MMSI US Equity☆

Item 7.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 Notes thereto set forth in Item 8 of this report.

Overview

We design, develop, manufacture, market and sell medical products for interventional and diagnostic procedures. For financial reporting purposes, we report our operations in two operating segments: cardiovascular and endoscopy. Our cardiovascular segment consists of four product categories: peripheral intervention, cardiac intervention, custom procedural solutions, and 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 nonvascular diseases), as well as embolotherapeutic, cardiac rhythm management, electrophysiology, critical care, breast cancer localization and guidance, biopsy, and interventional oncology and spine devices. Our endoscopy segment consists of gastroenterology and pulmonology devices which assist in the palliative treatment of expanding esophageal, tracheobronchial and biliary strictures caused by malignant tumors.

For the year ended December 31, 2023, we reported sales of $1.257 billion, up $106.4 million or 9.2%, compared to 2022 sales of $1.151 billion. Our revenue results for the year ended December 31, 2023 were driven primarily by stronger-than-anticipated demand in the U.S. and more favorable than anticipated international sales trends, particularly in the EMEA and “Rest of World” (“ROW”) regions.

Gross profit as a percentage of sales was 46.4% for the year ended December 31, 2023 as compared to 45.1% for the year ended December 31, 2022.

Net income for the year ended December 31, 2023 was $94.4 million, or $1.62 per share, as compared to $74.5 million, or $1.29 per share, for the year ended December 31, 2022.

In June 2023, we completed the acquisition of a portfolio of dialysis catheter products and the BioSentry Biopsy Tract Sealant System from AngioDynamics and acquisition of the Surfacer Inside-Out Access Catheter System from Bluegrass.

On November 10, 2020, we introduced a corporate transformation initiative known as “Foundations for Growth” with multi-year financial targets for growth and improved profitability. We completed the final year of our Foundations for Growth Program, delivering or exceeding each of the financial targets we outlined for the three-year period ending December 31, 2023. We are introducing the “Continued Growth Initiatives” Program and new multi-year financial targets for the three-year period ending December 31, 2026.

On December 8, 2023, we closed an offering of $747.5 million aggregate principal amount of its 3.00% Convertible Senior Notes due 2029 (the “Convertible Notes”). We intend to use the proceeds from the Notes offering for general corporate purposes, which may include repayment or reduction of existing debt, sales and marketing activities, medical affairs and educational efforts, research and development, clinical studies, working capital, capital expenditures and investments in and acquisitions of other companies, products or technologies in the future.

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Results of Operations

The following table sets forth certain operational data as a percentage of sales for the years indicated:

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Selling, general and administrative expenses 29.7 29.8 31.2 ​

Research and development expenses 6.6 6.6 6.6 ​

Legal settlement ​ — ​ — ​ 0.9 ​

Impairment charges — 0.2 0.4 ​

Contingent consideration expense 0.1 0.4 0.3 ​

Acquired in-process research and development expense 0.1 0.6 — ​

Income from operations 9.9 7.6 5.7 ​

Other expense — net (0.9) (0.4) ​ (0.7) ​

Income before income taxes 8.9 7.2 5.0 ​

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Sales

Listed below are the sales by product category within each operating segment for the years ended December 31, 2023, 2022 and 2021 (in thousands, other than percentage changes):

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Cardiovascular ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

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Endoscopy ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

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Cardiovascular Sales. Our cardiovascular sales for the year ended December 31, 2023 were $1.221 billion, up 9.2%, when compared to the year ended December 31, 2022 of $1.118 billion. Sales for the year ended December 31, 2023 were favorably affected by increased sales of:

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Our cardiovascular sales for the year ended December 31, 2022 were $1.118 billion, up 7.2%, when compared to the year ended December 31, 2021 of $1.043 billion. Sales for the year ended December 31, 2022 were favorably affected by increased sales of:

The foregoing increase in sales for the year ended December 31, 2022 was partially offset by decreased sales of:

Endoscopy Sales. Our endoscopy sales for the year ended December 31, 2023 were $36.8 million, up 12.4%, when compared to sales for the year ended December 31, 2022 of $32.8 million. Sales for the year ended December 31, 2023 were favorably affected by increased sales of our EndoMAXX fully covered esophageal stent, Elation Balloon Dilator, and AERO Mini tracheobronchial stent, partially offset by a decrease in sales of our probes.

Our endoscopy sales for the year ended December 31, 2022 were $32.8 million, up 3.9%, when compared to sales for the corresponding period in 2021 of $31.5 million. Sales for the year ended December 31, 2022 were favorably affected by increased sales of our Elation Balloon Dilator and other stents, partially offset by a decrease in sales of our EndoMAXX fully covered esophageal stent.

Geographic Sales

Listed below are sales by geography for the years ended December 31, 2023, 2022, and 2021 (in thousands, other than percentage changes):

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United States Sales:U.S. sales for the year ended December 31, 2023 were $727.0 million, or 57.8% of net sales, up 11.7% when compared to 2022. The increase in our domestic sales in 2023 was driven primarily by our U.S. direct, OEM and oncology businesses. U.S. sales for the year ended December 31, 2022 were $650.6 million, or 56.5% of net sales, up 6.8% when compared to 2021. The increase in our domestic sales in 2022 was driven primarily by our U.S. direct, sensors and OEM businesses.

International Sales. International sales for the year ended December 31, 2023 were $530.4 million, or 42.2% of net sales, up 6.0% when compared to 2022. The increase in our international sales during 2023 was primarily a result of higher sales in EMEA, which increased $18.0 million or 8.3%, higher rest of world sales which increased $7.0 million or 16.6%, and higher sales in APAC, which increased $4.9 million or 2.1%, compared to the corresponding period of 2022. International sales for the year ended December 31, 2022 were $500.4 million, or 43.5% of net sales, up 7.4% when compared to 2021. The increase in our international sales during 2022 was primarily a result of higher sales in APAC, which increased $13.3 million or 5.9%, higher sales in EMEA, which increased $11.4 million or 5.5%, and higher rest of world sales which increased $9.9 million or 30.8%, compared to the corresponding period of 2021.

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Our international sales are subject to foreign currency exchange rate fluctuations between the natural currency of a foreign country and the U.S. Dollar. Foreign currency exchange rate fluctuations, calculated by using the applicable average foreign exchange rates for the prior year decreased sales (0.5)% for the year ended December 31, 2023 compared to 2022 and decreased sales (2.2)% for the year ended December 31, 2022 compared to 2021.

Gross Profit

Our gross profit as a percentage of sales was 46.4%, 45.1%, and 45.2% for the years ended December 31, 2023, 2022 and 2021, respectively. The increase in gross profit as a percentage of sales for 2023, as compared to 2022, was primarily due to increased sales combined with changes in standard costs and product mix, lower freight expenses due to focus on increasing ocean freight and lowering air shipments, partially offset by higher royalty costs associated with sales and higher intangible amortization expense as a percentage of sales associated with acquisitions. The decrease in gross profit as a percentage of sales for 2022, as compared to 2021, was primarily due to less favorable manufacturing variances and higher freight costs as a percentage of sales, partially offset by more favorable changes in standard cost and product mix, decreased intangible amortization expense as a percentage of sales, and lower obsolescence expense, among other factors.

Operating Expenses

Selling, General and Administrative Expenses. Our selling, general and administrative (“SG&A”) expenses increased $31.2 million, or 9.1%, for the year ended December 31, 2023 compared to 2022 and increased $6.8 million, or 2.0%, for the year ended December 31, 2022 compared to 2021. SG&A expenses as a percentage of sales were 29.7%, 29.8% and 31.2% for the years ended December 31, 2023, 2022 and 2021, respectively.

The increase in SG&A expenses for the year ended December 31, 2023 compared to the year ended December 31, 2022 was primarily related to increased labor-related costs associated with an increase in headcount and higher variable compensation linked to company performance, increase in loss for disposal of equipment associated with restructuring, higher travel related expenses as restrictions from the pandemic continued to decline, and an increase in depreciation and amortization associated with acquisitions.

The increase in SG&A expenses for the year ended December 31, 2022 compared to the year ended December 31, 2021 was primarily related to an increase in labor-related costs, including a $6.6 million increase for severance associated with restructuring and site closures, and higher travel related expenses as restrictions from the pandemic continued to decline; partially offset by a decrease of approximately $6 million for contract termination costs incurred in 2021 to renegotiate certain terms of our September 1, 2017 share purchase agreement with IntelliMedical Technologies Pty. Ltd. (“IntelliMedical”). In addition, for the year ended December 31, 2022, we recorded $1.0 million of expense in connection with the negotiated settlement of a shareholder derivative lawsuit filed in the United States District Court for the District of Utah against Merit, our Chief Executive Officer, our Chief Financial Officer and certain of our directors.

Research and Development Expenses. Our research and development (“R&D”) expenses as a percentage of sales were 6.6%, 6.6% and 6.6% for the years ended December 31 2023, 2022, and 2021, respectively. R&D expenses increased by $7.2 million or 9.6% to $82.7 million for the year ended December 31, 2023, compared to $75.5 million in 2022. The increase in R&D expenses for the year ended December 31, 2023 compared to the year ended December 31, 2022 was primarily related to labor-related costs consistent with an increase in headcount and an increase in regulatory expense and costs for clinical trials.

R&D expenses increased by $4.3 million or 6.0% to $75.5 million for the year ended December 31, 2022, compared to $71.2 million for the year ended December 31, 2021. The increase in R&D expenses for the year ended December 31, 2022 compared to the year ended December 31, 2021 was primarily related to labor-related costs consistent with an increase in headcount. We also incurred increased outside service and consulting costs due to higher costs from clinical trials and the implementation of the MDR in the E.U.

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Legal Settlement.For the year ended December 31, 2021, we recorded approximately $10 million of net expense in connection with an agreement in principle to settle the securities class action lawsuit in December 2019 against Merit, our Chief Executive Officer and our Chief Financial Officer in the United States District Court for the Central District of California (the “Class Action Litigation”). This expense includes $18.25 million of settlement related costs, net of $8.2 million of insurance proceeds.

Impairment Charges. For the year ended December 21, 2023, we recorded impairment charges of $270 thousand due to the acquisition and subsequent write-off of our equity investment in Bluegrass Vascular Technologies, Inc. (“Bluegrass”).

For the year ended December 31, 2022, we recorded impairment charges of $2.2 million. These impairments included $1.7 million of intangible assets for our divestiture of the STD Pharmaceutical Products Limited (“STD Pharmaceutical”) business acquired in our August 2019 acquisition of Fibrovein Holdings and $0.5 million impairment of our equity investment in XableCath, Inc. as this business ceased operations.

For the year ended December 31, 2021 we recorded impairment charges of $4.3 million. These impairments included $1.6 million of intangible asset and $1.3 million of property and equipment due to the planned discontinuance of the AdvocateTM Peripheral Angioplasty Balloon product line, sold under our license agreements with ArraVasc Limited (“ArraVasc”) and $1.4 million of impairments of certain right-of-use (“ROU”) operating lease assets due to site consolidation decisions and changes in our projected cash flows for the underlying lease assets.

Contingent Consideration Expense. For the years ended December 31, 2023, 2022 and 2021, we recorded $1.7 million, $4.6 million and $3.2 million, respectively, of net contingent consideration expense from changes in the estimated fair value of our contingent consideration obligations stemming from our previously disclosed business acquisitions. The expense in each fiscal year relates to changes in the probability and timing of achieving certain revenue and operational milestones, as well as expense for the passage of time.

Acquired In-process Research and Development. During the year ended December 31, 2023, we incurred in-process research and development charges of $1.6 million primarily associated with the assets we acquired from Advanced Radiation Therapy, LLC (“ART”) on May 1, 2023. We incurred $6.7 million for in-process research and development charges associated with our acquisition of Restore Endosystems, LLC (“Restore Endosystems”) during the year ended December 31, 2022. We did not incur in-process research and development charges during the year ended December 31, 2021.

Operating Income

Our operating profit by operating segment for the years ended December 31, 2023, 2022 and 2021 was as follows (in thousands):

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Cardiovascular Operating Income. Our cardiovascular operating income for the year ended December 31, 2023 was $114.4 million, compared to cardiovascular operating income of $80.9 million for the year ended December 31, 2022. This increase in cardiovascular operating income was primarily related to higher sales and gross profit, decreased impairment charges ($270 thousand in 2023 compared to $2.2 million in 2022), decreased acquired in-process research and development charges, and decreased contingent consideration expense ($1.7 million in 2023 compared to $4.6 million in 2022), partially offset by higher SG&A and R&D expenses.

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Our cardiovascular operating income for the year ended December 31, 2022 was $80.9 million, compared to cardiovascular operating income of $53.4 million for the year ended December 31, 2021. This increase in cardiovascular operating income was primarily related to higher sales, decreased legal settlement costs, including $10 million in 2021 in connection with an agreement in principle to settle a securities class action lawsuit, and decreased impairment charges within our cardiovascular operating segment ($2.2 million in 2022 compared to $4.3 million in 2021), partially offset by increased labor-related and travel costs, and increased contingent consideration expense ($4.6 million in 2022 compared to $3.2 million in 2021).

Endoscopy Operating Income. Our endoscopy operating income for the year ended December 31, 2023 was $9.5 million, compared to operating income of $6.6 million for the year ended December 31, 2022. This increase in endoscopy operating income relative to 2022 was primarily due to higher sales and gross profit, partially offset by higher SG&A expenses.

Our endoscopy operating income for the year ended December 31, 2022 was $6.6 million, compared to operating income of $7.5 million for the year ended December 31, 2021. This decrease in endoscopy operating income relative to 2021 was primarily due to decreased gross margin percentage as a result of changes in product mix and higher shipping costs and higher labor-related costs, partially offset by higher sales.

Other Income (Expense)

Our other expense for the years ended December 31, 2023, 2022 and 2021 was $11.9 million, $4.9 million, and $7.0 million, respectively. The increase in other expense for 2023 compared to 2022 was principally the result of an increase in interest expense associated with increased borrowings under our Credit Agreement, issuance of convertible debt and rising interest rates, partially offset by an increase in interest income associated with an increase in cash and cash equivalents.

The decrease in other expense for 2022 compared to 2021 was principally the result of an increase in other income associated with realized and unrealized foreign currency gain (loss), partially offset by an increase in interest expense associated with rising interest rates and an increase in other expense related to the divestiture of the STD Pharmaceutical business.

Effective Tax Rate

Our provision for income taxes for the years ended December 31, 2023, 2022 and 2021 was a tax expense of $17.7 million, $8.1 million and $5.5 million, respectively, which resulted in an effective income tax rate of 15.8%, 9.8%, and 10.1%, respectively. The increase in the effective income tax rate for 2023 compared to 2022 was primarily the result of decreased benefit from items such as stock-based compensation, the foreign-derived intangible income (FDII) deduction, as well as the foreign tax credits being utilized. The decrease in the effective income tax rate for 2022 compared to 2021 was primarily the result of a benefit from the change in foreign withholding taxes on unremitted foreign earnings due to the restructuring of our foreign entities, more foreign tax credits being utilized, as well as additional benefit from the FDII deduction.

Net Income

Our net income for the years ended December 31, 2023, 2022 and 2021 was $94.4 million, $74.5 million, and $48.5 million, respectively. The increase in net income for 2023, when compared to 2022, was primarily related to higher sales, higher gross margin as a percentage of sales, decreased impairment charges ($270 thousand in 2023 compared to $2.2 million in 2022), decreased contingent consideration expense ($1.7 million in 2023 compared to $4.6 million in 2022), decreased acquired in-process research and development expense ($1.6 million in 2023 compared to $6.7 million in 2022); partially offset by higher SG&A and R&D expenses.

The increase in net income for 2022, when compared to 2021, was primarily related to higher sales, decreased legal settlement costs primarily due to the $10.0 million settlement in 2021 in connection with an agreement in principle to settle a securities class action lawsuit, and decreased impairment charges ($2.2 million in 2022 compared to $4.3 million in 2021); partially offset by higher SG&A expenses due to higher labor-related and travel costs, as well as increased contingent consideration expense of $4.6 million in 2022 compared to $3.2 million in 2021.

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Liquidity and Capital Resources

Capital Commitments and Contractual Obligations

Our most significant contractual obligations as of December 31, 2023 included total long-term debt obligations of $846.6 million, of which $0.0 million is recorded in current liabilities, interest payments on this debt, contingent consideration liabilities of $3.4 million, of which $0.4 million is recorded in current liabilities, and operating lease liabilities of $68.3 million, of which $12.1 million is recorded in current liabilities. Additional information about these obligations is contained in Notes 8, 15 and 17 to our consolidated financial statements set forth in Item 8 of this report.

Cash Flows

At December 31, 2023 and 2022, we had cash, cash equivalents and restricted cash of $589.1 million and $60.6 million respectively, of which $48.7 million and $49.6 million, respectively, were held by foreign subsidiaries. We do not consider our foreign earnings to be permanently reinvested. As of December 31, 2023 and 2022, approximately $2.1 million and $2.1 million respectively, of our cash and cash equivalents represents restricted cash for the payment of certain import and other taxes for our subsidiary in China. 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 December 31, 2023 and 2022, we had cash and cash equivalents, including restricted cash, of $17.6 million and $26.1 million, respectively, held by our subsidiary in China.

Cash flows provided by operating activities. We generated cash from operating activities of $145.2 million, $114.3 million and $147.2 million during the years ended December 31, 2023, 2022 and 2021, respectively. Net cash provided by operating activities increased $30.9 million for the year ended December 31, 2023 compared to the year ended December 31, 2022. Significant changes in operating assets and liabilities affecting cash flows during these years included:

Net cash provided by operating activities decreased $32.9 million for the year ended December 31, 2022 compared to the year ended December 31, 2021. Significant changes in operating assets and liabilities affecting cash flows during these years included:

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Cash flows used in investing activities. We used cash in investing activities of $175.3 million, $57.4 million, and $37.2 million for the years ended December 31, 2023, 2022 and 2021, respectively. We invested in capital expenditures for property and equipment of $34.3 million, $45.0 million, and $27.9 million for the years ended December 31, 2023, 2022 and 2021, respectively. Capital expenditures in each period were primarily related to investment in property and equipment to support development and production of our products. 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 $50 to $60 million in 2024 for property and equipment.

Cash outflows invested in acquisitions for the year ended December 31, 2023 were $138.3 million and were primarily related to payments required by our asset purchase agreements with AngioDynamics ($100 million), Bluegrass ($32.7 million), and ART ($1.5 million), and our transaction with Solo Pace ($4.0 million). Cash outflows invested in acquisitions for the year ended December 31, 2022 were $8.3 million and were primarily related to our $3.0 million upfront payment in our purchase of Restore Endosystems, our $2.5 million payment in our purchase of BioTrace Medical, Inc., and our additional equity investment in FluidX Medical Technology, Inc. (“Fluidx”) of $1.4 million. Cash outflows invested in acquisitions for the year ended December 31, 2021 were $7.2 million and were primarily related to $4.1 million for the settlement of deferred payments and the working capital adjustment associated with our acquisition of KA Medical, LLC (“KA Medical”) completed in November 2020 and $2.7 million for an equity investment in Fluidx.

Cash flows provided by (used in) financing activities. Cash provided by (used in) financing activities for the years ended December 31, 2023, 2022 and 2021 was $559.3 million, $(60.3) million, and $(98.4) million, respectively. In 2023 we issued convertible debt of $747.5 million, paid $66.5 million for the purchase of capped call options, and decreased our net borrowings under our Fourth Amended Credit Agreement by $99.1 million. In 2022 we decreased our net borrowings under our Third Amended Credit Agreement by $44.9 million and paid contingent consideration of $32.9 million, which is classified as a financing activity, principally related to our acquisitions of Cianna Medical Inc. (“Cianna Medical”) and Vascular Insights LLC (“Vascular Insights”). In 2021 we decreased our net borrowings under our Third Amended Credit Agreement by $108.5 million and paid contingent consideration of $10.7 million, which is classified as a financing activity, principally related to our acquisition of Vascular Insights.

As of December 31, 2023, we had outstanding borrowings of $846.6 million and issued letter of credit guarantees of $2.7 million, with additional available borrowings of approximately $626 million under the Fourth Amended Credit Agreement, based on the leverage ratio required pursuant to the Fourth Amended Credit Agreement. Our interest rate as of December 31, 2023 was a fixed rate of 3.0% on our Convertible Notes, a fixed rate of 3.39% on $75 million as a result of an interest rate swap, and a variable floating rate of 7.21% on $24.1 million. Our interest rate as of December 31, 2022 was a fixed rate of 2.71% on $75 million as a result of an interest rate swap and a variable floating rate of 5.38% on $123.2 million. The foregoing fixed rates are exclusive of potential future changes in the applicable margin associated with our variable rate debt under the Fourth Amended Credit Agreement. See Note 8 and Note 9 to our consolidated financial statements set forth in Item 8 of this report for additional details regarding the Fourth Amended Credit Agreement, Convertible Notes, and our interest rate swap.

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.

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Critical Accounting Policies and Estimates

Our significant accounting policies are summarized in Note 1 to our consolidated financial statements set forth in Item 8 of this report. While these significant accounting policies affect the reporting of our financial condition and results of operations, the SEC has requested that all registrants address their most critical accounting policies. The SEC has indicated that a “critical accounting policy” is one which is both important to the representation of the registrant’s financial condition and results and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. We base our estimates on past experience and on various other assumptions our management believes to be reasonable under the circumstances, the results of which form the basis for making judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results will differ and may differ materially from these estimates under different assumptions or conditions. Additionally, changes in accounting estimates could occur in the future from period to period. The following paragraphs identify our most critical accounting policies:

Inventory Obsolescence.Our management reviews inventory quantities on hand and records provisions for estimated excess, slow moving and obsolete inventory. Based on this review, we provide adjustments for any slow-moving finished good products or raw materials that we believe will expire prior to being sold or used to produce a finished good and any products that are unmarketable. This review of inventory quantities for unmarketable and/or slow moving products is based on forecasted product demand derived from our historical experience of product sales and production raw material usage. If market conditions become less favorable than those projected by our management, additional inventory write-downs may be required. During the years ended December 31, 2023, 2022 and 2021, we recorded obsolescence expense of approximately $11.5 million, $9.8 million, and $10.9 million, respectively, and wrote off approximately $11.9 million, $10.2 million, and $11.6 million, respectively. Based on this historical trend, we believe that our inventory balances as of December 31, 2023 have been accurately adjusted for any unmarketable and/or slow moving products that may expire prior to being sold.

Valuation of Goodwill and Intangible Assets.We allocate any excess purchase price over the fair value of the net tangible and identifiable intangible assets acquired in a business combination to goodwill. We base the fair value of identifiable intangible assets acquired in a business combination on valuations that use information and assumptions that a market participant would use, including assumptions for estimated revenue projections, growth rates, cash flows, discount rates, useful life, and other relevant assumptions.

We test our goodwill balances for impairment annually as of July 1, or whenever impairment indicators arise. When impairment indicators are identified, we may elect to perform an optional qualitative assessment to determine whether it is more likely than not that the fair value of our reporting units has fallen below their carrying value. During our annual impairment test performed as of July 1, we utilized four reporting units in evaluating goodwill for impairment using a quantitative assessment, which uses a combination of a guideline public company market-based approach and a discounted cash flow income-based approach. The quantitative assessment considers whether the carrying amount of a reporting unit exceeds its fair value, in which case an impairment charge is recorded to the extent the reporting unit’s carrying value exceeds its fair value. This analysis requires significant judgment, including estimation of the amount, timing and duration of future cash flows, which is based on internal forecasts, and a determination of a discount rate based on our weighted average cost of capital. During our annual test of goodwill balances in 2023, which was completed during the third quarter of 2023, we determined that the fair value of each reporting unit with goodwill exceeded the carrying amount by a significant amount.

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. We first compare undiscounted cash flows to the carrying amount of the asset group to determine if impairment exists, and then 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. This analysis requires similar significant judgments as those discussed above regarding goodwill. In-process technology intangible assets, which are not subject to amortization until projects reach commercialization, are assessed for impairment at least annually and more frequently if events occur that would indicate a potential reduction in the fair value of the assets below their carrying value.

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During the years ended December 31, 2022 and 2021, we identified indicators of impairment associated with certain acquired intangible assets within the asset groups based on our qualitative assessment. During the years ended December 31, 2022 and 2021, we recorded total impairment charges associated with intangible assets in our cardiovascular segment of $1.7 million and $1.6 million, respectively. We did not have any impairments for the year ended December 31, 2023. These expenses are reflected within impairment charges in our consolidated statements of income. The primary factors driving impairment of certain intangible assets were planned closure and restructuring activities and uncertainty about future product development and commercialization associated with certain acquired technologies. See Note 5 to our consolidated financial statements set forth in Item 8 of this report for additional details regarding impairments of intangible assets.

Contingent Consideration.Contingent consideration is an obligation by the buyer to transfer additional assets or equity interests to the former owner upon reaching certain performance targets. Certain of our 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 relevant milestones. In connection with a business combination, any contingent consideration is recorded at fair value on the acquisition date based upon the consideration expected to be transferred in the future. We base the fair value of contingent consideration obligations acquired in a business combination on valuations that use information and assumptions that a market participant would use, including assumptions for estimated revenue growth rates, discount rates, probabilities of achieving regulatory approval, performance, or revenue-based milestones and other relevant factors.

We re-measure the estimated liability each quarter and record changes in the estimated fair value through operating expense in our consolidated statements of income. Significant increases or decreases in our estimates could result in changes to the estimated fair value of our contingent consideration liability, as well as the result of changes in the timing and amount of revenue estimates and changes in the discount rate or periods. Our revenue milestones for the acquisition of Brightwater Medical, Inc. includes payment thresholds. This and other similar contract features of our contingent consideration liabilities create sensitivity regarding the occurrence, timing, and amount of future payments.

For the years ended December 31, 2023, 2022 and 2021, we recognized contingent consideration expense of $1.7 million, $4.6 million and $3.2 million, respectively, from changes in the estimated fair value of our contingent consideration obligations stemming from our previously disclosed business acquisitions. Changes in the fair value of our contingent consideration liabilities were primarily attributable to changes in anticipated sales growth in the acquired products and the anticipated timing of milestone payments. See Note 15 to our consolidated financial statements set forth in Item 8 of this report for additional details regarding our contingent liabilities.

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Item 7A.Quantitative and Qualitative Disclosures About Market Risk.

Currency Exchange Rate Risk

Our consolidated financial statements are denominated in, and our principal currency is, the U.S. Dollar. For the year ended December 31, 2023, a portion of our net sales ($423.4 million, representing 33.7% of our aggregate net sales), was attributable to sales that were denominated in foreign currencies. All other international sales were denominated in U.S. Dollars. Our principal market risk relates to changes in the value of the Chinese Yuan Renminbi (CNY) and Euro (EUR) relative to the U.S. Dollar (USD), with limited market risk relating to various other currencies. In general, a strengthening of the U.S. Dollar against CNY has a negative effect on our operating income. Our Euro-denominated expenses associated with our European operations (manufacturing sites, a distribution facility and sales representatives) provide a natural hedge for Euro-denominated revenues. Accordingly, a strengthening of the U.S. Dollar against the Euro will generally have a positive effect on our operating income.

We forecast our net exposure related to sales and expenses denominated in foreign currencies. As of December 31, 2023 and 2022, we had entered into foreign currency forward contracts, which qualified as cash flow hedges, with aggregate notional amounts of $141.1 million and $87.8 million, respectively. We also 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 that exposure. As of December 31, 2023 and 2022, we had entered into foreign currency forward contracts, which were not designated as hedging instruments, related to those balance sheet accounts with aggregate notional amounts of $108.4 million and $92.4 million, respectively.

A sensitivity analysis of changes in the fair value of all currency exchange rate derivative contracts at December 31, 2023 and 2022 indicates that, if the U.S. Dollar strengthened or weakened by 10% against all currencies, it would have the following impact on the fair value of these contracts (in thousands):

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Gains or losses on the fair value of derivative contracts would generally be offset by gains and losses on the underlying hedged transaction or net exposure. These offsetting gains and losses are not reflected above. See Note 9 to our consolidated financial statements set forth in Item 8 of this report for additional discussion of our foreign currency forward contracts.

Interest Rate Risk

As discussed in Note 8 to our consolidated financial statements set forth in Item 8 of this report, as of December 31, 2023, we had outstanding borrowings of $99.1 million under the Fourth Amended Credit Agreement. Accordingly, our earnings and after-tax cash flow are affected by changes in interest rates. On December 23, 2019, we entered into a pay-fixed, receive-variable interest rate swap with Wells Fargo Bank, with a notional amount of $75 million. In June 2023, certain terms under the agreement were amended to reflect the transition from LIBOR to SOFR, an alternative reference rate. Under the interest rate swap agreement we fixed the one-month SOFR rate on that portion of our borrowings under the Fourth Amended Credit Agreement at 1.64% for the period from June 1, 2023 to July 31, 2024. This interest rate swap is intended to reduce our exposure to interest rate fluctuations and was not entered into for speculative purposes. Excluding the amount that is subject to a fixed rate under the interest rate swap and assuming the current level of borrowings remained the same, it is estimated that our interest expense and income before income taxes would change by approximately $0.2 million annually for each one percentage point change in the average interest rate under these borrowings.

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​

Item 8.Financial Statements and Supplementary Data.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the stockholders and the Board of Directors of Merit Medical Systems, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Merit Medical Systems, Inc. and subsidiaries (the "Company") as of December 31, 2023 and 2022, the related consolidated statements of income, comprehensive income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2023, and the related notes and the schedule listed in the Index at Item 15 (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP").

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 28, 2024, expressed an unqualified opinion on the Company's internal control over financial reporting.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

​

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Inventories - Provision for estimated excess, slow moving and obsolete inventories – Refer to Note 1 to the financial statements

Critical Audit Matter Description

Inventories are valued at the lower of cost, at approximate costs determined on a first-in, first-out method, or net realizable value. The Company reviews inventories on hand and records provisions based on estimated excess, slow moving and obsolete inventories. The valuation of inventories includes an assessment of future product demand based on historical sales and raw material usage and product expiration.

We identified the provision for estimated excess, slow moving and obsolete inventories as a critical audit matter because of management’s significant judgment and estimates in determining the provision for estimated excess, slow moving and obsolete inventories primarily around forecasted product demand derived from historical experience of product sale and production raw material usage. This required a high degree of auditor judgment and an increased extent of effort.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to management’s estimates of the valuation of excess, slow moving and obsolete inventories included the following, among others:

Intangible Assets – Bluegrass and AngioDynamics Developed Technology – Refer to Note 3 to the financial statements

Critical Audit Matter Description

On May 4, 2023, the Company entered into an asset purchase agreement to acquire specific assets related to catheter products from Bluegrass Vascular Technologies, Inc. (“Bluegrass”). The Company accounted for this acquisition under the acquisition method of accounting for business combinations. Accordingly, the purchase price was allocated to the tangible and intangibles assets acquired based on their respective fair values, including developed technology intangible assets of $28 million.

On June 8, 2023, the Company entered into an asset purchase agreement with AngioDynamics, Inc. (“AngioDynamics”) to acquire the assets associated with a portfolio of catheter products. The Company accounted for this acquisition under the acquisition method of accounting for business combinations. Accordingly, the purchase price was allocated to the tangible and intangible assets acquired based on their respective fair values, including developed technology intangible assets of $65.2 million.

The determination of the fair value of the developed technology intangible assets required management to make significant estimates and assumptions related to future cash flows and the discount rate.

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We identified the valuation of the acquired developed technology intangible assets from Bluegrass and AngioDynamics as a critical audit matter because of the significant estimates and assumptions management made to determine the fair value of these assets. This required a high degree of auditor judgment and an increased extent of effort, including the involvement of our fair value specialists, when performing audit procedures to evaluate the reasonableness of management’s forecasts of future cash flows and the discount rate.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the estimates of future cash flows and discount rate for the acquired Bluegrass and AngioDynamics developed technology intangible assets included the following, among others:

​/s/ DELOITTE & TOUCHE LLP ​

​ ​

Salt Lake City, Utah ​

We have served as the Company’s auditor since 1988. ​

​

​

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​

MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands)

​

​ ​ ​ ​ ​ ​ ​

​ December 31, December 31,

​ ​ ​ ​ ​ ​ ​

Current assets: ​ ​

Prepaid expenses and other current assets ​ 24,286 ​ 22,324

Income tax refund receivables ​ 859 ​ 779

​ ​ ​ ​ ​ ​ ​

Property and equipment: ​ ​

​ ​ ​ ​ ​ ​ ​

Other assets: ​ ​

Intangible assets: ​ ​

Deferred income tax assets ​ 7,288 ​ 6,599

Right-of-use operating lease assets ​ ​ 63,047 ​ ​ 65,262

​ ​ ​ ​ ​ ​ ​

​

See notes to consolidated financial statements. (continued)

​

​

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MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands)

​

​ ​ ​ ​ ​ ​ ​

​ December 31, December 31,

LIABILITIES AND STOCKHOLDERS’ EQUITY 2023 2022

​ ​ ​ ​ ​ ​ ​

Current liabilities: ​ ​ ​

Current portion of long-term debt ​ — ​ 11,250

Short-term operating lease liabilities ​ ​ 12,087 ​ ​ 11,005

​ ​ ​ ​ ​ ​ ​

Deferred income tax liabilities ​ 5,547 ​ 18,462

Long-term income taxes payable ​ 347 ​ 347

Liabilities related to unrecognized tax benefits ​ 1,912 ​ 1,912

Long-term operating lease liabilities ​ ​ 56,259 ​ 59,736

​ ​ ​ ​ ​ ​ ​

Commitments and contingencies ​ ​

​ ​ ​ ​ ​ ​ ​

Stockholders' equity: ​ ​

Accumulated other comprehensive loss ​ (11,334) ​ (11,550)

​ ​ ​ ​ ​ ​ ​

​

​ ​

See notes to consolidated financial statements. (concluded)

​

​

​

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MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share amounts)

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Operating expenses: ​ ​ ​

Legal settlement ​ ​ — ​ ​ — ​ ​ 10,036

Acquired in-process research and development ​ 1,550 ​ 6,671 ​ —

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Other income (expense): ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Earnings per common share ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Weighted average shares outstanding ​ ​ ​

​

See notes to consolidated financial statements.

​

​

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MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Other comprehensive income: ​ ​ ​

Foreign currency translation adjustment ​ 2,959 ​ (10,491) ​ (7,704)

Income tax benefit (expense) ​ (39) ​ 102 ​ 689

Total other comprehensive income (loss) ​ 216 ​ (3,559) ​ (2,539)

​

See notes to consolidated financial statements.

​

​

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MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands)

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ Common Stock ​ Retained ​ Accumulated Other ​ ​ ​

​ Shares Amount Earnings Comprehensive Loss Total

Other comprehensive loss ​ ​ ​ (2,539) ​ (2,539)

Stock-based compensation expense ​ 14,579 ​ ​ ​ 14,579

Other comprehensive loss ​ ​ ​ (3,559) ​ (3,559)

Stock-based compensation expense ​ 16,045 ​ ​ ​ 16,045

Other comprehensive income ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 216 ​ 216

Stock-based compensation expense ​ ​ ​ ​ 19,043 ​ ​ ​ ​ ​ ​ ​ 19,043

Purchase of capped call option ​ — ​ ​ (66,528) ​ ​ ​ ​ ​ ​ ​ ​ (66,528)

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​

See notes to consolidated financial statements.

​

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MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

CASH FLOWS FROM OPERATING ACTIVITIES: ​ ​ ​ ​ ​

(Gain) loss on disposition of business ​ (431) ​ 1,417 ​ —

Loss on sale or abandonment of property and equipment ​ 5,838 ​ 380 ​ ​ 1,303

Acquired in-process research and development ​ 1,550 ​ 6,671 ​ ​ —

Amortization of deferred credits ​ (104) ​ (107) ​ ​ (108)

Prepaid expenses and other current assets ​ 1,281 ​ (1,798) ​ ​ (3,555)

Prepaid income taxes ​ (92) ​ (379) ​ ​ 125

Income tax refund receivables ​ (58) ​ 1,952 ​ ​ 739

Liabilities related to unrecognized tax benefits ​ — ​ (45) ​ ​ 314

Other long-term obligations ​ (2,530) ​ 278 ​ ​ (858)

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

CASH FLOWS FROM INVESTING ACTIVITIES: ​ ​ ​

Capital expenditures for: ​ ​ ​

Proceeds from the sale of property and equipment ​ 201 ​ 65 ​ ​ 1,037

Proceeds (payments) from disposition of business ​ ​ 431 ​ ​ (971) ​ ​ —

Cash received for settlement of note receivable ​ ​ — ​ ​ — ​ ​ 2,000

Issuance of note receivable ​ (1,000) ​ — ​ ​ (2,254)

​

​ ​

See notes to consolidated financial statements. (continued)

​

​

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MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

CASH FLOWS FROM FINANCING ACTIVITIES: ​ ​ ​ ​ ​

Purchase of capped call option ​ ​ (66,528) ​ ​ — ​ ​ —

Long-term debt issuance costs ​ (677) ​ — ​ —

Contingent payments related to acquisitions ​ (3,569) ​ (32,918) ​ (10,665)

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

CASH, CASH EQUIVALENTS AND RESTRICTED CASH: ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION ​ ​ ​

Cash paid during the period for: ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES ​ ​ ​

​

See notes to consolidated financial statements. (concluded)

​

​

​

​

​

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MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization. Merit Medical Systems, Inc. (“Merit,” “we,” or “us”) designs, develops, manufactures and markets single-use medical products for interventional and diagnostic procedures. For financial reporting purposes, we report our operations in two operating segments: cardiovascular and endoscopy. Our cardiovascular segment consists of cardiology and radiology medical device products which assist in diagnosing and treating coronary artery disease, peripheral vascular disease and other non-vascular diseases and includes embolotherapeutic, cardiac rhythm management, electrophysiology, critical care, and interventional oncology and spine devices. Our endoscopy segment consists of gastroenterology and pulmonology devices which assist in the palliative treatment of expanding esophageal, tracheobronchial and biliary strictures caused by malignant tumors. Within those two operating segments, we offer products focused in five product categories: peripheral intervention, cardiac intervention, custom procedural solutions, original equipment manufacturer (“OEM”) and endoscopy.

We manufacture our products in plants located in the U.S., Mexico, The Netherlands, Ireland, France, Brazil and Singapore. We export sales to dealers and have direct or modified direct sales forces in the U.S., Canada, Western Europe, Australia, Brazil, Japan, China, Malaysia, South Korea, UAE, India, New Zealand and South Africa (see Note 13). Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). The following is a summary of the more significant of such policies.

Use of Estimates in Preparing Financial Statements. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Principles of Consolidation. The consolidated financial statements include our wholly owned subsidiaries. Intercompany balances and transactions have been eliminated. Amounts presented in this report are rounded, while percentages and earnings per share amounts presented are calculated from the underlying amounts.

Cash and Cash Equivalents. We consider interest-bearing deposits with an original maturity date of three months or less to be cash equivalents. As of December 31, 2023 and 2022, we had restricted cash for the payment of certain import and other taxes for our subsidiary in China of $2.1 million and $2.1 million, respectively, which was reported within prepaid expenses and other assets on our consolidated balance sheets.

Receivables.Trade accounts receivable are recorded at the net invoice value and are not interest-bearing. An allowance for credit losses on trade receivables is recorded based on our expectation of credit losses and is based upon our historical bad debt experience, current economic conditions, expectations of future economic conditions and management’s evaluation of our ability to collect individual outstanding balances. Once collection efforts have been exhausted and a receivable is deemed to be uncollectible, such balance is charged against the allowance for credit losses.

Inventories. We value our inventories at the lower of cost, at approximate costs determined on a first-in, first-out method, or net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Inventory costs include material, labor and manufacturing overhead. We review inventories on hand and record provisions based on estimated excess, slow moving and obsolete inventories, as well as inventories with a carrying value in excess of net realizable value. The regular and systematic review of the valuation of inventories includes an assessment of future product demand based on historical sales and raw material usage and product expiration.

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Goodwill and Intangible Assets.We test goodwill balances for impairment on an annual basis as of July 1 or whenever impairment indicators arise. When impairment indicators are identified, we may elect to perform an optional qualitative assessment to determine whether it is more likely than not that the fair value of our reporting units has fallen below their carrying value. During our annual impairment test, we utilize four reporting units in evaluating goodwill for impairment using a quantitative assessment, which uses a combination of a guideline public company market-based approach and a discounted cash flow income-based approach. The quantitative assessment considers whether the carrying amount of a reporting unit exceeds its fair value, in which case an impairment charge is recorded to the extent the reporting unit’s carrying value exceeds its fair value.

Finite-lived intangible assets including developed technology, customer lists, distribution agreements, license agreements, trademarks and patents are subject to amortization. Intangible assets are amortized over their estimated useful life on a straight-line basis, except for customer lists, which are generally amortized on an accelerated basis. Estimated useful lives are determined considering the period the assets are expected to contribute to future cash flows. 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 are largely independent of the cash flows of other assets and liabilities. We compare the carrying value of the asset group to the undiscounted cash flows expected to result from the asset group and determine whether the carrying amount is recoverable. We determine the fair value of each asset group 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.

In-process technology intangible assets, which are not subject to amortization until projects reach commercialization, are assessed for impairment at least annually and more frequently if events occur that would indicate a potential reduction in the fair value of the assets below their carrying value. An impairment charge would be recognized to the extent the carrying amount of the in-process technology exceeded its fair value.

Long-Lived Assets. We periodically review the carrying amount of our depreciable long-lived assets for impairment. An asset is considered impaired when undiscounted estimated future cash flows are less than the carrying amount of the asset. In the event the carrying amount of such asset is not considered recoverable, the asset is adjusted to its fair value. Fair value is generally determined based on discounted future cash flow.

Property and Equipment. Property and equipment is stated at the historical cost of construction or purchase. Construction costs include interest costs capitalized during construction. Maintenance and repairs of property and equipment are charged to operations as incurred. Leasehold improvements are amortized over the lesser of the base term of the lease or estimated life of the leasehold improvements. Construction-in-process consists of new buildings and various production equipment being constructed internally and externally. Assets in construction-in-process will commence depreciating once the asset has been placed in service. Depreciation is computed using the straight-line method over estimated useful lives as follows:

​

​ ​ ​

Buildings 40 years

Manufacturing equipment ​ 4 - 20 years

Furniture and fixtures ​ 3 - 20 years

Land improvements ​ 10 - 20 years

Leasehold improvements ​ 4 - 25 years

​

Depreciation expense related to property and equipment for the years ended December 31, 2023, 2022 and 2021 was $34.0 million, $33.4 million, and $34.5 million, respectively.

Deferred Compensation. We have a deferred compensation plan that permits certain management employees to defer a portion of their salary until the future. We established a Rabbi trust to finance obligations under the plan with corporate-owned variable life insurance contracts. The cash surrender value totaled $18.3 million and $15.8 million at December 31, 2023 and 2022, respectively, which is included in other assets in our consolidated balance sheets. We have recorded a deferred compensation payable of $17.2 million and $15.3 million at December 31, 2023 and 2022, respectively, to reflect the liability to our employees under this plan.

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Other Assets.Other assets as of December 31, 2023 and 2022 consisted of the following (in thousands):

​

​ ​ ​ ​ ​ ​ ​

Investments in privately held companies ​ $ 19,061 ​ $ 15,576

Deferred compensation plan assets ​ ​ 18,309 ​ ​ 15,767

Long-term notes receivable, net ​ ​ 3,241 ​ ​ 2,397

​

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. Our share of earnings associated with equity method investments is reported within other income (expense) in our consolidated statements of income. 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.

Other Long-term Obligations. Other long-term obligations as of December 31, 2023 and 2022 consisted of the following (in thousands):

​

​ ​ ​ ​ ​ ​ ​

Contingent consideration liabilities ​ $ 3,039 ​ $ 2,260

​

In connection with a business combination, any contingent consideration is recorded at fair value on the acquisition date based upon the consideration expected to be transferred in the future. We re-measure the estimated liability each quarter based upon changes in revenue estimates, changes in the probability of achieving relevant milestones and changes in the discount rate or expected period of payment. Changes in the estimated fair value are recorded through operating expense in our consolidated statements of income.

​

Revenue Recognition.We sell our medical products through a direct sales force in the U.S. and through OEM relationships, custom procedure tray manufacturers and a combination of direct sales force and independent distributors in international markets. Revenue is recognized when a customer obtains control of promised goods based on the consideration we expect to receive in exchange for these goods. This core principle is achieved through the following steps:

​

Identify the contract with the customer. A contract with a customer exists when (i) we enter into an enforceable contract with a customer that defines each party’s rights regarding the goods to be transferred and identifies the payment terms related to these goods, (ii) the contract has commercial substance and (iii) we determine that collection of substantially all consideration for services that are transferred is probable based on the customer’s intent and ability to pay the promised consideration. We do not have significant costs to obtain contracts with customers. For commissions on product sales, we have elected the practical expedient to expense the costs as incurred if the amortization period would have been one year or less.

Identify the performance obligations in the contract. Generally, our contracts with customers do not include multiple performance obligations to be completed over a period of time. Our performance obligations generally relate to delivering single-use medical products to a customer, subject to the shipping terms of the contract. Limited warranties are provided, under which we typically accept returns and provide either replacement parts or refunds. We do not have significant returns. We do not typically offer extended warranty or service plans, except in limited cases which are not material.

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Determine the transaction price. Payment by the customer is due under customary fixed payment terms, and we evaluate if collectability is reasonably assured. Our contracts do not typically contain a financing component. Revenue is recorded at the net sales price, which includes estimates of variable consideration such as product returns, rebates, discounts, and other adjustments. The estimates of variable consideration are based on historical payment experience, historical and projected sales data, and current contract terms. Variable consideration is included in revenue only to the extent that it is probable that a significant reversal of the revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. Taxes collected from customers relating to product sales and remitted to governmental authorities are excluded from revenues.

Allocate the transaction price to performance obligations in the contract. We typically do not have multiple performance obligations in our contracts with customers. As such, we generally recognize revenue upon transfer of the product to the customer’s control at contractually stated pricing.

Recognize revenue when or as we satisfy a performance obligation. We generally satisfy performance obligations at a point in time upon either shipment or delivery of goods, in accordance with the terms of each contract with the customer. We do not have significant service revenue. Contract assets are recognized for the future right to invoice customers, and contract liabilities are recognized for unearned revenue if payment is received prior to our fulfillment of performance obligations. We do not have material contract assets or contract liabilities.

Reserves are recorded as a reduction in net sales and are not considered material to our consolidated statements of income for the years ended December 31, 2023, 2022 and 2021. In addition, we invoice our customers for taxes assessed by governmental authorities, such as sales tax and value-added taxes. We present these taxes on a net basis.

Shipping and Handling. When billed to our customers, shipping and handling charges are included in net sales for the applicable period, and the corresponding shipping and handling expense is reported in cost of sales.

Cost of Sales. We include product costs (i.e., material, direct labor and overhead costs), shipping and handling expense, product royalty expense, developed technology amortization expense, production-related depreciation expense and product license agreement expense in cost of sales.

Research and Development. Research and development costs, including new product development, clinical trials, and regulatory compliance, are expensed as incurred.

Income Taxes. Under our accounting policies, we initially recognize a tax position in our financial statements when it becomes more likely than not that the position will be sustained upon examination by the tax authorities. Such tax positions are initially and subsequently measured as the largest amount of tax positions that has a greater than 50% likelihood of being realized upon ultimate settlement with the tax authorities assuming full knowledge of the position and all relevant facts. Although we believe our provisions for unrecognized tax positions are reasonable, we can make no assurance that the final tax outcome of these matters will not be different from that which we have reflected in our income tax provisions and accruals. Such differences could have a material impact on our income tax provisions and operating results in the periods in which we make such determination.

Earnings per Common Share. Net income per common share is computed by both the basic method, which uses the weighted average number of our common shares outstanding, and the diluted method, which includes the potentially dilutive common equivalent shares outstanding. Performance stock units are considered contingently issuable awards and are excluded from the weighted average basic share calculation. These awards are included in the weighted average dilutive share calculation, to the extent they are dilutive, based on the number of shares, if any, that would be issuable as of the end of the reporting period assuming the end of the reporting period is also the end of the performance period. For Convertible Notes, the dilutive effect is calculated using the if-converted method.

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Fair Value Measurements.The fair value of a financial instrument is the amount that could be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Financial assets are marked to bid prices and financial liabilities are marked to offer prices. Fair value measurements do not include transaction costs. A fair value hierarchy is used to prioritize the quality and reliability of the information used to determine fair values. Categorization within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fair value hierarchy is defined in the following three categories:

Level 1: Quoted market prices in active markets for identical assets or liabilities.

Level 2: Observable market-based inputs or inputs that are corroborated by market data.

Level 3: Unobservable inputs that are not corroborated by market data.

Stock-Based Compensation.We recognize the fair value compensation cost relating to stock-based payment transactions in accordance with Accounting Standards Codification (“ASC”) 718, Compensation — Stock Compensation. Under the provisions of ASC 718, stock-based compensation cost is measured at the grant date, based on the fair value of the award, and is recognized over the employee’s requisite service period, which is generally the vesting period. The fair value of our stock options is estimated using a Black-Scholes option valuation model. The fair value of our performance stock units linked to total shareholder return is estimated using Monte-Carlo simulations. Compensation expense is adjusted each period based on the grant-date fair value and the number of shares that are probable of being awarded based on the performance conditions of the awards. Restricted stock units are valued based on the closing stock price on the date of grant. Cash-settled share-based awards, or liability awards, are remeasured at fair value each reporting period until the awards are settled. Total stock-based compensation expense for the years ended December 31, 2023, 2022 and 2021 was $21.3 million, $18.0 million, and $16.1 million, respectively (see Note 12).

Concentration of Credit Risk. Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable. We provide credit, in the normal course of business, primarily to hospitals and independent third-party custom procedure tray manufacturers and distributors. We perform ongoing credit evaluations of our customers and maintain allowances for potential credit losses. Due to the diversified nature and number of our customers, concentrations of credit risk with respect to accounts receivable are limited.

Foreign Currency. The financial statements of our foreign subsidiaries are measured using local currencies as the functional currency, with the exception of our manufacturing subsidiaries in Ireland and Mexico, which each use the U.S. Dollar as its functional currency. Assets and liabilities are translated into U.S. Dollars at year-end rates of exchange and results of operations are translated at average rates for the year. Gains and losses resulting from these translations are included in accumulated other comprehensive loss as a separate component of stockholders’ equity. Transactional exchange gains or losses are included in other income (expense) in determining net income for the period.

Derivatives.We use forward contracts to mitigate our exposure to volatility in foreign exchange rates, and we use an interest rate swap to hedge changes in the benchmark interest rate related to our Fourth Amended Credit Agreement described in Note 8. All derivatives are recognized in the consolidated balance sheets at fair value. Classification of each hedging instrument is based upon whether the maturity of the instrument is less than or greater than 12 months. We do not purchase or hold derivative financial instruments for speculative or trading purposes (see Note 9).

Recently Adopted Financial Accounting Standards. In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides temporary optional expedients and exceptions in accounting for modifications of contracts that reference the London interbank offered rate (“LIBOR”) or another reference rate expected to be discontinued as a result of reference rate reform. Entities can elect not to apply certain modification accounting requirements to contracts affected by what the guidance calls “reference rate reform” if certain criteria are met. An entity that makes this election would not have to remeasure the contracts at the modification date or reassess a previous accounting determination. Also, entities can elect various optional expedients that would allow them to continue applying hedge accounting for hedging relationships affected by reference rate reform if certain criteria are met. In December 2022, the FASB issued ASU 2022-06, Deferral of the Sunset Date of Topic 848, which defers the sunset date of the guidance in ASC 848 to December 31, 2024. During 2023, we transitioned our interest rate swap agreement to reference the Secured Overnight Financing Rate (“SOFR”) in connection with reference rate reform and adopted certain optional expedients provided in ASU 2020-04 in relation to contract modifications and hedge accounting that allowed us

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to continue hedge accounting for our interest rate swap cash flow hedge (see Note 9). The adoption of this guidance did not have a material impact on our consolidated financial statements.

​

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

​

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

​

We currently believe there are no other issued and not yet effective accounting standards that are materially relevant to our financial statements.

​

​

2.REVENUES

Disaggregation of Revenue. Our revenue is disaggregated based on reporting segment, product category and geographical region. We design, develop, manufacture and market medical products for interventional and diagnostic procedures. For financial reporting purposes, we report our operations in two operating segments: cardiovascular and endoscopy. Our cardiovascular segment consists of four product categories: peripheral intervention, cardiac intervention, custom procedural solutions, and OEM. Within these product categories, we sell a variety of products, including cardiology and radiology devices (which assist in diagnosing and treating coronary arterial disease, peripheral vascular disease and other non-vascular diseases), as well as embolotherapeutic, cardiac rhythm management, electrophysiology, critical care, breast cancer localization and guidance, biopsy, and interventional oncology and spine devices. Our endoscopy segment consists of gastroenterology and pulmonology devices which assist in the palliative treatment of expanding esophageal, tracheobronchial and biliary strictures caused by malignant tumors.

The following table presents sales by operating segment disaggregated based on product category and geographic region for the years ended December 31, 2023, 2022 and 2021 (in thousands).

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ Year Ended ​ Year Ended ​ Year Ended

Cardiovascular ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Endoscopy ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​

​

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3.ACQUISITIONS AND OTHER STRATEGIC TRANSACTIONS

2023 Acquisitions

On June 8, 2023, we entered into an asset purchase agreement with AngioDynamics, Inc. (“AngioDynamics”) to acquire the assets associated with a portfolio of dialysis catheter products and the BioSentry® Biopsy Tract Sealant System for a purchase price of $100 million. 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 approximately $14.4 million for the year ended December 31, 2023. It is not practical to separately report earnings related to the acquisition, as we began to immediately integrate the acquisition into existing operations, sales distribution networks and management structure of our cardiovascular business segment. Acquisition-related costs associated with the AngioDynamics acquisition, which are included in selling, general and administrative expenses in the accompanying consolidated statements of income, were approximately $4.9 million for the year ended December 31, 2023. The purchase price was allocated as follows (in thousands):

​ ​ ​ ​

Assets Acquired ​

Prepaid expenses ​ $ 2,000

Property and equipment ​ ​ 108

Intangible assets ​ ​

Developed technology ​ ​ 65,200

Customer list ​ ​ 5,800

Total net assets acquired ​ $ 100,000

​

We are amortizing the AngioDynamics 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 ten years. We have estimated the weighted average life of the intangible assets acquired from AngioDynamics to be 10.5 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 AngioDynamics acquisition are not material in relation to reported sales and it was deemed impracticable to obtain information due to the unavailability of the information provided to the Company, management’s inability to reasonably estimate the amounts from the carve out of assets and differing fiscal year-end of the acquired business.

​

On May 4, 2023, we entered into an asset purchase agreement to acquire the assets associated with the Surfacer® Inside-Out® Access Catheter System from Bluegrass, for a purchase price of approximately $32.7 million. Prior to the acquisition, we held an equity investment of 1,251,878 Bluegrass common shares representing approximately 19.5% ownership in Bluegrass. The fair value of this previously held equity investment of approximately $245,000 is included in the purchase price allocation. We accounted for this transaction under the acquisition method of accounting as a business combination. The sales and results of operations related to the acquisition have been included in our cardiovascular segment since the acquisition date and were not material. Acquisition-related costs associated with the Bluegrass acquisition, which are included in selling, general and administrative expenses in the accompanying consolidated statements of income, are not material. The purchase price was allocated as follows (in thousands):

​ ​ ​ ​

Assets Acquired ​

Inventories ​ $ 175

Intangible assets ​ ​

Developed technology ​ ​ 28,000

Trademarks ​ ​ 900

Total net assets acquired ​ $ 32,973

​

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We are amortizing the Bluegrass developed technology intangible asset over 15 years and the related trademarks over 13 years. We have estimated the weighted average life of the intangible assets acquired from Bluegrass to be 14.9 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 Bluegrass acquisition are not material.

​

On May 1, 2023, we entered into an asset purchase agreement to acquire certain assets from ART, related to intellectual property rights for soft tissue markers. The total purchase price of the ART assets included an up-front payment of $750,000, a deferred payment of $750,000 payable upon the first to occur of (1) shipment and installation of two commercial production winders used to manufacture the product or (2) 30 days after delivery of the winders to Merit, and, a deferred payment of $500,000 payable upon regulatory approval from the U.S. Food and Drug Administration for Merit to commence commercialization, marketing and sale of the product in the United States. We have accounted for this transaction as an asset purchase and recorded $1.5 million of acquired in-process research and development expense associated with the upfront payment and completion of the milestone related to the installation of the commercial production winders. The final payment will be capitalized as a developed technology intangible asset when paid upon completion of the regulatory approval milestone under the terms of the asset purchase agreement. The payments are reported within operating expenses because the technological feasibility of the underlying research and development project has not yet been reached and such technology has no identified future alternative use as of the date of acquisition.

​

We entered into a stock purchase agreement on January 11, 2023, and an exclusive distribution agreement on April 5, 2023, with Solo Pace Inc. ("Solo Pace”), owner and developer of a temporary external pulse generator and grounding pad with associated remote control module. Pursuant to these agreements, we paid $4.0 million to acquire (a) shares of Series Seed-1 Preferred Stock of Solo Pace, (b) an option to purchase the outstanding equity of Solo Pace within the earlier of five years after product commercialization or within 120 days after the twelve-month period wherein sales of the Solo Pace product exceed $6.0 million, and (c) exclusive rights to distribute the Solo Pace product upon commercialization. The shares of Solo Pace stock have been reflected within other assets in the accompanying consolidated balance sheets.Our investment in Solo Pace represents an ownership of approximately 19% of its outstanding capital stock and has been recorded as an equity investment accounted for at cost because the equity interest does not have a readily determinable fair value and because we are not able to exercise significant influence over the operations of Solo Pace.

​

2022 Acquisitions

​

On October 3, 2022, we entered into an asset purchase agreement with BioTrace Medical, Inc., developer of the Tempo® Temporary Pacing Lead device, for a purchase price of $2.5 million. We are also required to pay a total of six annual royalty payments between 5% and 10% of net sales, dependent on net sales goal achievement, upon achievement of the first device sold in the United States. We accounted for this transaction as an asset purchase. We recorded the amount paid upon closing as a developed technology intangible asset, which we are amortizing over 10 years.

​

On April 30, 2022, we acquired the Restore Endosystems Bifurcated Stent System pursuant to the terms of a unit purchase agreement we executed with all of the members of Restore Endosystems. Subject to the terms and conditions of the unit purchase agreement, we paid $3 million in cash at closing. We also accrued $3.5 million of other long-term obligations, which represents the fair value of two separate $2 million payments which are payable no later than two and four years following the closing of the acquisition, respectively, or earlier upon the achievement of specified milestones. We will impute interest on these liabilities with the passage of time. We have accounted for this transaction as an asset purchase and recorded $6.5 million of acquired in-process research and development expense because the technological feasibility of the underlying research and development project has not yet been reached and such technology has no identified future alternative use as of the date of acquisition.

​

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During April 2022, we paid $1.4 million to acquire shares of Series A Preferred Stock of Fluidx Medical Technology, Inc. ("Fluidx"), owner of certain technology proposed to be used in the development of embolic and adhesive agents for use in arterial, venous, vascular graft and cardiovascular applications inside and outside the heart and related appendages. We had previously purchased, and continue to hold, $4.7 million of participating preferred shares of Fluidx. Our investments have been recorded as equity investments accounted for at cost and reflected within Other assets in the accompanying consolidated balance sheets because we are not able to exercise significant influence over the operations of Fluidx. Our total current investment in Fluidx represents an ownership of approximately 17% of its outstanding capital stock at the date of this investment.

​

2021 Acquisitions

During September 2021, we paid $2.7 million to acquire Series A preferred shares of Fluidx. We had previously purchased $2 million of participating preferred shares during 2019. Our investment has been recorded as an equity investment accounted for at cost and reflected within other assets in the accompanying consolidated balance sheets because we are not able to exercise significant influence over the operations of Fluidx. Our total current investment in Fluidx represents an ownership of approximately 15.0% of the outstanding stock at the date of this investment.

​

4.INVENTORIES

Inventories at December 31, 2023 and 2022, consisted of the following (in thousands):

​ ​ ​ ​ ​ ​ ​

​

​

5.GOODWILL AND INTANGIBLE ASSETS

The changes in the carrying amount of goodwill for the years ended December 31, 2023 and 2022, are as follows (in thousands):

​ ​ ​ ​ ​ ​ ​

Effect of foreign exchange ​ 883 ​ (1,920)

Additions and adjustments as the result of acquisitions ​ 21,536 ​ —

​

Total accumulated goodwill impairment losses aggregated to $8.3 million as of December 31, 2023 and 2022. We did not have any goodwill impairments for the years ended December 31, 2023, 2022 and 2021. The total goodwill balance as of December 31, 2023 and 2022 is related to our cardiovascular segment.

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Other intangible assets at December 31, 2023 and 2022, consisted of the following (in thousands):

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ Gross Carrying ​ Accumulated ​ Net Carrying

​ Amount Amortization Amount

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ Gross Carrying ​ Accumulated ​ Net Carrying

​ Amount Amortization Amount

​

Aggregate amortization expense for the years ended December 31, 2023, 2022 and 2021 was $56.1 million, $48.4 million, and $49.6 million, respectively.

Estimated amortization expense for the developed technology and other intangible assets for the next five years consists of the following as of December 31, 2023 (in thousands):

​ ​ ​ ​

​ Estimated Amortization Expense

​

We evaluate our intangible assets for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. During the year ended December 31, 2023, we recorded no impairment charges related to our intangible assets. During the year ended December 31, 2022, we recorded total impairment charges related to our intangible assets of $1.7 million for our divestiture on April 30, 2022 of the STD Pharmaceutical Products Limited (“STD Pharmaceutical”) business acquired in our August 2019 acquisition of Fibrovein Holdings Limited, which pertained to our cardiovascular segment. During the year ended December 31, 2021, we recorded total impairment charges related to our intangible assets of $1.6 million for the remaining carrying value of ArraVasc license agreements, which pertained to our cardiovascular segment. The primary indicators of impairment were restructuring activities and uncertainty about future product development and commercialization associated with certain acquired technologies.

​

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6.INCOME TAXES

On August 16, 2022, the Inflation Reduction Act of 2022 was signed into law. We currently do not anticipate the recently enacted law, including the corporate alternative minimum tax, one percent excise tax on stock repurchases, or tax incentives to promote clean energy, to have a material impact on our consolidated financial statements.

The Organization for Economic Cooperation and Development (“OECD”) Pillar 2 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 2 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. 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.

For the years ended December 31, 2023, 2022 and 2021, income before income taxes is broken out between U.S. and foreign-sourced operations consisted of the following (in thousands):

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​

The components of the provision for income taxes for the years ended December 31, 2023, 2022 and 2021, consisted of the following (in thousands):

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Current expense: ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Deferred expense (benefit): ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​

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The difference between the income tax expense reported and amounts computed by applying the statutory federal rate of 21.0% to pretax income for the years ended December 31, 2023, 2022 and 2021, consisted of the following (in thousands):

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

State income tax expense (benefit) ​ 1,627 ​ 35 ​ (283)

Tax effect of international items ​ (3,994) ​ (10,698) ​ (281)

Uncertain tax positions ​ 4 ​ (47) ​ 401

Deferred compensation insurance assets ​ (548) ​ 706 ​ (413)

Valuation allowance ​ ​ (90) ​ ​ 3,523 ​ ​ —

Remeasurement of state deferred taxes ​ ​ (73) ​ ​ (375) ​ ​ (526)

Remeasurement of contingent consideration liabilities ​ ​ 317 ​ ​ 1,061 ​ ​ 733

Other — including the effect of graduated rates ​ 208 ​ (70) ​ 132

​

Deferred income tax assets and liabilities at December 31, 2023 and 2022, consisted of the following temporary differences and carry-forward items (in thousands):

​ ​ ​ ​ ​ ​ ​

Deferred income tax assets: ​ ​

Allowance for credit losses on trade receivables ​ $ 2,009 ​ $ 1,925

Stock-based compensation expense ​ 7,913 ​ 7,167

Federal R&D tax credit ​ ​ — ​ ​ 634

State R&D tax credits ​ ​ 5,237 ​ ​ 4,679

​ ​ ​ ​ ​ ​ ​

Deferred income tax liabilities: ​ ​

Foreign withholding tax ​ (2,005) ​ (1,571)

Operating lease liabilities ​ ​ (10,129) ​ ​ (11,527)

Total deferred income tax liabilities ​ (73,307) ​ (76,178)

Net deferred income tax assets (liabilities) ​ $ 1,741 ​ $ (11,863)

​ ​ ​ ​ ​ ​ ​

Reported as: ​ ​

Deferred income tax assets ​ $ 7,288 ​ $ 6,599

Deferred income tax liabilities ​ (5,547) ​ (18,462)

Net deferred income tax assets (liabilities) ​ $ 1,741 ​ $ (11,863)

​

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Deferred tax assets and liabilities are netted on the balance sheet by separate tax jurisdictions. Deferred income tax balances reflect the temporary differences between the carrying amounts of assets and liabilities and their tax basis and are stated at enacted tax rates expected to be in effect when taxes are actually paid or recovered. The valuation allowance is primarily related to state credit carryforwards, non-US net operating loss carryforwards, and capital loss carryforwards for which we believe it is more likely than not that the deferred tax assets will not be realized. The valuation allowance increased by $213,000 during the year ended December 31, 2023, increased by $2.7 million during the year ended December 31, 2022, and increased by $573,000 during the year ended December 31, 2021.

As of December 31, 2023, we had U.S federal net operating loss carryforwards of $24.7 million, which were generated by Cianna Medical, Vascular Access Technologies, Inc., DFINE Inc., and Biosphere Medical, Inc., prior to our acquisition of these companies. These net operating loss carryforwards are subject to annual limitations under Internal Revenue Code Section 382. If unused, $24.7 million of the net operating losses will expire between 2025 and 2037. We anticipate that we will utilize all current net operating loss carryforwards prior to their expiration dates over the next 12 years. We utilized a total of $5 million in U.S. federal net operating loss carryforwards during the year ended December 31, 2023.

As of December 31, 2023, we had $22.6 million of non-U.S. net operating loss carryforwards, of which $20.6 million have no expiration date and $2 million expire at various dates through 2035. Non-U.S. net operating loss carryforwards utilized during the year ended December 31, 2023 were not material.

We do not consider our foreign earnings to be permanently reinvested. Consequently, we have recorded tax expense of $434,000, $320,000 and $288,000 for foreign withholding taxes on unremitted foreign earnings during the years ended December 31, 2023, 2022 and 2021, respectively. Additionally, for the year ended December 31, 2022, a tax benefit of $4.3 million was recorded with respect to the restructuring of our foreign entities and the associated change in foreign withholding taxes on the unremitted foreign earnings.

We are subject to income taxes in the U.S. and numerous foreign jurisdictions. Significant judgment is required in determining our worldwide provision for income taxes and recording the related assets and liabilities. In the ordinary course of our business, there are many transactions and calculations where the ultimate tax determination is uncertain. In our opinion, we have made adequate provisions for income taxes for all years subject to audit. We are no longer subject to U.S. federal, state, and local income tax examinations by tax authorities for years before 2020. In foreign jurisdictions, we are no longer subject to income tax examinations for years before 2017.

Although we believe our estimates are reasonable, the final outcomes of these matters may be different from those which we have reflected in our historical income tax provisions and accruals. Such differences could have a material effect on our income tax provision and operating results in the period in which we make such determination.

The total liability for unrecognized tax benefits at December 31, 2023, including interest and penalties, was $1.9 million, of which $1.9 million would favorably impact our effective tax rate if recognized. The total liability for unrecognized tax benefits at December 31, 2022, including interest and penalties, was $1.9 million, of which $1.9 million would favorably impact our effective tax rate if recognized. At December 31, 2023 and 2022, none of the total liability was presented as a reduction to non-current deferred income tax assets on our consolidated balance sheet. As of December 31, 2023 and 2022, we had accrued $290,000 and $336,000 respectively, in total interest and penalties related to unrecognized tax benefits. We account for interest and penalties for unrecognized tax benefits as part of our income tax provision. During the years ended December 31, 2023, 2022 and 2021, our liability for unrecognized tax benefit was increased (decreased) for interest and penalties by $(46,000), $14,000, and $46,000, respectively. We estimate it is reasonably possible that within the next 12 months the total liability for unrecognized tax benefits may increase, including expirations related to statutes of limitation, up to $7,000.

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A reconciliation of the beginning and ending amount of liabilities associated with uncertain tax benefits for the years ended December 31, 2023, 2022 and 2021, consisted of the following (in thousands):

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Unrecognized tax benefits, opening balance ​ $ 1,576 ​ $ 1,635 ​ $ 1,674

Gross increases in tax positions taken in the current year ​ 442 ​ 294 ​ 316

Lapse of applicable statute of limitations ​ (508) ​ (343) ​ (437)

Unrecognized tax benefits, ending balance ​ $ 1,622 ​ $ 1,576 ​ $ 1,635

​

The tabular roll-forward ending balance does not include interest and penalties related to unrecognized tax benefits.

​

7.ACCRUED EXPENSES

Accrued expenses at December 31, 2023 and 2022, consisted of the following (in thousands):

​ ​ ​ ​ ​ ​ ​

Payroll and related liabilities ​ $ 66,929 ​ $ 58,620

Current portion of contingent liabilities ​ 408 ​ 15,813

Advances from employees ​ 285 ​ 165

Accrued legal settlement ​ ​ — ​ ​ 1,000

​

​

​

8.DEBT

Principal balances outstanding under our long-term debt obligations as of December 31, 2023 and 2022, consisted of the following (in thousands):

​ ​ ​ ​ ​ ​ ​

Revolving credit loans ​ — ​ 73,500

Convertible notes ​ ​ 747,500 ​ ​ —

Less unamortized debt issuance costs ​ (23,550) ​ (179)

Less current portion ​ — ​ 11,250

​

Future minimum principal payments on our long-term debt as of December 31, 2023, are as follows (in thousands):

​ ​ ​ ​