UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED ~~September~~June 30, ~~2020~~2021

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO .

Commission File Number 0-18592

MERIT MEDICAL SYSTEMS, INC.

(Exact name of registrant as specified in its charter)

Utah		87-0447695
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

1600 West Merit Parkway, South Jordan, Utah 84095

(Address of principal executive offices, including zip code)

Registrant’s telephone number, including area code: (801) 253-1600

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol	Name of exchange on which registered
Common Stock, no par	MMSI	NASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.



Large Accelerated Filer ☒	Accelerated Filer ☐	Non-Accelerated Filer ☐	Smaller Reporting Company ☐	Emerging Growth Company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the Registrant’s classes of common stock, as of the latest practicable date.


Common Stock		~~55,547,463~~56,270,524
Title or class		Number of Shares Outstanding at ~~November 2, 2020~~August 3, 2021

Table of Contents

TABLE OF CONTENTS

PART I.	FINANCIAL INFORMATION	3

Item 1.	Financial Statements (Unaudited)	3

	Consolidated Balance Sheets as of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019~~2020	3

	Consolidated Statements of Income (Loss) for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020	5

	Consolidated Statements of Comprehensive Income (Loss) for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020	6

	Consolidated Statements of Stockholders’ Equity for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020	7

	Consolidated Statements of Cash Flows for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020	9

	Condensed Notes to Consolidated Financial Statements	11

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3230

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4338

Item 4.	Controls and Procedures	4339

PART II.	OTHER INFORMATION	4439

Item 1.	Legal Proceedings	4439

Item 1A.	Risk Factors	4439

Item 6.	Exhibits	4640

SIGNATURES		4741

Table of Contents

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

~~SEPTEMBER~~JUNE 30, ~~2020~~2021 AND DECEMBER 31, ~~2019~~2020

(In thousands)


	September 30,		December 31,
	2020		2019		June 30,		December 31,
ASSETS		(unaudited)			2021		2020
						(unaudited)
CURRENT ASSETS:
Current assets:
Cash and cash equivalents	$	44,551	$	44,320	$	69,672	$	56,916
Trade receivables — net of allowance for uncollectible accounts — 2020 — $4,687 and 2019 — $3,108		141,957		155,365
Trade receivables — net of allowance for credit losses — 2021 — $5,652 and 2020 — $5,313						153,443		146,641
Other receivables		8,073		10,016		8,376		7,774
Inventories		209,109		225,698		194,524		198,019
Prepaid expenses and other current assets		15,579		12,497		16,541		13,120
Prepaid income taxes		3,545		3,491		3,683		3,688
Income tax refund receivables		11,812		3,151		3,543		3,549

Total current assets		434,626		454,538		449,782		429,707

PROPERTY AND EQUIPMENT:
Property and equipment:
Land and land improvements		28,090		27,554		28,180		28,400
Buildings		182,914		153,863		188,089		188,878
Manufacturing equipment		266,755		244,368		272,084		268,894
Furniture and fixtures		61,830		57,623		62,142		61,586
Leasehold improvements		48,549		43,311		47,217		48,800
Construction-in-progress		50,251		83,685		48,608		46,889

Total property and equipment		638,389		610,404		646,320		643,447

Less accumulated depreciation		(254,585)		(231,619)		(272,519)		(260,719)

Property and equipment — net		383,804		378,785		373,801		382,728

OTHER ASSETS:
Other assets:
Intangible assets:
Developed technology — net of accumulated amortization —2020 — $182,148 and 2019 — $149,947		331,851		379,529
Other — net of accumulated amortization — 2020 — $56,913 and 2019 — $65,607		50,964		65,783
Developed technology — net of accumulated amortization —2021 — $213,621 and 2020 — $193,164						297,471		318,059
Other — net of accumulated amortization — 2021 — $60,993 and 2020 — $56,943						45,321		49,856
Goodwill		353,622		353,193		362,810		363,533
Deferred income tax assets		3,857		3,788		4,614		4,597
Right-of-use operating lease assets		76,775		80,244		70,767		78,240
Other assets		35,011		41,461		37,827		37,676

Total other assets		852,080		923,998		818,810		851,961

TOTAL ASSETS	$	1,670,510	$	1,757,321
Total assets					$	1,642,393	$	1,664,396


See condensed notes to consolidated financial statements.	(continued)

Table of Contents

MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

~~SEPTEMBER~~JUNE 30, ~~2020~~2021 AND DECEMBER 31, ~~2019~~2020

(In thousands)


	September 30,		December 31,
	2020		2019		June 30,		December 31,
LIABILITIES AND STOCKHOLDERS’ EQUITY		(unaudited)			2021		2020
						(unaudited)
CURRENT LIABILITIES:
Current liabilities:
Trade payables	$	46,634	$	54,623	$	53,809	$	49,837
Accrued expenses		116,927		105,184		135,013		111,944
Current portion of long-term debt		7,500		7,500		7,500		7,500
Short-term operating lease liabilities		12,981		11,550		11,721		12,903
Income taxes payable		2,005		2,799		2,561		2,820

Total current liabilities		186,047		181,656		210,604		185,004

Long-term debt		349,813		431,984		284,900		343,722
Deferred income tax liabilities		45,439		45,236		33,271		33,312
Long-term income taxes payable		347		347		347		347
Liabilities related to unrecognized tax benefits		1,990		1,990		1,016		1,016
Deferred compensation payable		15,396		14,855		17,055		16,808
Deferred credits		1,948		2,122		1,869		1,923
Long-term operating lease liabilities		69,407		72,714		65,841		70,941
Other long-term obligations		66,286		56,473		35,056		52,748

Total liabilities		736,673		807,377		649,959		705,821

Commitments and contingencies (Notes 4, 8, 9 and 10)
Commitments and contingencies

STOCKHOLDERS’ EQUITY:
Preferred stock — 5,000 shares authorized as of September 30, 2020 and December 31, 2019; 0 shares issued		0		0
Common stock, no par value; shares authorized — 2020 and 2019 - 100,000; issued and outstanding as of September 30, 2020 - 55,538 and December 31, 2019 - 55,213		600,737		587,017
Stockholders' equity:
Preferred stock — 5,000 shares authorized as of June 30, 2021 and December 31, 2020; 0 shares issued						0		0
Common stock, 0 par value; shares authorized — 2021 and 2020 - 100,000; issued and outstanding as of June 30, 2021 - 56,224 and December 31, 2020 - 55,623						623,591		606,224
Retained earnings		342,425		368,221		373,677		357,803
Accumulated other comprehensive loss		(9,325)		(5,294)		(4,834)		(5,452)

Total stockholders’ equity		933,837		949,944		992,434		958,575

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	1,670,510	$	1,757,321
Total liabilities and stockholders’ equity					$	1,642,393	$	1,664,396


See condensed notes to consolidated financial statements.	(concluded)

Table of Contents

MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (LOSS)

FOR THE THREE AND ~~NINE~~SIX MONTHS ENDED ~~SEPTEMBER~~JUNE 30, ~~2020~~2021 AND ~~2019~~2020

(In thousands, except per share amounts - unaudited)


	Three Months Ended				Nine Months Ended				Three Months Ended				Six Months Ended
	September 30,				September 30,				June 30,				June 30,
	2020		2019		2020		2019		2021		2020		2021		2020
NET SALES	$	243,975	$	243,049	$	705,871	$	736,930
Net sales									$	280,325	$	218,371	$	529,238	$	461,896
Cost of sales										156,186		134,155		293,205		273,896
Gross profit										124,139		84,216		236,033		188,000

COST OF SALES		141,961		138,913		415,857		416,194

GROSS PROFIT		102,014		104,136		290,014		320,736

OPERATING EXPENSES:
Operating expenses:
Selling, general and administrative		72,215		86,936		217,790		245,183		91,563		66,767		172,587		145,575
Research and development		13,506		16,987		42,404		49,361		17,593		14,026		33,867		28,898
Legal settlement		—		—		18,200		—		—		18,200		—		18,200
Impairment charges		20,585		2,702		28,305		3,250		4,283		3,875		4,283		7,720
Contingent consideration expense (benefit)		(4,356)		392		884		3,573
Acquired in-process research and development		—		—		—		525

Contingent consideration expense										1,805		343		2,207		5,240
Total operating expenses		101,950		107,017		307,583		301,892		115,244		103,211		212,944		205,633

INCOME (LOSS) FROM OPERATIONS		64		(2,881)		(17,569)		18,844
Income (loss) from operations										8,895		(18,995)		23,089		(17,633)

OTHER INCOME (EXPENSE):
Other income (expense):
Interest income		67		328		234		1,027		92		88		564		167
Interest expense		(2,197)		(3,415)		(8,056)		(9,295)		(1,386)		(2,715)		(2,923)		(5,859)
Other income (expense) - net		(118)		278		(1,085)		(421)

Other expense — net										(736)		(678)		(1,171)		(967)
Total other expense — net		(2,248)		(2,809)		(8,907)		(8,689)		(2,030)		(3,305)		(3,530)		(6,659)

INCOME (LOSS) BEFORE INCOME TAXES		(2,184)		(5,690)		(26,476)		10,155
Income (loss) before income taxes										6,865		(22,300)		19,559		(24,292)

INCOME TAX (BENEFIT) EXPENSE		825		(2,292)		(1,255)		499
Income tax expense (benefit)										1,949		(3,242)		3,685		(2,080)

NET INCOME (LOSS)	$	(3,009)	$	(3,398)	$	(25,221)	$	9,656
Net income (loss)									$	4,916	$	(19,058)	$	15,874	$	(22,212)

EARNINGS (LOSS) PER COMMON SHARE:
Earnings (loss) per common share
Basic	$	(0.05)	$	(0.06)	$	(0.46)	$	0.18	$	0.09	$	(0.34)	$	0.28	$	(0.40)

Diluted	$	(0.05)	$	(0.06)	$	(0.46)	$	0.17	$	0.09	$	(0.34)	$	0.28	$	(0.40)

AVERAGE COMMON SHARES:
Weighted average shares outstanding
Basic		55,505		55,152		55,386		55,029		56,061		55,406		55,890		55,326

Diluted		55,505		55,152		55,386		56,393		57,277		55,406		57,128		55,326

See condensed notes to consolidated financial statements.

Table of Contents

MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

FOR THE THREE AND ~~NINE~~SIX MONTHS ENDED ~~SEPTEMBER~~JUNE 30, ~~2020~~2021 AND ~~2019~~2020

(In thousands - unaudited)


	Three Months Ended				Nine Months Ended				Three Months Ended				Six Months Ended
	September 30,				September 30,				June 30,				June 30,
	2020		2019		2020		2019		2021		2020		2021		2020
Net income (loss)	$	(3,009)	$	(3,398)	$	(25,221)	$	9,656	$	4,916	$	(19,058)	$	15,874	$	(22,212)
Other comprehensive income (loss):
Cash flow hedges		(592)		(207)		(7,875)		(3,938)		999		(101)		3,920		(7,283)
Income tax benefit (expense)		152		53		2,027		1,014		(248)		26		(972)		1,875
Foreign currency translation adjustment		3,545		(2,779)		1,944		(3,120)		1,800		2,524		(2,662)		(1,601)
Income tax benefit (expense)		(117)		(14)		(127)		(17)		(203)		(3)		332		(10)
Total other comprehensive income (loss)		2,988		(2,947)		(4,031)		(6,061)		2,348		2,446		618		(7,019)
Total comprehensive income (loss)	$	(21)	$	(6,345)	$	(29,252)	$	3,595	$	7,264	$	(16,612)	$	16,492	$	(29,231)

See condensed notes to consolidated financial statements.

Table of Contents

MERIT MEDICAL SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE THREE AND ~~NINE~~SIX MONTHS ENDED ~~SEPTEMBER~~JUNE 30, ~~2020~~2021 AND ~~2019~~2020

(In thousands - unaudited)


			Common Stock			Retained		Accumulated Other				Common Stock			Retained		Accumulated Other
	Total		Shares	Amount		Earnings		Comprehensive Loss		Total		Shares	Amount		Earnings		Comprehensive Income (Loss)
BALANCE — January 1, 2020	$	949,944	55,213	$	587,017	$	368,221	$	(5,294)
Net loss		(3,154)					(3,154)
Cumulative effect adjustment upon adoption of ASU 2016-13, Credit Losses		(575)					(575)
Balance — January 1, 2021										$	958,575	55,623	$	606,224	$	357,803	$	(5,452)
Net income											10,958					10,958
Other comprehensive loss		(9,465)							(9,465)		(1,730)							(1,730)
Stock-based compensation expense		2,641			2,641						3,310			3,310
Options exercised		2,369	174		2,369						5,897	291		5,897
Issuance of common stock under Employee Stock Purchase Plan		371	13		371						263	5		263
Shares issued from time-vested restricted stock units											—	25		—
Shares surrendered in exchange for payment of payroll tax liabilities		(866)	(23)		(866)						(488)	(9)		(488)
Shares surrendered in exchange for exercise of stock options		(1,467)	(39)		(1,467)						(93)	(2)		(93)
BALANCE — March 31, 2020		939,798	55,338		590,065		364,492		(14,759)
Net loss		(19,058)					(19,058)
Balance — March 31, 2021											976,692	55,933		615,113		368,761		(7,182)
Net income											4,916					4,916
Other comprehensive income		2,446							2,446		2,348							2,348
Stock-based compensation expense		3,197			3,197						2,765			2,765
Options exercised		2,229	138		2,229						5,455	253		5,455
Issuance of common stock under Employee Stock Purchase Plan		235	5		235						258	4		258
BALANCE — June 30, 2020		928,847	55,481		595,726		345,434		(12,313)
Net loss		(3,009)					(3,009)
Other comprehensive income		2,988							2,988
Stock-based compensation expense		3,794			3,794
Options exercised		950	50		950
Issuance of common stock under Employee Stock Purchase Plan		267	7		267
BALANCE — September 30, 2020	$	933,837	55,538	$	600,737	$	342,425	$	(9,325)
Shares issued from time-vested restricted stock units											—	34		—
Balance — June 30, 2021										$	992,434	56,224	$	623,591	$	373,677	$	(4,834)


See condensed notes to consolidated financial statements.	(continued)

Table of Contents

MERIT MEDICAL SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE THREE AND ~~NINE~~SIX MONTHS ENDED ~~SEPTEMBER~~JUNE 30, ~~2020~~2021 AND ~~2019~~2020

(In thousands - unaudited)


			Common Stock			Retained		Accumulated Other				Common Stock			Retained		Accumulated Other
	Total		Shares	Amount		Earnings		Comprehensive Loss		Total		Shares	Amount		Earnings		Comprehensive Income (Loss)
BALANCE — January 1, 2019	$	932,775	54,893	$	571,383	$	363,425	$	(2,033)
Net income		6,195					6,195
Reclassify deferred gain on sale-leaseback upon adoption of ASC 842		93					93
Balance — January 1, 2020										$	949,944	55,213	$	587,017	$	368,221	$	(5,294)
Net loss											(3,154)					(3,154)
Cumulative effect adjustment upon adoption of ASU 2016-13, Credit Losses											(575)					(575)
Other comprehensive loss		(2,515)							(2,515)		(9,465)							(9,465)
Stock-based compensation expense		1,766			1,766						2,641			2,641
Options exercised		1,365	95		1,365						2,369	174		2,369
Issuance of common stock under Employee Stock Purchase Plan		432	7		432						371	13		371
BALANCE — March 31, 2019		940,111	54,995		574,946		369,713		(4,548)
Net income		6,859					6,859
Other comprehensive loss		(599)							(599)
Shares surrendered in exchange for payment of payroll tax liabilities											(866)	(23)		(866)
Shares surrendered in exchange for exercise of stock options											(1,467)	(39)		(1,467)
Balance — March 31, 2020											939,798	55,338		590,065		364,492		(14,759)
Net loss											(19,058)					(19,058)
Other comprehensive income											2,446							2,446
Stock-based compensation expense		2,523			2,523						3,197			3,197
Options exercised		1,441	78		1,441						2,229	138		2,229
Issuance of common stock under Employee Stock Purchase Plan		340	6		340						235	5		235
BALANCE — June 30, 2019		950,675	55,079		579,250		376,572		(5,147)
Net loss		(3,398)					(3,398)
Other comprehensive loss		(2,947)							(2,947)
Stock-based compensation expense		2,626			2,626
Options exercised		2,037	120		2,037
Issuance of common stock under Employee Stock Purchase Plan		341	12		341
Shares surrendered in exchange for exercise of stock options		(93)	(3)		(93)
BALANCE — September 30, 2019	$	949,241	55,208	$	584,161	$	373,174	$	(8,094)
Balance — June 30, 2020										$	928,847	55,481	$	595,726	$	345,434	$	(12,313)


See condensed notes to consolidated financial statements.	(concluded)

Table of Contents

MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE ~~NINE~~SIX MONTHS ENDED ~~SEPTEMBER~~JUNE 30, ~~2020~~2021 AND ~~2019~~2020

(In thousands - unaudited)


	Nine Months Ended				Six Months Ended
	September 30,				June 30,
	2020		2019		2021		2020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	(25,221)	$	9,656	$	15,874	$	(22,212)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		70,458		68,507		42,417		47,040
Gain on sale of business		(508)		—
Loss on sales and/or abandonment of property and equipment		1,303		637		242		370
Write-off of certain intangible assets and other long-term assets		28,409		3,492		4,368		7,820
Acquired in-process research and development		—		525
Amortization of right-of-use operating lease assets		9,522		9,226		6,074		6,339
Fair value adjustments to contingent consideration		884		3,573		2,207		5,240
Amortization of deferred credits		(103)		(104)		(54)		(69)
Amortization of long-term debt issuance costs		453		570		302		302
Stock-based compensation expense		10,268		6,915		6,732		6,205
Changes in operating assets and liabilities, net of acquisitions and divestitures:
Trade receivables		13,049		(6,786)		(7,833)		15,292
Other receivables		1,170		(29)		(793)		643
Inventories		15,668		(19,302)		3,185		2,255
Prepaid expenses and other current assets		(3,929)		(3,859)		(3,823)		(1,349)
Prepaid income taxes		(35)		—
Income tax refund receivables		(8,666)		(8,680)		(9)		(7,329)
Other assets		(1,088)		(3,832)		(685)		128
Trade payables		(2,682)		(3,775)		5,639		(3,872)
Accrued expenses		22,591		1,678		9,206		19,664
Income taxes payable		1,079		(928)		(860)		1,572
Deferred compensation payable		541		2,276		247		(661)
Operating lease liabilities		(9,398)		(8,956)		(6,259)		(6,177)
Other long-term obligations		4,590		100		263		2,015

Total adjustments		153,576		41,248		60,566		95,428

Net cash provided by operating activities		128,355		50,904		76,440		73,216

CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for:
Property and equipment		(35,590)		(58,104)		(12,817)		(25,803)
Intangible assets		(2,499)		(2,560)		(1,469)		(1,790)
Proceeds from the sale of property and equipment		33		262		884		27
Proceeds from sale of business		1,285		—
Cash received for settlement of current note receivable		250		—		—		250
Cash paid in acquisitions, net of cash acquired		(260)		(53,512)		(1,858)		(100)

Net cash used in investing activities	$	(36,781)	$	(113,914)	$	(15,260)	$	(27,416)

See condensed notes to consolidated financial statements.

(continued)

Table of Contents

MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE ~~NINE~~SIX MONTHS ENDED ~~SEPTEMBER~~JUNE 30, ~~2020~~2021 AND ~~2019~~2020

(In thousands - unaudited)


	Nine Months Ended				Six Months Ended
	September 30,				June 30,
	2020		2019		2021		2020
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock	$	4,954	$	5,863	$	11,780	$	3,670
Proceeds from issuance of long-term debt		46,051		194,477		32,657		38,567
Payments on long-term debt		(128,306)		(149,477)		(91,535)		(67,692)
Long-term debt issuance costs		—		(1,479)
Contingent payments related to acquisitions		(12,991)		(15,684)		(489)		(12,861)
Payment of taxes related to an exchange of common stock		(866)		—		(488)		(866)

Net cash provided by (used in) financing activities		(91,158)		33,700

EFFECT OF EXCHANGE RATES ON CASH		(185)		(734)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		231		(30,044)
Net cash used in financing activities						(48,075)		(39,182)
Effect of exchange rates on cash						(349)		(1,236)
Net increase in cash and cash equivalents						12,756		5,382

CASH AND CASH EQUIVALENTS:
Beginning of period		44,320		67,359		56,916		44,320

End of period	$	44,551	$	37,315	$	69,672	$	49,702

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest (net of capitalized interest of $679 and $896, respectively)	$	8,138	$	9,319

Interest (net of capitalized interest of $234 and $551, respectively)					$	2,923	$	5,937
Income taxes	$	6,449	$	10,071		4,611		3,808

SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Property and equipment purchases in accounts payable	$	2,726	$	7,481	$	1,014	$	1,970

Current note receivable converted to equity investment	$	899	$	—		—		899

Proceeds from sale of business in other receivables	$	321	$	—

Acquisition purchases in accrued expenses and other long-term obligations	$	—	$	9,583

Merit common stock surrendered (39 and 3 shares, respectively) in exchange for exercise of stock options	$	1,467	$	93

Merit common stock surrendered (2 and 39 shares, respectively) in exchange for exercise of stock options						93		1,467
Right-of-use operating lease assets obtained in exchange for operating lease liabilities	$	7,285	$	7,431		361		7,029


See condensed notes to consolidated financial statements.	(concluded)

Table of Contents

MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Basis of Presentation and Other Items. The interim consolidated financial statements of Merit Medical Systems, Inc. ("Merit," "we" or "us") for the three and ~~nine-month periods~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020 are not audited. Our consolidated financial statements are prepared in accordance with the requirements for unaudited interim periods and, consequently, do not include all disclosures required to be made in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). In the opinion of our management, the accompanying consolidated financial statements contain all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of our financial position as of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, and our results of operations and cash flows for the three and ~~nine-month~~six-month periods ended ~~September~~June 30, ~~2020~~2021 and ~~2019.~~2020. The results of operations for the three and ~~nine-month~~six-month periods ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020 are not necessarily indicative of the results for a full-year period. ~~Within the financial statements and tables presented, certain columns and rows may not total due to the use of rounded numbers for disclosure purposes.~~ Percentages and earnings per share amounts presented are calculated from the underlying amounts. These interim consolidated financial statements should be read in conjunction with the financial statements and risk factors included in our Annual Report on Form 10-K for the year ended December 31, ~~2019 (as amended by an Amendment No. 1 to~~2020 (the “2020 Annual ~~Report on Form 10-K/A, the “Annual~~ Report on Form 10-K”).

~~Reclassifications~~

Certain reclassifications have been made to the 2019 periods to conform to the 2020 presentation. In the consolidated statements of cash flows for the nine months ended September 30, 2020, the fair value adjustment to contingent consideration is presented as a reconciling item between net income (loss) and cash flows from operating activities. A corresponding reclassification of approximately $3.6 million has been made in the prior period for comparability, along with corresponding reclassifications to the change in certain operating assets and liabilities.

~~COVID-19 Pandemic~~

The global coronavirus (“COVID-19”) pandemic has created significant uncertainty in the global economy, has negatively impacted our business, results of operations and financial condition, and we anticipate that it may negatively impact our business, results of operations and financial condition for the foreseeable future. At present, it is not possible for us to predict the extent of this impact due to uncertainties regarding the duration of the pandemic, potential government mandates regarding elective or deferrable procedures, and patient behavior, among other factors.

In response to the COVID-19 pandemic, we implemented certain cost reduction and operating efficiency initiatives, including decreased discretionary spending, delayed product launches, deferred capital spending and reduced the number of research and development projects, among other initiatives. In April 2020, due to the significant impact of the COVID-19 pandemic on our business, results of operations and financial condition, and uncertainty regarding the scope and duration of that impact, we reduced headcount, implemented targeted furloughs and temporarily reduced salaries for a number of groups, including all executive positions. A number of these temporary salary reductions were decreased or eliminated during the three months ended September 30, 2020. We also implemented processes to encourage the safety of our employees, including formal policies restricting travel, temperature screenings at most of our manufacturing locations, and mandatory telecommuting for certain positions.

As the impact of the COVID-19 pandemic evolves, we will continue to assess that impact on our business and respond accordingly. Sustained adverse impacts to our business, our suppliers, and our customers may also affect our future valuation of certain assets and therefore may increase the likelihood of an impairment charge, write-off, or reserve associated with such assets, including goodwill, intangible assets, property and equipment, inventories, accounts receivable, tax assets, and other assets. Estimates may change as new events occur and additional information is obtained, and actual results will likely differ, and may differ materially, from our estimates under different assumptions, circumstances or conditions.

~~Table of Contents~~

2. Recently Issued Financial Accounting Standards.

~~Recently Adopted~~

In ~~August 2018,~~March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) ~~2018-15,~~ Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). ASU 2018-15 became effective for us on January 1, 2020. The adoption of this standard did not have a material impact on our consolidated financial statements.

~~In August 2018, the FASB issued ASU 2018-13,~~ ~~Fair Value Measurement (Topic 820)~~, which removes, modifies and adds various disclosure requirements related to fair value disclosures. ASU 2018-13 became effective for us beginning on January 1, 2020. We have modified our disclosures to conform with this guidance (see Note 14).

~~In June 2016, the FASB issued ASU 2016-13,~~ ~~Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments~~, which replaced the incurred loss impairment methodology for financial assets with a methodology that reflects expected credit losses. The new credit loss model must be applied to loans, accounts receivable, and other financial assets. ASU 2016-13 became effective for us beginning on January 1, 2020. We adopted this standard using a modified retrospective approach with a cumulative-effect adjustment to retained earnings of $575,000 as of the beginning of 2020. See Note 14 for additional disclosures related to our allowance for current expected credit losses. The adoption of this guidance did not have a material impact on our statements of operations or cash flows.

~~Not Yet Adopted~~

~~In March 2020, the FASB issued 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. In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope, which amends the scope of ASU 2020-04. ASU 2020-04 isand ASU 2021-01 were effective as of March 12, 2020, and the provisions of these updates may be applied prospectively to transactions through December 31, ~~2022. We~~2022, when reference rate reform activity is expected to be completed. As of June 30, 2021, we had not modified any contracts as a result of reference rate reform. We are currently assessing the anticipated impact of ~~this standard~~these standards on our consolidated financial statements.

We currently believe that all other issued and not yet effective accounting standards are not materially relevant to our financial statements.

3. Revenue from Contracts with Customers. We recognize revenue when a customer obtains control of promised goods. The amount of revenue recognized reflects the consideration we expect to receive in exchange for these goods. Our revenue recognition policies have not changed from those disclosed in Note 1 to our consolidated financial statements in Item 8 of the 2020 Annual Report on Form 10-K.

Disaggregation of Revenue

~~The disaggregation of~~Our revenue is disaggregated based on reporting segment, product category and geographical region. Beginning in the first quarter of 2020, we revised our product categories to more clearly reflect how we sell our products to our customers. We presented historical information under the new revised product categories in a Current Report on Form 8-K, filed with the SEC on April 3, 2020.

We design, develop, manufacture and market medical products for interventional and diagnostic procedures. For financial reporting purposes, we report our operations in 2 operating segments: cardiovascular and endoscopy. Our cardiovascular segment consists of 4 product categories: peripheral intervention, cardiac intervention, custom procedural solutions, and ~~OEM.~~original equipment manufacturer (“OEM”). Within these product categories, we sell a variety of products, including cardiology and radiology devices (which assist in diagnosing and treating coronary arterial disease, peripheral vascular disease and other non-vascular diseases), as well as embolotherapeutic, cardiac rhythm management, electrophysiology, critical care, breast cancer localization and guidance, biopsy, and interventional oncology and spine devices. Our endoscopy segment consists of gastroenterology and pulmonology devices which assist in the palliative treatment of expanding esophageal, tracheobronchial and biliary strictures caused by malignant tumors.

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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 tables present revenue from contracts with customers by reporting segment, product category and geographical region for the three and ~~nine-month~~six-month periods ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020 (in thousands):

Three Months Ended

Three Months Ended

September 30, 2020

September 30, 2019


United States

International

Total

United States

International

Total
Cardiovascular










Peripheral Intervention

$
55,014

$
31,764

$
86,778

$
55,587

$
28,678

$
84,265
Cardiac Intervention

28,661

40,428

69,089

29,657

45,202

74,859
Custom Procedural Solutions

32,048

24,381

56,429

24,906

21,352

46,258
OEM

20,293

3,824

24,117

25,521

3,523

29,044
Total

136,016

100,397

236,413

135,671

98,755

234,426

Endoscopy

Endoscopy devices

7,093

469

7,562

8,340

283

8,623

Total

$
143,109

$
100,866

$
243,975

$
144,011

$
99,038

$
243,049


	Nine Months Ended						Nine Months Ended						Three Months Ended						Three Months Ended
	September 30, 2020						September 30, 2019						June 30, 2021						June 30, 2020
	United States		International		Total		United States		International		Total		United States		International		Total		United States		International		Total
Cardiovascular
Peripheral Intervention	$	153,431	$	93,057	$	246,488	$	167,158	$	90,586	$	257,744	$	63,235	$	42,365	$	105,600	$	42,614	$	30,021	$	72,635
Cardiac Intervention		79,954		127,731		207,685		85,817		141,225		227,042		33,217		52,436		85,653		22,698		43,307		66,005
Custom Procedural Solutions		80,845		68,524		149,369		73,871		65,464		139,335		27,392		21,244		48,636		23,383		21,936		45,319
OEM		67,566		13,026		80,592		75,425		12,024		87,449		27,420		4,983		32,403		23,607		4,611		28,218
Total		381,796		302,338		684,134		402,271		309,299		711,570		151,264		121,028		272,292		112,302		99,875		212,177

Endoscopy
Endoscopy devices		20,509		1,228		21,737		24,459		901		25,360		7,507		526		8,033		5,838		356		6,194

Total	$	402,305	$	303,566	$	705,871	$	426,730	$	310,200	$	736,930	$	158,771	$	121,554	$	280,325	$	118,140	$	100,231	$	218,371


	Six Months Ended						Six Months Ended
	June 30, 2021						June 30, 2020
	United States		International		Total		United States		International		Total
Cardiovascular
Peripheral Intervention	$	120,101	$	78,413	$	198,514	$	98,416	$	61,294	$	159,710
Cardiac Intervention		62,468		97,922		160,390		51,293		87,303		138,596
Custom Procedural Solutions		52,284		41,773		94,057		48,797		44,143		92,940
OEM		50,310		10,027		60,337		47,274		9,201		56,475
Total		285,163		228,135		513,298		245,780		201,941		447,721

Endoscopy
Endoscopy devices		14,980		960		15,940		13,416		759		14,175

Total	$	300,143	$	229,095	$	529,238	$	259,196	$	202,700	$	461,896

~~Table of Contents~~

4. Acquisitions. On ~~August 1, 2019,~~November 6, 2020, we entered into a ~~share~~unit purchase agreement to acquire ~~Fibrovein Holdings Limited, which is~~KA Medical, LLC (“KA Medical”). Subject to the ~~owner of 100%~~terms and conditions of the ~~capital stock of STD Pharmaceutical Products Limited, a UK private company engaged~~unit purchase agreement, we paid $10.4 million in ~~the manufacture, distribution and sale of pharmaceutical sclerotherapy products (“STD Pharmaceutical”). The purchase consideration consisted of an upfront payment of approximately $13.7 million,~~cash at closing, net of cash ~~acquired. We also recorded~~acquired, subject to adjustments for working capital and other matters, with additional deferred payments including, $1.5 million paid during the three months ended June 30, 2021, and $2.5 million payable no later than 12 months following the acquisition date. KA Medical developed the Micro Plug^TM Set, a ~~contingent consideration liability of approximately $934,000 related to royalties potentially payable pursuant to~~self-expanding nitinol vascular occlusion device, which is FDA-cleared in the ~~terms of the share purchase agreement.~~US and CE marked in Europe. We accounted for this acquisition 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 STD Pharmaceutical acquisition, which were included in selling, general and administrative expenses, were not material. The following table summarizes the purchase price allocated to the net assets acquired as follows (in thousands):KA Medical

Assets Acquired



Trade receivables

$
277
Inventories

843
Prepaid expenses and other assets

49
Intangible assets

Developed technology

10,428
Goodwill

4,975
Total assets acquired

16,572

Liabilities Assumed


Trade payables

(53)
Accrued expenses

(29)
Deferred income tax liabilities

(1,890)
Total liabilities assumed

(1,972)

Total net assets acquired

$
14,600

We are amortizing the developed technology intangible asset acquired in the STD Pharmaceutical acquisition over 12 years. The goodwill consists largely of the synergies we hope to achieve from combining operations and is not expected to be deductible for income tax purposes.

On June 14, 2019, we consummated an acquisition transaction contemplated by a merger agreement to acquire Brightwater Medical, Inc. ("Brightwater"). The purchase consideration consisted of an upfront payment of $35 million plus a final working capital adjustment of approximately $39,000, net of cash acquired, with potential earn-out payments of up to an additional $5 million for achievement of CE certification with respect to the Brightwater ConvertX®, a single-use device used to replace a series of devices and procedures used to treat severe obstructions of the ureter, and up to an additional $10 million for the achievement of sales milestones specified in the merger agreement. The ConvertX device is designed to be implanted once and converted from a nephroureteral catheter to a nephroureteral stent without requiring sedation or local anesthesia. Earlier this year, Brightwater received FDA clearance for the ConvertX biliary stent device. We accounted for this acquisition 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

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~~associated with the Brightwater~~ acquisition, which were included in selling,general and administrative expenses, were not material. The ~~following table summarizes the~~ purchase price was preliminarily allocated ~~to the net assets acquired~~ as follows (in thousands):


Assets Acquired
Trade receivables	$	55	$	24
Other receivables				13
Inventories		349		216
Property and equipment		409		298
Other long-term assets		30		147
Intangible assets
Developed technology		31,960		6,000
Customer lists		83
Trademarks		250
Goodwill		17,607		8,283
Total assets acquired		50,743		14,981

Liabilities Assumed
Trade payables		(58)		(31)
Accrued expenses		(261)		(507)
Other long-term obligations		(1,522)
Deferred income tax liabilities		(4,263)
Total liabilities assumed		(6,104)		(538)

Total net assets acquired	$	44,639	$	14,443

We are amortizing the developed technology intangible asset acquired ~~in the Brightwater acquisition~~through KA Medical over 13 years, the related trademarks over five years and the customer list on an accelerated basis over one year. The total weighted-average amortization period for these acquired intangible assets is approximately 12.917 years. The goodwill consists largely of the synergies ~~and economies of scale we hope to achieve~~expected from combining ~~the acquired assets and operations with our historical~~ operations and is ~~not~~ expected to be deductible for income tax purposes.

The pro forma impact of ~~these acquisitions~~the KA Medical acquisition was not significant ~~either individually or in the aggregate, on~~to our financial results for the three and ~~nine-month~~six-month periods ended ~~September~~June 30, ~~2019.~~2020. Operating results attributable to the ~~STD Pharmaceutical and Brightwater acquisitions~~KA Medical acquisition were included in our consolidated statements of income (loss) for the three and ~~nine-month~~six-month periods ended ~~September~~June 30, ~~2020.~~2021.

5. Inventories. Inventories at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019~~2020 consisted of the following (in thousands):


	September 30, 2020		December 31, 2019		June 30, 2021		December 31, 2020
Finished goods	$	114,710	$	134,467	$	104,112	$	110,933
Work-in-process		23,765		17,602		30,675		19,308
Raw materials		70,634		73,629		59,737		67,778
Total inventories	$	209,109	$	225,698	$	194,524	$	198,019

6. Goodwill and Intangible Assets. The ~~changes~~change in the carrying amount of goodwill for the ~~nine-month~~six-month period ended ~~September~~June 30, ~~2020 were~~2021 is detailed as follows (in thousands):


	2020		2021
Goodwill balance at January 1	$	353,193	$	363,533
Effect of foreign exchange		314		(723)
Additions and adjustments as the result of acquisitions		115
Goodwill balance at September 30	$	353,622
Goodwill balance at June 30			$	362,810

Total accumulated goodwill impairment losses aggregated to approximately $8.3 million as of June 30, 2021 and December 31, 2020. We did 0t have any goodwill impairments for the six-month periods ended June 30, 2021 and 2020. The total goodwill balance as of June 30, 2021 and December 31, 2020 was related to our cardiovascular segment.

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Total accumulated goodwill impairment losses aggregated to approximately $8.3 million as of September 30, 2020 and December 31, 2019. We did 0t have any goodwill impairments for the nine-month periods ended September 30, 2020 and 2019. The total goodwill balance as of September 30, 2020 and December 31, 2019 was related to our cardiovascular segment.

Other intangible assets at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019~~2020 consisted of the following (in thousands):


	September 30, 2020						June 30, 2021
	Gross Carrying		Accumulated		Net Carrying		Gross Carrying		Accumulated		Net Carrying
	Amount		Amortization		Amount		Amount		Amortization		Amount
Patents	$	25,202	$	(8,320)	$	16,882	$	25,036	$	(7,358)	$	17,678
Distribution agreements		3,250		(2,269)		981		3,250		(2,419)		831
License agreements		14,425		(6,244)		8,181		12,710		(7,198)		5,512
Trademarks		30,257		(11,675)		18,582		30,260		(13,865)		16,395
Customer lists		34,743		(28,405)		6,338		35,058		(30,153)		4,905
Total	$	107,877	$	(56,913)	$	50,964	$	106,314	$	(60,993)	$	45,321


	December 31, 2019						December 31, 2020
	Gross Carrying		Accumulated		Net Carrying		Gross Carrying		Accumulated		Net Carrying
	Amount		Amortization		Amount		Amount		Amortization		Amount
Patents	$	22,703	$	(6,863)	$	15,840	$	23,669	$	(6,460)	$	17,209
Distribution agreements		8,012		(6,794)		1,218		3,250		(2,319)		931
License agreements		26,987		(12,746)		14,241		14,453		(6,647)		7,806
Trademarks		30,240		(9,477)		20,763		30,273		(12,414)		17,859
Covenants not to compete		964		(964)		—
Customer lists		39,984		(28,763)		11,221		35,154		(29,103)		6,051
In-process technology		2,500		—		2,500
Total	$	131,390	$	(65,607)	$	65,783	$	106,799	$	(56,943)	$	49,856

Aggregate amortization expense for the three and ~~nine-month~~six-month periods ended ~~September~~June 30, ~~2020~~2021 was approximately ~~$14.4~~$12.4 million and ~~$44.2~~$24.9 million, respectively. Aggregate amortization expense for the three and ~~nine-month~~six-month periods ended ~~September~~June 30, ~~2019~~2020 was approximately ~~$15.5~~$14.8 million and ~~$45.2~~$29.8 million, respectively.

We evaluate long-lived assets, including amortizing intangible assets, for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. We perform the impairment analysis at the asset group for which the lowest level of identifiable cash flows is largely independent of the cash flows of other assets and liabilities. We determine the fair value of our amortizing assets based on estimated future cash flows discounted back to their present value using a discount rate that reflects the risk profiles of the underlying activities.

During the three-month period ended June 30, 2021 and 2020,

~~We recorded total~~we identified indicators of impairment ~~charges~~ associated with certain acquired intangible assets inbased on our ~~cardiovascular segment for~~qualitative assessment, which led us to complete an interim quantitative impairment assessment. During the ~~three and nine-month periods~~three-month period ended ~~September~~June 30, ~~2020~~2021, the primary indicator of ~~approximately $18.1 million and $20.5 million, respectively. These expenses are reflected within~~ impairment ~~charges in~~was our ~~consolidated statements~~planned discontinuance of ~~income (loss).~~ ~~The primary factors driving impairment of certain intangible assets for~~ the ~~three and nine-month periods ended September 30, 2020 were slower-than-anticipated sales growth in the acquired products, planned closure and restructuring activities, uncertainty about future~~Advocate™ Peripheral Angioplasty Balloon product development and commercialization associated with the acquired technologies, and economic uncertainties associated with the COVID-19 pandemic. The intangible impairment charges relate to a write-off or reduction in value of intangible assets fro~~m our August 2017 acquisition of certain assets from Laurane Medical S.A.S,~~line, sold under our license agreements with ArraVasc Limited ~~intangible assets from our May 2018 acquisition~~(“ArraVasc”). We recorded an impairment charge for the remaining carrying value of ~~certain assets from DirectACCESS Medical, LLC, in-process technology~~ArraVasc intangible assets of ~~Sontina Medical LLC we~~approximately $1.6 million during the three months ended June 30, 2021, all of which pertained to our cardiovascular segment. During the three-month period ended June 30, 2020, the primary indicator of impairment was our planned closure of our procedural pack business in Australia acquired in ~~connection our February 2018 acquisition of certain divested assets from Becton, Dickinson and Company, and a customer list intangible asset~~ ~~from~~ our October 2017 acquisition of ITL Healthcare Pty ~~Ltd~~Ltd. (“ITL”).

We recorded an impairment charge for ITL intangible ~~asset~~assets of approximately $2.4 million during the three months ended June 30, 2020, all of which pertained to our cardiovascular segment. See Note 14 for additional details regarding impairment charges recorded in ~~our cardiovascular segment for~~ the ~~three and nine-month~~three-month periods ended ~~September~~June 30, ~~2019 of approximately $2.7 million~~2021 and ~~$3.3 million, respectively. These expenses are reflected within impairment charges in our consolidated statements of income (loss).~~ ~~The primary indicators of impairment for the~~2020.

~~Table of Contents~~

three and nine-month periods ended September 30, 2020 were slower than anticipated sales growth in the acquired products and uncertainty about future product development and commercialization associated with the acquired technologies.The intangible impairment charges related to our amortizing intangible assets from our July 2015 acquisition of certain assets from Distal Access, LLC, our June 2016 acquisition of certain assets from Lazarus Medical Technologies, LLC, and our July 2017 acquisition ~~of certain assets from Pleuratech ApS.~~

Estimated amortization expense for the developed technology and other intangible assets for the next five years ~~consists~~consisted of the following as of ~~September~~June 30, ~~2020~~2021 (in thousands):


Year Ending December 31,	Estimated Amortization Expense		Estimated Amortization Expense
Remaining 2020	$	14,317
2021		49,611
Remaining 2021			$	24,572
2022		48,463		48,149
2023		47,306		47,050
2024		44,514		44,113
2025				42,335

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7. Income Taxes. Our provision for income taxes for the three-month periods ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020 was a tax expense (benefit) of approximately ~~$0.8~~$1.9 million and ~~$(2.3)~~($3.2) million, respectively, which resulted in an effective tax rate of ~~(37.7)%~~28.4% and ~~40.3%~~14.5%, respectively. Our provision for income taxes for the ~~nine-month~~six-month periods ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020 was a tax expense (benefit) of approximately ~~$(1.3)~~$3.7 million and ~~$0.5~~($2.1) million, respectively, which resulted in an effective tax rate of ~~4.7%~~18.8% and ~~4.9%~~8.6%, respectively. The increase in the income tax expense and the corresponding ~~decrease~~change in the effective income tax rate for the ~~three-month period~~three and six-month periods ended ~~September~~June 30, ~~2020,~~2021, when compared to the prior-year period, was due to a change in the jurisdictional mix of earnings. The income tax benefit and corresponding decrease in the effective tax rate for the nine-month period ended September 30, 2020, when compared to the prior-year period,periods, was primarily due to a pre-tax loss during the 2020 ~~period,~~periods, as well as a change in the jurisdictional mix of earnings. Our effective tax rate differs from the U.S. statutory rate ~~for both the three and nine-month periods ended September 30, 2020~~ primarily due to the impact of global intangible low-taxed income (“GILTI”) inclusions, state income taxes, foreign taxes, other non-deductible permanent items and discrete items (such as share-based ~~compensation and certain legal settlements)~~compensation).

8. Revolving Credit Facility and Long-Term Debt. Principal balances outstanding under our long-term debt obligations as of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019~~2020 consisted of the following (in thousands):


	September 30, 2020		December 31, 2019		June 30, 2021		December 31, 2020
Term loans	$	142,500	$	148,125	$	136,875	$	140,625
Revolving credit loans		215,244		291,875		155,872		211,000
Less unamortized debt issuance costs		(431)		(516)		(347)		(403)
Total long-term debt		357,313		439,484		292,400		351,222
Less current portion		7,500		7,500		7,500		7,500
Long-term portion	$	349,813	$	431,984	$	284,900	$	343,722

Third Amended and Restated Credit Agreement

On July 31, 2019, we entered into a Third Amended and Restated Credit Agreement (the "Third Amended Credit Agreement"). The Third Amended Credit Agreement is a syndicated loan agreement with Wells Fargo Bank, National Association and other parties. The Third Amended Credit Agreement amends and restates in its entirety our previously outstanding Second Amended and Restated Credit Agreement and all amendments thereto. The Third Amended Credit Agreement provides for a term loan of $150 million and a revolving credit commitment up to an aggregate amount of $600 million, inclusive of sub-facilities for multicurrency borrowings, standby letters of credit and swingline loans. On July 31, 2024, all principal, interest and other amounts outstanding under the Third Amended Credit Agreement are payable in full. At any time prior to the maturity date, we may repay any amounts owing under all term loans and revolving credit loans in whole or in part, without premium or penalty, other than breakage fees (as defined in the Third Amended Credit Agreement).

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Revolving credit loans denominated in dollars and term loans made under the Third Amended Credit Agreement bear interest, at our election, at either the Base Rate or the Eurocurrency Rate (as such terms are defined in the Third Amended Credit Agreement) plus the Applicable Margin (as defined in the Third Amended Credit Agreement). Revolving credit loans denominated in an Alternative Currency (as defined in the Third Amended Credit Agreement) bear interest at the Eurocurrency Rate plus the Applicable Margin. Swingline loans bear interest at the Base Rate plus the Applicable Margin (as defined in the Third Amended Credit Agreement). Interest on each Base Rate loan is due and payable on the last business day of each calendar quarter; interest on each Eurocurrency Rate loan is due and payable on the last day of each interest period applicable thereto, and if such interest period extends over three months, at the end of each three-month interval during such interest period.

The Third Amended Credit Agreement is collateralized by substantially all our assets. The Third Amended Credit Agreement contains affirmative and negative covenants, representations and warranties, events of default and other terms

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customary for loans of this nature. In particular, the Third Amended Credit Agreement requires that we maintain certain financial covenants, as follows:



	Covenant Requirement
Consolidated Total Leverage Ratio ⁽¹⁾		4.0 to 1.0
Consolidated Interest Coverage Ratio ⁽²⁾		3.0 to 1.0
Facility Capital Expenditures ⁽³⁾		$50 million

(1)	Maximum Consolidated Total Net Leverage Ratio (as defined in the Third Amended Credit Agreement) as of any fiscal quarter end.

(2)	Minimum ratio of Consolidated EBITDA (as defined in the Third Amended Credit Agreement and adjusted for certain expenditures) to Consolidated interest expense (as defined in the Third Amended Credit Agreement) for any period of four consecutive fiscal quarters.

(3)	Maximum level of the aggregate amount of all Facility Capital Expenditures (as defined in the Third Amended Credit Agreement) in any fiscal year.

We believe we were in material compliance with all covenants set forth in the Third Amended Credit Agreement as of ~~September~~June 30, ~~2020.~~2021.

As of ~~September~~June 30, ~~2020,~~2021, we had outstanding borrowings of approximately ~~$357.7~~$292.7 million under the Third Amended Credit Agreement, with additional available borrowings of approximately ~~$327~~$444 million, based on the maximum net leverage ratio ~~required~~and the aggregate revolving credit commitment pursuant to the Third Amended Credit Agreement. Our interest rate as of ~~September~~June 30, ~~2020~~2021 was a fixed rate of ~~2.62%~~2.12% on $175 million as a result of an interest rate swap (see Note 9) and a variable floating rate of ~~1.66%~~1.15% on ~~$182.7~~$117.7 million. Our interest rate as of December 31, ~~2019~~2020 was a fixed rate of ~~2.62%~~2.37% on $175 million as a result of an interest rate swap and a variable floating rate of ~~3.30%~~1.40% on ~~$265~~$176.6 million. The foregoing fixed rates are exclusive of changes in the notional amount and fixed rate associated with our interest rate swaps beginning July 6, 2021 as described in Note 9 and potential future changes in the applicable margin.

Future minimum principal payments on our long-term debt, as of ~~September~~June 30, ~~2020,~~2021, were as follows (in thousands):


Years Ending	Future Minimum		Future Minimum
December 31,	Principal Payments		Principal Payments
Remaining 2020	$	1,875
2021		7,500
Remaining 2021			$	3,750
2022		8,438		8,438
2023		11,250		11,250
2024		328,681		269,309
Total future minimum principal payments	$	357,744	$	292,747

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9. Derivatives.

General. Our earnings and cash flows are subject to fluctuations due to changes in interest rates and foreign currency exchange rates, and we seek to mitigate a portion of the risks attributable to those fluctuations by entering into derivative contracts. The derivatives we use are interest rate swaps and foreign currency forward contracts. We recognize derivatives as either assets or liabilities at fair value in the accompanying consolidated balance sheets, regardless of whether or not hedge accounting is applied. We report cash flows arising from our hedging instruments consistent with the classification of cash flows from the underlying hedged items. Accordingly, cash flows associated with our derivative contracts are classified as operating activities in the accompanying consolidated statements of cash flows.

We formally document, designate and assess the effectiveness of transactions that receive hedge accounting treatment initially and on an ongoing basis. For qualifying hedges, the change in fair value is deferred in accumulated other comprehensive income, a component of stockholders’ equity in the accompanying consolidated balance sheets, and recognized in earnings at the same time the hedged item affects earnings. Changes in the fair value of derivatives not designated as hedging instruments are recorded in earnings throughout the term of the derivative.

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Interest Rate Risk. Our debt bears interest at variable interest rates. Therefore, we are subject to variability in the cash paid for interest expense. In order to mitigate a portion of the risk attributable to that variability, we use a hedging strategy to reduce the variability of cash flows in the interest payments associated with a portion of the variable-rate debt outstanding under our Third Amended Credit Agreement that is solely due to changes in the benchmark interest rate.

Derivative Instruments Designated as Cash Flow Hedges

On August 5, 2016, we entered into a pay-fixed, receive-variable interest rate swap with a current notional amount of $175 million with Wells Fargo to fix the one-month LIBOR rate at 1.12%. The variable portion of the interest rate swap is tied to the one-month LIBOR rate (the benchmark interest rate). On a monthly basis, the interest rates under both the interest rate swap and the underlying debt reset, the swap is settled with the counterparty, and interest is paid. The interest rate swap ~~is scheduled to expire~~expired on July 6, 2021.

On December 23, 2019, we entered into a pay-fixed, receive-variable interest rate swap with a notional amount of $75 million with Wells Fargo to fix the one-month LIBOR rate at 1.71% for the period from July 6, 2021 to July 31, 2024. The variable portion of the interest rate swap is tied to the one-month LIBOR rate (the benchmark interest rate). On a monthly basis, the interest rates under both the interest rate swap and the underlying debt will reset, the swap will be settled with the counterparty, and interest will be paid.

At ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, our interest rate swaps qualified as cash flow hedges. The fair value of our interest rate swaps at ~~September~~June 30, ~~2020~~2021 was a liability of approximately ~~$4.9~~$2.8 million, which was partially offset by approximately ~~$1.3~~$0.7 million in deferred taxes. The fair value of our interest rate swaps at December 31, ~~2019~~2020 was ~~an asset~~a liability of ~~approximately $1.2~~$4.4 million, partially offset by approximately ~~$307,000 in deferred taxes, and a liability of $(290,000), partially offset by approximately $(75,000)~~$1.1 million in deferred taxes.

Foreign Currency Risk. We operate on a global basis and are exposed to the risk that our financial condition, results of operations, and cash flows could be adversely affected by changes in foreign currency exchange rates. To reduce the potential effects of foreign currency exchange rate movements on net earnings, we enter into derivative financial instruments in the form of foreign currency exchange forward contracts with major financial institutions. Our policy is to enter into foreign currency derivative contracts with maturities of up to two years. We are ~~primarily~~ exposed to foreign currency exchange rate risk with respect to transactions and balances denominated in Chinese Renminbi, Euros, British Pounds, Mexican Pesos, Brazilian Reals, Australian Dollars, Hong Kong Dollars, Swiss Francs, Swedish Krona, Canadian Dollars, Danish Krone, Japanese Yen, and South Korean Won, among others. We do not use derivative financial instruments for trading or speculative purposes. We do not believe we are subject to any credit risk contingent features related to our derivative contracts, and we seek to manage counterparty risk by allocating derivative contracts among several major financial institutions.

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Derivative Instruments Designated as Cash Flow Hedges

For derivative instruments that are designated and qualify as cash flow hedges, the gain or loss on the derivative instrument is temporarily reported as a component of other comprehensive income (loss) and then reclassified into earnings in the same line item associated with the forecasted transaction and in the same period or periods during which the hedged transaction affects earnings. We entered into forward contracts on various foreign currencies to manage the risk associated with forecasted exchange rates which impact revenues, cost of sales, and operating expenses in various international markets. The objective of the hedges is to reduce the variability of cash flows associated with the forecasted purchase or sale of the associated foreign currencies.

We enter into approximately 150 cash flow foreign currency hedges every month. As of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019~~2020, we had entered into foreign currency forward contracts, which qualified as cash flow hedges, with aggregate notional amounts of approximately ~~$139.6~~$106.9 million and ~~$212.5~~$168.2 million, respectively.

Derivative Instruments Not Designated as Cash Flow Hedges

We forecast our net exposure in various receivables and payables to fluctuations in the value of various currencies, and we enter into foreign currency forward contracts to mitigate that exposure. We enter into approximately 20 foreign currency fair value hedges every month. As of September 30, 2020 and December 31, 2019 we had entered into foreign currency forward contracts related to those balance sheet accounts with aggregate notional amounts of $80.3 million and $65.0 million, respectively.

~~Balance Sheet Presentation of Derivative Instruments.~~ As of September 30, 2020 and December 31, 2019, all derivative instruments, both those designated as hedging instruments and those that were not designated as hedging instruments, were recorded at fair value on a gross basis on our consolidated balance sheets. We are not subject to any master netting agreements.

~~The fair value of derivative instruments on a gross basis was as follows on the dates indicated (in thousands):~~

Fair Value
Derivative instruments designated as hedging instruments

Balance Sheet Location

September 30, 2020

December 31, 2019
Assets






Interest rate swaps

Other assets (long-term)

$
—

$
1,192
Foreign currency forward contracts

Prepaid expenses and other assets

872

1,663
Foreign currency forward contracts

Other assets (long-term)

139

466

(Liabilities)






Interest rate swaps

Accrued expenses

(1,322)

—
Interest rate swaps

Other long-term obligations

(3,593)

(290)
Foreign currency forward contracts

Accrued expenses

(2,899)

(1,813)
Foreign currency forward contracts

Other long-term obligations

(254)

(764)

Derivative instruments not designated as hedging instruments






Assets






Foreign currency forward contracts

Prepaid expenses and other assets

$
1,314

$
318

(Liabilities)






Foreign currency forward contracts

Accrued expenses

(1,066)

(1,678)

2017

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fair value hedges every month. As of June 30, 2021 and December 31, 2020, we had entered into foreign currency forward contracts related to those balance sheet accounts with aggregate notional amounts of approximately $81.5 million and $74.8 million, respectively.

Balance Sheet Presentation of Derivative Instruments. As of June 30, 2021 and December 31, 2020, all derivative instruments, both those designated as hedging instruments and those that were not designated as hedging instruments, were recorded at fair value on a gross basis on our consolidated balance sheets. We are not subject to any master netting agreements.

The fair value of derivative instruments on a gross basis was as follows on the dates indicated (in thousands):



Fair Value of Derivative Instruments Designated as Hedging Instruments	Balance Sheet Location	June 30, 2021		December 31, 2020
Assets
Foreign currency forward contracts	Prepaid expenses and other assets	$	1,385	$	1,777
Foreign currency forward contracts	Other assets (long-term)		199		424

(Liabilities)
Interest rate swaps	Accrued expenses		(29)		(896)
Interest rate swaps	Other long-term obligations		(2,811)		(3,462)
Foreign currency forward contracts	Accrued expenses		(2,938)		(5,281)
Foreign currency forward contracts	Other long-term obligations		(185)		(866)

Fair Value of Derivative Instruments Not Designated as Hedging Instruments	Balance Sheet Location	June 30, 2021		December 31, 2020
Assets
Foreign currency forward contracts	Prepaid expenses and other assets	$	1,341	$	877

(Liabilities)
Foreign currency forward contracts	Accrued expenses		(1,724)		(2,120)

Income Statement Presentation of Derivative Instruments.

Derivative Instruments Designated as Cash Flow Hedges

Derivative instruments designated as cash flow hedges had the following effects, before income taxes, on other comprehensive income (“OCI”), accumulated other comprehensive income (“AOCI”), and net earnings in our consolidated statements of income (loss), consolidated statements of comprehensive income (loss) and consolidated balance sheets (in thousands):



	Amount of Gain/(Loss)					Consolidated Statements				Amount of Gain/(Loss)				Amount of Gain/(Loss)					Consolidated Statements				Amount of Gain/(Loss)
	Recognized in OCI					of Income (Loss)				Reclassified from AOCI				Recognized in OCI					of Income (Loss)				Reclassified from AOCI
	Three Months Ended September 30,					Three Months Ended September 30,				Three Months Ended September 30,				Three Months Ended June 30,					Three Months Ended June 30,				Three Months Ended June 30,
Derivative instrument	2020		2019		Location in statements of income	2020			2019	2020			2019	2021		2020		Location in statements of income	2021			2020	2021			2020
Interest rate swaps	$	(30)	$	(186)	Interest expense	$	(2,197)	$	(3,415)	$	(425)	$	520	$	(84)	$	(763)	Interest expense	$	(1,386)	$	(2,715)	$	(447)	$	(265)
Foreign currency forward contracts		(1,324)		505	Revenue		243,975		243,049		157		118		(632)		222	Revenue		280,325		218,371		(1,572)		431
					Cost of sales		(141,961)		(138,913)		(494)		(112)					Cost of sales		(156,186)		(134,155)		304		(606)

Amount of Gain/(Loss)

Consolidated Statements

Amount of Gain/(Loss)

Recognized in OCI

of Income (Loss)

Reclassified from AOCI

Nine Months Ended September 30,

Nine Months Ended September 30,

Nine Months Ended September 30,
Derivative instrument

2020

2019

Location in statements of income

2020

2019

2020

2019
Interest rate swaps

$
(6,256)

$
(2,855)

Interest expense

$
(8,056)

$
(9,295)

$
(439)

$
1,716
Foreign currency forward contracts

(2,596)

555

Revenue

705,871

736,930

666

220

Cost of sales

(415,857)

(416,194)

(1,204)

(298)

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	Amount of Gain/(Loss)					Consolidated Statements				Amount of Gain/(Loss)
	Recognized in OCI					of Income (Loss)				Reclassified from AOCI
	Six Months Ended June 30,					Six Months Ended June 30,				Six Months Ended June 30,
Derivative instrument	2021		2020		Location in statements of income	2021			2020	2021			2020
Interest rate swaps	$	638	$	(6,226)	Interest expense	$	(2,923)	$	(5,859)	$	(880)	$	(14)
Foreign currency forward contracts		(116)		(1,272)	Revenue		529,238		461,896		(3,172)		509
					Cost of sales		(293,205)		(273,896)		654		(710)

As of ~~September~~June 30, ~~2020,~~2021, approximately ~~$(2.3)~~($2.4) million, or ~~$(1.7)~~($1.8) million after taxes, was expected to be reclassified from accumulated other comprehensive income (loss) to earnings in revenue and cost of sales over the succeeding twelve months. As of ~~September~~June 30, ~~2020,~~2021, approximately ~~$(1.6)~~($1.2) million, or ~~$(1.2)~~($0.9) million after taxes, was expected to be reclassified from accumulated other comprehensive income (loss) to earnings in interest expense over the succeeding twelve months.

Derivative Instruments Not Designated as Hedging Instruments

The following gains/(losses) from these derivative instruments were recognized in our consolidated statements of income (loss) for the periods presented (in thousands):


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
Derivative Instrument	Location in statements of income (loss)	2020		2019		2020		2019		Location in statements of income (loss)	2021		2020		2021		2020
Foreign currency forward contracts	Other income (expense)	$	(1,294)	$	2,402	$	1,051	$	1,647	Other income (expense)	$	(977)	$	(1,073)	$	(748)	$	2,345

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10. Commitments and Contingencies.

Loan Commitment. On October 11, 2019, we acquired shares of stock in Selio Medical Limited (“Selio”) representing an ownership interest of approximately 19.5%, as well as an option to purchase all ordinary shares of Selio throughout a ~~45 day~~45-day period commencing from the date Selio receives FDA 510(k) approval of a medical device it is currently developing, and an option to purchase all remaining shares of Selio on the third anniversary date of the agreement if we elect to purchase all ordinary shares. We have also made a loan of $250,000 to Selio and committed to provide additional loans of up to €2 million at a rate of 5% per ~~annum.~~annum until one year and 45 days have passed from the date Selio receives FDA Section 510(k) approval of a medical device it is currently developing. Additional loans made to Selio pursuant to our loan agreement, together with the initial advance and all other amounts owed to us by Selio, would be securitized by Selio’s assets.

Deed of Settlement.During the three-month period ended June 30, 2021, we accrued $6.1 million of contract termination costs in selling, general and administrative expenses to renegotiate certain terms of an acquisition agreement and terminate certain obligations, including the obligation to make potential future payments, pursuant to that agreement.

Litigation. In the ordinary course of business, we are involved in various proceedings, legal actions and claims. These proceedings, actions and claims may involve product liability, intellectual property, contract disputes, employment, governmental inquiries or other matters, including those more fully described below. The outcomes of these matters will generally not be known for prolonged periods of time. In certain proceedings, the claimants may seek damages as well as other compensatory and equitable relief that could result in the payment of significant claims and settlements and/or the imposition of injunctions or other equitable relief. For legal matters for which our management had sufficient information to reasonably estimate our future obligations, a liability representing management’s best estimate of the probable loss, or the minimum of the range of probable losses when a best estimate within the range is not known, is recorded. The estimates are based on consultation with legal counsel, previous settlement experience and settlement strategies. If actual outcomes are less favorable than those estimated by management, additional expense may be incurred, which could unfavorably affect our financial position, results of operations and cash flows. The ultimate cost to us with respect to ~~product liability~~such proceedings, actions and claims could be materially different than the amount of the current estimates and accruals and could have a material adverse effect on our financial position, results of operations and cash flows.

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Securities Litigation

On December 3,5, 2019, the Bucks County Employees Retirement Fund filed a complaint against Merit, our Chief Executive Officer and our Chief Financial Officer in the United States District Court for the Central District of California, individually and on behalf of all purchasers of our common stock between February 26, 2019 and October 30, 2019. On February 24, 2020, the court appointed the City of Atlanta Police Pension Fund, the Atlanta Firefighters’ Pension Fund, and the Employees’ Retirement System of the City of Baton Rouge and Parish of East Baton Rouge as Lead Plaintiffs. This action is now captioned In re Merit Medical Systems, Inc. Securities Litigation (Master File No. 8:19-cv-02326-DOC-ADS). On June 30, 2020, Lead Plaintiffs filed a consolidated class action complaint for violations of federal securities laws against Merit, our Chief Executive Officer and our Chief Financial Officer in the United States District Court for the Central District of California, individually and on behalf of all purchasers of our common stock between February 26, 2019 and October 30, 2019. The consolidated class action complaint alleges that defendants violated Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder, and seeks unspecified damages, costs and attorneys’ fees, and equitable relief. We filed a motion to dismiss the action, which the Court denied. We intend to vigorously defend against the ~~lawsuit and have filed a motion to dismiss the action.~~lawsuit. We have not recorded an expense related to this matter because any potential loss is not currently probable or reasonably estimable. Additionally, we cannot presently estimate the range of loss, if any, that may result from the matter. It is possible that the ultimate resolution of the foregoing matter, or other similar matters, if resolved in a manner unfavorable to us, may be materially adverse to our business, financial condition, results of operations or liquidity.

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~~Department of Justice Investigation~~Shareholder Derivative Action

~~In October 2016, we received~~On June 3, 2021, Steffen Maute filed a ~~subpoena from the U.S. Department~~complaint, derivatively on behalf of ~~Justice (the “DOJ”) seeking information related to its investigation~~Merit, against Merit (as a nominal defendant), our Chief Executive Officer, our Chief Financial Officer, our President of EMEA, and certain of our ~~marketing~~directors in the United States District Court for the District of Utah (Case No. 2:21-cv-00346-DBP). The derivative complaint alleges that the individual defendants violated their fiduciary duties owed to Merit and ~~promotional practices. We responded~~were unjustly enriched at the expense of and to the ~~subpoena, as well as additional~~detriment of Merit between February 2019 and October 2019, and seeks unspecified damages, costs, and professional fees. We intend to vigorously defend against the lawsuit. We have not recorded an expense related ~~requests, and on October 13, 2020,~~to this matter because any potential loss is not currently probable or reasonably estimable. Additionally, we ~~entered into agreements with~~cannot presently estimate the ~~DOJ and others~~range of loss, if any, that may result from the matter. It is possible that the ultimate resolution of the foregoing matter, or other similar matters, if resolved in a manner unfavorable to ~~fully resolve the DOJ’s investigation. We denied the DOJ’s allegations, but determined that avoiding protracted litigation and its associated costs would enable~~ us, may be materially adverse to ~~focus on~~ our ~~mission~~business, financial condition, results of being the most customer-focused company in healthcare. Legal expenses we incurred in responding to the DOJ investigation for the three and nine-month periods ended September 30, 2020 were approximately $1.4 million and $4.6 million, respectively.operations or liquidity.

Legal costs for ~~these matters,~~proceedings, legal actions and claims discussed, such as outside counsel fees and expenses, are charged to expense in the ~~period~~period(s) incurred.

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


	Three Months Ended				Nine Months Ended				Three Months Ended				Six Months Ended
	September 30,				September 30,				June 30,				June 30,
	2020		2019		2020		2019		2021		2020		2021		2020
Net income (loss)	$	(3,009)	$	(3,398)	$	(25,221)	$	9,656	$	4,916	$	(19,058)	$	15,874	$	(22,212)
Average common shares outstanding		55,505		55,152		55,386		55,029		56,061		55,406		55,890		55,326
Basic EPS	$	(0.05)	$	(0.06)	$	(0.46)	$	0.18	$	0.09	$	(0.34)	$	0.28	$	(0.40)

Average common shares outstanding		55,505		55,152		55,386		55,029		56,061		55,406		55,890		55,326
Effect of dilutive stock options ⁽¹⁾		—		—		—		1,364
Effect of dilutive stock awards										1,216		—		1,238		—
Total potential shares outstanding		55,505		55,152		55,386		56,393		57,277		55,406		57,128		55,326
Diluted EPS	$	(0.05)	$	(0.06)	$	(0.46)	$	0.17	$	0.09	$	(0.34)	$	0.28	$	(0.40)

Stock options excluded as the impact was anti-dilutive⁽¹⁾		4,044		4,299		4,202		1,361
Equity awards excluded as the impact was anti-dilutive ⁽¹⁾										990		4,224		1,016		4,282

(1)

~~For~~Does not reflect the ~~three and nine-month periods ended September 30, 2020, approximately 2.2 million and 2.2 million~~impact of incremental repurchases under the treasury stock options, respectively, were considered antidilutive due to the net loss in each period. Independent of the net loss incurred, the potentially dilutive effect of these options would have been approximately 951,000 and 855,000 shares, respectively. For the three-month period ended September 30, 2019, approximately 2.4 million stock options were considered antidilutive due to the net loss in the period. Independent of the net loss incurred, the potentially dilutive effect of these options would have been approximately 979,000 shares.method.

12. Stock-Based Compensation Expense. Stock-based compensation expense before income tax expense for the three and ~~nine-month~~six-month periods ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020 consisted of the following (in thousands):


	Three Months Ended				Nine Months Ended				Three Months Ended				Six Months Ended
	September 30,				September 30,				June 30,				June 30,
	2020		2019		2020		2019		2021		2020		2021		2020
Cost of sales	$	336	$	346	$	1,022	$	953
Nonqualified stock options									$	318	$	347	$	636	$	686
Research and development		304		277		851		750
Nonqualified stock options										276		262		555		547
Selling, general and administrative		3,423		2,003		8,395		5,212
Nonqualified stock options										814		1,724		2,441		3,429
Performance-based restricted stock units										972		833		1,703		1,145
Restricted stock units										385		31		740		31
Cash-settled share-based awards ("Liability Awards")										372		231		657		367
Total selling, general and administrative										2,543		2,819		5,541		4,972

Stock-based compensation expense before taxes	$	4,063	$	2,626	$	10,268	$	6,915	$	3,137	$	3,428	$	6,732	$	6,205

Nonqualified Stock Options

During the ~~three and nine-month~~six-month periods ended ~~September~~June 30, 2021 and 2020, we granted stock options representing ~~112,500~~125,850 and ~~328,994 shares of our common stock, respectively. During the three and nine-month periods ended September 30, 2019, we granted stock options representing 107,000 and 1.2 million~~216,494 shares of our common stock, respectively. We use the Black-Scholes methodology to value the stock-based compensation ~~expense for options. In applying the Black-Scholes~~

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expense for options. In applying the Black-Scholes methodology to the option grants, the fair value of our stock-based awards granted was estimated using the following assumptions for the periods indicated below:


	Nine Months Ended		Six Months Ended
	September 30,		June 30,
	2020	2019	2021	2020
Risk-free interest rate	0.29% - 1.67%	1.39% - 2.56%	0.6%	0.5% - 1.7%
Expected option term	4.0 - 5.0 years	3.0 - 5.0 years	4.0 years	4.0 - 5.0 years
Expected dividend yield	—	—	—	—
Expected price volatility	38.65% - 45.12%	28.66% - 35.79%	46.7%	38.7% - 43.2%

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

We recognize stock-based compensation expense (net of a forfeiture rate) for those awards which are expected to vest on a straight-line basis over the requisite service period. We estimate the forfeiture rate based on our historical experience and expectations about future forfeitures. As of ~~September~~June 30, ~~2020,~~2021, the total remaining unrecognized compensation cost related to non-vested stock options was approximately ~~$25.0~~$19.9 million, which was expected to be recognized over a weighted average period of ~~2.8~~2.4 years.

Stock-Settled Performance-Based Restricted Stock Units (“Performance Stock Units”)

During the ~~nine-month period~~six-month periods ended ~~September~~June 30, 2021 and 2020, we granted performance stock units to certain of our executive officers which, as amended, represent up to 128,883 and 127,060 shares of our common ~~stock.~~stock, respectively. Conversion of the performance stock units occurs at the end of ~~one~~, ~~two~~ ~~and three-year~~the relevant performance periods, or one year after the agreement date, whichever is later. The conversion ratio is based upon attaining targeted levels of free cash flow (“FCF”) and relative shareholder return as compared to the Russell 2000 Index (“rTSR”), as defined in the award agreements. After reviewing the anticipated impact of the COVID-19 pandemic on our ongoing and forecasted operations and financial performance, during the three-month period ended June 30, 2020, our Board of Directors amended the performance stock units with a one-year performance period in an effort to more closely align our executive management compensation with the interests of our shareholders. This amendment reduced the targeted levels of FCF and reduced the maximum FCF multiplier to 100% for the one-year awards, which lowered the potential shares of our common stock to be granted pursuant to the one-year awards by 25,415 shares. We have accounted for this amendment in accordance with ASC 718 as a “Type I” modification. The two and three-year performance stock units were not amended.

The payout for each performance stock unit is equal to 1 share of common stock multiplied by a FCF multiplier (between 0% and 100% in the case of the one-year awards, as amended, or 0% and 200% in the case of the ~~two~~ ~~and~~ ~~three-year~~ awards) and a rTSR multiplier (between 75% and 125%). If FCF is below a specified threshold, no shares will be awarded. The potential maximum payout per performance stock units is 125% of the target shares for the one-year awards, as amended, and 250% of the target shares for ~~the two~~ and three-year awards. Performance stock units convey no shareholder rights, including voting rights, unless and until shares are issued in settlement of the award. As performance stock units represent contingently issuable shares, we have excluded them from the calculation of weighted average shares outstanding for the calculation of diluted EPS.

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We use Monte-Carlo simulations to estimate the grant-date fair value of the performance stock units linked to total shareholder return. The fair value of each performance stock unit was estimated as of the grant date using the following assumptions for awards granted in the periods indicated below:


		~~Nine Months Ended~~
		~~September 30,~~
		~~2020~~
~~Risk-free interest rate~~		~~1.1% - 1.3%~~
~~Performance period~~		~~0.8 - 2.8 years~~
~~Expected dividend yield~~		—
~~Expected price volatility~~		~~40.2% - 56.1%~~


	Six Months Ended
	June 30,
	2021	2020
Risk-free interest rate	0.1% - 0.3%	1.1% - 1.3%
Remaining performance period	1.8 - 2.8 years	0.8 - 2.8 years
Expected dividend yield	—	—
Expected price volatility	43.7% - 49.3%	40.2% - 56.1%

The risk-free interest rate of return was determined using the U.S. Treasury rate at the time of grant with a remaining term equal to the expected term of the award. The expected volatility was based on a weighted average volatility of our stock price and the average volatility of our compensation peer group's volatilities. The expected dividend yield was assumed to be zero because, at the time of the grant, we had no plans to declare a dividend.

Compensation expense is recognized using the grant-date fair value for the number of shares that are probable of being awarded based on the performance conditions. Each reporting period, this probability assessment is updated, and cumulative catchups are recorded based on the level of FCF that is expected to be achieved. At the end of the performance period, cumulative expense is calculated based on the actual level of FCF achieved. For the three and nine-month periods ended September 30, 2020, we recognized stock-based compensation expense associated with the stock-settled performance stock units of approximately $0.8 million and $2.0 million, respectively. As of ~~September~~June 30, ~~2020,~~2021, the total remaining unrecognized compensation cost related to stock-settled performance stock units was approximately ~~$3.3~~$6.1 million, which is expected to be recognized over a weighted average period of ~~1.5~~1.9 years.

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Cash-Settled Performance-Based Share-Based Awards (“Liability Awards”)

During the ~~nine-month period~~six-month periods ended ~~September~~June 30, 2021 and 2020, we granted liability awards to our Chief Executive ~~Officer.~~Officer with total target cash incentives of $1.0 million and $1.0 million, respectively. These awards entitle him to a target cash payment ~~equal to a target cash incentive~~based upon attaining targeted levels of ~~$333,333 per year multiplied by~~FCF and rTSR, ~~and FCF multipliers,~~ as defined in the award agreements. During the three-month period ended June 30, 2020, after reviewing the anticipated impact of the COVID-19 pandemic on our ongoing and forecasted operations and financial performance, our Board of Directors amended the liability awards with a one-year performance period in an effort to more closely align our Chief Executive Officer’s compensation with the interests of our shareholders. The two and three-year liability awards were not amended. As amended, the potential maximum payout of these awards is 125% of the target cash incentive for one-year awards, and 250% of the target cash incentive for ~~two~~ ~~and three-year awards.~~ Settlement generally occurs ~~at the end of~~ ~~one~~, ~~two~~ ~~and three-year performance periods~~ based upon the same performance metrics, vesting period, and ~~vesting~~performance period as our performance stock units.

For the three and nine-month periods ended September 30, 2020, we recognized expense associated with these liability awards of approximately $0.3 million and $0.6 million within selling, general and administrative expenses in our consolidated statement of income (loss). The fair value of these awards ~~will be~~is remeasured at each reporting period until the awards are settled. These awards are classified as liabilities and reported in accrued expenses and other long-term liabilities within our consolidated balance sheet. As of ~~September~~June 30, ~~2020,~~2021, the total remaining unrecognized compensation cost related to cash-settled performance-based share-based awards was approximately ~~$1.3~~$2.2 million, which is expected to be recognized over a weighted average period of ~~1.6~~1.9 years.

Restricted Stock Units

OnDuring the three-month periods ended June ~~22,~~30, 2021 and 2020, we granted restricted stock units to our non-employee directors representing 26,226 and 33,504 shares of our common ~~stock.~~stock, respectively. The expense recognized for restricted stock units is equal to the closing stock price on the date of grant, which is recognized over the vesting period. Restricted stock units granted to each director are subject to such director’s continued service through the vesting date, which is one year from the date of grant. Restricted stock units represent contingently issuable shares, and are excluded from the calculation of weighted average shares outstanding for the calculation of diluted EPS. For the three and nine-month periods ended September 30, 2020 we recognized expense associated with these restricted stock units of

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~~approximately $363,000 and $395,000 within selling, general and administrative expenses in our consolidated statement of income (loss).~~ As of ~~September~~June 30, ~~2020,~~2021, the total remaining unrecognized compensation cost related to restricted stock units was approximately ~~$1.0~~$1.6 million, which will be recognized over ~~the remaining vesting period.~~a weighted average period of 1.0 year.

13. Segment Reporting. We report our operations in 2 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. We evaluate the performance of our operating segments based on net sales and operating income.

Financial information relating to our reportable operating segments and reconciliations to the consolidated totals for the three and ~~nine-month~~six-month periods ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, were as follows (in thousands):


	Three Months Ended				Nine Months Ended				Three Months Ended				Six Months Ended
	September 30,				September 30,				June 30,				June 30,
	2020		2019		2020		2019		2021		2020		2021		2020
Net Sales
Cardiovascular	$	236,413	$	234,426	$	684,134	$	711,570	$	272,292	$	212,177	$	513,298	$	447,721
Endoscopy		7,562		8,623		21,737		25,360		8,033		6,194		15,940		14,175
Total net sales		243,975		243,049		705,871		736,930		280,325		218,371		529,238		461,896

Operating Income (Loss)
Cardiovascular		(1,702)		(6,210)		(20,662)		11,263		6,777		(20,462)		18,978		(18,960)
Endoscopy		1,766		3,329		3,093		7,581		2,118		1,467		4,111		1,327
Total operating income (loss)		64		(2,881)		(17,569)		18,844		8,895		(18,995)		23,089		(17,633)

Total other expense - net		(2,248)		(2,809)		(8,907)		(8,689)		(2,030)		(3,305)		(3,530)		(6,659)

Income tax (benefit) expense		825		(2,292)		(1,255)		499
Income tax expense (benefit)										1,949		(3,242)		3,685		(2,080)

Net income (loss)	$	(3,009)	$	(3,398)	$	(25,221)	$	9,656	$	4,916	$	(19,058)	$	15,874	$	(22,212)

~~14. Fair Value Measurements.~~

~~Assets (Liabilities) Measured at Fair Value on a Recurring Basis~~

~~Our financial assets and (liabilities) carried at fair value and measured on a recurring basis as of September 30, 2020 and December 31, 2019 consisted of the following (in thousands):~~

Fair Value Measurements Using

Total Fair

Quoted prices in

Significant other

Significant

Value at

active markets

observable inputs

unobservable inputs


September 30, 2020

(Level 1)

(Level 2)

(Level 3)
Interest rate contract liabilities, current and long-term ⁽¹⁾

$
(4,915)

$
—

$
(4,915)

$
—
Foreign currency contract assets, current and long-term ⁽²⁾

$
2,325

$
—

$
2,325

$
—
Foreign currency contract liabilities, current and long-term ⁽³⁾

$
(4,219)

$
—

$
(4,219)

$
—
Contingent consideration liabilities

$
(64,665)

$
—

$
—

$
(64,665)

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14. Fair Value Measurements.

Assets (Liabilities) Measured at Fair Value on a Recurring Basis

Our financial assets and (liabilities) carried at fair value and measured on a recurring basis as of June 30, 2021 and December 31, 2020 consisted of the following (in thousands):


			Fair Value Measurements Using
	Total Fair		Quoted prices in		Significant other		Significant
	Value at		active markets		observable inputs		unobservable inputs
	June 30, 2021		(Level 1)		(Level 2)		(Level 3)
Interest rate contract liabilities, current and long-term ⁽¹⁾	$	(2,840)	$	—	$	(2,840)	$	—
Foreign currency contract assets, current and long-term ⁽²⁾	$	2,925	$	—	$	2,925	$	—
Foreign currency contract liabilities, current and long-term ⁽³⁾	$	(4,847)	$	—	$	(4,847)	$	—
Contingent consideration liabilities	$	(57,477)	$	—	$	—	$	(57,477)


			Fair Value Measurements Using								Fair Value Measurements Using
	Total Fair		Quoted prices in		Significant other		Significant		Total Fair		Quoted prices in		Significant other		Significant
	Value at		active markets		observable inputs		unobservable inputs		Value at		active markets		observable inputs		unobservable inputs
	December 31, 2019		(Level 1)		(Level 2)		(Level 3)		December 31, 2020		(Level 1)		(Level 2)		(Level 3)
Interest rate contract asset, long-term ⁽¹⁾	$	1,192	$	—	$	1,192	$	—
Interest rate contract liability, long-term ⁽¹⁾	$	(290)	$	—	$	(290)	$	—
Interest rate contract liabilities, current and long-term ⁽¹⁾									$	(4,358)	$	—	$	(4,358)	$	—
Foreign currency contract assets, current and long-term ⁽²⁾	$	2,447	$	—	$	2,447	$	—	$	3,078	$	—	$	3,078	$	—
Foreign currency contract liabilities, current and long-term ⁽³⁾	$	(4,255)	$	—	$	(4,255)	$	—	$	(8,267)	$	—	$	(8,267)	$	—
Contingent consideration liabilities	$	(76,709)	$	—	$	—	$	(76,709)	$	(55,750)	$	—	$	—	$	(55,750)

(1)	The fair value of the interest rate contracts is determined using Level 2 fair value inputs and is recorded as ~~prepaid expenses and other current assets, other long-term assets,~~ accrued expenses or other long-term obligations in the consolidated balance sheets.

(2)

The fair value of the foreign currency contract assets (including those designated as hedging instruments and those not designated as hedging instruments) is determined using Level 2 fair value inputs and is recorded as prepaid expenses and other current assets or other long-term assets in the consolidated balance sheets.

(3)

The fair value of the foreign currency contract liabilities (including those designated as hedging instruments and those not designated as hedging instruments) is determined using Level 2 fair value inputs and is recorded as accrued expenses or other long-term obligations in the consolidated balance sheets.

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 milestones. The contingent consideration liability is re-measured at the estimated fair value at the end of each reporting period with the change in fair value recognized within operating expenses in the accompanying consolidated statements of income (loss) for such period. We measure the initial liability and re-measure the liability on a recurring basis using Level 3 inputs as defined under authoritative guidance for fair value measurements. Changes in the fair value of our contingent consideration liabilities during the three and nine-month periods ended September 30, 2020 and 2019 consisted of the following (in thousands):

Three Months Ended

Nine Months Ended


September 30,

September 30,


2020

2019

2020

2019
Beginning balance

$
69,100

$
93,204

$
76,709

$
82,236
Contingent consideration liability recorded as the result of acquisitions

—

1,203

—

9,583
Contingent consideration expense (benefit)

(4,356)

273

884

3,473
Contingent payments made

(130)

(15,072)

(12,991)

(15,684)
Effect of foreign exchange

51

—

63

—
Ending balance

$
64,665

$
79,608

$
64,665

$
79,608

As of September 30, 2020, approximately $50.1 million in contingent consideration liability was included in other long-term obligations and approximately $14.5 million in contingent consideration liability was included in accrued expenses in our consolidated balance sheet. As of December 31, 2019, approximately $48.1 million in contingent consideration liability was included in other long-term obligations and approximately $28.6 million in contingent consideration liability was included in accrued expenses in our consolidated balance sheet. Cash paid to settle the contingent consideration liability recognized at fair value as of the applicable acquisition date (including measurement-period adjustments) has been reflected as a cash outflow from financing activities in the accompanying consolidated statements of cash flows.

During the year ended December 31, 2016, we sold an equity investment for cash and for the right to receive additional payments based on various contingent milestones. We determined the fair value of the contingent payments using Level 3 inputs defined under authoritative guidance for fair value measurements, and we recorded a contingent receivable asset. During the three and nine-month periods ended September 30, 2019, we recorded a gain (loss) on the contingent receivable of approximately $(119,000) and $(101,000), respectively. As of December 31, 2019, the contingent receivable was settled in full and there was no balance remaining to collect.

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authoritative guidance for fair value measurements. Changes in the fair value of our contingent consideration liabilities during the three and six-month periods ended June 30, 2021 and 2020 consisted of the following (in thousands):


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2021		2020		2021		2020
Beginning balance	$	55,754	$	68,869	$	55,750	$	76,709
Contingent consideration expense		1,805		343		2,207		5,240
Contingent payments made		(86)		(107)		(489)		(12,861)
Effect of foreign exchange		4		(5)		9		12
Ending balance	$	57,477	$	69,100	$	57,477	$	69,100

As of June 30, 2021, approximately $20.5 million in contingent consideration liability was included in other long-term obligations and approximately $37.0 million in contingent consideration liability was included in accrued expenses in our consolidated balance sheet. As of December 31, 2020, approximately $36.9 million in contingent consideration liability was included in other long-term obligations and approximately $18.8 million in contingent consideration liability was included in accrued expenses in our consolidated balance sheet. Cash paid to settle the contingent consideration liability recognized at fair value as of the applicable acquisition date has been reflected as a cash outflow from financing activities in the accompanying consolidated statements of cash flows.

The recurring Level 3 measurement of our contingent consideration liabilities included the following significant unobservable inputs at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019~~2020 (amounts in thousands):


	Fair value at						Fair value at
	September 30,		Valuation				June 30,		Valuation			Weighted
Contingent consideration liability	2020		technique	Unobservable inputs	Range	Weighted Average⁽¹⁾	2021		technique	Unobservable inputs	Range	Average⁽¹⁾
Revenue-based royalty payments contingent liability	$	4,804	Discounted cash flow	Discount rate	13% - 20%	13.6%	$	3,529	Discounted cash flow	Discount rate	14% - 16%	15.3%
				Projected year of payments	2020-2034	2025				Projected year of payments	2021-2034	2026

Revenue milestones contingent liability	$	55,561	Monte Carlo simulation	Discount rate	11% - 14%	12.4%	$	50,048	Monte Carlo simulation	Discount rate	10% - 14%	10.3%
				Projected year of payments	2020-2023	2022				Projected year of payments	2021-2030	2022

Regulatory approval contingent liability	$	4,300	Scenario-based method	Discount rate	2.7%		$	3,900	Scenario-based method	Discount rate	1%
				Probability of milestone payment	90%					Probability of milestone payment	80%
				Projected year of payment	2021-2022	2022				Projected year of payment	2024
⁽¹⁾ Unobservable inputs were weighted by the relative fair value of the instruments. No weighted average is reported for contingent consideration liabilities without a range of unobservable inputs.

Fair value at

December 31,

Valuation

Contingent consideration liability

2019

technique

Unobservable inputs

Range
Revenue-based royalty payments contingent liability

$
7,710

Discounted cash flow

Discount rate

13% - 24%



Projected year of payments

2020-2034

Revenue milestones contingent liability

$
66,114

Monte Carlo simulation

Discount rate

9% - 13.5%



Projected year of payments

2020-2023

Regulatory approval contingent liability

$
2,885

Scenario-based method

Discount rate

2.4%

Probability of milestone payment

65%

Projected year of payment

2022

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	Fair value at
	December 31,		Valuation			Weighted
Contingent consideration liability	2020		technique	Unobservable inputs	Range	Average⁽¹⁾
Revenue-based royalty payments contingent liability	$	4,545	Discounted cash flow	Discount rate	12% - 15%	13.5%
				Projected year of payments	2021-2034	2026

Revenue milestones contingent liability	$	46,305	Monte Carlo simulation	Discount rate	7.5% - 12%	9.0%
				Projected year of payments	2021-2030	2022

Regulatory approval contingent liability	$	4,900	Scenario-based method	Discount rate	1%
				Probability of milestone payment	100%
				Projected year of payment	2021-2024	2022

(1)	Unobservable inputs were weighted by the relative fair value of the instruments. No weighted average is reported for contingent consideration liabilities without a range of unobservable inputs.

The contingent consideration liability is re-measured to fair value each reporting period. Significant increases or decreases in projected revenues, based on our most recent internal operational budgets and long-range strategic plans, discount rates or the time until payment is made would have resulted in a significantly lower or higher fair value measurement. Our determination of the fair value of the contingent consideration liability could change in future periods based upon our ongoing evaluation of these significant unobservable inputs. We intend to record any such change in fair value to operating expenses in our consolidated statements of income (loss).

Contingent Payments to Related Parties

During the ~~nine-month periods~~six-month period ended ~~September~~June 30, 2020, ~~and 2019,~~ we made contingent payments of approximately $800,000 ~~and $1.0 million~~ to a current director of Merit and former shareholder of Cianna Medical, Inc. (“Cianna Medical”), which we acquired in 2018. We made 0 such payments during the six-month period ended June 30, 2021. The terms of the acquisition, including contingent consideration payments, were determined prior to the appointment of the former Cianna Medical shareholder as a ~~director of Merit.~~Merit director. As a former

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shareholder of Cianna Medical, the Merit director may be eligible for additional payments for the achievement of sales milestones specified in our merger agreement with Cianna Medical.

Fair Value of Other ~~Financial Instruments~~Assets (Liabilities)

The carrying amount of cash and cash equivalents, receivables, and trade payables approximate fair value because of the immediate, short-term maturity of these financial instruments. Our long-term debt re-prices frequently due to variable rates and entails no significant changes in credit risk and, as a result, we believe the fair value of long-term debt approximates carrying value. The fair value of assets and liabilities whose carrying value approximates fair value is determined using Level 2 inputs, with the exception of cash and cash equivalents, which use Level 1 inputs.

Impairment Charges

We recognize or disclose the fair value of certain assets, such as non-financial assets, primarily property and equipment, right-of-use operating lease assets, equity investments, intangible assets and goodwill in connection with impairment evaluations. Such assets are reported at carrying value and are not subject to recurring fair value measurements. We review our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Fair value is generally determined based on discounted future cash flow. All our nonrecurring valuations use significant unobservable inputs and therefore fall under Level 3 of the fair value hierarchy.

Intangible Assets. During the ~~three and nine-month~~three-month periods ended ~~September~~June 30, 2021 and 2020, we ~~recorded impairment charges of approximately $18.1 million and $20.5 million, respectively,~~had losses related to certain acquired intangible assets. During the three and nine-month periods ended September 30, 2019, we recorded impairment charges of approximately $2.7 million and $3.3 million, respectively, related to certain acquired intangible assets of $1.6 and $2.4 million, respectively (see Note 6).

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~~Right-of-use~~Right of Use Operating Lease Assets.During the ~~nine-month period~~three-month periods ended ~~September~~June 30, 2021 and 2020, we identified changes in events and circumstances relating to a certain right-of-use (“ROU”) operating lease ~~asset.~~assets. We compared the anticipated undiscounted cash flows generated by a sublease to the carrying value of the ROU operating lease and related long-lived assets and determined that the carrying ~~value was~~values were not recoverable. Consequently, we recorded an impairment ~~loss~~losses in the three-month periods ended June 30, 2021 and 2020 of approximately $1.4 million and $1.5 million, respectively, which is equal to the excess of the carrying value of the assets over their estimated fair value. The impairment ~~loss was~~losses in both periods were driven primarily by site consolidation decisions and changes in our projected cash flows for the ROU operating lease ~~asset~~assets and related long-lived assets, due to changes in the real estate market as a result of the COVID-19 pandemic. These changes include an increase in the anticipated time to identify ~~a lessee,~~lessees, an increase in anticipated lease concessions, and a decrease in the expected lease rates for the ~~property.~~properties. The ROU operating lease asset impairment losses in both 2021 and 2020 pertained to our cardiovascular segment.

Equity Investments and Purchase Options. During the ~~three-month~~three and six-month periods ended June 30, 2021, we had 0 losses related to equity investments and purchase options. During the six-month period ended ~~September 30, 2020, we recognized $2.5 million of impairment expense related to our equity method investment in the preferred shares of Fusion Medical, Inc. (“Fusion”) due to~~ ~~uncertainty about future product development and commercialization associated with the technologies. In addition, during the nine-month period ended September~~June 30, 2020 we recorded a charge of $3.5 million due to our write-off of our purchase option to acquire Bluegrass Vascular Technologies, Inc. (“Bluegrass Vascular”) due to our decision not to exercise our option to purchase the company. The write-off of this purchase option pertained to our cardiovascular segment. Our equity investments in privately held companies, including options to acquire these companies, were approximately $12.0 million and ~~$17.1~~$12.0 million as of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively, which are included within other long-term assets in our consolidated balance sheets. We analyze our investments in ~~privately held~~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.~~company in which we have invested. 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.

Property and Equipment. During the ~~nine-month period~~three and six-month periods ended ~~September~~June 30, ~~2020,~~2021, we had losses of ~~approximately $359,000~~$1.3 million related to the measurement of ~~certain~~ property and equipment ~~measured~~ at fair value based on the planned discontinuance of the Advocate™ Peripheral Angioplasty Balloon product line, sold under our license agreements with ArraVasc, which pertained to our cardiovascular segment. During the six-month period ended June 30, 2020, we recorded losses of $359,000 based on restructuring activities associated with changes to our distribution agreement with NinePoint Medical, Inc. (“NinePoint”), .which pertained to our endoscopy segment.

Notes Receivable

Our outstanding long-term notes receivable, including accrued interest and our allowance for current expected credit losses, were approximately ~~$2.9~~$1.9 million and ~~$2.7~~$2.2 million as of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively. As of ~~September~~June 30, ~~2020,~~2021, we had an allowance for

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current expected credit losses of ~~$803,000~~approximately $1.1 million associated with these notes receivable and our contractual obligation to extend credit to Selio. We assess the allowance for current expected credit losses on an individual security basis, due to the limited number of securities, using a probability of default model, which is based on relevant information about past events, including historical experience, current conditions and reasonable and supportable forecasts that affect the expected collectability of ~~securities.~~securities, and other security specific factors. During the three and ~~nine-month~~six-month periods ended ~~September~~June 30, 2021 and 2020, respectively, we adjusted the probability of default for all notes receivable ~~for certain periods during the loan term~~ due to changes in current macroeconomic conditions and our expectations of collectability as a result of the COVID-19 pandemic. The table below presents a rollforward of the allowance for current expected credit losses on our notes receivable for the three and ~~nine-month~~six-month periods ended ~~September~~June 30, 2021 and 2020 (in thousands):


					Three Months Ended				Six Months Ended
	Three Months Ended		Nine Months Ended		June 30,				June 30,
	September 30, 2020		September 30, 2020		2021		2020		2021		2020
Beginning balance	$	757	$	—	$	932	$	670	$	730	$	—
Cumulative effect adjustment upon adoption of ASU 2016-13, Credit Losses		—		575		—		—		—		575
Provision for credit loss expense		46		228		175		87		377		182
Ending balance	$	803	$	803	$	1,107	$	757	$	1,107	$	757

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15. Accumulated Other Comprehensive Income (Loss). The changes in each component of accumulated other comprehensive income (loss) for the three and ~~nine-month~~six-month periods ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020 were as follows:


	Cash Flow Hedges		Foreign Currency Translation		Total		Cash Flow Hedges		Foreign Currency Translation		Total
Balance as of June 30, 2020	$	(5,190)	$	(7,123)	$	(12,313)
Balance as of March 31, 2021							$	(4,743)	$	(2,439)	$	(7,182)

Other comprehensive income (loss)		(1,354)		3,545		2,191		(716)		1,800		1,084
Income taxes		152		(117)		35		(248)		(203)		(451)
Reclassifications to:
Revenue		(157)				(157)		1,572				1,572
Cost of sales		494				494		(304)				(304)
Interest expense		425				425		447				447
Net other comprehensive income (loss)		(440)		3,428		2,988		751		1,597		2,348

Balance as of September 30, 2020	$	(5,630)	$	(3,695)	$	(9,325)
Balance as of June 30, 2021							$	(3,992)	$	(842)	$	(4,834)


	Cash Flow Hedges		Foreign Currency Translation		Total		Cash Flow Hedges		Foreign Currency Translation		Total
Balance as of June 30, 2019	$	751	$	(5,898)	$	(5,147)
Balance as of March 31, 2020							$	(5,115)	$	(9,644)	$	(14,759)

Other comprehensive income (loss)		319		(2,779)		(2,460)		(541)		2,524		1,983
Income taxes		53		(14)		39		26		(3)		23
Reclassifications to:
Revenue		(118)				(118)		(431)				(431)
Cost of sales		112				112		606				606
Interest expense		(520)				(520)		265				265
Net other comprehensive loss		(154)		(2,793)		(2,947)
Net other comprehensive income (loss)								(75)		2,521		2,446

Balance as of September 30, 2019	$	598	$	(8,692)	$	(8,094)
Balance as of June 30, 2020							$	(5,190)	$	(7,123)	$	(12,313)

~~Note: The changes in each component of accumulated other comprehensive income (loss) do not total for the three months ended September 30, 2019 due to the rounding in previously reported periods.~~

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	Cash Flow Hedges		Foreign Currency Translation		Total
Balance as of December 31, 2020	$	(6,940)	$	1,488	$	(5,452)

Other comprehensive income (loss)		522		(2,662)		(2,140)
Income taxes		(972)		332		(640)
Reclassifications to:
Revenue		3,172				3,172
Cost of sales		(654)				(654)
Interest expense		880				880
Net other comprehensive income (loss)		2,948		(2,330)		618

Balance as of June 30, 2021	$	(3,992)	$	(842)	$	(4,834)


	Cash Flow Hedges		Foreign Currency Translation		Total		Cash Flow Hedges		Foreign Currency Translation		Total
Balance as of December 31, 2019	$	218	$	(5,512)	$	(5,294)	$	218	$	(5,512)	$	(5,294)

Other comprehensive income (loss)		(8,852)		1,944		(6,908)
Other comprehensive loss								(7,498)		(1,601)		(9,099)
Income taxes		2,027		(127)		1,900		1,875		(10)		1,865
Reclassifications to:
Revenue		(666)				(666)		(509)				(509)
Cost of sales		1,204				1,204		710				710
Interest expense		439				439		14				14
Net other comprehensive income (loss)		(5,848)		1,817		(4,031)
Net other comprehensive loss								(5,408)		(1,611)		(7,019)

Balance as of September 30, 2020	$	(5,630)	$	(3,695)	$	(9,325)
Balance as of June 30, 2020							$	(5,190)	$	(7,123)	$	(12,313)

Cash Flow Hedges

Foreign Currency Translation

Total
Balance as of December 31, 2018
$
3,522

$
(5,555)

$
(2,033)

Other comprehensive loss

(2,300)

(3,120)

(5,420)
Income taxes

1,014

(17)

997
Reclassifications to:

Revenue

(220)

(220)
Cost of sales

298

298
Interest expense

(1,716)

(1,716)
Net other comprehensive loss

(2,924)

(3,137)

(6,061)

Balance as of September 30, 2019
$
598

$
(8,692)

$
(8,094)

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and related condensed notes thereto, which are included in Part I of this report. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to inherent risks and uncertainties that may adversely impact our operations and financial results. These risks and uncertainties are discussed in Part I, Item 1A “Risk Factors” in the 2020 Annual Report on Form 10 K, as supplemented by any additional discussion of risk factors in Part II, Item 1A “Risk Factors” of this report and our Quarterly Reports on Form 10-Q for the periods ended March 31, 2020 and June 30, 2020.10-K.

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 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.

For the three-month period ended ~~September~~June 30, ~~2020,~~2021, we reported sales of approximately ~~$244.0~~$280.3 million, up approximately ~~$0.9~~$62.0 million or ~~0.4%~~28.4%, compared to sales for the three-month period ended ~~September~~June 30, ~~2019~~2020 of approximately ~~$243.0~~$218.4 million. For the ~~nine-month~~six-month period ended ~~September~~June 30, ~~2020,~~2021, we reported sales of approximately ~~$705.9~~$529.2 million, ~~down~~up approximately ~~$(31.1)~~$67.3 million or ~~(4.2)%~~14.6%, compared to sales ~~from~~for the ~~nine-month~~six-month period ended ~~September~~June 30, ~~2019~~2020 of approximately ~~$736.9~~$461.9 million. For the three and six-month periods ended June 30, 2021, our net sales benefitted approximately $6.2 million and $10.0 million, respectively, from foreign currency fluctuations (net of hedging) assuming applicable foreign exchange rates in effect during the comparable prior-year period.

Gross profit as a percentage of sales ~~decreased~~increased to ~~41.8%~~44.3% for the three-month period ended ~~September~~June 30, ~~2020,~~2021 compared to ~~42.8%~~38.6% for the three-month period ended ~~September~~June 30, ~~2019.~~ 2020. Gross profit as a percentage of sales ~~decreased~~increased to ~~41.1%~~44.6% for the ~~nine-month~~six-month period ended ~~September~~June 30, ~~2020 as~~2021 compared to ~~43.5%~~40.7% for the ~~nine-month~~six-month period ended ~~September~~June 30, ~~2019.~~2020.

Net ~~loss~~income for the three-month period ended ~~September~~June 30, ~~2020~~2021 was approximately ~~$(3.0)~~$4.9 million, or ~~$(0.05)~~$0.09 per share, compared to net loss of approximately ~~$(3.4)~~($19.1) million, or ~~$(0.06)~~($0.34) per share, for the three-month period ended ~~September~~June 30, ~~2019.~~ 2020. Net ~~loss~~income for the ~~nine-month~~six-month period ended ~~September~~June 30, ~~2020~~2021 was approximately ~~$(25.2)~~$15.9 million, or ~~$(0.46)~~$0.28 per share, compared to net ~~income~~loss of approximately ~~$9.7~~($22.2) million, or ~~$0.17~~($0.40) per share, for the ~~nine-month~~six-month period ended ~~September~~June 30, ~~2019.~~2020.

Recent Developments and Trends and Impact of the COVID-19 Pandemic

As discussed in our 2020 Annual Report on Form 10-K, the COVID-19 pandemic has adversely affected the global economy and our business. Since early 2020, we have experienced, and may continue to experience, significant volatility in the demand for our products based on the rates of COVID-19 cases, the emergence of new strains or variants of COVID-19, the availability and acceptance of COVID-19 vaccinations, changes to government policies and other consequences of the COVID-19 pandemic. Rapidly changing economic conditions have created and may continue to create global supply chain challenges. We believe we have responded effectively to these challenges; however, they may continue to impact the methods we use to fulfill customer orders and the availability of certain raw materials in future periods. The full impact of the COVID-19 pandemic on our operational and financial performance will depend on future developments, including

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the duration and scope of the COVID-19 pandemic and efforts to address the pandemic, including the distribution and utilization of vaccines, all of which are uncertain and cannot be predicted.

In addition to the trends identified in the 2020 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 ~~2020~~2021 has been impacted, and we believe it will continue to be impacted, by the following recent events and trends:

●

We ~~continued to implement expense reduction initiatives we~~ have ~~been working~~made progress on ~~throughout 2020. We are in~~our Foundations for Growth program, including the ~~process of moving 14 product lines to our Tijuana, Mexico and Pearland, Texas facilities, as well as consolidating certain satellite facilities.~~following:

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●o

~~Closure of the Melbourne, Australia procedure pack operations, which we initially acquired in our acquisition of ITL in 2017, is on track to be completed during the fourth quarter of 2020.~~SKU rationalization, product line transfers, and manufacturing initiatives,

●o

~~Sales in many~~support function initiatives including corporate communications, finance and IT,

implementation of a new global bonus program to increase alignment throughout the company,

strengthening our ~~end markets improved during the quarter after the initial declines resulting from the COVID-19 pandemic. However, with COVID-19 cases increasing, the pace of recovery of elective~~senior leadership team and ~~deferrable procedures is still uncertain. We experienced a notable variation in the pace of recovery depending on the region of the world,~~organizational reporting relationships, and ~~even within certain geographic regions, during the three-month period ended September 30, 2020. Recovery in our U.S. direct business has been strong, while our U.S. OEM business has been slower~~

commercial and marketing excellence initiatives, which are expected to ~~recover, which we believe is primarily attributable to inventory management by our customers. Restrictions and lockdowns continue to change across the world, most notably in Europe.~~begin shortly.

●

In ~~April 2020,~~the three months ended June 30, 2021, we ~~initiated production of~~saw measured improvements in the ~~Cultura~~^TM ~~nasopharyngeal swab~~operating environment, particularly in the U.S., where we saw more willingness and ~~test kits, used~~receptivity from hospital customers to ~~collect specimens with suspected presence of COVID-19. We recorded sales of this~~evaluate new product ~~of approximately $14.2 million for the nine-month period ended September 30, 2020.~~offerings in recent months.

●

~~We received IDE approval for~~Internationally, we experienced overall improvement in sales trends during the ~~WRAPSODY AV Access Efficiency (“WAVE study”) and for a smaller study called~~three months ended June 30, 2021, with notable variation in the ~~WRAPSODY Central Feasibility Study (“WAVE Central study”).~~pace of recovery across regions of the world, including wide variation within certain geographic regions.

●

~~Although~~During the three months ended June 30, 2021, we ~~prioritized and eliminated certain R&D projects,~~saw continued progress of our ~~investment in R&D continues, and we are on track~~Wrapsody ArterioVenous (AV) Access Efficacy Pivotal Study (the “WAVE Study”) of the WRAPSODY™ Endovascular Stent Graft, an investigational device being studied for ~~new product introductions in~~ the ~~future.~~treatment of stenosis or occlusion within dialysis outflow circuits. We have identified more than 40 clinical sites for the WAVE study.

●

~~We have actively managed inventory levels, temporarily reduced executive management and other employee salaries, limited discretionary spending and delayed capital spending.~~ ~~A number of these temporary salary reductions were decreased or eliminated during the three months ended September 30, 2020.~~

●

As of ~~September~~June 30, ~~2020,~~2021, we had cash on hand of approximately ~~$44.6~~$69.7 million and net available borrowing capacity of approximately ~~$327~~$444 million.

~~We are committed to being part of the solution to the COVID-19 pandemic and have taken the following actions to protect and serve our customers, employees, shareholders, and communities:~~

●

~~Produced Cultura swab and test kits, with sales of approximately $9.6 million and $14.2 million during the three and nine-month periods ended September 30, 2020.~~

●

~~Offered serological antibody testing and rapid antigen testing for COVID-19 to employees through the Merit Care clinic at our South Jordan, UT headquarters.~~

●

~~Established additional cleaning and sanitation procedures to help prevent the spread of COVID-19 within our facilities.~~

●

Created new processes to encourage the safety of our employees, including formal policies restricting certain travel, touchless temperature screenings and mask requirements at most of our manufacturing locations, social distancing through modified workspaces, mandatory telecommuting for certain positions, and modified on-site food service practices.

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RESULTS OF OPERATIONS

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


	Three Months Ended				Nine Months Ended				Three Months Ended				Six Months Ended
	September 30,				September 30,				June 30,				June 30,
	2020		2019		2020		2019		2021		2020		2021		2020
Net sales	100	%	100	%	100	%	100	%	100	%	100	%	100	%	100	%
Gross profit	41.8		42.8		41.1		43.5		44.3		38.6		44.6		40.7
Selling, general and administrative expenses	29.6		35.8		30.9		33.3		32.7		30.6		32.6		31.5
Research and development expenses	5.5		7.0		6.0		6.7		6.3		6.4		6.4		6.3
Legal settlement	—		—		2.6		—		—		8.3		—		3.9
Impairment charges	8.4		1.1		4.0		0.4		1.5		1.8		0.8		1.7
Contingent consideration expense (benefit)	(1.8)		0.1		0.1		0.5
Acquired in-process research and development expense	—		—		—		0.1
Contingent consideration expense									0.6		0.2		0.4		1.1
Income (loss) from operations	—		(1.2)		(2.5)		2.6		3.2		(8.7)		4.4		(3.8)
Other expense - net	(0.9)		(1.1)		(1.3)		(1.2)
Other expense — net									(0.7)		(1.5)		(0.7)		(1.4)
Income (loss) before income taxes	(0.9)		(2.3)		(3.8)		1.4		2.4		(10.2)		3.7		(5.3)
Net income (loss)	(1.2)		(1.4)		(3.6)		1.3		1.8		(8.7)		3.0		(4.8)

Sales

Sales for the three-month period ended ~~September~~June 30, ~~2020~~2021 increased by ~~0.4%~~28.4%, or approximately ~~$0.9~~$62.0 million, compared to the corresponding period in ~~2019.~~2020. Sales for the ~~nine-month~~six-month period ended ~~September~~June 30, ~~2020 decreased~~2021 increased by ~~(4.2)%~~14.6%, or approximately ~~$(31.1)~~$67.3 million, compared to the corresponding period in ~~2019. Sales were negatively affected across all product categories due~~2020. The increase in sales relative to the ~~impact~~prior-

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year period was due, in-part, to an improved operating environment in 2021 and lower rates of COVID-19 ~~pandemic, with sales of products used~~incidence and COVID-19 related shutdowns in ~~elective and deferrable procedures most significantly impacted.~~2021. Listed below are the sales by product category within each of our financial reporting segments for the three and ~~nine-month~~six-month periods ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020 (in thousands, other than percentage changes):


			Three Months Ended						Nine Months Ended						Three Months Ended						Six Months Ended
			September 30,						September 30,						June 30,						June 30,
	% Change		2020		2019		% Change		2020		2019		% Change		2021		2020		% Change		2021		2020
Cardiovascular
Peripheral Intervention	3.0	%	$	86,778	$	84,265	(4.4)	%	$	246,488	$	257,744	45.4	%	$	105,600	$	72,635	24.3	%	$	198,514	$	159,710
Cardiac Intervention	(7.7)	%		69,089		74,859	(8.5)	%		207,685		227,042	29.8	%		85,653		66,005	15.7	%		160,390		138,596
Custom Procedural Solutions	22.0	%		56,429		46,258	7.2	%		149,369		139,335	7.3	%		48,636		45,319	1.2	%		94,057		92,940
OEM	(17.0)	%		24,117		29,044	(7.8)	%		80,592		87,449	14.8	%		32,403		28,218	6.8	%		60,337		56,475
Total	0.8	%		236,413		234,426	(3.9)	%		684,134		711,570	28.3	%		272,292		212,177	14.6	%		513,298		447,721

Endoscopy
Endoscopy devices	(12.3)	%		7,562		8,623	(14.3)	%		21,737		25,360	29.7	%		8,033		6,194	12.5	%		15,940		14,175

Total	0.4	%	$	243,975	$	243,049	(4.2)	%	$	705,871	$	736,930	28.4	%	$	280,325	$	218,371	14.6	%	$	529,238	$	461,896

Cardiovascular Sales. Our cardiovascular sales for the three-month period ended ~~September~~June 30, ~~2020~~2021 were approximately ~~$236.4~~$272.3 million, up ~~0.8%~~28.3% when compared to the corresponding period of ~~2019~~2020 of approximately ~~$234.4~~$212.2 million. Sales for the three-month period ended ~~September~~June 30, ~~2020~~2021 were favorably affected by increased sales of:

(a)

~~Custom procedural solutions~~Peripheral intervention products, (particularly our critical care products which saw increased demand due to COVID-19, including $9.6 million sales of our new Cultura nasopharyngeal swab and test kits used to collect and transport samples for COVID-19 testing, partially offset by decreased sales of kits) which increased by approximately ~~$10.2~~$33.0 million, or ~~22.0%~~45.4%, from the corresponding period of ~~2019.~~2020. This increase was driven primarily by sales of our radar localization, biopsy, drainage and embolotherapy products, with growth throughout the product category.

(b)

Cardiac intervention products, which increased by approximately $19.6 million, or 29.8%, from the corresponding period of 2020. This increase was driven primarily by sales of our intervention, fluid management (including our Medallion® Syringes, which have seen increased demand due to COVID-19 vaccination efforts) and angiography products, with growth throughout the product category.

(c)

OEM products, which increased by approximately $4.2 million, or 14.8%, from the corresponding period of 2020. This increase was driven primarily by sales of our EP/CRM and angiography products.

(d)

Custom procedural solutions products, which increased by approximately $3.3 million, or 7.3%, from the corresponding period of 2020. This increase was driven primarily by sales of our kits and trays and offset partially by a decrease in sales of our critical care products, including a ($4.1) million decrease in Cultura^TM nasopharyngeal swab and test kit sales.

Our cardiovascular sales for the six-month period ended June 30, 2021 were approximately $513.3 million, up 14.6% when compared to the corresponding period of 2020 of approximately $447.7 million. Sales for the six-month period ended June 30, 2021 were favorably affected by increased sales of:

(a)

Peripheral intervention products, which increased by approximately $38.8 million, or 24.3%, from the corresponding period of 2020. This increase was driven primarily by sales of our radar localization, embolotherapy, biopsy, drainage, and intervention products, with growth throughout the product category.

(b)

Cardiac intervention products, which increased by approximately $21.8 million, or 15.7%, from the corresponding period of 2020. This increase was driven primarily by sales of our intervention, fluid management, cardiac rhythm management/electrophysiology (“CRM/EP”), and angiography products, with growth throughout the product category.

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~~(b)~~(c)

~~Peripheral intervention~~OEM products, ~~(particularly our drainage, embolotherapy, delivery systems, and access products, offset partially by our biopsy, intervention, and radar localization products)~~ which increased by approximately ~~$2.5~~$3.9 million, or ~~3.0%~~6.8%, from the corresponding period of ~~2019;~~

~~The foregoing increase in sales for the three-month period ended September 30, 2020 was partially offset~~2020. This increase was driven primarily by ~~decreased sales of:~~

~~(c)~~

~~Cardiac intervention products (particularly our intervention, angiography and access products) which decreased by approximately $(5.8) million, or (7.7)%, from the corresponding period of 2019; and~~

~~(d)~~

OEM products (particularly our angiography, cardiac rhythm management/electrophysiology (“CRM/EP”) products and coatings) which decreased by approximately $(4.9) million, or (17.0)%, from the corresponding period of 2019.

Our cardiovascular sales for the nine-month period ended September 30, 2020 were approximately $684.1 million, down (3.9)%, when compared to the corresponding period for 2019 of approximately $711.6 million. Sales for the nine-month period ended September 30, 2020 were unfavorably affected by decreased sales of:

~~(a)~~

~~Cardiac intervention products (particularly our intervention, angiography, and access products) which decreased by approximately $(19.4) million, or (8.5)%, from the corresponding period of 2019; and~~

~~(b)~~

Peripheral intervention products (particularly our biopsy, radar localization, vertebral compression fracture, angiography, intervention, and embolotherapy products, offset partially by drainage products) which decreased by approximately $(11.3) million, or (4.4)%, from the corresponding period of 2019;

~~(c)~~

OEM products (particularly our CRM/EP and angiography products, offset partially by increased intervention, fluid management and kit sales) which decreased by approximately $(6.9) million, or (7.8)%, from the corresponding period of 2019.

~~The foregoing decrease in sales for the nine-month period ended September 30, 2020 was partially offset by increased sales of:~~

~~(d)~~

~~Custom procedural solutions products (particularly our critical care products which saw increased demand due to the COVID-19 pandemic, including $14.2 million~~ sales of our ~~new Cultura nasopharyngeal swab~~EP/CRM and test kits used to collect and transport samples for COVID-19 testing, partially offset by decreased sales of kits) which increased by approximately $10.0 million, or 7.2%, from the corresponding period of 2019.angiography products.

Endoscopy Sales. Our endoscopy sales for the three-month period ended ~~September~~June 30, ~~2020~~2021 were approximately ~~$7.6~~$8.0 million, ~~down (12.3)%~~up 29.7%, when compared to sales in the corresponding period of ~~2019~~2020 of approximately ~~$8.6~~$6.2 million. Our endoscopy sales for the ~~nine-month~~six-month period ended ~~September~~June 30, ~~2020~~2021 were approximately ~~$21.7~~$15.9 million, ~~down (14.3)%~~up 12.5%, when compared to sales in the corresponding period of ~~2019~~2020 of approximately ~~$25.4~~$14.2 million. Sales for the three and ~~nine-month~~six-month periods ended ~~September~~June 30, ~~2020~~2021 were ~~unfavorably~~favorably affected by deceased sales of the NinePoint NvisionVLE® Imaging System as a result of the suspension of our related distribution agreement, as well as decreased sales of probes and certain stents, partially offset by increased sales of our Elation® Balloon Dilator, our EndoMAXX® ~~Fully Covered Esophageal Stents.~~fully covered esophageal stent and other stents.

Geographic Sales

Sales trends for the three and six-month periods ended June 30, 2021, and 2020 were significantly influenced by the incidence and timing of COVID-19 infections and the associated governmental and patient responses, which varied between countries and regions in both the current and prior-year periods. Listed below are sales by geography for the three and six-month periods ended June 30, 2021 and 2020 (in thousands, other than percentage changes):


			Three Months Ended						Six Months Ended
			June 30,						June 30,
	% Change		2021		2020		% Change		2021		2020
United States	34.4	%	$	158,771	$	118,140	15.8	%	$	300,143	$	259,196
International	21.3	%		121,554		100,231	13.0	%		229,095		202,700
Total	28.4	%	$	280,325	$	218,371	14.6	%	$	529,238	$	461,896

United States Sales.U.S. sales for the three-month period ended June 30, 2021 were approximately $158.8 million, or 56.6% of net sales, up 34.4% when compared to the corresponding period of 2020. U.S. sales for the six-month period ended June 30, 2021 were approximately $300.1 million, or 56.7% of net sales, up 15.8% when compared to the corresponding period of 2020. The increase in our domestic sales was driven primarily by our U.S. direct business.

International Sales. International sales for the three-month period ended ~~September~~June 30, ~~2020~~2021 were approximately ~~$100.9~~$121.6 million, or ~~41.3%~~43.4% of net sales, up ~~1.8%~~21.3% when compared to the corresponding period of ~~2019~~2020 of approximately ~~$99.0~~$100.2 million. The increase in our international sales for the ~~third~~second quarter of ~~2020~~2021 compared to the ~~third~~second quarter of ~~2019~~2020 included increased sales in ~~the Asia Pacific region (APAC)~~EMEA of ~~$2.0~~$12.8 million or ~~4.2% and Europe, Middle East, and Africa (EMEA)~~31.9%, increased sales in APAC of ~~$0.7~~$6.4 million or ~~1.6%~~11.7%, ~~partially offset by a decrease~~and increased sales in ~~other international sales~~the rest of ~~$(0.9)~~the world (“ROW”) of $2.1 million ~~or (11.4)%~~of 40.8%.

International sales for the ~~nine-month~~six-month period ended ~~September~~June 30, ~~2020~~2021 were approximately ~~$303.6~~$229.1 million, or ~~43.0%~~43.3% of net sales, ~~down (2.1)%~~up 13.0% when compared to the corresponding period of ~~2019~~2020 of approximately ~~$310.2~~$202.7 million. The ~~decrease~~increase in our international sales for the ~~third quarter of 2020~~six-month period ended June 30, 2021 compared to the ~~third quarter of 2019~~six-month period ended June 30, 2020 included ~~decreased~~increased sales in

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APAC of ~~$(1.6)~~$15.2 million or ~~(1.1)%~~15.5%, in EMEA of ~~$(2.4)~~$9.9 million or ~~(1.7)%~~10.8%, and ~~other international sales~~in ROW of ~~$(2.6)~~$1.3 million or ~~(11.9)%~~10.1%.

Gross Profit

Our gross profit as a percentage of sales ~~decreased~~increased to ~~41.8%~~44.3% for the three-month period ended ~~September~~June 30, ~~2020,~~2021, compared to ~~42.8%~~38.6% for the three-month period ended ~~September~~June 30, ~~2019.~~2020. The ~~decrease~~increase in gross profit percentage was primarily due to lower amortization expense (as certain intangibles from prior acquisitions became fully amortized), decreased obsolescence expense as a percentage of sales, changes in product mix, and ~~increased obsolescence expense associated with lower forecasted demand for certain of our products as a result of the COVID-19 pandemic, partially offset by~~ improvements in manufacturing variances from operational efficiencies ~~among other factors.~~and increased production volume.

Our gross profit as a percentage of sales ~~decreased~~increased to ~~41.1%~~44.6% for the ~~nine-month~~six-month period ended ~~September~~June 30, ~~2020,~~2021, compared to ~~43.5%~~40.7% for the ~~nine-month~~six-month period ended ~~September~~June 30, ~~2019.~~2020. The ~~decrease~~increase in gross profit percentage was primarily due to lower

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amortization expense (as certain intangibles from prior acquisitions became fully amortized), decreased obsolescence expense as a percentage of sales, and changes in product ~~mix, increased obsolescence expense associated with lower forecasted demand for certain of our products as a result of the COVID-19 pandemic~~ ~~in addition to specific reserves of inventory sold under our distribution agreement with NinePoint and~~ our planned divestiture of our procedure pack business in Australia, and increased amortization expense from our acquisitions of Brightwater in June 2019 and STD Pharmaceutical in August 2019, partially offset by improvements in manufacturing variances from operational efficiencies.mix.

Operating Expenses

Selling, General and Administrative Expense. Selling, general and administrative ("SG&A") expenses ~~decreased~~increased approximately ~~$(14.7)~~$24.8 million, or ~~(16.9)%~~37.1%, for the three-month period ended ~~September~~June 30, ~~2020~~2021 compared to the corresponding period of ~~2019.~~2020. As a percentage of sales, SG&A expenses were ~~29.6%~~32.7% for the three-month period ended ~~September~~June 30, ~~2020,~~2021, compared to ~~35.8%~~30.6% for the corresponding period of ~~2019.~~2020. For the three-month period ended ~~September~~June 30, ~~2020~~2021 compared to the corresponding period of ~~2019, overall compensation expenses were lower as a result of cost cutting initiatives~~2020, labor related costs increased due to higher commissions and ~~other cost management efforts related to~~bonus expense in the ~~COVID-19 pandemic (including layoffs, targeted furloughs,~~current-year period and temporary salary ~~reductions),~~cuts and ~~discretionary spending was lower as a result~~furloughs in the prior-year period. We incurred $7.3 million of ~~reduced travel, training,~~corporate transformation and ~~shows and conventions, among other items.~~restructuring costs, including consulting charges, during the three-month period ended June 30, 2021 in connection with our Foundations for Growth program, compared to restructuring costs of $1.7 million for the three-month period ended June 30, 2020. We also accrued $6.1 million of contract termination costs in SG&A during the three-month period ended June 30, 2021 to renegotiate certain terms of an acquisition agreement

SG&A expenses ~~decreased~~increased approximately ~~$(27.4)~~$27.0 million, or ~~(11.2)%~~18.6%, for the ~~nine-month~~six-month period ended ~~September~~June 30, ~~2020~~2021 compared to the corresponding period of ~~2019.~~2020. As a percentage of sales, SG&A expenses were ~~30.9%~~32.6% for the ~~nine-month~~six-month period ended ~~September~~June 30, ~~2020,~~2021, compared to ~~33.3%~~31.5% for the corresponding period of ~~2019.~~2020. For the ~~nine-month~~six-month period ended ~~September~~June 30, ~~2020~~2021, compared to the corresponding period of ~~2019, overall compensation expenses were lower as a result of cost cutting initiatives~~2020, labor related costs increased due to higher commissions and ~~other cost management efforts related to~~bonus expense in the ~~COVID-19 pandemic (including layoffs, targeted furloughs,~~current-year period and temporary salary ~~reductions),~~cuts and ~~discretionary spending was lower as a result~~furloughs in the prior-year period. We incurred $12.8 million of ~~reduced travel, training,~~corporate transformation and ~~shows and conventions, among other items.~~restructuring costs, including consulting charges, during the six-month period ended June 30, 2021 in connection with our Foundations for Growth program, compared to restructuring costs of $3.5 million for the six-month period ended June 30, 2020. We also accrued $6.1 million of contract termination costs in SG&A during the six-month period ended June 30, 2021 to renegotiate certain terms of an acquisition agreement

Research and Development Expenses. Research and development ("R&D") expenses for the three-month period ended ~~September~~June 30, ~~2020~~2021 were approximately ~~$13.5~~$17.6 million, ~~down (20.5)%~~up 25.4%, when compared to R&D expenses in the corresponding period of ~~2019~~2020 of approximately ~~$17.0~~$14.0 million. R&D expenses for the ~~nine-month~~six-month period ended ~~September~~June 30, ~~2020~~2021 were approximately ~~$42.4~~$33.9 million, ~~down (14.1)%~~up 17.2%, when compared to R&D expenses in the corresponding period of ~~2019~~2020 of approximately ~~$49.4~~$28.9 million. The ~~decrease~~increase in R&D expenses for the three and ~~nine-month~~six-month periods ended ~~September~~June 30, ~~2020~~2021 compared to the ~~same~~corresponding periods in ~~2019~~2020 was largely due to ~~lower~~increased clinical expenses for certain R&D projects (including the WAVE study), increased compensation ~~expenses (including layoffs, targeted furloughs, and~~expense due to temporary salary ~~reductions), lower discretionary~~cuts and furloughs in the prior-year periods, and higher expenses ~~(including reduced travel expenses) as a result~~related to implementation of ~~cost-cutting initiatives and~~ the ~~COVID-19 pandemic, and a reduced number of research and development projects.~~Medical Device Regulation in the European Union.

Legal Settlement. We recorded ~~an expense~~a settlement in the first ~~nine~~six months of 2020 of $18.2 million in connection with ~~a settlement~~an agreement in principle with the ~~DOJ~~Department of Justice (“DOJ”) to fully resolve the DOJ’s investigation of certain marketing and promotional practices.

Impairment Charges. For the three and ~~nine-month~~six-month periods ended ~~September~~June 30, 2021, we recorded impairment charges of approximately $4.3 million and $4.3 million, respectively. These impairments included $1.6 million of intangible assets and $1.3 million of property and equipment due to the planned discontinuance of the Advocate™ Peripheral Angioplasty Balloon product line, sold under our license agreements with 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 assets.

For the three and six-month periods ended June 30, 2020 we recorded impairment charges of approximately ~~$20.6~~$3.9 million and ~~$28.3~~$7.7 million, respectively. These impairments included a $3.5 million write-off in the first quarter of 2020 of our purchase option to acquire Bluegrass Vascular due to our decision not to exercise ~~our~~the option,

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~~to purchase this company,~~ $0.4 million impairment in the first quarter of 2020 of property and equipment related to our distribution agreement with NinePoint, $2.4 million impairment in the second quarter of 2020 of the customer list intangible asset from our ITL acquisition, and $1.5 million impairment in the second quarter of ~~our right-of-use~~2020 of a certain ROU operating lease asset associated with ~~closure of a facility in California,~~ ~~$2.5 million impairment in the third quarter related to our equity investment in the preferred shares of Fusion due to uncertainty about future product development~~site consolidation decisions and ~~commercialization associated with the technologies,~~ ~~and $18.1 in the third quarter for~~ intangible impairment charges based on slower-than-anticipated sales growth in the acquired products, planned closure and restructuring activities, uncertainty about future product development and commercialization associated with the acquired technologies, and economic uncertainties associated with the COVID-19 pandemic.

~~For the three and nine-month periods ended September 30, 2019, we recorded impairment of certain intangible assets of $2.7 million and $3.3 million, respectively, based on~~ changes in ~~revenue expectations associated with~~our projected cash flows for the ~~related product lines and restructuring.~~underlying asset.

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Contingent Consideration Expense ~~(Benefit)~~. For the ~~three-month~~three and six-month periods ended ~~September~~June 30, ~~2020 and 2019,~~2021, we recognized contingent consideration expense ~~(benefit)~~ ~~of approximately $(4.4) million and $0.4 million, respectively,~~ from changes in the estimated fair value of our contingent consideration obligations stemming from our previously disclosed business ~~acquisitions. For~~acquisitions of approximately $1.8 million and $2.2 million, respectively, compared to contingent consideration expense of $0.3 million and $5.2 million for the ~~nine-month~~three and six-month periods ended ~~September~~June 30, ~~2020 and 2019, we recognized contingent consideration expense~~ ~~of approximately $0.9 million and $3.6 million, respectively.~~2020. Expense ~~or benefit~~ in each period relates to changes in the probability and timing of achieving certain revenue and operational milestones, as well as expense for the passage of time.

Operating Income (Loss)

The following table sets forth our operating income (loss) by financial reporting segment for the three and ~~nine-month~~six-month periods ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020 (in thousands):


	Three Months Ended				Nine Months Ended				Three Months Ended				Six Months Ended
	September 30,				September 30,				June 30,				June 30,
	2020		2019		2020		2019		2021		2020		2021		2020
Operating Income (Loss)
Cardiovascular	$	(1,702)	$	(6,210)	$	(20,662)	$	11,263	$	6,777	$	(20,462)	$	18,978	$	(18,960)
Endoscopy		1,766		3,329		3,093		7,581		2,118		1,467		4,111		1,327
Total operating income (loss)	$	64	$	(2,881)	$	(17,569)	$	18,844	$	8,895	$	(18,995)	$	23,089	$	(17,633)

Cardiovascular Operating Income (Loss). Our cardiovascular operating ~~loss~~income for the three-month period ended ~~September~~June 30, ~~2020~~2021 was approximately ~~$(1.7)~~$6.8 million, compared to cardiovascular operating loss in the corresponding period of ~~2019~~2020 of approximately ~~$(6.2)~~($20.5) million. The ~~decrease~~increase in cardiovascular operating ~~loss~~income during the three-month period ended June 30, 2021 compared to the corresponding period of 2020 was primarily a result of higher sales ($272.3 million compared to $212.2 million), higher gross margin, and the $18.2 million legal settlement expense related to the DOJ inquiry recorded in the prior-year period, partially offset by increased SG&A and R&D expenses and higher contingent consideration benefit from fair value adjustments related to liabilities from completed acquisitions and lower compensation and discretionary expenses resulting from cost cutting initiatives and our response to the COVID-19 pandemic, which was offset partially by lower gross margins and increased impairment expense.

Our cardiovascular operating ~~loss~~income for the ~~nine-month~~six-month period ended ~~September~~June 30, ~~2020~~2021 was approximately ~~$(20.7)~~$19.0 million, compared to cardiovascular operating ~~income~~loss in the corresponding period of ~~2019~~2020 of approximately ~~$11.3~~($19.0) million. The ~~decrease~~increase in cardiovascular operating income during the six-month period ended June 30, 2021 compared to the corresponding period of 2020 was primarily a result of ~~decreased~~higher sales ($513.3 million compared to $447.7 million), higher gross margin, lower contingent consideration expense, lower impairment expense ($4.3 million for the six-month period ended June 30, 2021 compared to $7.3 million for the six month period ended June 30, 2020) and ~~lower gross margins, the~~the $18.2 million legal settlement expense ~~in 2020~~ related to the DOJ ~~investigation, and increased impairment expense,~~inquiry recorded in the prior-year period, partially offset by ~~lower contingent consideration expense from fair value adjustments related to liabilities from completed acquisitions~~increased SG&A and ~~lower compensation and discretionary expenses resulting from cost-cutting initiatives and our response to the COVID-19 pandemic.~~R&D expenses.

Endoscopy Operating Income. Our endoscopy operating income for the three-month period ended ~~September~~June 30, ~~2020~~2021 was approximately ~~$1.8~~$2.1 million, compared to endoscopy operating income of approximately ~~$3.3~~$1.5 million for the corresponding period of ~~2019.~~2020. This ~~decrease~~increase in endoscopy operating income was primarily a result of ~~lower~~higher sales, ~~(largely due~~partially offset by increased operating expenses (due in part to ~~decreased demand~~temporary salary reductions and furloughs during the ~~COVID-19 pandemic)~~three-month period ended June 30, 2020).

Our endoscopy operating income for the six-month period ended June 30, 2021 was approximately $4.1 million, compared to endoscopy operating income of approximately $1.3 million for the corresponding period of 2020. This increase in endoscopy operating income was primarily a result of higher sales, improved gross margins (largely a result of the write-off of inventory related to the suspension of our distribution agreement with NinePoint in the first quarter of 2020, which did not repeat in the first quarter of 2021), decreased impairment expense (none in the six-month period ended June 30, 2021 compared to approximately $0.4 million in the six-month period ended June 30, 2020) and ~~lower gross~~decreased operating expenses (primarily related to travel and advertising).

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~~margins, partially offset by lower compensation and discretionary expenses related to cost-cutting initiatives and our response to the COVID-19 pandemic.~~

Our endoscopy operating income for the nine-month period ended September 30, 2020 was approximately $3.1 million, compared to approximately $7.6 million for the corresponding period of 2019. This decrease was a result of lower sales (due to decreased demand during the COVID-19 pandemic and the suspension of our distribution agreement with NinePoint), lower gross margins (due in part to $1.4 million of inventory obsolescence related to products sold under our now-suspended distribution agreement with NinePoint), partially offset by lower compensation and discretionary expenses related to cost cutting initiatives and our response to the COVID-19 pandemic.

Other Expense

Our other expense for the three-month periods ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020 was approximately ~~$(2.2)~~($2.0) million and ~~$(2.8)~~($3.3) million, respectively. The change in other expense was primarily related to decreased interest expense as a result of a lower effective interest rate and a lower average debt balance.

Our other expense for the six-month periods ended June 30, 2021 and 2020 was approximately ($3.5) million and ($6.7) million, respectively. The change in other expense was primarily related to decreased interest expense as a result of a lower effective interest rate and a lower average debt balance, ~~a decrease~~as well as an increase in interest income due to ~~the impairment~~partial recoveries of ~~the~~ loan ~~receivable with~~interest from NinePoint in the fourth quarter of 2019, a gain of approximately $0.5 million on the sale of the assets associated with our Hypotube product line in the third quarter of 2020, and an increase in foreign currency losses in the third quarter of 2020.which had previously been written off.

Our other expense for the nine-month periods ended September 30, 2020 and 2019 was approximately $(8.9) million and $(8.7) million, respectively. The change in other expense was primarily related to decreased interest expense as a result of a lower effective interest rate and a lower average debt balance, a decrease in interest income due to the impairment of the loan receivable with NinePoint in the fourth quarter of 2019, a gain of approximately $0.5 million on the sale of the assets associated with our Hypotube product line in the third quarter of 2020, and an increase in foreign currency losses in 2020.

Effective Tax Rate

Our provision for income taxes for the three-month periods ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020 was a tax expense (benefit) of approximately ~~$0.8~~$1.9 million and ~~$(2.3)~~($3.2) million, respectively, which resulted in an effective tax rate of ~~(37.7)%~~28.4% and ~~40.3%~~14.5%, respectively. Our provision for income taxes for the ~~nine-month~~six-month periods ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020 was a tax expense (benefit) of approximately ~~$(1.3)~~$3.7 million and ~~$0.5~~($2.1) million, respectively, which resulted in an effective tax rate of ~~4.7%~~18.8% and ~~4.9%~~8.6%, respectively. The increase in the income tax ~~benefit~~expense and the corresponding ~~decrease~~change in the effective income tax rate for the three and ~~nine-month~~six-month periods ended ~~September~~June 30, ~~2020,~~2021, when compared to the prior-year periods, was primarily due to a pre-tax loss during the 2020 ~~periods,~~period, as well as a change in the jurisdictional mix of earnings. Our effective tax rate differs from the U.S. statutory rate primarily due to the impact of GILTI inclusions, state income taxes, foreign taxes, other non-deductible permanent items, and discrete items (such as share-based ~~compensation and certain legal settlements)~~compensation).

Net Income (Loss)

Our net income (loss) for the three-month periods ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020 was approximately ~~$(3.0)~~$4.9 million and ~~$(3.4)~~($19.1) million, respectively. This ~~decrease~~increase in our net ~~loss~~income for the three-month period ended June 30, 2021 was athe result of several factors, including ~~contingent consideration benefit from fair value adjustments~~increased sales and improved gross margins, the $18.2 million legal settlement related to ~~liabilities from completed acquisitions~~the DOJ inquiry recorded in the prior-year period and lower ~~compensation and discretionary expenses resulting from cost cutting initiatives and our response to the COVID-19 pandemic,~~interest expense, partially offset by ~~lower gross margins~~increased SG&A expenses, which included $6.1 million of contract termination costs, increased R&D expenses and ~~increased impairment expense.~~higher contingent consideration expense ($1.8 million compared to $0.3 million).

Our net income (loss) for the ~~nine-month~~six-month periods ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020 was approximately ~~$(25.2)~~$15.9 million and ~~$9.7~~($22.2) million, respectively. ~~The decrease~~This increase in our net income for the six-month period ended June 30, 2021 was ~~primarily due to decreased~~the result of several factors, including increased sales and ~~lower~~improved gross margins, the $18.2 million legal settlement ~~expense~~ related to the DOJ inquiry recorded in the prior-year period, lower impairment expense ($4.3 million compared to $7.7 million), lower contingent consideration expense ($2.2 million compared to $5.2 million) and ~~increased impairment~~lower interest expense, partially offset by ~~lower contingent consideration expense from fair value adjustments related to liabilities from completed acquisitions~~increased SG&A expenses, which included $6.1 million of contract termination costs, and ~~lower compensation and discretionary expenses resulting from cost cutting initiatives and our response to the COVID-19 pandemic.~~increased R&D expenses.

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LIQUIDITY AND CAPITAL RESOURCES

Capital Commitments, Contractual Obligations and Cash Flows

At ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, our current assets exceeded current liabilities by ~~$248.6~~$239.2 million and ~~$272.9~~$244.7 million, respectively, and we had cash and cash equivalents of approximately ~~$44.6~~$69.7 million and ~~$44.3~~$56.9 million, respectively, of which approximately ~~$41.1~~$64.2 million and ~~$31.7~~$42.3 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~~June 30, ~~2020,~~2021, and December 31, ~~2019,~~2020, we had cash and cash equivalents of approximately ~~$18.6~~$34.9 million and ~~$11.3~~$15.5 million, respectively, within our subsidiary in China.

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Cash flows provided by operating activities. We generated cash from operating activities of approximately ~~$128.4~~$76.4 million and ~~$50.9~~$73.2 million during the ~~nine-month~~six-month periods ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, respectively. Net cash provided by operating activities increased approximately ~~$77.5~~$3.2 million for the ~~nine-month~~six-month period ended ~~September~~June 30, ~~2020~~2021 compared to the ~~nine-month~~six-month period ended ~~September~~June 30, ~~2019.~~2020. Significant factors affecting operating cash flows during these ~~years~~periods included:

●

Net income (loss) was approximately $15.9 million and ($22.2) million for the six-month periods ended June 30, 2021 and 2020, respectively.

●

Cash provided by (used for) accounts receivable was approximately ~~$13.0~~($7.8) million and ~~$(6.8)~~$15.3 million for the ~~nine-month~~six-month periods ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, respectively, due primarily to ~~decreases in~~increased sales volume ~~and increased allowances due to economic uncertainty,~~

●

Cash provided by (used for) inventories was approximately $15.7 million and $(19.3) million for the nine-month periods ended September 30, 2020 and 2019, respectively, due primarily to reduced production during the ~~economic downturns related~~six-month period ended June 30, 2021 compared to the ~~pandemic and efforts to manage inventory levels,~~corresponding period of 2020.

●

Cash provided by accrued expenses was approximately ~~$22.6~~$9.2 million and ~~$1.7~~$19.7 million for the ~~nine-month~~six-month periods ended ~~September~~June 30, 2021 and 2020, ~~and 2019, respectively,~~respectively. Cash provided by accrued expenses in 2021 was due primarily to ~~increased~~an increase in compensation-related accruals and an increase in accrued incentives from improved sales levels during the six-month period ended June 30, 2021, and in 2020 was due primarily to accruals associated with ~~pending~~the DOJ legal settlement ~~expenses estimated at~~of $18.2 ~~million, and~~

●

Cash flows related to compensation and discretionary spending were also lower during the nine months ended September 30, 2020 compared to 2019 as a result of temporary salary reductions and discretionary spending reductions related to the COVID-19 pandemic.million.

Cash flows used in investing activities. We used cash in investing activities of approximately ~~$36.8~~$15.3 million and ~~$113.9~~$27.4 million for the ~~nine-month~~six-month periods ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, respectively. We ~~invested in~~used cash for capital expenditures ~~for~~of property and equipment of approximately ~~$35.6~~$12.8 million and ~~$58.1~~$25.8 million in the ~~nine-month~~six-month periods ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, respectively. Capital expenditures in each ~~fiscal year~~period were primarily related to investment in ~~buildings,~~facilities and property and equipment to support development and production of ~~new~~our products, and ~~expanded product lines and to facilitate growth~~ in ~~our distribution markets. These~~2020, these investments ~~include~~included construction of a new manufacturing and research and development facility in South Jordan, Utah completed in early 2020. 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 ~~$42 to $48~~$40 million in ~~2020~~2021 for buildings, property and equipment.

Cash ~~paid for acquisitions~~outflows invested in ~~the nine-month period ended September 30, 2020 was approximately $0.3 million. Cash paid for~~ acquisitions for the ~~nine-month~~six-month period ended ~~September~~June 30, ~~2019 was~~2021 were approximately ~~$53.5~~$1.8 million and ~~was~~were primarily related to our ~~investment~~settlement of the first deferred payment for our acquisition of KA Medical completed in ~~the equity of Fluidx Medical Technology, LLC and our acquisitions of Brightwater and STD Pharmaceutical.~~November 2020.

Cash flows ~~provided by (used in)~~used in financing activities. Cash ~~provided by (used in)~~used in financing activities for the ~~nine-month~~six-month periods ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020 was approximately ~~$(91.2)~~$48.1 million and ~~$33.7~~$39.2 million, respectively. We decreased our net borrowings by approximately $58.9 and $29.1 million for the six-month periods ended June 30, 2021 and 2021, respectively, by paying down our debt. In 2020, we completed payment of contingent consideration of $12.9 million, which is classified as a financing activity, principally

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related to our acquisition of Cianna Medical, and decreased our net borrowings by approximately $82.3 million. In 2019, our primary financing activities included additional net borrowings of $45.0 million under our credit agreement to partially fund our acquisition activity and capital expenditures for property and equipment, and contingent payments of $15.7 million, principally related to our acquisition of Cianna Medical.Inc.

As of ~~September~~June 30, ~~2020,~~2021, we had outstanding borrowings of approximately ~~$357.7~~$293 million under the Third Amended Credit Agreement, with additional available borrowings of approximately ~~$327~~$444 million, based on the maximum net leverage ratio ~~required~~and the aggregate revolving credit commitment pursuant to the Third Amended Credit Agreement. Our interest rate as of ~~September~~June 30, ~~2020~~2021 was a fixed rate of ~~2.62% on $175 million as a result of an interest rate swap (see Note 9) and a variable floating rate of 1.66% on $182.7 million. Our interest rate as of December 31, 2019 was a fixed rate of 2.62%~~2.12% on $175 million as a result of an interest rate swap and a variable floating rate of ~~3.30%~~1.15% on ~~$265~~$117.7 million. ~~The foregoing fixed rates are exclusive~~After the expiration of ~~changes in the notional amount and fixed rate associated with~~ our August 5, 2016 interest rate ~~swaps beginning~~swap on July 6, 2021, ~~as described in~~the portion of our debt with a fixed interest rate decreased to $75 million, with the fixed rate increasing to 2.71% (see Note 9 to our Condensed Notes to Consolidated Financial Statements set forth in Part I, Item 1 of this report). Our interest rate as of December 31, 2020 was a fixed rate of 2.37% on $175 million as a result of an interest rate swap and ~~potential future changes in the applicable margin.~~a variable floating rate of 1.40% on $176.6 million.

We currently believe that our existing cash balances, anticipated future cash flows from operations and borrowings under the Third Amended Credit Agreement 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 will likely be required to meet our strategic needs, which may require us to raise additional funds in the debt or equity markets.

~~Off-Balance Sheet Arrangements~~

We have committed to provide loans of up to an additional €2 million at the discretion of Selio at a rate of 5% per annum. The current note receivable balance from Selio is $250,000. Additional loans made to Selio pursuant to our loan agreement, if any, together with the initial advance and all other amounts owed to us by Selio, would be securitized by Selio’s assets. Aside from this arrangement, we do not have any off-balance sheet arrangements that have had, or are reasonably likely in the future to have, an effect on our financial condition, results of operations, liquidity, capital expenditures or capital resources.

~~CRITICAL ACCOUNTING POLICIES AND ESTIMATES~~

Our significant accounting policies are summarized in Note 1 to our consolidated financial statements in Item 8 of the Annual Report on Form 10-K. While all of 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:

~~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. This assessment involves significant judgment, especially in the current environment due to uncertainties about the duration and impact of the COVID-19 pandemic. During our annual impairment test performed as of July 1 we utilize several reporting units in

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Off-Balance Sheet Arrangements

~~evaluating goodwill for impairment using a quantitative assessment, which uses a combination~~Off-balance sheet arrangements are reported in Part II, Item 7 "Management’s Discussion and Analysis of ~~a guideline public company market-based approach~~Financial Condition and ~~a discounted cash flow income-based approach. The quantitative assessment considers whether the carrying amount~~Results 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 future cash flows and the length of time they will occur, 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 2020, which was completed during the third quarter of 2020, we determined that the fair value of each reporting unit with goodwill exceeded the carrying amount by a significant amount.Operations.

We evaluate the recoverability of intangible assets subject to amortization whenever events or changes in circumstances indicate that an asset’s carrying amount may not be recoverable. This analysis requires similar significant judgments as those discussed above regarding goodwill, except that undiscounted cash flows are compared to the carrying amount of intangible assets to determine if impairment exists. 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.~~

~~During the three-month period ended September 30,~~ 2020 we compared the carrying value of the amortizing intangible assets acquired in acquisitions of certain assets to the undiscounted cash flows expected to result from these asset groups and determined that the carrying amounts were not recoverable. We then ~~determined the fair value of the amortizing assets based~~Annual Report on ~~estimated future cash flows discounted back to their present value using discount rates that reflect the risk profile of the underlying activities.~~ ~~We recorded total impairment charges associated with intangible assets in our cardiovascular segment for~~Form 10-K. In the three and ~~nine-month~~six-month periods ended ~~September~~June 30, ~~2020~~2021, there were no material changes from the information provided therein.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our financial results are affected by the selection and application of ~~approximately $18.1 million~~accounting policies and ~~$20.5 million, respectively. These expenses are reflected within impairment charges in our consolidated statements of income (loss).~~ The primary factors driving impairment of certain intangible assets were slower-than-anticipated sales growth in the acquired products, planned closure and restructuring activities, uncertainty about future product development and commercialization associated with the acquired technologies, and economic uncertainties associated with the COVID-19 pandemic. The intangible impairment charges relate to a write-off or reduction in value of intangible assets from our August 2017 acquisition of certain assets from Laurane Medical S.A.S, our license agreements with ArraVasc Limited, intangible assets from our May 2018 acquisition of certain assets from DirectACCESS Medical, LLC, in-process technology intangible assets from Sontina Medical LLC in connection our February 2018 acquisition of certain divested assets from Becton, Dickinson and Company, and a customer list intangible asset ~~from~~ ~~our October 2017 acquisition of ITL.~~

During the three months ended September 30, 2019, we compared the carrying value of the amortizing intangible assets acquired in acquisitions of certain assets to the undiscounted cash flows expected to result from these asset groups and determined that the carrying amounts were not recoverable. ~~We recorded intangible asset impairment charges in our cardiovascular segment for~~methods. In the three and ~~nine-month~~six-month periods ended ~~September~~June 30, ~~2019 of approximately $2.7 million and $3.3 million, respectively. These expenses are reflected within impairment charges in our consolidated statements of income (loss).~~ ~~The primary indicators of impairment~~2021, there were ~~slower than anticipated sales growth in the acquired products and uncertainty about future product development and commercialization associated with the acquired technologies.~~The intangible impairment charges related to our amortizing intangible assets from our July 2015 acquisition of certain assets from Distal Access, LLC, our June 2016 acquisition of certain assets from Lazarus Medical Technologies, LLC, and our July 2017 acquisition ~~of certain assets from Pleuratech ApS.~~

~~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 operational 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. These assumptions are impacted by our best estimates of the timing and duration of the current COVID-19 pandemic.

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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 and developments related to the COVID-19 pandemic could result inno changes to the ~~estimated fair value~~application of ~~our contingent consideration liability, as the result of changes in the timing and amount of revenue estimates, as well as changes in the discount rate or periods.~~

~~For the three and nine-month periods ended September 30, 2020, we recognized contingent consideration expense (benefit)~~ ~~of approximately $(4.4) million and $0.9 million, respectively, from changes in the estimated fair value of our contingent consideration obligations stemming from our~~critical accounting policies previously disclosed ~~business acquisitions. Changes~~ in Part II, Item 7 of the ~~fair value of our contingent consideration liabilities were~~ primarily attributable to slower-than-anticipated sales growth in the acquired products and economic uncertainties associated with the COVID-19 pandemic affecting sales growth and the anticipated timing of milestone payments.2020 Annual Report on Form 10-K.

~~ADDITIONAL INFORMATION~~CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS

~~Cybersecurity~~

We have established controls and procedures to escalate enterprise level issues, including cybersecurity matters, to the appropriate management levels within our organization and our Board of Directors, or members or committees thereof, as appropriate. Under our framework, cybersecurity issues are analyzed by subject matter experts for potential financial, operational, and reputational risks, based on, among other factors, the nature of the matter and breadth of impact. Matters determined to present potential material impacts to the Company’s financial results, operations, and/or reputation are immediately reported by management to our Board of Directors, or individual members or committees thereof, as appropriate, in accordance with our escalation framework. In addition, we have established procedures to ensure that management responsible for overseeing the effectiveness of disclosure controls is informed in a timely manner of known cybersecurity risks and incidents that may materially impact our operations and that timely public disclosure is made as appropriate.

~~Insider Trading Policy~~

Our directors and executive officers are subject to our Corporate Policy on Insider Trading, which is designed to facilitate compliance with insider trading laws and governs transactions in our common stock and related derivative securities. Any director, officer or employee in possession of material, nonpublic information, or who may be deemed to possess such information by reason of his or her positions, may not (i) trade in the Company’s securities; (ii) share the information with others (“tipping”), or (iii) permit a member of his or her immediate family to trade in the Company’s securities. Our policy designates certain regular periods, from 15 days prior to the end of a calendar quarter to two full business days after the release of financial results, in which trading is prohibited for individuals in information-sensitive positions, including directors and executive officers. Our policy also prohibits executive officers and directors (i) trading in Merit stock on a short term basis (minimum six-month holding period); (ii) engaging in short sales of Merit stock; (iii) buying or selling put options or call options or other derivative instruments associated with Merit stock; or (iv) entering into hedging transactions associated with Merit stock.

Additional periods of trading restriction may be imposed as determined by our Chief Executive Officer or the Insider Trading Compliance Officers (currently our Chief Legal Officer and our Chief Financial Officer) in light of material pending developments. Further, during permitted windows, individuals in information-sensitive positions are required to seek pre-clearance for trades from an Insider Trading Compliance Officer, who assesses whether there are any important pending developments, including cybersecurity matters, which need to be made public before the individual may participate in the market.

~~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

~~Table of Contents~~

this report, other than statements of historical fact, are “forward-looking statements” for purposes of these provisions, including, without limitation, 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. 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. In some cases, forward-looking statements can be identified by the use of terminology such as “may,” “will,” “expects,” “plans,” “should,” “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. 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. Actual results will likely differ, and could differ materially, from those projected or assumed in the forward-looking statements. Prospective investors are cautioned not to unduly rely on any such forward-looking statements.

All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. Our actual results will likely differ, and may differ materially, from anticipated results. Financial estimates are subject to change and are not intended to be relied upon as predictions of future operating results, and we assume no obligation to update or disclose revisions to those estimates. If we do update or correct one or more forward-looking statements, investors and others should not conclude that we will make additional updates or corrections.

NOTICE REGARDING TRADEMARKS

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Quantitative and qualitative disclosures about exchange rate risk are included in ~~Par~~Part II, Item 7A "Quantitative and Qualitative Disclosures About Market Risk" of the 2020 Annual Report on Form 10-K. ~~There have been~~In the three and six-month periods ended June 30, 2021, there were no material changes from the information provided therein.

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ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management is responsible for establishing and maintaining adequate disclosure controls and procedures for our company. Consequently, our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 under the Exchange Act as of ~~September~~June 30, ~~2020.~~2021. 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.

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Changes in Internal Control Over Financial Reporting

During the ~~quarter~~three-month period ended ~~September~~June 30, ~~2020,~~2021, there were no changes in our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934).

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

See Note 10 “Commitments and Contingencies” set forth in the notes to our consolidated financial statements included in Part I, Item 1 of this report.

ITEM 1A. RISK FACTORS

In addition to other information set forth in this report, readers should carefully consider the factors discussed in Part I, Item 1A. "Risk Factors" of the 2020 Annual Report on Form 10-K, as updated and supplemented below. Any of the risk factors disclosed in our reports could materially affect our business, financial condition or future results. The risks described here and in our 2020 Annual Report on Form 10-K are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition and/or operating results, particularly in light of the precarious and unpredictable nature of the COVID-19 pandemic, containment measures, the potential for future waves of outbreaks and the related impacts to economic and operating conditions.

~~The COVID-19 pandemic has negatively impacted our business and operations around the world and may continue to materially and adversely impact our business, operations and financial results.~~

The novel strain of coronavirus that surfaced in late 2019 and the resulting disease COVID-19, is an ongoing global pandemic. The COVID-19 pandemic has created significant disruption and uncertainty in the global economy, has negatively impacted our business, results of operations and financial condition, and we anticipate that it may continue to negatively impact our business, results of operations and financial condition for the foreseeable future.

Numerous national, international, state and local jurisdictions have imposed, and others in the future may impose, "shelter-in-place" orders, quarantines, executive orders and similar government orders and restrictions for their residents to control the spread of COVID-19. Such orders or restrictions cause significant alteration of our operations, work stoppages, slowdowns and delays, travel restrictions and cancellation of events, among other effects, thereby significantly and negatively impacting our operations. Other disruptions or potential disruptions include (i) restrictions on our personnel and personnel of business partners to travel and access customers for training and case support; (ii) reductions in spending by our customers; (iii) delays in approvals by regulatory bodies; (iv) diversion of or limitations on employee resources that would otherwise be focused on the operations of our business, including because of sickness of employees or their families or the desire of employees to avoid contact with large groups of people; (v) reductions in our sales team, including through layoffs, furloughs or other losses of sales representatives; (vi) additional government requirements or other incremental mitigation efforts that may further impact our or our suppliers' capacity to manufacture our products; (vii) disruption of our research and development activities; and (viii) delays in ongoing studies and pre-clinical trials.

In addition, elective procedures that use our products have significantly decreased in number as health care organizations around the world have prioritized the treatment of patients with COVID-19 and reduced spending in other areas. For example, in the United States, governmental authorities have recommended, and in certain cases required, that elective, deferrable, specialty and other procedures and appointments, be suspended or canceled to avoid non-essential patient exposure to medical environments and potential infection with COVID-19 and to focus limited resources and personnel capacity toward the treatment of COVID-19 patients. Specifically, many of these procedures that use our products have been suspended or postponed. While certain of these procedures have resumed in certain locations, it is unclear when or if all procedures in all locations will resume.

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While we have seen increases in demand for certain product lines during the pandemic, including our Cultura nasopharyngeal swab and test kit, this increased demand has not been, and may not be, sufficient to offset the revenue declines in other areas. We also expect continued pressure on our margins due to decreased demand for products with gross margins that are higher than the company average.

In addition, most of the hospitals and clinics that purchase our products have instituted strict procedures at their facilities in an effort to prevent the spread of COVID-19, including restrictions on sales representatives entering these facilities. This has been, and currently remains, a major impediment to our sales efforts, as supporting existing customers and acquiring new customers is much more difficult in this environment. These restrictions have had a significant adverse effect on our sales and, until they are lifted, our business, operations and financial results will continue to be adversely impacted.

Further, once the pandemic subsides, we anticipate there will be substantial backlog of patients seeking appointments with physicians and surgeries to be performed at hospitals and ambulatory surgery centers relating to a variety of medical conditions, and as a result, patients seeking procedures that use our products will have to navigate limited provider capacity. We believe this limited provider, hospital and ambulatory surgery center capacity could have a significant adverse effect on our business, operations and financial results following the end of the pandemic.

These challenges and restrictions will likely continue for the duration of the pandemic, which is uncertain, and may even continue beyond the pandemic. Many areas are relaxing restrictions and resuming business operations, but a resurgence in infections could cause authorities to reinstate such restrictions or impose additional restrictions. The extent to which the COVID-19 pandemic impacts our business, operations and financial results will depend on future developments that are uncertain and cannot be predicted, including new information that may emerge concerning the severity and spread of the virus and the actions by government entities, our customers and other parties to contain the virus or treat its impact, among others. To the extent the COVID-19 pandemic adversely affects our business, operations and financial results, it may also have the effect of heightening other risks described in “Risk Factors” in our Annual Report on Form 10-K and our subsequent quarterly reports on Form 10-Q, such as those relating to general economic conditions, demand for our products, relationships with suppliers and sales efforts.

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ITEM 6. EXHIBITS

Exhibit No.		Description
3.1		Second Amended and Restated Articles of ~~Incorporation (1)~~Incorporation*
3.2		Third Amended and Restated ~~Bylaws (1)~~Bylaws*
10.1		Form of Restricted Stock Unit Award Agreement, dated June 17, 2021, by and between Merit Medical Systems, Inc. and each of the following individuals: A. Scott Anderson, Jill D. Anderson, Lonny J. Carpenter, Stephen C. Evans, David K. Floyd, James T. Hogan, Thomas J. Gunderson, F. Ann Millner, and Lynne N. Ward. †
10.2		Second Amendment to the Merit Medical Systems, Inc. 2018 Long-Term Incentive Plan effective April 15, 2021†
10.3		Fifth Amendment to the Merit Medical Systems, Inc., 1996 Employee Stock Purchase Plan dated April 15, 2021†
31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1		Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2		Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101		The following financial information from the quarterly report on Form 10-Q for the quarter ended ~~September~~June 30, ~~2020,~~2021, formatted in Inline Extensible Business Reporting Language (iXBRL): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income (Loss), (iii) Consolidated Statements of Comprehensive Income (Loss), (iv) Consolidated Statements of Stockholders’ Equity, (v) Consolidated Statements of Cash Flows, and (vi) related Condensed Notes to the Unaudited Consolidated Financial Statements, tagged in detail.
104		Cover Page Interactive Data File (the cover page XBRL tags are embedded within the Inline XBRL document).

~~(1)~~

~~Incorporated by reference from our Current Report on Form 8-K filed on May 31, 2018 (as amended).~~

* These exhibits are incorporated herein by reference.

† Indicates management contract or compensatory plan or arrangement.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

MERIT MEDICAL SYSTEMS, INC.

REGISTRANT

Date: ~~November 5, 2020~~August 6, 2021	By:	/s/ FRED P. LAMPROPOULOS
		Fred P. Lampropoulos, President and
		Chief Executive Officer

Date: ~~November 5, 2020~~August 6, 2021	By:	/s/ RAUL PARRA
		Raul Parra
		Chief Financial Officer and Treasurer

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		Fair Value
Derivative instruments designated as hedging instruments	Balance Sheet Location	September 30, 2020		December 31, 2019
Assets
Interest rate swaps	Other assets (long-term)	$	—	$	1,192
Foreign currency forward contracts	Prepaid expenses and other assets		872		1,663
Foreign currency forward contracts	Other assets (long-term)		139		466

(Liabilities)
Interest rate swaps	Accrued expenses		(1,322)		—
Interest rate swaps	Other long-term obligations		(3,593)		(290)
Foreign currency forward contracts	Accrued expenses		(2,899)		(1,813)
Foreign currency forward contracts	Other long-term obligations		(254)		(764)

Derivative instruments not designated as hedging instruments
Assets
Foreign currency forward contracts	Prepaid expenses and other assets	$	1,314	$	318

(Liabilities)
Foreign currency forward contracts	Accrued expenses		(1,066)		(1,678)