctions, as well as general ecosystem disruptions, could result in reputational harm, operational delays, monetary fines, lost revenues, increased costs, lost export privileges or criminal sanctions.
The U.S. government recently announced changes to its trade policies, including increasing tariffs on imports, in some cases significantly, and potentially negotiating or terminating existing trade agreements. Many of the announced tariffs apply to countries from which we import our raw materials, component parts and finished products, including Mexico, Ireland and China, which could significantly increase our manufacturing costs. The current tariff environment is dynamic and uncertain, as the U.S. government has imposed, modified and paused tariffs multiple times since the beginning of 2025. Changes to tariffs and other trade restrictions can be announced at any time with little or no notice. We cannot predict with certainty the future trade policy of the United States or other countries. We are currently evaluating the potential impact of the imposition of tariffs on our business and financial condition. However, the ultimate impact of any announced or future tariffs will depend on various factors, including (i) whether such tariffs are ultimately implemented, (ii) the timing and duration of implementation and the amount, scope and nature of such tariffs and (iii) potential exclusions from the application of those tariffs.
Additionally, potential tariffs or other U.S. trade policy measures could trigger retaliatory actions by other countries, including by countries that are significant markets for our products, such as China. For example, in response to the recent tariffs announced by the U.S. government, on April 12, 2025, China imposed a 125% tariff on goods imported from the U.S., which could significantly increase our expenses on some of our products sold in China. The escalation of trade tensions could impact Merit in a variety of ways, including (i) increases in manufacturing costs, including with respect to our products manufactured in the U.S., Mexico and Ireland, (ii) disruptions or delays to our global supply chain, (iii) limitations on our ability to sell our products domestically or abroad, and (iv) reductions in sales volumes and gross margins for our products, any of which could negatively affect our business, operations and financial condition.
Furthermore, tariffs or other trade restrictions may lead to continuing uncertainty and volatility in U.S. and global financial and economic conditions and commodity markets, significant inflation, and ultimately reduced demand for our products. Also, disruptions and volatility in the financial markets may lead to adverse changes in the availability, terms and cost of capital. Such adverse changes could increase our costs of capital and limit our access to external financing sources to fund acquisitions, capital expenditures, or refinancing of debt maturities on similar terms, which could in turn reduce our cash flows and limit our ability to pursue growth opportunities.
The above factors, as well as other economic and geopolitical factors in the U.S. and abroad, could have a material adverse effect on our business, operations and financial condition, including:
ITEM 5. OTHER INFORMATION
On February 28, 2025, David K. Floyd, a member of our Board of Directors, adopted a trading arrangement (the “Floyd Rule 10b5-1 Trading Plan”) for the sale of shares of Common Stock that is intended to satisfy the affirmative defense conditions of Exchange Act Rule 10b5-1(c). The Floyd Rule 10b5-1 Trading Plan provides for the sale of up to 5,021 shares of Common Stock issued under the terms of certain restricted stock units granted to Mr. Floyd by Merit. The Floyd Rule 10b5-1 Trading Plan will terminate on June 2, 2026, unless terminated earlier pursuant to the terms of the Floyd Rule 10b5-1 Trading Plan.
On February 28, 2025, Michael R. McDonnell, a member of our Board of Directors, adopted a trading arrangement (the “McDonnell Rule 10b5-1 Trading Plan”) for the sale of shares of Common Stock that is intended to satisfy the affirmative defense conditions of Exchange Act Rule 10b5-1(c). The McDonnell Rule 10b5-1 Trading Plan provides for the sale of up to 3,500 shares of Common Stock issued or issuable under the terms of certain restricted stock units granted to Mr. McDonnell by Merit. The McDonnell Rule 10b5-1 Trading Plan will terminate on June 30, 2025, unless terminated earlier pursuant to the terms of the McDonnell Rule 10b5-1 Trading Plan.
Other than with respect to the Floyd Rule 10b5-1 Trading Plan and the McDonnell Rule 10b5-1 Trading Plan, none of our directors or officers informed us of the adoption or termination of a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as those terms are defined in Regulation S-K, Item 408 during the three-month period ended March 31, 2025. The foregoing description of the Floyd Rule 10b5-1 Trading Plan and the McDonnell Rule 10b5-1 Trading Plan are summaries only and are qualified in their entirety by reference to those plans, copies of which are attached as Exhibit 10.1 and Exhibit 10.2, respectively, to this Quarterly Report on Form 10-Q.
ITEM 6. EXHIBITS
Exhibit No.
Description
3.1
Second Amended and Restated Articles of Incorporation.*
Fourth Amended and Restated Bylaws.*
10.1
Rule 10b5-1 Trading Plan, dated February 28, 2025, between David K. Floyd and Charles Schwab & Co., Inc.
10.2
Rule 10b5-1 Trading Plan, dated February 28, 2025, between Michael R. McDonnell and Morgan Stanley Smith Barney LLC.
10.3
Performance Stock Unit Award Agreement (Three Year Performance Period), dated February 28, 2025, by and between Merit Medical Systems, Inc. and Fred Lampropoulos.†
10.4
Performance Stock Unit Award Agreement (Three Year Performance Period), dated February 28, 2025, by and between Merit Medical Systems, Inc. and Raul Parra.†
10.5
Performance Stock Unit Award Agreement (Three Year Performance Period), dated February 28, 2025, by and between Merit Medical Systems, Inc. and Brian Lloyd.†
Performance Stock Unit Award Agreement (Three Year Performance Period), dated February 28, 2025, by and between Merit Medical Systems, Inc. and Neil Peterson.†
Performance Stock Unit Award Agreement (Three Year Performance Period), dated February 28, 2025, by and between Merit Medical Systems, Inc. and Mike Voigt.†
10.8
Restricted Stock Unit Award Agreement, dated February 28, 2025, by and between Merit Medical Systems, Inc. and Fred Lampropoulos.†
10.9
Restricted Stock Unit Award Agreement, dated February 28, 2025, by and between Merit Medical Systems, Inc. and Raul Parra.†
10.10
Restricted Stock Unit Award Agreement, dated February 28, 2025, by and between Merit Medical Systems, Inc. and Brian Lloyd.†
10.11
Restricted Stock Unit Award Agreement, dated February 28, 2025, by and between Merit Medical Systems, Inc. and Neil Peterson.†
10.12
Restricted Stock Unit Award Agreement, dated February 28, 2025, by and between Merit Medical Systems, Inc. and Mike Voigt.†
31.1
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101
The following financial information from the quarterly report on Form 10-Q for the quarter ended March 31, 2025, formatted in Inline Extensible Business Reporting Language (iXBRL): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Income (iv) Consolidated Statements of Stockholders’ Equity, (v) Consolidated Statements of Cash Flows, and (vi) related Condensed Notes to the Unaudited Consolidated Financial Statements, tagged in detail.
104
Cover Page Interactive Data File (the cover page XBRL tags are embedded within the Inline XBRL document).
* These exhibits are incorporated herein by reference.
† Indicates management contract or compensatory plan or arrangement
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: April 24, 2025
By:
/s/ FRED P. LAMPROPOULOS
Fred P. Lampropoulos
Chief Executive Officer and President
/s/ RAUL PARRA
Raul Parra
Chief Financial Officer and Treasurer