# Merit Medical Systems Inc: Form 10-Q for the period ended Sep 30, 2024

- Company: [Merit Medical Systems Inc](/companies/mmsi.md) (CIK 856982)
- Form: 10-Q
- Filed: 2024-10-30
- Accepted by EDGAR: Oct 30, 2024, 16:25 ET
- Period: 2024-09-30
- Accession: 0000856982-24-000096
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/856982/000085698224000096/mmsi-20240930x10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/856982/000085698224000096/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-07-01 to 2024-09-30 | $339.8m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2024-01-01 to 2024-09-30 | $1.00bn | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2024-07-01 to 2024-09-30 | $182.3m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 9 months, 2024-01-01 to 2024-09-30 | $531.0m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2024-07-01 to 2024-09-30 | $157.5m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2024-01-01 to 2024-09-30 | $470.4m | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2024-07-01 to 2024-09-30 | $99.6m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2024-01-01 to 2024-09-30 | $288.7m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2024-07-01 to 2024-09-30 | $37.3m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2024-01-01 to 2024-09-30 | $119.1m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2024-07-01 to 2024-09-30 | $7.5m | us-gaap:InterestExpenseNonoperating |
| Interest expense | 9 months, 2024-01-01 to 2024-09-30 | $23.2m | us-gaap:InterestExpenseNonoperating |
| Income tax | 3 months, 2024-07-01 to 2024-09-30 | $8.2m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2024-01-01 to 2024-09-30 | $24.4m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-07-01 to 2024-09-30 | $28.4m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2024-01-01 to 2024-09-30 | $92.4m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-07-01 to 2024-09-30 | $0.48 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2024-01-01 to 2024-09-30 | $1.57 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-07-01 to 2024-09-30 | $0.49 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2024-01-01 to 2024-09-30 | $1.59 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-07-01 to 2024-09-30 | 59,537,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2024-01-01 to 2024-09-30 | 58,948,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2024-01-01 to 2024-09-30 | $152.1m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2024-01-01 to 2024-09-30 | $31.7m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2024-09-30 | $523.1m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2024-09-30 | $1.08bn | us-gaap:AssetsCurrent |
| Total assets | at 2024-09-30 | $2.38bn | us-gaap:Assets |
| Current liabilities | at 2024-09-30 | $201.1m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2024-09-30 | $1.05bn | us-gaap:Liabilities |
| Long-term debt | at 2024-09-30 | $750.5m | us-gaap:LongTermDebtNoncurrent |
| Shareholders' equity | at 2024-09-30 | $1.32bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 33,935 characters.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and related condensed notes thereto, which are included in Part I of this report. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to inherent risks and uncertainties that may adversely impact our operations and financial results. These risks and uncertainties are discussed in Part I, Item 1A “Risk Factors” in the 2023 Annual Report on Form 10-K and in Part II, Item 1A “Risk Factors” in this report.

### OVERVIEW

We are a leading manufacturer and marketer of proprietary medical devices used in interventional, diagnostic and therapeutic procedures, particularly in cardiology, radiology, oncology, critical care and endoscopy. Our cardiovascular segment consists of four product categories: peripheral intervention, cardiac intervention, custom procedural solutions, and OEM. Within these product categories, we sell a variety of products, including cardiology and radiology devices (which assist in diagnosing and treating coronary arterial disease, peripheral vascular disease and other non-vascular diseases), as well as embolotherapeutic, cardiac rhythm management, electrophysiology, critical care, breast cancer localization and guidance, biopsy, and interventional oncology and spine devices. Our endoscopy segment consists of gastroenterology and pulmonology devices which assist in the palliative treatment of expanding esophageal, tracheobronchial and biliary strictures.

For the three-month period ended September 30, 2024, we reported sales of $339.8 million, an increase of $24.6 million or 7.8% compared to sales for the three-month period ended September 30, 2023 of $315.2 million. For the nine-month period ended September 30, 2024, we reported sales of $1,001.4 million, an increase of $68.5 million or 7.3% compared to sales for the nine-month period ended September 30, 2023 of $932.9 million. Foreign currency fluctuations (net of hedging) decreased our net sales by ($0.3) million and ($5.0) million, respectively, for the three and nine-month periods ended September 30, 2024, assuming applicable foreign exchange rates in effect during the comparable prior-year periods.

Gross profit as a percentage of sales increased to 46.4% for the three-month period ended September 30, 2024 compared to 45.1% for the three-month period ended September 30, 2023. Gross profit as a percentage of sales increased to 47.0% for the nine-month period ended September 30, 2024 compared to 46.5% for the nine-month period ended September 30, 2023.

Net income for the three-month period ended September 30, 2024 was $28.4 million, or $0.48 per share, compared to net income of $25.8 million, or $0.44 per share, for the three-month period ended September 30, 2023. Net income for the nine-month period ended September 30, 2024 was $92.4 million, or $1.57 per share, compared to net income of $66.8 million, or $1.14 per share, for the nine-month period ended September 30, 2023.

### Recent Developments and Trends

In addition to the trends identified in the 2023 Annual Report on Form 10-K under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Overview,” our business in 2024 has been impacted, and we believe will continue to be impacted, by the following recent developments and trends:

- Our revenue results during the three-month period ended September 30, 2024 were driven primarily by demand in the U.S. and favorable international sales trends, particularly in our Europe, Middle East and Africa (“EMEA”) and Asia Pacific (“APAC”) regions.
- On February 28, 2024, we introduced our “Continued Growth Initiatives” Program and related financial targets for the three-year period ending December 31, 2026, which reflects our commitment to better-position Merit for long-term, sustainable growth and enhanced profitability.
- On July 1, 2024, we completed the acquisition of certain assets from EndoGastric Solutions, Inc., which included the EsophyX® Z+, a device intended for the treatment of chronic gastroesophageal reflux disease.
- We entered into an asset purchase agreement for the acquisition of the lead management portfolio of medical devices and certain related asset from Cook Medical Holdings LLC; closing of the acquisition is expected to occur on November 1, 2024.
- As of September 30, 2024, we had cash, cash equivalents, and restricted cash of $525.3 million and net available borrowing capacity under our Fourth A&R Credit Agreement of approximately $697 million.

### RESULTS OF OPERATIONS

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

| ​ ​ ​ ​ ​ ​ | ​ ​ Three Months Ended September 30, 2024 | ​ ​ ​ ​ 2023 | ​ ​ ​ ​ Nine Months Ended ​ September 30, 2024 | ​ ​ ​ ​ 2023 |
| --- | ---: | ---: | ---: | ---: |
| Net sales | 100% | 100% | 100% | 100% |
| Gross profit | 46.4 | 45.1 | 47.0 ​ | 46.5 |
| Selling, general and administrative expenses | 29.3 | 27.6 | 28.8 ​ | 29.8 |
| Research and development expenses | 6.0 | 6.2 | 6.2 ​ | 6.5 |
| Impairment charges | — | — | — ​ | 0.0 |
| Contingent consideration expense | 0.0 | 0.2 | 0.0 ​ | 0.2 |
| Acquired in-process research and development expense | — | — ​ | — ​ | 0.2 |
| Income from operations | 11.0 | 11.1 | 11.9 ​ | 9.7 |
| Other expense — net | (0.2) | (1.6) | (0.2) ​ | (1.0) |
| Income before income taxes | 10.8 | 9.6 | 11.7 ​ | 8.6 |
| Net income | 8.4 | 8.2 | 9.2 ​ | 7.2 |

### Sales

Sales for the three-month period ended September 30, 2024 increased by 7.8%, or $24.6 million, compared to the corresponding period in 2023. Sales for the nine-month period ended September 30, 2024 increased by 7.3%, or $68.5 million, compared to the corresponding period in 2023. Listed below are the sales by product category within each of our financial reporting segments for the three and nine-month periods ended September 30, 2024 and 2023 (in thousands, other than percentage changes):

| ​ ​ ​ ​ Cardiovascular | ​ ​ | ​ ​ ​ ​ ​ ​ % Change ​ ​ | ​ ​ ​ ​ ​ | ​ ​ Three Months Ended September 30, 2024 ​ ​ | ​ ​ | ​ ​ 2023 ​ ​ | ​ ​ ​ ​ | ​ ​ ​ ​ ​ ​ % Change ​ ​ | ​ ​ ​ ​ ​ | ​ ​ Nine Months Ended September 30, 2024 ​ ​ | ​ ​ | ​ ​ 2023 ​ ​ |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | ---: | --- | --- | --- | ---: |
| Peripheral Intervention |  | 7.4% | ​ | $137,932 | ​ | $128,385 | ​ | 11.9% | ​ | $411,805 | ​ | $368,077 |
| Cardiac Intervention |  | 1.9% | ​ | 90,769 | ​ | 89,106 |  | 2.7% | ​ | ​ 275,320 | ​ | 268,209 |
| Custom Procedural Solutions |  | 4.4% | ​ | 50,768 | ​ | 48,624 |  | 2.9% | ​ | ​ 149,978 | ​ | 145,709 |
| OEM |  | 8.5% | ​ | 43,386 | ​ | 39,969 |  | 2.9% | ​ | ​ 126,941 | ​ | 123,340 |
| Total |  | 5.5% | ​ | 322,855 | ​ | 306,084 |  | 6.5% | ​ | ​ 964,044 | ​ | 905,335 |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| **Endoscopy** | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Endoscopy Devices |  | 85.8% | ​ | 16,990 | ​ | 9,146 |  | 35.6% | ​ | ​ 37,312 | ​ | 27,516 |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Total |  | 7.8% | ​ | $339,845 | ​ | $315,230 | ​ | 7.3% | ​ | $1,001,356 | ​ | $932,851 |

*Cardiovascular Sales.* Our cardiovascular sales for the three-month period ended September 30, 2024 were $322.9 million, up 5.5% when compared to the corresponding period of 2023 of $306.1 million. Sales for the three-month period ended September 30, 2024 were favorably affected by increased sales of:

(a) Peripheral intervention products, which increased by $9.5 million, or 7.4%, from the corresponding period of 2023. This increase was driven primarily by increased sales of our radar localization, drainage, access, and delivery systems products.

(b) Cardiac intervention products, which increased by $1.7 million, or 1.9%, from the corresponding period of 2023. This increase was driven primarily by increased sales of our cardiac rhythm management/electrophysiology (“CRM/EP”) and fluid management products, offset partially by decreased sales of our intervention and hemostasis products.

(c) Custom procedural solutions products, which increased by $2.1 million, or 4.4%, from the corresponding period of 2023. This increase was driven primarily by increased sales of our critical care products.

(d) OEM products, which increased by $3.4 million, or 8.5%, from the corresponding period of 2023. This increase was driven primarily by increased sales of our kits and access, vertebral compression fracture, and fluid management products, offset partially by decreased sales of our CRM/EP, intervention and angiography products.

Our cardiovascular sales for the nine-month period ended September 30, 2024 were $964.0 million, up 6.5% when compared to the corresponding period of 2023 of $905.3 million. Sales for the nine-month period ended September 30, 2024 were favorably affected by increased sales of:

(a) Peripheral intervention products, which increased by $43.7 million, or 11.9%, from the corresponding period of 2023. This increase was driven primarily by increased sales of our access, radar localization, drainage, delivery systems, and biopsy products.

(b) Cardiac intervention products, which increased by $7.1 million, or 2.7%, from the corresponding period of 2023. This increase was driven primarily by increased sales of our CRM/EP and fluid management products, offset partially by decreased sales of our hemostasis products.

(c) Custom procedural solutions products, which increased by $4.3 million, or 2.9%, from the corresponding period of 2023. This increase was driven primarily by increased sales of our kits and critical care products, offset partially by decreased sales of our procedure trays.

(d) OEM products, which increased by $3.6 million, or 2.9%, from the corresponding period of 2023. This increase was driven primarily by increased sales of our kits and access, vertebral compression fracture, and fluid management products, offset partially by decreased sales of our CRM/EP and intervention products.

*Endoscopy Sales.* Our endoscopy sales for the three-month period ended September 30, 2024 were $17.0 million, up 85.8% when compared to sales in the corresponding period of 2023 of $9.1 million. Sales for the three-month period ended September 30, 2024 compared to the corresponding period in 2023 were favorably affected by $6.8 million in sales of the EsophyX® Z+ device acquired from EGS in July 2024 as well as increased sales of our EndoMAXX fully covered esophageal stent and ReSolve Thoracostomy Trays.

Our endoscopy sales for the nine-month period ended September 30, 2024 were $37.3 million, up 35.6%, when compared to sales in the corresponding period of 2023 of $27.5 million. Sales for the nine-month period ended September 30, 2024 compared to the corresponding period in 2023 were favorably affected by $6.8 million in sales of the EsophyX® Z+ device acquired from EGS in July 2024 as well as by increased sales of our EndoMAXX fully covered esophageal stent, Elation Pulmonary Balloon Dilators, BIG60F Alpha™ inflation device, and AERO Tracheobronchial Stent.

### Geographic Sales

Listed below are sales by geography for the three and nine-month periods ended September 30, 2024 and 2023 (in thousands, other than percentage changes):

| ​ ​ ​ ​ | ​ | ​ ​ ​ ​ ​ ​ % Change | ​ ​ ​ ​ | ​ ​ Three Months Ended September 30, 2024 | ​ | ​ ​ 2023 | ​ ​ ​ | ​ ​ ​ ​ ​ ​ % Change | ​ ​ ​ ​ | ​ ​ Nine Months Ended September 30, 2024 | ​ | ​ ​ 2023 |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | ---: | --- | ---: | --- | ---: |
| United States | ​ | 10.1% | ​ | $206,492 | ​ | $187,505 | ​ | 9.1% | ​ | $587,250 | ​ | $538,447 |
| International | ​ | 4.4% | ​ | ​ 133,353 | ​ | ​ 127,725 | ​ | 5.0% | ​ | ​ 414,106 | ​ | ​ 394,404 |
| Total |  | 7.8% | ​ | $339,845 | ​ | $315,230 | ​ | 7.3% | ​ | $1,001,356 | ​ | $932,851 |

*United States Sales.* U.S. sales for the three-month period ended September 30, 2024 were $206.5 million, or 60.8% of net sales, up 10.1% when compared to the corresponding period of 2023. The increase in our domestic sales for the three-month period ended September 30, 2024, compared to the corresponding period of 2023 was driven primarily by our U.S. Direct and Endoscopy businesses.

U.S. sales for the nine-month period ended September 30, 2024 were $587.3 million, or 58.6% of net sales, up 9.1% when compared to the corresponding period of 2023. The increase in our domestic sales for the nine-month period ended September 30, 2024, compared to the corresponding period of 2023 was driven primarily by our U.S. Direct and Endoscopy businesses.

*International Sales*. International sales for the three-month period ended September 30, 2024 were $133.4 million, or 39.2% of net sales, up 4.4% when compared to the corresponding period of 2023 of $127.7 million. The increase in our international sales for the three-month period ended September 30, 2024, compared to the corresponding period of 2023 included increased sales in our EMEA operations of $3.3 million or 5.9%, in our Rest of World (“ROW”) operations of $1.8 million or 14.3%, and in our APAC operations of $0.6 million or 0.9%.

International sales for the nine-month period ended September 30, 2024 were $414.1 million, or 41.4% of net sales, up 5.0% when compared to the corresponding period of 2023 of $394.4 million. The increase in our international sales for the nine-month period ended September 30, 2024, compared to the nine-month period ended September 30, 2023, included increased sales in our EMEA operations of $8.9 million or 5.2%, in our ROW operations of $6.8 million or 19.2%, and in our APAC operations of $4.0 million or 2.1%.

### Gross Profit

Our gross profit as a percentage of sales increased to 46.4% for the three-month period ended September 30, 2024, compared to 45.1% for the three-month period ended September 30, 2023. The increase in gross profit percentage was primarily due to increased sales combined with favorable changes in product mix partially offset by higher obsolescence expense and higher intangible amortization expense as a percentage of sales associated with acquisitions.

Our gross profit as a percentage of sales increased to 47.0% for the nine-month period ended September 30, 2024, compared to 46.5% for the nine-month period ended September 30, 2023. The increase in gross profit percentage was primarily due to an increase in sales combined with favorable changes in product mix, partially offset by unfavorable manufacturing variances and higher intangible amortization expense as a percentage of sales associated with acquisitions.

### Operating Expenses

*Selling, General and Administrative Expense.* Selling, general and administrative ("SG&A") expenses increased $12.8 million, or 14.7%, for the three-month period ended September 30, 2024 compared to the corresponding period of 2023. As a percentage of sales, SG&A expenses were 29.3% for the three-month period ended September 30, 2024, compared to 27.6% for the corresponding period of 2023. For the three-month period ended September 30, 2024, SG&A expenses increased compared to the corresponding period of 2023, primarily due to an increase in labor related costs associated with headcount additions and employee termination benefits in connection with the integration activities for the EGS Acquisition, increased consulting and legal costs associated with acquisition due diligence, increased advertising and promotional expenses.

SG&A expenses increased $10.7 million, or 3.9%, for the nine-month period ended September 30, 2024 compared to the corresponding period of 2023. As a percentage of sales, SG&A expenses were 28.8% for the nine-month period ended September 30, 2024, compared to 29.8% for the corresponding period of 2023. For the nine-month period ended September 30, 2024, SG&A expenses increased compared to the corresponding period of 2023 primarily due to an increase in labor-related costs in our sales and marketing operations due to increased headcount to support growth and acquisitions, an increase of variable compensation linked to company performance, an increase of stock-based compensation expense associated with new equity grants, and an increased investment in advertising and promotional expenses.

*Research and Development Expenses.* Research and development (”R&D”) expenses for the three-month period ended September 30, 2024 were $20.5 million, up 4.5%, when compared to R&D expenses in the corresponding period of 2023 of $19.6 million. For the three-month period ended September 30, 2024, R&D expenses increased compared to the corresponding period of 2023 primarily due to increased labor costs due to increased headcount and increased materials for projects, offset partially by decreased regulatory costs related to clinical studies.

R&D expenses for the nine-month period ended September 30, 2024 were $62.3 million, up 1.9%, when compared to R&D expenses in the corresponding period of 2023 of $61.1 million. For the nine-month period ended September 30, 2024, R&D expenses increased compared to the corresponding period of 2023 primarily due to increased labor costs due to increased headcount, increased materials for projects, and increased costs related to clinical studies, offset partially by lower regulatory costs related to implementation of the Medical Device Regulation in the E.U.

*Impairment Charges.* For the three and nine-month periods ended September 30, 2024, we recognized no impairment charges. For the three-month period ended September 30, 2023, we recognized no impairment charges. For the nine-month period ended September 30, 2023, we recorded impairment charges of $270 thousand due to the acquisition and subsequent write-off of our equity investment in Bluegrass.

*Contingent Consideration Expense.* For the three and nine-month periods ended September 30, 2024, we recognized contingent consideration expense from changes in the estimated fair value of our contingent consideration obligations stemming from our previously disclosed business acquisitions of $0.1 million and $0.3 million, respectively, compared to contingent consideration expense of $0.6 million and $2.2 million for the three and nine-month periods ended September 30, 2023, respectively. Expense in each period related to changes in the probability and timing of achieving certain revenue and operational milestones, as well as expense for the passage of time.

*Acquired In-process Research and Development.* For the three and nine-month periods ended September 30, 2024, we recognized no acquired in-process research and development costs. For the three-month period ended September 30, 2023, we recognized no acquired in-process research and development costs. For the nine-month period ended September 30, 2023, we recognized $1.6 million in acquired in-process research and development costs primarily associated with the assets we acquired from Advanced Radiation Therapy, LLC (“ART”) on May 1, 2023.

### Operating Income

The following table sets forth our operating income by financial reporting segment for the three and nine-month periods ended September 30, 2024 and 2023 (in thousands):

| ​ ​ ​ ​ Operating Income | ​ ​ ​ ​ | ​ ​ Three Months Ended September 30, 2024 ​ ​ | ​ ​ | ​ ​ 2023 ​ ​ | ​ ​ ​ ​ | ​ ​ Nine Months Ended September 30, 2024 ​ ​ | ​ ​ | ​ ​ 2023 ​ ​ |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | ---: |
| Cardiovascular | ​ | $37,555 | ​ | $32,622 | ​ | $113,374 | ​ | $82,966 |
| Endoscopy | ​ | (294) | ​ | 2,515 | ​ | 5,755 | ​ | 7,366 |
| Total operating income | ​ | $37,261 | ​ | $35,137 | ​ | $119,129 | ​ | $90,332 |

Cardiovascular Operating Income. Our cardiovascular operating income for the three-month period ended September 30, 2024 was $37.6 million, compared to cardiovascular operating income in the corresponding period of 2023 of $32.6 million. The increase in cardiovascular operating income during the three-month period ended September 30, 2024 compared to the corresponding period of 2023 was primarily a result of higher sales ($322.9 million compared to $306.1 million), higher gross margin, and lower contingent consideration expense, partially offset by higher SG&A and R&D expenses.

Our cardiovascular operating income for the nine-month period ended September 30, 2024 was $113.4 million, compared to cardiovascular operating income in the corresponding period of 2023 of $83.0 million. The increase in cardiovascular operating income during the nine-month period ended September 30, 2024 compared to the corresponding period of 2023 was primarily a result of higher sales ($964.0 million compared to $905.3 million), higher gross margin, lower acquired in-process research and development charges, lower impairment charges, and lower contingent consideration expense, partially offset by higher SG&A and R&D expenses.

Endoscopy Operating Income (Loss). Our endoscopy operating loss for the three-month period ended September 30, 2024 was ($0.3) million, compared to endoscopy operating income of $2.5 million for the corresponding period of 2023. Our endoscopy operating income for the nine-month period ended September 30, 2024 was $5.8 million, compared to endoscopy operating income of $7.4 million for the corresponding period of 2023. The decrease in endoscopy operating income for the three and nine-month periods ended September 30, 2024 compared to the corresponding periods of 2023 was primarily a result of increased SG&A expenses associated with higher labor related costs due to headcount additions and employee termination benefits in connection with the integration activities for the EGS Acquisition, partially offset by increased sales.

### Other Expense – Net

Our other expense for the three-month periods ended September 30, 2024 and 2023 was $0.6 million and $4.9 million, respectively. Our other expense for the nine-month periods ended September 30, 2024 and 2023 was $2.3 million and $9.7 million, respectively. The changes in other expense for the three and nine-month periods ended September 30, 2024 compared to the corresponding periods of 2023 were primarily related to increased interest expense associated with the Convertible Note offering completed in December 2023, partially offset by an increase in interest income associated with higher cash and cash equivalents balances.

### Effective Tax Rate

Our provision for income taxes for the three-month periods ended September 30, 2024 and 2023 was a tax expense of $8.2 million and $4.4 million, respectively, which resulted in an effective tax rate of 22.4% and 14.5%, respectively. Our provision for income taxes for the nine-month periods ended September 30, 2024 and 2023 was a tax expense of $24.4 million and $13.8 million, respectively, which resulted in an effective tax rate of 20.9% and 17.2%, respectively. The increase in the effective income tax rate for the three and nine-month periods ended September 30, 2024, when compared to the prior-year period, was primarily due to decreased benefit from discrete items such as share-based compensation and decreased foreign tax credit utilization. The increase in the income tax expense for the nine-month period ended September 30, 2024, when compared to the prior-year period, was primarily due to increased pre-tax book income.

### Net Income

Our net income for the three-month periods ended September 30, 2024 and 2023 was $28.4 million and $25.8 million, respectively. The increase in our net income for the three-month period ended September 30, 2024 was primarily a result of higher sales, higher gross margin associated and lower contingent consideration expense, partially offset by higher SG&A and R&D expenses and higher income tax expense.

Our net income for the nine-month periods ended September 30, 2024 and 2023 was $92.4 million and $66.8 million, respectively. The increase in our net income for the nine-month period ended September 30, 2024 was the result of several principal factors, including higher sales and gross margin, lower impairment charges, lower acquired in-process research and development charges, and lower contingent consideration expense, partially offset by higher SG&A and R&D expenses and higher income tax expense.

### LIQUIDITY AND CAPITAL RESOURCES

### Capital Commitments, Contractual Obligations and Cash Flows

As of September 30, 2024 and December 31, 2023, our current assets exceeded current liabilities by $877.2 million and $904.9 million, respectively, and we had cash, cash equivalents and restricted cash of $525.3 million and $589.1 million, respectively, of which $55.8 million and $48.7 million, respectively, were held by foreign subsidiaries. We currently believe future repatriation of cash and other property held by our foreign subsidiaries will generally not be subject to U.S. federal income tax. As a result, we are not permanently reinvested with respect to our historic unremitted foreign earnings. In addition, cash held by our subsidiary in China is subject to local laws and regulations that require government approval for the transfer of such funds to entities located outside of China. As of September 30, 2024, and December 31, 2023, we had cash, cash equivalents and restricted cash of $23.1 million and $17.6 million, respectively, within our subsidiary in China.

*Cash flows provided by operating activities.* We generated cash from operating activities of $152.1 million and $82.9 million during the nine-month periods ended September 30, 2024 and 2023, respectively. Significant factors affecting operating cash flows during these periods included:

- Net income was $92.4 million and $66.8 million for the nine-month periods ended September 30, 2024 and 2023, respectively.
- Cash used for inventories was approximately $2.8 million and $34.4 million for the nine-month periods ended September 30, 2024 and 2023, respectively. The increase in inventories during 2023 was principally associated with our strategy to proactively invest in our inventory balances to encourage high customer service levels, as well as to build bridge inventory for production line transfers and increases in safety stock due to vendor supply delays.
- Cash used for trade payables was $6.5 million and $20.3 million for the nine-month periods ended September 30, 2024 and 2023, respectively, due primarily to the timing of payments.

*Cash flows used in investing activities.* We used cash in investing activities of $154.2 million and $167.0 million for the nine-month periods ended September 30, 2024 and 2023, respectively. We used cash for capital expenditures of property and equipment of $31.7 million and $27.2 million in the nine-month periods ended September 30, 2024 and 2023, respectively. Capital expenditures in each period were primarily related to investments 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 million in 2024 for property and equipment.

Cash outflows for the issuance of notes receivable were $6.6 million for the nine-month period ended September 30, 2024 and were related to loans issued to Selio of $1.7 million, Solo Pace of $2.0 million and Fluidx of $3.0 million. Cash outflows invested in acquisitions for the nine-month period ended September 30, 2024 were $113.7 million and were related to assets acquired from EGS ($105.0 million), assets acquired from SSI ($3.0 million), our investments in Fluidx ($0.3 million) and CrannMed ($3.2 million), and payment of the first deferred payment from our asset purchase agreement with Restore Endosystems, LLC ($2.0 million). Cash outflows invested in acquisitions for the nine-month period ended September 30, 2023 were $138.3 million and were primarily related to payments in our asset purchase agreements with AngioDynamics ($100 million), Bluegrass ($32.7 million) and ART ($1.5 million), and our investment in Solo Pace ($4.0 million).

*Cash flows (used in) provided by financing activities.* Cash (used in) provided by financing activities for the nine-month periods ended September 30, 2024 and 2023 was $(62.4) million and $86.5 million, respectively. For the nine-month period ended September 30, 2024, we decreased our net borrowings under our Amended Fourth A&R Credit Agreement by $(76.1) million. During the nine-month period ended September 30, 2023 we increased our net borrowings by approximately $88.9 million to finance the acquisitions of AngioDynamics and Bluegrass. We had cash proceeds from the issuance of common stock of $15.4 million and $11.5 million for the nine-month periods ended September 30, 2024 and 2023, respectively, related to the exercise of non-qualified stock options. We completed payment of contingent consideration of $(0.2) million and $(3.5) million for the nine-month periods ended September 30, 2024 and 2023, respectively, principally related to sales milestone payments connected to our acquisitions of Brightwater Medical, Inc. in 2019 and Cianna Medical, Inc. in 2018.

As of September 30, 2024, we had outstanding borrowings of $770.5 million and had issued letter of credit guarantees of $2.4 million, with additional available borrowings of approximately $697 million under the Amended Fourth A&R Credit Agreement, based on the maximum net leverage ratio and the aggregate revolving credit commitment pursuant to the Amended Fourth A&R Credit Agreement. Our interest rate as of September 30, 2024 was a fixed rate of 3.0% on our Convertible Notes and a variable rate of 6.70% with respect to the principal amount outstanding under the Amended Fourth A&R 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.

We currently believe that our existing cash balances, anticipated future cash flows from operations and borrowings under our long-term debt agreements will be adequate to fund our current and currently planned future operations for the next twelve months and the foreseeable future. In the event we pursue and complete significant transactions or acquisitions in the future, additional funds may be required to meet our strategic needs, which may require us to raise additional funds in the debt or equity markets.

### CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our financial results are affected by the selection and application of accounting policies and methods. In the nine-month period ended September 30, 2024 there were no changes to the application of critical accounting policies previously disclosed in Part II, Item 7 of the 2023 Annual Report on Form 10-K.

### CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS

This report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements in this report, other than statements of historical fact, are “forward-looking statements” for purposes of these provisions, including any projections of earnings, revenues or other financial items, any statements of the plans and objectives of our management for future operations, any statements concerning proposed new products or services, any statements regarding the integration, development or commercialization of the business or any assets acquired from other parties, any statements regarding future economic conditions or performance, and any statements of assumptions underlying any of the foregoing. In some cases, forward-looking statements can be identified by the use of terminology such as “may,” “will,” “expects,” “plans,” “anticipates,” “intends,” “seeks,” “believes,” “estimates,” “potential,” “forecasts,” “continue,” or other forms of these words or similar words or expressions, or the negative thereof or other comparable terminology.

All subsequent forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. Financial estimates are subject to change and are not intended to be relied upon as predictions of future operating results. All forward-looking statements included in this report are made as of the date hereof and are based on information available to us as of such date. We assume no obligation to update any forward-looking statement. If we do update or correct one or more forward-looking statements, investors and others should not conclude that we will make additional updates or corrections. Although we believe that the expectations reflected in the forward-looking statements contained herein are reasonable, there can be no assurance that such expectations or any of the forward-looking statements will prove to be correct, and actual results will likely differ, and could differ materially, from those projected or assumed in the forward-looking statements. Investors are cautioned not to unduly rely on any such forward-looking statements.

### NOTICE REGARDING TRADEMARKS

This report includes trademarks, tradenames and service marks that are our property or the property of others. Solely for convenience, such trademarks and tradenames sometimes appear without any “™” or “®” symbol. However, failure to include such symbols is not intended to suggest, in any way, that we will not assert our rights or the rights of any applicable licensor, to these trademarks and tradenames.

## Market risk

As filed, 352 characters.

Quantitative and qualitative disclosures about currency exchange rate risk and interest rate risk are included in Part II, Item 7A "Quantitative and Qualitative Disclosures About Market Risk" in the 2023 Annual Report on Form 10-K. In the nine-month period ended September 30, 2024, there were no material changes from the information provided therein.

## Controls and procedures

As filed, 2,035 characters.

### Evaluation of Disclosure Controls and Procedures

Our management is responsible for establishing and maintaining adequate disclosure controls and procedures for our company. Consequently, our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 under the Exchange Act as of September 30, 2024. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs. Based on that evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures are designed at a reasonable assurance level and are effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.

### Changes in Internal Control Over Financial Reporting

During the nine-month period ended September 30, 2024, there were no changes in our internal control over financial reporting that materially affected, or were reasonably likely to materially affect, our internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934).

## Risk factors

As filed, 5,398 characters.

In addition to other information set forth in this report, readers should carefully consider the factors discussed in Part I, Item 1A. "Risk Factors" of our 2023 Annual Report on Form 10-K, as updated and supplemented below and in our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2024 (the “Second Quarter 2024 Form 10-Q”). Any of the risk factors disclosed in our reports could materially affect our business, financial condition or future results. The risks described here and in our 2023 Annual Report on Form 10-K and Second Quarter 2024 Form 10-Q are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition and/or operating results. The discussion of the risk factors below updates the corresponding disclosure under the same heading in the 2023 Annual Report on Form 10-K and may contain material changes to the corresponding risk factor discussion in our 2023 Annual Report on Form 10-K.

***We may incur substantial costs when evaluating, negotiating and closing acquisitions, and our failure to integrate acquired businesses may adversely impact our business and financial results.***

We seek to supplement our internal growth through strategic acquisitions and transactions. We have completed a series of strategic acquisitions and transactions in recent years, some of which have been significant, such as the AngioDynamics Acquisition and the EGS Acquisition. We are in the process of completing the proposed Cook Acquisition. We continue to evaluate other potential acquisitions and transactions, certain of which may also be significant. We have incurred, and will likely continue to incur, significant expenses in connection with evaluating, negotiating and consummating various acquisition and other transactions.

Our integration of acquired businesses requires considerable efforts, including corporate restructuring and the coordination of information technologies, research and development, sales and marketing, operations, regulatory, supply chain, manufacturing, quality systems and finance. These efforts result in additional expenses and involve significant management time. Some of the factors that could affect the success of our acquisitions include, among others, the effectiveness of our due diligence process, our ability to execute our business plan for the acquired companies, the strength of the acquired technology, results of clinical trials, regulatory approvals and reimbursement levels of the acquired products and related procedures, the continued performance of critical transition services, our ability to adequately fund acquired in-process research and development projects and retain key employees and our ability to achieve synergies with our acquired companies, such as increasing sales of our products, achieving cost savings and effectively combining technologies to develop new products. Foreign acquisitions involve unique risks, including those related to integration of operations across different geographies, cultures and languages, currency risks and risks associated with the economic, political, legal and regulatory environment in specific countries. In addition, we have and may in the future acquire less than full ownership interests in other businesses, which involve unique challenges for effective collaboration. Further, other parties that hold remaining ownership interests in such businesses may at any time have economic or business goals that are inconsistent with our goals or the goals of such businesses. Our failure to manage these challenges successfully and coordinate the growth of such businesses or other investments could have an adverse impact on our business and our future growth. In addition, we cannot be certain that the businesses we acquire or invest in will become profitable or remain so, and if our acquisitions or investments are not successful, we may record related asset impairment charges in the future or experience other negative consequences on our operating results.

Additionally, past and future acquisitions and transactions may increase the risks of competition we face by, among other things, extending our operations into industry segments and product lines where we have few existing customers or qualified sales personnel and limited expertise. Further, as a result of certain acquisitions, we are selling capital equipment, in addition to our historical sales of disposable medical devices. The sale of capital equipment may create additional risks and potential liability, which may negatively affect our business, operations or financial condition.

In addition, we may not realize competitive advantages, synergies or other benefits anticipated in connection with any such acquisition or other transaction. If we do not adequately identify and value targets for, or manage issues related to, acquisitions and other transactions, such transactions may not produce the anticipated benefits and have an adverse effect on our business, operations or financial condition. We have incurred expenses in connection with the disposition of businesses and assets which we acquired but determined that they did not produce the benefits contemplated at the time of acquisition. We may incur similar expenses in the future.

Filed Oct 30, 2024.
Source: SEC EDGAR, the filing index for accession 0000856982-24-000096. Last ingested by Listed: Oct 29, 2026, 17:39 ET. No prices; not investment advice.