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~~ ~~June~~For the quarterly period ended September 30, 2021

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

~~FOR THE TRANSITION PERIOD FROM TO~~ 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.

Title or class		Shares outstanding as of November 4, 2021
Common Stock, no par		~~56,270,524~~
~~Title or class~~		Number of Shares Outstanding at August 3, 202156,458,464

Table of Contents

TABLE OF CONTENTS

PART I.	FINANCIAL INFORMATION	3

Item 1.	Financial Statements (Unaudited)	3

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

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

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

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

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

	Condensed Notes to Consolidated Financial Statements	11

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	30

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3839

Item 4.	Controls and Procedures	39

PART II.	OTHER INFORMATION	39

Item 1.	Legal Proceedings	39

Item 1A.	Risk Factors	39

Item 6.	Exhibits	40

SIGNATURES		41

Table of Contents

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

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

(In thousands)


	June 30,		December 31,		September 30,		December 31,
ASSETS	2021		2020		2021		2020
		(unaudited)				(unaudited)
Current assets:
Cash and cash equivalents	$	69,672	$	56,916	$	68,904	$	56,916
Trade receivables — net of allowance for credit losses — 2021 — $5,652 and 2020 — $5,313		153,443		146,641
Trade receivables — net of allowance for credit losses — 2021 — $6,444 and 2020 — $5,313						150,780		146,641
Other receivables		8,376		7,774		10,659		7,774
Inventories		194,524		198,019		208,081		198,019
Prepaid expenses and other current assets		16,541		13,120		18,778		13,120
Prepaid income taxes		3,683		3,688		3,679		3,688
Income tax refund receivables		3,543		3,549		2,561		3,549
Total current assets		449,782		429,707		463,442		429,707

Property and equipment:
Land and land improvements		28,180		28,400		25,394		28,400
Buildings		188,089		188,878		190,335		188,878
Manufacturing equipment		272,084		268,894		275,155		268,894
Furniture and fixtures		62,142		61,586		62,445		61,586
Leasehold improvements		47,217		48,800		45,750		48,800
Construction-in-progress		48,608		46,889		51,756		46,889
Total property and equipment		646,320		643,447		650,835		643,447
Less accumulated depreciation		(272,519)		(260,719)		(277,379)		(260,719)
Property and equipment — net		373,801		382,728		373,456		382,728

Other assets:
Intangible assets:
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
Developed technology — net of accumulated amortization —2021 — $223,814 and 2020 — $193,164						287,117		318,059
Other — net of accumulated amortization — 2021 — $63,030 and 2020 — $56,943						43,820		49,856
Goodwill		362,810		363,533		362,000		363,533
Deferred income tax assets		4,614		4,597		4,581		4,597
Right-of-use operating lease assets		70,767		78,240		68,078		78,240
Other assets		37,827		37,676		40,672		37,676
Total other assets		818,810		851,961		806,268		851,961

Total assets	$	1,642,393	$	1,664,396	$	1,643,166	$	1,664,396


See condensed notes to consolidated financial statements.	(continued)

Table of Contents

MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

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

(In thousands)


	June 30,		December 31,		September 30,		December 31,
LIABILITIES AND STOCKHOLDERS’ EQUITY	2021		2020		2021		2020
		(unaudited)				(unaudited)
Current liabilities:
Trade payables	$	53,809	$	49,837	$	51,077	$	49,837
Accrued expenses		135,013		111,944		141,929		111,944
Current portion of long-term debt		7,500		7,500		7,500		7,500
Short-term operating lease liabilities		11,721		12,903		11,119		12,903
Income taxes payable		2,561		2,820		1,850		2,820
Total current liabilities		210,604		185,004		213,475		185,004

Long-term debt		284,900		343,722		271,181		343,722
Deferred income tax liabilities		33,271		33,312		33,238		33,312
Long-term income taxes payable		347		347		347		347
Liabilities related to unrecognized tax benefits		1,016		1,016		1,016		1,016
Deferred compensation payable		17,055		16,808		17,414		16,808
Deferred credits		1,869		1,923		1,842		1,923
Long-term operating lease liabilities		65,841		70,941		63,505		70,941
Other long-term obligations		35,056		52,748		27,772		52,748
Total liabilities		649,959		705,821		629,790		705,821

Commitments and contingencies

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
Preferred stock — 5,000 shares authorized as of September 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 September 30, 2021 - 56,452 and December 31, 2020 - 55,623						633,948		606,224
Retained earnings		373,677		357,803		385,644		357,803
Accumulated other comprehensive loss		(4,834)		(5,452)		(6,216)		(5,452)
Total stockholders’ equity		992,434		958,575		1,013,376		958,575

Total liabilities and stockholders’ equity	$	1,642,393	$	1,664,396	$	1,643,166	$	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 SIX MONTHS ENDED JUNE 30, 2021 AND 2020~~

(In thousands, except per share amounts - unaudited)

Three Months Ended

Six Months Ended

June 30,

June 30,


2021

2020

2021

2020
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

Operating expenses:








Selling, general and administrative

91,563

66,767

172,587

145,575
Research and development

17,593

14,026

33,867

28,898
Legal settlement

—

18,200

—

18,200
Impairment charges

4,283

3,875

4,283

7,720
Contingent consideration expense

1,805

343

2,207

5,240
Total operating expenses

115,244

103,211

212,944

205,633

Income (loss) from operations

8,895

(18,995)

23,089

(17,633)

Other income (expense):








Interest income

92

88

564

167
Interest expense

(1,386)

(2,715)

(2,923)

(5,859)
Other expense — net

(736)

(678)

(1,171)

(967)
Total other expense — net

(2,030)

(3,305)

(3,530)

(6,659)

Income (loss) before income taxes

6,865

(22,300)

19,559

(24,292)

Income tax expense (benefit)

1,949

(3,242)

3,685

(2,080)

Net income (loss)

$
4,916

$
(19,058)

$
15,874

$
(22,212)

Earnings (loss) per common share








Basic

$
0.09

$
(0.34)

$
0.28

$
(0.40)
Diluted

$
0.09

$
(0.34)

$
0.28

$
(0.40)

Weighted average shares outstanding








Basic

56,061

55,406

55,890

55,326
Diluted

57,277

55,406

57,128

55,326


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2021		2020		2021		2020
Net sales	$	267,021	$	243,975	$	796,259	$	705,871
Cost of sales		146,527		141,961		439,732		415,857
Gross profit		120,494		102,014		356,527		290,014

Operating expenses:
Selling, general and administrative		86,474		72,215		259,061		217,790
Research and development		16,974		13,506		50,841		42,404
Legal settlement		—		—		—		18,200
Impairment charges		0		20,585		4,283		28,305
Contingent consideration expense (benefit)		1,115		(4,356)		3,322		884
Total operating expenses		104,563		101,950		317,507		307,583

Income (loss) from operations		15,931		64		39,020		(17,569)

Other income (expense):
Interest income		104		67		668		234
Interest expense		(1,233)		(2,197)		(4,156)		(8,056)
Other expense — net		(625)		(118)		(1,796)		(1,085)
Total other expense — net		(1,754)		(2,248)		(5,284)		(8,907)

Income (loss) before income taxes		14,177		(2,184)		33,736		(26,476)

Income tax expense (benefit)		2,210		825		5,895		(1,255)

Net income (loss)	$	11,967	$	(3,009)	$	27,841	$	(25,221)

Earnings (loss) per common share
Basic	$	0.21	$	(0.05)	$	0.50	$	(0.46)
Diluted	$	0.21	$	(0.05)	$	0.49	$	(0.46)

Weighted average shares outstanding
Basic		56,302		55,505		56,033		55,386
Diluted		57,549		55,505		57,274		55,386

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 SIX MONTHS ENDED JUNE 30, 2021 AND 2020~~

(In thousands - unaudited)


	Three Months Ended				Six Months Ended				Three Months Ended				Nine Months Ended
	June 30,				June 30,				September 30,				September 30,
	2021		2020		2021		2020		2021		2020		2021		2020
Net income (loss)	$	4,916	$	(19,058)	$	15,874	$	(22,212)	$	11,967	$	(3,009)	$	27,841	$	(25,221)
Other comprehensive income (loss):
Cash flow hedges		999		(101)		3,920		(7,283)		1,522		(592)		5,442		(7,875)
Income tax benefit (expense)		(248)		26		(972)		1,875		(377)		152		(1,349)		2,027
Foreign currency translation adjustment		1,800		2,524		(2,662)		(1,601)		(2,873)		3,545		(5,535)		1,944
Income tax benefit (expense)		(203)		(3)		332		(10)		346		(117)		678		(127)
Total other comprehensive income (loss)		2,348		2,446		618		(7,019)		(1,382)		2,988		(764)		(4,031)
Total comprehensive income (loss)	$	7,264	$	(16,612)	$	16,492	$	(29,231)	$	10,585	$	(21)	$	27,077	$	(29,252)

See condensed notes to consolidated financial statements.

Table of Contents

MERIT MEDICAL SYSTEMS, INC.

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

(In thousands - unaudited)

Common Stock

Retained

Accumulated Other


Total

Shares

Amount

Earnings

Comprehensive Income (Loss)
Balance — January 1, 2021

$
958,575

55,623

$
606,224

$
357,803

$
(5,452)
Net income

10,958





10,958


Other comprehensive loss

(1,730)







(1,730)
Stock-based compensation expense

3,310



3,310




Options exercised

5,897

291

5,897




Issuance of common stock under Employee Stock Purchase Plan

263

5

263




Shares issued from time-vested restricted stock units

—

25

—

Shares surrendered in exchange for payment of payroll tax liabilities

(488)

(9)

(488)

Shares surrendered in exchange for exercise of stock options

(93)

(2)

(93)

Balance — March 31, 2021

976,692

55,933

615,113

368,761

(7,182)
Net income

4,916





4,916


Other comprehensive income

2,348







2,348
Stock-based compensation expense

2,765



2,765




Options exercised

5,455

253

5,455




Issuance of common stock under Employee Stock Purchase Plan

258

4

258




Shares issued from time-vested restricted stock units

—

34

—

Balance — June 30, 2021

$
992,434

56,224

$
623,591

$
373,677

$
(4,834)


	Common Stock			Retained		Accumulated Other
	Shares	Amount		Earnings		Comprehensive Income (Loss)		Total
Balance — January 1, 2021	55,623	$	606,224	$	357,803	$	(5,452)	$	958,575
Net income					10,958				10,958
Other comprehensive loss							(1,730)		(1,730)
Stock-based compensation expense			3,310						3,310
Options exercised	291		5,897						5,897
Issuance of common stock under Employee Stock Purchase Plan	5		263						263
Shares issued from time-vested restricted stock units	25		—						—
Shares surrendered in exchange for payment of payroll tax liabilities	(9)		(488)						(488)
Shares surrendered in exchange for exercise of stock options	(2)		(93)						(93)
Balance — March 31, 2021	55,933		615,113		368,761		(7,182)		976,692
Net income					4,916				4,916
Other comprehensive income							2,348		2,348
Stock-based compensation expense			2,765						2,765
Options exercised	253		5,455						5,455
Issuance of common stock under Employee Stock Purchase Plan	4		258						258
Shares issued from time-vested restricted stock units	34		—						—
Balance — June 30, 2021	56,224		623,591		373,677		(4,834)		992,434
Net income					11,967				11,967
Other comprehensive loss							(1,382)		(1,382)
Stock-based compensation expense			4,411						4,411
Options exercised	225		5,806						5,806
Issuance of common stock under Employee Stock Purchase Plan	5		314						314
Shares surrendered in exchange for payment of payroll tax liabilities	(1)		(88)						(88)
Shares surrendered in exchange for exercise of stock options	(1)		(86)						(86)
Balance — September 30, 2021	56,452	$	633,948	$	385,644	$	(6,216)	$	1,013,376


See condensed notes to consolidated financial statements.	(continued)

Table of Contents

MERIT MEDICAL SYSTEMS, INC.

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

(In thousands - unaudited)

Common Stock

Retained

Accumulated Other


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)

Other comprehensive loss

(9,465)

(9,465)
Stock-based compensation expense

2,641

2,641

Options exercised

2,369

174

2,369

Issuance of common stock under Employee Stock Purchase Plan

371

13

371

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

3,197



3,197




Options exercised

2,229

138

2,229




Issuance of common stock under Employee Stock Purchase Plan

235

5

235




Balance — June 30, 2020

$
928,847

55,481

$
595,726

$
345,434

$
(12,313)


	Common Stock			Retained		Accumulated Other
	Shares	Amount		Earnings		Comprehensive Income (Loss)		Total
Balance — January 1, 2020	55,213	$	587,017	$	368,221	$	(5,294)	$	949,944
Net loss					(3,154)				(3,154)
Cumulative effect adjustment upon adoption of ASU 2016-13, Credit Losses					(575)				(575)
Other comprehensive loss							(9,465)		(9,465)
Stock-based compensation expense			2,641						2,641
Options exercised	174		2,369						2,369
Issuance of common stock under Employee Stock Purchase Plan	13		371						371
Shares surrendered in exchange for payment of payroll tax liabilities	(23)		(866)						(866)
Shares surrendered in exchange for exercise of stock options	(39)		(1,467)						(1,467)
Balance — March 31, 2020	55,338		590,065		364,492		(14,759)		939,798
Net loss					(19,058)				(19,058)
Other comprehensive income							2,446		2,446
Stock-based compensation expense			3,197						3,197
Options exercised	138		2,229						2,229
Issuance of common stock under Employee Stock Purchase Plan	5		235						235
Balance — June 30, 2020	55,481		595,726		345,434		(12,313)		928,847
Net loss					(3,009)				(3,009)
Other comprehensive income							2,988		2,988
Stock-based compensation expense			3,794						3,794
Options exercised	50		950						950
Issuance of common stock under Employee Stock Purchase Plan	7		267						267
Balance — September 30, 2020	55,538	$	600,737	$	342,425	$	(9,325)	$	933,837


See condensed notes to consolidated financial statements.	(concluded)

Table of Contents

MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

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

(In thousands - unaudited)

Six Months Ended

June 30,


2021

2020
CASH FLOWS FROM OPERATING ACTIVITIES:

Net income (loss)

$
15,874

$
(22,212)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:




Depreciation and amortization

42,417

47,040
Loss on sales and/or abandonment of property and equipment

242

370
Write-off of certain intangible assets and other long-term assets

4,368

7,820
Amortization of right-of-use operating lease assets

6,074

6,339
Fair value adjustments to contingent consideration

2,207

5,240
Amortization of deferred credits

(54)

(69)
Amortization of long-term debt issuance costs

302

302
Stock-based compensation expense

6,732

6,205
Changes in operating assets and liabilities, net of acquisitions and divestitures:

Trade receivables

(7,833)

15,292
Other receivables

(793)

643
Inventories

3,185

2,255
Prepaid expenses and other current assets

(3,823)

(1,349)
Income tax refund receivables

(9)

(7,329)
Other assets

(685)

128
Trade payables

5,639

(3,872)
Accrued expenses

9,206

19,664
Income taxes payable

(860)

1,572
Deferred compensation payable

247

(661)
Operating lease liabilities

(6,259)

(6,177)
Other long-term obligations

263

2,015
Total adjustments

60,566

95,428
Net cash provided by operating activities

76,440

73,216

CASH FLOWS FROM INVESTING ACTIVITIES:




Capital expenditures for:




Property and equipment

(12,817)

(25,803)
Intangible assets

(1,469)

(1,790)
Proceeds from the sale of property and equipment

884

27
Cash received for settlement of current note receivable

—

250
Cash paid in acquisitions, net of cash acquired

(1,858)

(100)
Net cash used in investing activities

$
(15,260)

$
(27,416)


	Nine Months Ended
	September 30,
	2021		2020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	27,841	$	(25,221)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		63,173		70,458
Gain on sale of business		—		(508)
Loss on sales and/or abandonment of property and equipment		630		1,303
Write-off of certain intangible assets and other long-term assets		4,412		28,409
Amortization of right-of-use operating lease assets		8,941		9,522
Fair value adjustments to contingent consideration		3,322		884
Amortization of deferred credits		(81)		(103)
Amortization of long-term debt issuance costs		453		453
Stock-based compensation expense		11,589		10,268
Changes in operating assets and liabilities, net of acquisitions and divestitures:
Trade receivables		(6,180)		13,049
Other receivables		(3,173)		1,170
Inventories		(11,180)		15,668
Prepaid expenses and other current assets		(6,251)		(3,929)
Prepaid income taxes		—		(35)
Income tax refund receivables		960		(8,666)
Other assets		(3,638)		(1,088)
Trade payables		1,181		(2,682)
Accrued expenses		19,575		22,591
Income taxes payable		(1,600)		1,079
Deferred compensation payable		606		541
Operating lease liabilities		(9,365)		(9,398)
Other long-term obligations		201		4,590
Total adjustments		73,575		153,576
Net cash provided by operating activities		101,416		128,355

CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for:
Property and equipment		(19,612)		(35,590)
Intangible assets		(2,121)		(2,499)
Proceeds from the sale of property and equipment		1,037		33
Proceeds from sale of business		—		1,285
Cash received for settlement of current note receivable		—		250
Cash paid in acquisitions, net of cash acquired		(1,858)		(260)
Net cash used in investing activities	$	(22,554)	$	(36,781)

See condensed notes to consolidated financial statements.

(continued)

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MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

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

(In thousands - unaudited)

Six Months Ended

June 30,

2021

2020
CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from issuance of common stock

$
11,780

$
3,670
Proceeds from issuance of long-term debt

32,657

38,567
Payments on long-term debt

(91,535)

(67,692)
Contingent payments related to acquisitions

(489)

(12,861)
Payment of taxes related to an exchange of common stock

(488)

(866)
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

56,916

44,320
End of period

$
69,672

$
49,702

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION




Cash paid during the period for:




Interest (net of capitalized interest of $234 and $551, respectively)

$
2,923

$
5,937
Income taxes

4,611

3,808

SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES




Property and equipment purchases in accounts payable

$
1,014

$
1,970
Current note receivable converted to equity investment

—

899
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

361

7,029


	Nine Months Ended
	September 30,
	2021		2020
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock	$	17,814	$	4,954
Proceeds from issuance of long-term debt		73,251		46,051
Payments on long-term debt		(145,876)		(128,306)
Contingent payments related to acquisitions		(10,579)		(12,991)
Payment of taxes related to an exchange of common stock		(576)		(866)
Net cash used in financing activities		(65,966)		(91,158)
Effect of exchange rates on cash		(908)		(185)
Net increase in cash and cash equivalents		11,988		231

CASH AND CASH EQUIVALENTS:
Beginning of period		56,916		44,320
End of period	$	68,904	$	44,551

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest (net of capitalized interest of $345 and $679, respectively)	$	4,155	$	8,138
Income taxes		6,166		6,449

SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Property and equipment purchases in accounts payable	$	2,842	$	2,726
Current note receivable converted to equity investment		—		899
Proceeds from sale of business in other receivables		—		321
Merit common stock surrendered (3 and 39 shares, respectively) in exchange for exercise of stock options		179		1,467
Right-of-use operating lease assets obtained in exchange for operating lease liabilities		827		7,285


See condensed notes to consolidated financial statements.	(concluded)

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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 ~~six months~~nine-month periods ended ~~June~~September 30, 2021 and 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 ~~June~~September 30, 2021 and December 31, 2020, and our results of operations and cash flows for the three and ~~six-month~~nine-month periods ended ~~June~~September 30, 2021 and 2020. The results of operations for the three and ~~six-month~~nine-month periods ended ~~June~~September 30, 2021 and 2020 are not necessarily indicative of the results for a full-year period. 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, 2020 (the “2020 Annual Report on Form 10-K”).

2. Recently Issued Financial Accounting Standards. In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting ~~Standard~~Standards Update (“ASU”) 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides temporary optional expedients and exceptions in accounting for modifications of contracts that reference the London interbank offered rate (“LIBOR”) or another reference rate expected to be discontinued as a result of reference rate reform. 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 and 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, when reference rate reform activity is expected to be completed. As of ~~June~~September 30, 2021, we had not modified any contracts as a result of reference rate reform. We are currently assessing the anticipated impact of 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

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

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


	Three Months Ended						Three Months Ended						Three Months Ended						Three Months Ended
	June 30, 2021						June 30, 2020						September 30, 2021						September 30, 2020
	United States		International		Total		United States		International		Total		United States		International		Total		United States		International		Total
Cardiovascular
Peripheral Intervention	$	63,235	$	42,365	$	105,600	$	42,614	$	30,021	$	72,635	$	61,282	$	39,777	$	101,059	$	55,014	$	31,764	$	86,778
Cardiac Intervention		33,217		52,436		85,653		22,698		43,307		66,005		30,562		49,251		79,813		28,661		40,428		69,089
Custom Procedural Solutions		27,392		21,244		48,636		23,383		21,936		45,319		27,895		21,540		49,435		32,048		24,381		56,429
OEM		27,420		4,983		32,403		23,607		4,611		28,218		25,025		4,372		29,397		20,293		3,824		24,117
Total		151,264		121,028		272,292		112,302		99,875		212,177		144,764		114,940		259,704		136,016		100,397		236,413

Endoscopy
Endoscopy devices		7,507		526		8,033		5,838		356		6,194		6,741		576		7,317		7,093		469		7,562

Total	$	158,771	$	121,554	$	280,325	$	118,140	$	100,231	$	218,371	$	151,505	$	115,516	$	267,021	$	143,109	$	100,866	$	243,975


	Six Months Ended						Six Months Ended						Nine Months Ended						Nine Months Ended
	June 30, 2021						June 30, 2020						September 30, 2021						September 30, 2020
	United States		International		Total		United States		International		Total		United States		International		Total		United States		International		Total
Cardiovascular
Peripheral Intervention	$	120,101	$	78,413	$	198,514	$	98,416	$	61,294	$	159,710	$	181,383	$	118,190	$	299,573	$	153,431	$	93,057	$	246,488
Cardiac Intervention		62,468		97,922		160,390		51,293		87,303		138,596		93,030		147,173		240,203		79,954		127,731		207,685
Custom Procedural Solutions		52,284		41,773		94,057		48,797		44,143		92,940		80,179		63,313		143,492		80,845		68,524		149,369
OEM		50,310		10,027		60,337		47,274		9,201		56,475		75,335		14,399		89,734		67,566		13,026		80,592
Total		285,163		228,135		513,298		245,780		201,941		447,721		429,927		343,075		773,002		381,796		302,338		684,134

Endoscopy
Endoscopy devices		14,980		960		15,940		13,416		759		14,175		21,721		1,536		23,257		20,509		1,228		21,737

Total	$	300,143	$	229,095	$	529,238	$	259,196	$	202,700	$	461,896	$	451,648	$	344,611	$	796,259	$	402,305	$	303,566	$	705,871

4. Acquisitions. On November 6, 2020, we entered into a unit purchase agreement to acquire KA Medical, LLC (“KA Medical”). Subject to the terms and conditions of the unit purchase agreement, we paid $10.4 million in cash at closing, net of cash acquired, subject to adjustments for working capital and other matters, with additional deferred payments ~~including,~~consisting of $1.5 million, which we paid during the three months ended June 30, 2021, and $2.5 million, which is payable no later than 12 months following the acquisition date. KA Medical developed the Micro Plug^TM Set, a self-expanding nitinol vascular occlusion device, which is FDA-cleared in the 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~~are not ~~material. Acquisition-related costs associated with the KA Medical~~materially relevant to our financial statements.

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Acquisition-related costs associated with the KA Medical acquisition, which were included in selling, general and administrative expenses, were not material. The purchase price was preliminarily allocated as follows (in thousands):


Assets Acquired
Trade receivables	$	24
Other receivables		13
Inventories		216
Property and equipment		298
Other long-term assets		147
Intangible assets
Developed technology		6,000
Goodwill		8,283
Total assets acquired		14,981

Liabilities Assumed
Trade payables		(31)
Accrued expenses		(507)
Total liabilities assumed		(538)

Total net assets acquired	$	14,443

We are amortizing the developed technology intangible asset acquired through KA Medical over 17 years. The goodwill consists largely of the synergies expected from combining operations and is expected to be deductible for income tax purposes. The pro forma impact of the KA Medical acquisition was not significant to our financial results for the three and ~~six-month~~nine-month periods ended ~~June~~September 30, 2020. Operating results attributable to the KA Medical acquisition were included in our consolidated statements of income (loss) for the three and ~~six-month~~nine-month periods ended ~~June~~September 30, 2021.

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


	June 30, 2021		December 31, 2020		September 30, 2021		December 31, 2020
Finished goods	$	104,112	$	110,933	$	115,396	$	110,933
Work-in-process		30,675		19,308		33,299		19,308
Raw materials		59,737		67,778		59,386		67,778
Total inventories	$	194,524	$	198,019	$	208,081	$	198,019

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


	2021		2021
Goodwill balance at January 1	$	363,533	$	363,533
Effect of foreign exchange		(723)		(1,533)
Goodwill balance at June 30	$	362,810
Goodwill balance at September 30			$	362,000

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

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


	June 30, 2021						September 30, 2021
	Gross Carrying		Accumulated		Net Carrying		Gross Carrying		Accumulated		Net Carrying
	Amount		Amortization		Amount		Amount		Amortization		Amount
Patents	$	25,036	$	(7,358)	$	17,678	$	25,635	$	(7,826)	$	17,809
Distribution agreements		3,250		(2,419)		831		3,250		(2,469)		781
License agreements		12,710		(7,198)		5,512		12,678		(7,478)		5,200
Trademarks		30,260		(13,865)		16,395		30,252		(14,566)		15,686
Customer lists		35,058		(30,153)		4,905		35,035		(30,691)		4,344
Total	$	106,314	$	(60,993)	$	45,321	$	106,850	$	(63,030)	$	43,820


	December 31, 2020
	Gross Carrying		Accumulated		Net Carrying
	Amount		Amortization		Amount
Patents	$	23,669	$	(6,460)	$	17,209
Distribution agreements		3,250		(2,319)		931
License agreements		14,453		(6,647)		7,806
Trademarks		30,273		(12,414)		17,859
Customer lists		35,154		(29,103)		6,051
Total	$	106,799	$	(56,943)	$	49,856

Aggregate amortization expense for the three and ~~six-month~~nine-month periods ended ~~June~~September 30, 2021 was approximately $12.4 million and ~~$24.9~~$37.3 million, respectively. Aggregate amortization expense for the three and ~~six-month~~nine-month periods ended ~~June~~September 30, 2020 was approximately ~~$14.8~~$14.4 million and ~~$29.8~~$44.2 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~~nine-month periods ended ~~June~~September 30, 2021 and 2020, we identified indicators of impairment associated with certain acquired intangible assets within the asset groups based on our qualitative ~~assessment, which led us to complete an interim quantitative impairment~~ assessment. ~~During the three-month period ended June 30, 2021, the~~The primary indicator of impairment was our planned discontinuance of the Advocate™ Peripheral Angioplasty Balloon product line, sold under our license agreements with ArraVasc Limited (“ArraVasc”). We recorded an impairment charge for the remaining carrying value of ArraVasc intangible assets of approximately $1.6 million during the ~~three~~nine months ended ~~June~~September 30, 2021, all of which pertained to our cardiovascular segment. ~~During~~

We recorded total impairment charges associated with intangible assets in our cardiovascular segment for the ~~three-month period~~three and nine-month periods ended ~~June~~September 30, 2020 of approximately $18.1 million 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 for the ~~primary indicator of impairment~~ ~~was our~~three and nine-month periods ended September 30, 2020 were planned closure and restructuring activities and uncertainty about future product development and commercialization associated with the acquired technologies due in part to the economic impacts of the COVID-19 pandemic. The intangible impairment charges related to a write-off or reduction in value of intangible assets from our ~~procedural pack business in Australia~~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 of Sontina Medical LLC we acquired inthrough 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 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 the ~~three-month~~three and nine-month periods ended ~~June~~September 30, 2021 and 2020.

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


Year Ending December 31,	Estimated Amortization Expense		Estimated Amortization Expense
Remaining 2021	$	24,572	$	12,279
2022		48,149		48,158
2023		47,050		47,060
2024		44,113		44,126
2025		42,335		42,354

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7. Income Taxes. Our provision for income taxes for the three-month periods ended ~~June~~September 30, 2021 and 2020 was a tax expense of approximately $2.2 million and $0.8 million, respectively, which resulted in an effective tax rate of 15.6% and (37.7)%, respectively. Our provision for income taxes for the nine-month periods ended September 30, 2021 and 2020 was a tax expense (benefit) of approximately ~~$1.9~~$5.9 million and ($~~3.2)~~1.3) million, respectively, which resulted in an effective tax rate of ~~28.4%~~17.5% and 14.5%, respectively. Our provision for income taxes for the six-month periods ended June 30, 2021 and 2020 was a tax expense (benefit) of approximately $3.7 million and ($2.1) million, respectively, which resulted in an effective tax rate of 18.8% and 8.6%4.7%, respectively. The increase in the income tax expense and the corresponding change in the effective income tax rate for the three and ~~six-month~~nine-month periods ended ~~June~~September 30, 2021, when compared to the prior-year periods, was primarily due to a pre-tax loss during the 2020 periods, 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 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).

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


	June 30, 2021		December 31, 2020		September 30, 2021		December 31, 2020
Term loans	$	136,875	$	140,625	$	135,000	$	140,625
Revolving credit loans		155,872		211,000		144,000		211,000
Less unamortized debt issuance costs		(347)		(403)		(319)		(403)
Total long-term debt		292,400		351,222		278,681		351,222
Less current portion		7,500		7,500		7,500		7,500
Long-term portion	$	284,900	$	343,722	$	271,181	$	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).

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~~

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(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~~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 ~~June~~September 30, 2021.

As of ~~June~~September 30, 2021, we had outstanding borrowings of ~~approximately $292.7~~$279 million under the Third Amended Credit Agreement, with additional available borrowings of approximately ~~$444~~$456 million, based on the maximum net leverage ratio and the aggregate revolving credit commitment pursuant to the Third Amended Credit Agreement. Our interest rate as of ~~June~~September 30, 2021 was a fixed rate of ~~2.12%~~2.71% on ~~$175~~$75 million as a result of an interest rate swap (see Note 9) and a variable floating rate of ~~1.15%~~1.08% on ~~$117.7~~$204 million. 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 a variable floating rate of 1.40% on $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~~do not reflect potential future changes in the applicable margin.

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


Years Ending	Future Minimum		Future Minimum
December 31,	Principal Payments		Principal Payments
Remaining 2021	$	3,750	$	1,875
2022		8,438		8,438
2023		11,250		11,250
2024		269,309		257,437
Total future minimum principal payments	$	292,747	$	279,000

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.

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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~~payable for interest expense. In order to mitigate a portion of the risk attributable to ~~that~~such 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~~varies in accordance with 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 iswas 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 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~~is settled with the counterparty, and interest ~~will be~~is paid.

~~At June~~On September 30, 2021 and December 31, 2020, our interest rate swaps qualified as cash flow hedges. The fair value of our interest rate ~~swaps at June~~swap on September 30, 2021 was a liability of approximately ~~$2.8~~$2.5 million, which was partially offset by approximately ~~$0.7~~$0.6 million in deferred taxes. The fair value of our interest rate swaps aton December 31, 2020 was a liability of $4.4 million, partially offset by approximately $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 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.

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 ~~June~~September 30, 2021 and December 31, 2020, we had entered into foreign currency forward contracts, which qualified as cash flow hedges, with aggregate notional amounts of approximately ~~$106.9~~$124.0 million and $168.2 million, respectively.

~~Derivative Instruments Not Designated as Cash Flow Hedges~~

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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 ~~June~~September 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~~$92.1 million and $74.8 million, respectively.

Balance Sheet Presentation of Derivative Instruments. As of ~~June~~September 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)



Fair Value of Derivative Instruments Designated as Hedging Instruments	Balance Sheet Location	September 30, 2021		December 31, 2020
Assets
Foreign currency forward contracts	Prepaid expenses and other assets	$	1,237	$	1,777
Foreign currency forward contracts	Other assets (long-term)		236		424

(Liabilities)
Interest rate swaps	Accrued expenses		—		(896)
Interest rate swaps	Other long-term obligations		(2,540)		(3,462)
Foreign currency forward contracts	Accrued expenses		(1,779)		(5,281)
Foreign currency forward contracts	Other long-term obligations		(260)		(866)

Fair Value of Derivative Instruments Not Designated as Hedging Instruments	Balance Sheet Location	September 30, 2021		December 31, 2020
Assets
Foreign currency forward contracts	Prepaid expenses and other assets	$	966	$	877

(Liabilities)
Foreign currency forward contracts	Accrued expenses		(1,054)		(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 June 30,					Three Months Ended June 30,				Three Months Ended June 30,				Three Months Ended September 30,					Three Months Ended September 30,				Three Months Ended September 30,
Derivative instrument	2021		2020		Location in statements of income	2021			2020	2021			2020	2021		2020		Location in statements of income	2021			2020	2021			2020
Interest rate swaps	$	(84)	$	(763)	Interest expense	$	(1,386)	$	(2,715)	$	(447)	$	(265)	$	(18)	$	(30)	Interest expense	$	(1,233)	$	(2,197)	$	(319)	$	(425)
Foreign currency forward contracts		(632)		222	Revenue		280,325		218,371		(1,572)		431		33		(1,324)	Revenue		267,021		243,975		(1,500)		157
					Cost of sales		(156,186)		(134,155)		304		(606)					Cost of sales		(146,527)		(141,961)		312		(494)

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	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
	Six Months Ended June 30,					Six Months Ended June 30,				Six Months Ended June 30,				Nine Months Ended September 30,					Nine Months Ended September 30,				Nine Months Ended September 30,
Derivative instrument	2021		2020		Location in statements of income	2021			2020	2021			2020	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)	$	619	$	(6,256)	Interest expense	$	(4,156)	$	(8,056)	$	(1,198)	$	(439)
Foreign currency forward contracts		(116)		(1,272)	Revenue		529,238		461,896		(3,172)		509		(83)		(2,596)	Revenue		796,259		705,871		(4,674)		666
					Cost of sales		(293,205)		(273,896)		654		(710)					Cost of sales		(439,732)		(415,857)		966		(1,204)

As of ~~June~~September 30, 2021, approximately ($~~2.4)~~1.2) million, or ($~~1.8)~~0.9) 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 ~~June~~September 30, 2021, approximately ($1.2) million, or ($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 June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
Derivative Instrument	Location in statements of income (loss)	2021		2020		2021		2020		Location in statements of income (loss)	2021		2020		2021		2020
Foreign currency forward contracts	Other income (expense)	$	(977)	$	(1,073)	$	(748)	$	2,345	Other income (expense)	$	39	$	(1,294)	$	(709)	$	1,051

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 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 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~~are secured by Selio’s assets.

Deed of Settlement.~~During the three-month period ended June 30,~~ In August 2021, we ~~accrued $6.1~~finalized a deed of settlement and paid approximately $6 million of contract termination costs ~~in selling, general and administrative expenses~~ to renegotiate certain terms of ~~an acquisition~~our September 1, 2017 share purchase agreement with IntelliMedical Technologies Pty. Ltd. (“Intellimedical”) and terminate certain obligations, including the obligation to make potential future payments of AU$15 million (Australian dollars), pursuant to that agreement. These costs were accrued in selling, general and administrative expenses during the second quarter of 2021.

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 such proceedings,

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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 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. 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.

Shareholder Derivative Action

On June 3, 2021, Steffen Maute filed a complaint, derivatively on behalf of Merit, against Merit (as a nominal defendant), our Chief Executive Officer, our Chief Financial Officer, our former President of Europe, Middle East and Africa (“EMEA,”) and certain of our 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 were unjustly enriched at the expense of and to the 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. The proceeding has been stayed until February 2022, subject to the right of either party seeking to lift or extend the stay. 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.

Legal costs for proceedings, legal actions and claims discussed, such as outside counsel fees and expenses, are charged to expense in the 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 for the three and nine-month periods ended September 30, 2021 and 2020 consisted of the following (in thousands, except per share amounts):


	Three Months Ended				Six Months Ended				Three Months Ended				Nine Months Ended
	June 30,				June 30,				September 30,				September 30,
	2021		2020		2021		2020		2021		2020		2021		2020
Net income (loss)	$	4,916	$	(19,058)	$	15,874	$	(22,212)	$	11,967	$	(3,009)	$	27,841	$	(25,221)
Average common shares outstanding		56,061		55,406		55,890		55,326		56,302		55,505		56,033		55,386
Basic EPS	$	0.09	$	(0.34)	$	0.28	$	(0.40)	$	0.21	$	(0.05)	$	0.50	$	(0.46)

Average common shares outstanding		56,061		55,406		55,890		55,326		56,302		55,505		56,033		55,386
Effect of dilutive stock awards		1,216		—		1,238		—		1,247		—		1,241		—
Total potential shares outstanding		57,277		55,406		57,128		55,326		57,549		55,505		57,274		55,386
Diluted EPS	$	0.09	$	(0.34)	$	0.28	$	(0.40)	$	0.21	$	(0.05)	$	0.49	$	(0.46)

Equity awards excluded as the impact was anti-dilutive ⁽¹⁾		990		4,224		1,016		4,282		419		4,044		815		4,202

(1)	Does not reflect the impact of incremental repurchases under the treasury stock method.

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


	Three Months Ended				Six Months Ended				Three Months Ended				Nine Months Ended
	June 30,				June 30,				September 30,				September 30,
	2021		2020		2021		2020		2021		2020		2021		2020
Cost of sales
Nonqualified stock options	$	318	$	347	$	636	$	686	$	383	$	336	$	1,019	$	1,022
Research and development
Nonqualified stock options		276		262		555		547		355		304		910		851
Selling, general and administrative
Nonqualified stock options		814		1,724		2,441		3,429		2,071		1,948		4,512		5,377
Performance-based restricted stock units		972		833		1,703		1,145		1,193		842		2,896		1,987
Restricted stock units		385		31		740		31		409		363		1,149		395
Cash-settled share-based awards ("Liability Awards")		372		231		657		367
Cash-settled performance-based share-based awards ("Liability Awards")										446		270		1,103		636
Total selling, general and administrative		2,543		2,819		5,541		4,972		4,119		3,423		9,660		8,395

Stock-based compensation expense before taxes	$	3,137	$	3,428	$	6,732	$	6,205	$	4,857	$	4,063	$	11,589	$	10,268

Nonqualified Stock Options

During the ~~six-month~~three and nine-month periods ended ~~June~~September 30, 2021, we granted stock options representing 530,500 and 656,350 shares of our common stock, respectively. During the three and nine-month periods ended September 30, 2020, we granted stock options representing ~~125,850~~112,500 and ~~216,494~~328,994 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:


	Six Months Ended		Nine Months Ended
	June 30,		September 30,
	2021	2020	2021	2020
Risk-free interest rate	0.6%	0.5% - 1.7%	0.5% - 0.7%	0.3% - 1.7%
Expected option term	4.0 years	4.0 - 5.0 years	4.0 years	4.0 - 5.0 years
Expected dividend yield	—	—	—	—
Expected price volatility	46.7%	38.7% - 43.2%	46.3% - 46.7%	38.7% - 45.1%

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 ~~June~~September 30, 2021, the total remaining unrecognized compensation cost related to non-vested stock options was approximately ~~$19.9~~$29.4 million, which was expected to be recognized over a weighted average period of ~~2.4~~2.7 years.

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

During the ~~six-month~~nine-month periods ended ~~June~~September 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, respectively. Conversion of the performance stock units occurs at the end of 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.

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:


	Six Months Ended		Nine Months Ended
	June 30,		September 30,
	2021	2020	2021	2020
Risk-free interest rate	0.1% - 0.3%	1.1% - 1.3%	0.1% - 0.3%	1.1% - 1.3%
Remaining performance period	1.8 - 2.8 years	0.8 - 2.8 years
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%	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. As of ~~June~~September 30, 2021, the total remaining unrecognized compensation cost related to stock-settled performance stock units was approximately ~~$6.1~~$5.9 million, which is expected to be recognized over a weighted average period of ~~1.9~~1.8 years.

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

During the ~~six-month~~nine-month periods ended ~~June~~September 30, 2021 and 2020, we granted liability awards to our Chief Executive Officer with total target cash incentives, each in the amount of $1.0 ~~million and $1.0 million, respectively.~~million. These awards entitle him to a target cash payment based upon attaining targeted levels of FCF and rTSR, as defined in the award agreements. Settlement generally occurs based upon the same performance metrics, vesting period, and performance period as our performance stock units.

The fair value of these awards 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~~obligations within our consolidated balance sheet. As of ~~June~~September 30, 2021, the total remaining unrecognized compensation cost related to cash-settled performance-based share-based awards was approximately ~~$2.2~~$2.1 million, which is expected to be recognized over a weighted average period of ~~1.9~~1.8 years.

Restricted Stock Units

During the ~~three-month~~nine-month periods ended ~~June~~September 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, 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. As of ~~June~~September 30, 2021, the total remaining unrecognized compensation cost related to restricted stock units was approximately ~~$1.6~~$1.2 million, which will be recognized over a weighted average period of ~~1.0 year.~~0.7 years.

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 ~~six-month~~nine-month periods ended ~~June~~September 30, 2021 and 2020, were as follows (in thousands):


	Three Months Ended				Six Months Ended				Three Months Ended				Nine Months Ended
	June 30,				June 30,				September 30,				September 30,
	2021		2020		2021		2020		2021		2020		2021		2020
Net Sales
Cardiovascular	$	272,292	$	212,177	$	513,298	$	447,721	$	259,704	$	236,413	$	773,002	$	684,134
Endoscopy		8,033		6,194		15,940		14,175		7,317		7,562		23,257		21,737
Total net sales		280,325		218,371		529,238		461,896		267,021		243,975		796,259		705,871

Operating Income (Loss)
Cardiovascular		6,777		(20,462)		18,978		(18,960)		14,411		(1,702)		33,389		(20,662)
Endoscopy		2,118		1,467		4,111		1,327		1,520		1,766		5,631		3,093
Total operating income (loss)		8,895		(18,995)		23,089		(17,633)		15,931		64		39,020		(17,569)

Total other expense - net		(2,030)		(3,305)		(3,530)		(6,659)		(1,754)		(2,248)		(5,284)		(8,907)
Income tax expense (benefit)		1,949		(3,242)		3,685		(2,080)		2,210		825		5,895		(1,255)

Net income (loss)	$	4,916	$	(19,058)	$	15,874	$	(22,212)	$	11,967	$	(3,009)	$	27,841	$	(25,221)

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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~~September 30, 2021 and December 31, 2020 consisted of the following (in thousands):


			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
	June 30, 2021		(Level 1)		(Level 2)		(Level 3)		September 30, 2021		(Level 1)		(Level 2)		(Level 3)
Interest rate contract liabilities, current and long-term ⁽¹⁾	$	(2,840)	$	—	$	(2,840)	$	—
Interest rate contract liabilities, long-term ⁽¹⁾									$	(2,540)	$	—	$	(2,540)	$	—
Foreign currency contract assets, current and long-term ⁽²⁾	$	2,925	$	—	$	2,925	$	—	$	2,439	$	—	$	2,439	$	—
Foreign currency contract liabilities, current and long-term ⁽³⁾	$	(4,847)	$	—	$	(4,847)	$	—	$	(3,093)	$	—	$	(3,093)	$	—
Contingent consideration liabilities	$	(57,477)	$	—	$	—	$	(57,477)	$	(48,483)	$	—	$	—	$	(48,483)


			Fair Value Measurements Using
	Total Fair		Quoted prices in		Significant other		Significant
	Value at		active markets		observable inputs		unobservable inputs
	December 31, 2020		(Level 1)		(Level 2)		(Level 3)
Interest rate contract liabilities, current and long-term ⁽¹⁾	$	(4,358)	$	—	$	(4,358)	$	—
Foreign currency contract assets, current and long-term ⁽²⁾	$	3,078	$	—	$	3,078	$	—
Foreign currency contract liabilities, current and long-term ⁽³⁾	$	(8,267)	$	—	$	(8,267)	$	—
Contingent consideration liabilities	$	(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 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, 2021 and 2020 consisted of the following (in thousands):


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2021		2020		2021		2020
Beginning balance	$	57,477	$	69,100	$	55,750	$	76,709
Contingent consideration expense (benefit)		1,115		(4,356)		3,322		884
Contingent payments made		(10,090)		(130)		(10,579)		(12,991)
Effect of foreign exchange		(19)		51		(10)		63
Ending balance	$	48,483	$	64,665	$	48,483	$	64,665

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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~~September 30, 2021, approximately ~~$20.5~~$13.2 million in contingent consideration liability was included in other long-term obligations and approximately ~~$37.0~~$35.3 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 ~~June~~September 30, 2021 and December 31, 2020 (amounts in thousands):


	Fair value at						Fair value at
	June 30,		Valuation			Weighted	September 30,		Valuation			Weighted
Contingent consideration liability	2021		technique	Unobservable inputs	Range	Average⁽¹⁾	2021		technique	Unobservable inputs	Range	Average⁽¹⁾
Revenue-based royalty payments contingent liability	$	3,529	Discounted cash flow	Discount rate	14% - 16%	15.3%	$	3,560	Discounted cash flow	Discount rate	14% - 16%	15.3%
				Projected year of payments	2021-2034	2026				Projected year of payments	2021-2034	2026

Revenue milestones contingent liability	$	50,048	Monte Carlo simulation	Discount rate	10% - 14%	10.3%	$	41,051	Monte Carlo simulation	Discount rate	10.5% - 14%	10.6%
				Projected year of payments	2021-2030	2022				Projected year of payments	2021-2030	2022

Regulatory approval contingent liability	$	3,900	Scenario-based method	Discount rate	1%		$	3,872	Scenario-based method	Discount rate	1%
				Probability of milestone payment	80%					Probability of milestone payment	80%
				Projected year of payment	2024					Projected year of payment	2024

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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).

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Contingent Payments to Related Parties

During the ~~six-month~~nine-month period ended ~~June~~September 30, 2020, we made contingent payments of approximately $800,000 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~~nine-month period ended ~~June~~September 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 Merit director. As a former 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 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-month periods~~nine-month period ended ~~June~~September 30, 2021, ~~and 2020,~~ we ~~had losses~~recorded an impairment charge related to acquired intangible assets of approximately $1.6 million. During the three and ~~$2.4~~nine-month periods ended September 30, 2020, we recorded impairment charges related to acquired intangible assets of approximately $18.1 million and $20.5 million, respectively (see Note 6).

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Right of Use Operating Lease Assets. During the ~~three-month~~nine-month periods ended ~~June~~September 30, 2021 and 2020, we identified changes in events and circumstances relating to certain right-of-use (“ROU”) operating lease 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 values were not recoverable. Consequently, we recorded impairment losses in the ~~three-month~~nine-month periods ended ~~June~~September 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 losses in both periods were driven primarily by site consolidation decisions and changes in our projected cash flows for the ROU operating lease 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 lessees, an increase in anticipated lease concessions, and a decrease in the expected lease rates for the 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 and ~~six-month~~nine-month periods ended ~~June~~September 30, 2021, we had 0 losses related to equity investments and purchase options. During the ~~six-month~~three-month period ended ~~June~~September 30, 2020 we recorded $2.5 million of impairment expense related to our equity investment of 19.5 percent ownership in preferred shares of Fusion Medical Inc. (“Fusion”) due to uncertainty about future product development and commercialization associated with Fusion’s technology. In addition, during the nine-month period ended September 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 equity investment and purchase option pertained to our cardiovascular segment. Our equity investments in privately held companies, including options to acquire these companies, were approximately ~~$12.0~~$14.7 million and $12.0 million as of ~~June~~September 30, 2021 and December 31, 2020, respectively, which are included within other long-term assets in our consolidated balance sheets. We analyze our investments in privately-held companies to determine if they should be

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accounted for using the equity method based on our ability to exercise significant influence over operating and financial policies of the 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 ~~three and six-month periods~~nine-month period ended ~~June~~September 30, 2021, we had losses of $1.3 million related to the measurement of property and equipment 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~~nine-month period ended ~~June~~September 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 $1.9 million and $2.2 million as of ~~June~~September 30, 2021 and December 31, 2020, respectively. As of ~~June~~September 30, 2021 and December 31, 2020, we had an allowance for current expected credit losses of approximately ~~$1.1~~$1.2 million and $0.7 million, respectively, 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, and other security specific factors. During the three and six-month periods ended June 30, 2021 and 2020, respectively, we adjusted the probability of default for all notes receivable 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 ~~six-month~~nine-month periods ended ~~June~~September 30, 2021 and 2020 (in thousands):


	Three Months Ended				Six Months Ended				Three Months Ended				Nine Months Ended
	June 30,				June 30,				September 30,				September 30,
	2021		2020		2021		2020		2021		2020		2021		2020
Beginning balance	$	932	$	670	$	730	$	—	$	1,107	$	757	$	730	$	—
Cumulative effect adjustment upon adoption of ASU 2016-13, Credit Losses		—		—		—		575		—		—		—		575
Provision for credit loss expense		175		87		377		182		113		46		490		228
Ending balance	$	1,107	$	757	$	1,107	$	757	$	1,220	$	803	$	1,220	$	803

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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 ~~six-month~~nine-month periods ended ~~June~~September 30, 2021 and 2020 were as follows:


	Cash Flow Hedges		Foreign Currency Translation		Total		Cash Flow Hedges		Foreign Currency Translation		Total
Balance as of March 31, 2021	$	(4,743)	$	(2,439)	$	(7,182)
Balance as of June 30, 2021							$	(3,992)	$	(842)	$	(4,834)

Other comprehensive income (loss)		(716)		1,800		1,084		15		(2,873)		(2,858)
Income taxes		(248)		(203)		(451)		(377)		346		(31)
Reclassifications to:
Revenue		1,572				1,572		1,500				1,500
Cost of sales		(304)				(304)		(312)				(312)
Interest expense		447				447		319				319
Net other comprehensive income (loss)		751		1,597		2,348		1,145		(2,527)		(1,382)

Balance as of June 30, 2021	$	(3,992)	$	(842)	$	(4,834)
Balance as of September 30, 2021							$	(2,847)	$	(3,369)	$	(6,216)


	Cash Flow Hedges		Foreign Currency Translation		Total		Cash Flow Hedges		Foreign Currency Translation		Total
Balance as of March 31, 2020	$	(5,115)	$	(9,644)	$	(14,759)
Balance as of June 30, 2020							$	(5,190)	$	(7,123)	$	(12,313)

Other comprehensive income (loss)		(541)		2,524		1,983		(1,354)		3,545		2,191
Income taxes		26		(3)		23		152		(117)		35
Reclassifications to:
Revenue		(431)				(431)		(157)				(157)
Cost of sales		606				606		494				494
Interest expense		265				265		425				425
Net other comprehensive income (loss)		(75)		2,521		2,446		(440)		3,428		2,988

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

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

Other comprehensive income (loss)		522		(2,662)		(2,140)		536		(5,535)		(4,999)
Income taxes		(972)		332		(640)		(1,349)		678		(671)
Reclassifications to:
Revenue		3,172				3,172		4,674				4,674
Cost of sales		(654)				(654)		(966)				(966)
Interest expense		880				880		1,198				1,198
Net other comprehensive income (loss)		2,948		(2,330)		618		4,093		(4,857)		(764)

Balance as of June 30, 2021	$	(3,992)	$	(842)	$	(4,834)
Balance as of September 30, 2021							$	(2,847)	$	(3,369)	$	(6,216)


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

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

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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.

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 ~~June~~September 30, 2021, we reported sales of approximately ~~$280.3~~$267.0 million, up approximately ~~$62.0~~$23.0 million or ~~28.4%~~9.4%, compared to sales for the three-month period ended ~~June~~September 30, 2020 of approximately ~~$218.4~~$244.0 million. For the ~~six-month~~nine-month period ended ~~June~~September 30, 2021, we reported sales of approximately ~~$529.2~~$796.3 million, up approximately ~~$67.3~~$90.4 million or ~~14.6%~~12.8%, compared to sales for the ~~six-month~~nine-month period ended ~~June~~September 30, 2020 of approximately ~~$461.9~~$705.9 million. For the three and ~~six-month~~nine-month periods ended ~~June~~September 30, 2021, our net sales benefitted approximately ~~$6.2~~$1.4 million and ~~$10.0~~$11.4 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 increased to ~~44.3%~~45.1% for the three-month period ended ~~June~~September 30, 2021 compared to ~~38.6%~~41.8% for the three-month period ended ~~June~~September 30, 2020. Gross profit as a percentage of sales increased to ~~44.6%~~44.8% for the ~~six-month~~nine-month period ended ~~June~~September 30, 2021 compared to ~~40.7%~~41.1% for the ~~six-month~~nine-month period ended ~~June~~September 30, 2020.

Net income for the three-month period ended ~~June~~September 30, 2021 was approximately ~~$4.9~~$12.0 million, or ~~$0.09~~$0.21 per share, compared to net loss of approximately ($~~19.1)~~3.0) million, or ($~~0.34)~~0.05) per share, for the three-month period ended ~~June~~September 30, 2020. Net income for the ~~six-month~~nine-month period ended ~~June~~September 30, 2021 was approximately ~~$15.9~~$27.8 million, or ~~$0.28~~$0.49 per share, compared to net loss of approximately ($~~22.2)~~25.2) million, or ($~~0.40)~~0.46) per share, for the ~~six-month~~nine-month period ended ~~June~~September 30, 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 2021 has been impacted, and we believe will continue to be impacted, by the following recent events and trends:

●

We ~~have made progress on our Foundations for Growth program, including the following:~~

~~SKU rationalization, product line transfers, and manufacturing initiatives,~~

~~support function initiatives including corporate communications, finance and IT,~~

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

~~strengthening our senior leadership team and organizational reporting relationships, and~~

~~commercial and marketing excellence initiatives, which are expected to begin shortly.~~

●

In the three months ended June 30, 2021, we saw measured improvements in the operating environment, particularly in the U.S., where we saw more willingness and receptivity from hospital customers to evaluate new product offerings in recent months.

●

~~Internationally, we~~ experienced overall ~~improvement~~improvements in sales trends ~~during the three months ended June 30, 2021, with notable variation~~ in the ~~pace of recovery~~three-month period ended September, with wide variation across regions of the world ~~including wide variation~~and within certain geographic regions.

●

During the three months ended ~~June~~September 30, 2021, we saw continued progress of our Wrapsody ArterioVenous (AV) Access Efficacy Pivotal Study (the “WAVE Study”) of the ~~WRAPSODY™~~ Endovascular Stent Graft, ~~an investigational device being studied~~and published the

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results from a prospective, observational, first-in-human study of the Merit WRAPSODY Endoprosthesis in CardioVascular and Interventional Radiology.

●

As part of our Foundations for ~~the treatment of stenosis or occlusion within dialysis outflow circuits. We~~Growth program we have ~~identified more than 40 clinical~~continued to focus on scrap reduction and manufacturing efficiency across manufacturing sites, ~~for the WAVE study.~~which has helped offset inflationary cost pressures in certain raw materials, shipping, and freight expenses.

●

As of ~~June~~September 30, 2021, we had cash on hand of approximately ~~$69.7~~$68.9 million and net available borrowing capacity of approximately ~~$444~~$456 million.

RESULTS OF OPERATIONS

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


	Three Months Ended				Six Months Ended				Three Months Ended				Nine Months Ended
	June 30,				June 30,				September 30,				September 30,
	2021		2020		2021		2020		2021		2020		2021		2020
Net sales	100	%	100	%	100	%	100	%	100	%	100	%	100	%	100	%
Gross profit	44.3		38.6		44.6		40.7		45.1		41.8		44.8		41.1
Selling, general and administrative expenses	32.7		30.6		32.6		31.5		32.4		29.6		32.5		30.9
Research and development expenses	6.3		6.4		6.4		6.3		6.4		5.5		6.4		6.0
Legal settlement	—		8.3		—		3.9		—		—		—		2.6
Impairment charges	1.5		1.8		0.8		1.7		—		8.4		0.5		4.0
Contingent consideration expense	0.6		0.2		0.4		1.1
Contingent consideration expense (benefit)									0.4		(1.8)		0.4		0.1
Income (loss) from operations	3.2		(8.7)		4.4		(3.8)		6.0		0.0		4.9		(2.5)
Other expense — net	(0.7)		(1.5)		(0.7)		(1.4)		(0.7)		(0.9)		(0.7)		(1.3)
Income (loss) before income taxes	2.4		(10.2)		3.7		(5.3)		5.3		(0.9)		4.2		(3.8)
Net income (loss)	1.8		(8.7)		3.0		(4.8)		4.5		(1.2)		3.5		(3.6)

Sales

Sales for the three-month period ended ~~June~~September 30, 2021 increased by ~~28.4%~~9.4%, or approximately ~~$62.0~~$23.0 million, compared to the corresponding period in 2020. Sales for the ~~six-month~~nine-month period ended ~~June~~September 30, 2021 increased by ~~14.6%~~12.8%, or approximately ~~$67.3~~$90.4 million, compared to the corresponding period in 2020. ~~The increase in sales relative to the prior-~~

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


			Three Months Ended						Six Months Ended						Three Months Ended						Nine Months Ended
			June 30,						June 30,						September 30,						September 30,
	% Change		2021		2020		% Change		2021		2020		% Change		2021		2020		% Change		2021		2020
Cardiovascular
Peripheral Intervention	45.4	%	$	105,600	$	72,635	24.3	%	$	198,514	$	159,710	16.5	%	$	101,059	$	86,778	21.5	%	$	299,573	$	246,488
Cardiac Intervention	29.8	%		85,653		66,005	15.7	%		160,390		138,596	15.5	%		79,813		69,089	15.7	%		240,203		207,685
Custom Procedural Solutions	7.3	%		48,636		45,319	1.2	%		94,057		92,940	(12.4)	%		49,435		56,429	(3.9)	%		143,492		149,369
OEM	14.8	%		32,403		28,218	6.8	%		60,337		56,475	21.9	%		29,397		24,117	11.3	%		89,734		80,592
Total	28.3	%		272,292		212,177	14.6	%		513,298		447,721	9.9	%		259,704		236,413	13.0	%		773,002		684,134

Endoscopy
Endoscopy devices	29.7	%		8,033		6,194	12.5	%		15,940		14,175	(3.2)	%		7,317		7,562	7.0	%		23,257		21,737

Total	28.4	%	$	280,325	$	218,371	14.6	%	$	529,238	$	461,896	9.4	%	$	267,021	$	243,975	12.8	%	$	796,259	$	705,871

Cardiovascular Sales. Our cardiovascular sales for the three-month period ended ~~June~~September 30, 2021 were approximately ~~$272.3~~$259.7 million, up ~~28.3%~~9.9% when compared to the corresponding period of 2020 of approximately ~~$212.2~~$236.4 million. Sales for the three-month period ended ~~June~~September 30, 2021 were favorably affected by increased sales of:

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(a)

Peripheral intervention products, which increased by approximately $14.3 million, or 16.5%, from the corresponding period of 2020. This increase was driven primarily by sales of our radar localization, drainage, embolotherapy, angiography, intervention, and biopsy products.

(b)

Cardiac intervention products, which increased by approximately $10.7 million, or 15.5%, 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), angiography and access products.

(c)

OEM products, which increased by approximately $5.3 million, or 21.9%, from the corresponding period of 2020. This increase was driven primarily by sales of our angiography products and kits.

The foregoing increase in sales for the three-month period ended September 30, 2021 was partially offset by decreased sales of:

(d)

Custom procedural solutions products, which decreased by approximately ($7.0) million, or (12.4)%, from the corresponding period of 2020. This decrease was driven primarily by decreased sales of critical care products (including an ($8.7) million decrease in Cultura^TM nasopharyngeal swab and test kit sales) and trays, offset partially by sales of kits.

Our cardiovascular sales for the nine-month period ended September 30, 2021 were approximately $773.0 million, up 13.0% when compared to the corresponding period of 2020 of approximately $684.1 million. Sales for the nine-month period ended September 30, 2021 were favorably affected by increased sales of:

(a)

Peripheral intervention products, which increased by approximately ~~$33.0~~$53.1 million, or ~~45.4%~~21.5%, from the corresponding period of 2020. This increase was driven primarily by sales of our radar localization, embolotherapy, drainage, biopsy, ~~drainage~~angiography and ~~embolotherapy products, with growth throughout the product category.~~intervention products.

(b)

Cardiac intervention products, which increased by approximately ~~$19.6~~$32.5 million, or ~~29.8%~~15.7%, 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.~~products.

(c)

OEM products, which increased by approximately ~~$4.2~~$9.1 million, or ~~14.8%~~11.3%, from the corresponding period of 2020. This increase was driven primarily by sales of our ~~EP/CRM~~cardiac rhythm management/electrophysiology (“CRM/EP”) products, angiography products, and ~~angiography products.~~coatings.

The foregoing increase in sales for the nine-month period ended September 30, 2021 was partially offset by decreased sales of:

(d)

Custom procedural solutions products, which ~~increased~~decreased by approximately ~~$3.3~~($5.9) million, or ~~7.3%~~(3.9)%, from the corresponding period of 2020. This ~~increase~~decrease was driven primarily by sales of ~~our kits and trays and offset partially by a decrease in sales of our~~ critical care products ~~including~~(including a ($~~4.1)~~11.9) 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 affectedsales) and trays, offset partially 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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~~(c)~~

~~OEM products, which increased by approximately $3.9 million, or 6.8%, from the corresponding period of 2020. This increase was driven primarily by sales of our EP/CRM and angiography products.~~ kits.

Endoscopy Sales. Our endoscopy sales for the three-month period ended ~~June~~September 30, 2021 were approximately ~~$8.0~~$7.3 million, ~~up 29.7%~~down (3.2)%, when compared to sales in the corresponding period of 2020 of approximately ~~$6.2~~$7.6 million. Sales for the three-month period ended September 30, 2021 were unfavorably affected by decreased sales of our EndoMAXX® fully covered esophageal stent, offset partially by increased sales of other stents and our Elation® Balloon Dilator.

Our endoscopy sales for the ~~six-month~~nine-month period ended ~~June~~September 30, 2021 were approximately ~~$15.9~~$23.3 million, up ~~12.5%~~7.0%, when compared to sales in the corresponding period of 2020 of approximately ~~$14.2~~$21.7 million. Sales for the ~~three and six-month periods~~nine-month period ended ~~June~~September 30, 2021 were favorably affected by increased sales of our Elation® Balloon Dilator ~~our EndoMAXX® fully covered esophageal stent~~ and other stents.

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Geographic Sales

Sales trends for the three and ~~six-month~~nine-month periods ended ~~June~~September 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~~nine-month periods ended ~~June~~September 30, 2021 and 2020 (in thousands, other than percentage changes):


			Three Months Ended						Six Months Ended						Three Months Ended						Nine Months Ended
			June 30,						June 30,						September 30,						September 30,
	% Change		2021		2020		% Change		2021		2020		% Change		2021		2020		% Change		2021		2020
United States	34.4	%	$	158,771	$	118,140	15.8	%	$	300,143	$	259,196	5.9	%	$	151,505	$	143,109	12.3	%	$	451,648	$	402,305
International	21.3	%		121,554		100,231	13.0	%		229,095		202,700	14.5	%		115,516		100,866	13.5	%		344,611		303,566
Total	28.4	%	$	280,325	$	218,371	14.6	%	$	529,238	$	461,896	9.4	%	$	267,021	$	243,975	12.8	%	$	796,259	$	705,871

United States Sales. U.S. sales for the three-month period ended ~~June~~September 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~~$151.5 million, or 56.7% of net sales, up ~~15.8%~~5.9% when compared to the corresponding period of 2020. The increase in our domestic sales in the three-month period ended September 30, 2021 compared to the three-month period ended September 30, 2020 was driven primarily by our U.S. Direct and OEM businesses.

U.S. sales for the nine-month period ended September 30, 2021 were approximately $451.6 million, or 56.7% of net sales, up 12.3% when compared to the corresponding period of 2020. The increase in our domestic sales for the nine-month period ended September 30, 2021 compared to the nine-month period ended September 30, 2020 was driven primarily by our U.S. direct business.

International Sales. International sales for the three-month period ended ~~June~~September 30, 2021 were approximately ~~$121.6~~$115.5 million, or ~~43.4%~~43.3% of net sales, up ~~21.3%~~14.5% when compared to the corresponding period of 2020 of approximately ~~$100.2~~$100.9 million. The increase in our international sales for the ~~second quarter of~~three-month period ended September 30, 2021, compared to the ~~second quarter of~~three-month period ended September 30, 2020, included increased sales in our Asia Pacific (“APAC”) operations of $6.6 million or 13.2%, in EMEA of ~~$12.8~~$6.0 million or ~~31.9%, increased sales in APAC of $6.4 million or 11.7%,~~13.6% and increased sales in the rest of the world (“ROW”) of $2.1 million of ~~40.8%~~30.6%.

International sales for the ~~six-month~~nine-month period ended ~~June~~September 30, 2021 were approximately ~~$229.1~~$344.6 million, or 43.3% of net sales, up ~~13.0%~~13.5% when compared to the corresponding period of 2020 of approximately ~~$202.7~~$303.6 million. The increase in our international sales for the ~~six-month~~nine-month period ended ~~June~~September 30, 2021, compared to the ~~six-month~~nine-month period ended ~~June~~September 30, 2020, included increased sales in APAC of ~~$15.2~~$21.8 million or ~~15.5%~~14.7%, in EMEA of ~~$9.9~~$15.9 million or ~~10.8%~~11.7%, and in ROW of ~~$1.3~~$3.4 million or ~~10.1%~~17.2%.

Gross Profit

Our gross profit as a percentage of sales increased to ~~44.3%~~45.1% for the three-month period ended ~~June~~September 30, 2021, compared to ~~38.6%~~41.8% for the three-month period ended ~~June~~September 30, 2020. The increase in gross profit percentage was primarily due to changes in product mix, lower amortization expense (as certain intangibles from prior acquisitions became fully amortized), and improvements in manufacturing variances from operational efficiencies and increased production volume, partially offset by higher freight costs.

Our gross profit as a percentage of sales increased to 44.8% for the nine-month period ended September 30, 2021, compared to 41.1% for the nine-month period ended September 30, 2020. The increase in gross profit percentage was primarily due to lower amortization expense (as certain intangibles from prior acquisitions became fully amortized), changes in product mix, decreased obsolescence expense as a percentage of sales, ~~changes in product mix,~~ and improvements in manufacturing variances from operational efficiencies and increased production volume.

Our gross profit as a percentage of sales increased to 44.6% for the six-month period ended June 30, 2021, compared to 40.7% for the six-month period ended June 30, 2020. The 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.~~

Operating Expenses

Selling, General and Administrative Expense. Selling, general and administrative ("SG&A") expenses increased approximately ~~$24.8~~$14.3 million, or ~~37.1%~~19.7%, for the three-month period ended ~~June~~September 30, 2021 compared to the corresponding period of 2020. As a percentage of sales, SG&A expenses were ~~32.7%~~32.4% for the three-month period ended ~~June~~September 30, 2021, compared to ~~30.6%~~29.6% for the corresponding period of 2020. For the three-month period ended ~~June~~September 30, 2021, compared to the corresponding period of 2020, ~~labor related~~labor-related costs increased due to higher commissions and bonus expense in the current-year period, ~~and~~in contrast to temporary salary cuts and furloughs in the prior-year period. We incurred ~~$7.3~~$4.3 million of corporate transformation and restructuring costs, including consulting charges, during the three-month period ended ~~June~~September 30, 2021 in connection with our Foundations for Growth program, compared to restructuring costs of ~~$1.7~~$2.8 million for the three-month period ended ~~June~~September 30, 2020. ~~We also accrued $6.1 million of contract termination~~These increased costs ~~in SG&A during~~were offset partially by lower idle capacity costs due to increased production compared to the ~~three-month period ended June 30, 2021 to renegotiate certain terms of an acquisition agreement~~prior-year period.

SG&A expenses increased approximately ~~$27.0~~$41.3 million, or ~~18.6%~~18.9%, for the ~~six-month~~nine-month period ended ~~June~~September 30, 2021 compared to the corresponding period of 2020. As a percentage of sales, SG&A expenses were ~~32.6%~~32.5% for the ~~six-month~~nine-month period ended ~~June~~September 30, 2021, compared to ~~31.5%~~30.9% for the corresponding period of 2020. For the ~~six-month~~nine-month period ended ~~June~~September 30, 2021, compared to the corresponding period of 2020, ~~labor related~~labor-related costs increased due to higher commissions and bonus expense in the current-year period, ~~and~~in contrast to temporary salary cuts and furloughs in the prior-year period. We incurred ~~$12.8~~$17.0 million of corporate transformation and restructuring costs, including consulting charges, during the ~~six-month~~nine-month period ended ~~June~~September 30, 2021 in connection with our Foundations for Growth program, compared to restructuring costs of ~~$3.5~~$6.3 million for the ~~six-month~~nine-month period ended ~~June~~September 30, 2020. We also ~~accrued $6.1~~recorded approximately $6 million of contract termination costs in SG&A during the ~~six-month~~nine-month period ended ~~June~~September 30, 2021 to renegotiate certain terms of an acquisition ~~agreement~~agreement. These increased costs were offset partially by lower idle capacity costs due to increased production compared to the prior-year period.

Research and Development Expenses. Research and development ("R&D") expenses for the three-month period ended ~~June~~September 30, 2021 were approximately ~~$17.6~~$17.0 million, up ~~25.4%~~25.7%, when compared to R&D expenses in the corresponding period of 2020 of approximately ~~$14.0~~$13.5 million. R&D expenses for the ~~six-month~~nine-month period ended ~~June~~September 30, 2021 were approximately ~~$33.9~~$50.8 million, up ~~17.2%~~19.9%, when compared to R&D expenses in the corresponding period of 2020 of approximately ~~$28.9~~$42.4 million. The increase in R&D expenses for the three and ~~six-month~~nine-month periods ended ~~June~~September 30, 2021 compared to the corresponding periods in 2020 was largely due to increased clinical expenses for certain R&D projects (including ~~the WAVE study)~~our WRAPSODY AV Access Efficacy Study), increased compensation expense due to temporary salary cuts and furloughs in the prior-year periods, and higher expenses related to implementation of the Medical Device Regulation in the European Union.

Legal Settlement. We recorded a settlement in the ~~first six months of~~nine-month period ended September 30, 2020 of $18.2 million in connection with an agreement in principle with the Department of Justice (“DOJ”) to fully resolve the DOJ’s investigation of certain marketing and promotional practices.

Impairment Charges. For the ~~three and six-month periods~~nine-month period ended ~~June~~September 30, 2021 we recorded impairment charges of approximately $4.3 ~~million and $4.3 million, respectively.~~million. 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”~~ROU operating lease assets due to site consolidation decisions and changes in our projected cash flows for the underlying lease assets.

For the three and ~~six-month~~nine-month periods ended ~~June~~September 30, 2020, we recorded impairment charges of approximately ~~$3.9~~$20.6 million and ~~$7.7~~$28.3 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 ~~the~~our option 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 ~~2020 of a certain ROU~~our right-of-use operating lease asset associated with ~~site consolidation decisions~~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 and ~~changes~~commercialization associated with the technologies, and $18.1 in ~~our projected cash flows~~the third quarter for ~~the underlying asset~~.intangible impairment charges based on planned closure and restructuring activities and uncertainty about

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future product development and commercialization associated with the acquired technologies due in part to the economic impacts of the COVID-19 pandemic.

Contingent Consideration Expense (Benefit). For the three and ~~six-month~~nine-month periods ended ~~June~~September 30, 2021, we recognized contingent consideration expense from changes in the estimated fair value of our contingent consideration obligations stemming from our previously disclosed business acquisitions of approximately ~~$1.8~~$1.1 million and ~~$2.2~~$3.3 million, respectively, compared to contingent consideration expense (benefit) of ~~$0.3~~($4.4) million and ~~$5.2~~$0.9 million for the three and ~~six-month~~nine-month periods ended ~~June~~September 30, 2020. Expense (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 ~~six-month~~nine-month periods ended ~~June~~September 30, 2021 and 2020 (in thousands):


	Three Months Ended				Six Months Ended				Three Months Ended				Nine Months Ended
	June 30,				June 30,				September 30,				September 30,
	2021		2020		2021		2020		2021		2020		2021		2020
Operating Income (Loss)
Cardiovascular	$	6,777	$	(20,462)	$	18,978	$	(18,960)	$	14,411	$	(1,702)	$	33,389	$	(20,662)
Endoscopy		2,118		1,467		4,111		1,327		1,520		1,766		5,631		3,093
Total operating income (loss)	$	8,895	$	(18,995)	$	23,089	$	(17,633)	$	15,931	$	64	$	39,020	$	(17,569)

Cardiovascular Operating Income (Loss). Our cardiovascular operating income for the three-month period ended ~~June~~September 30, 2021 was approximately ~~$6.8~~$14.4 million, compared to cardiovascular operating loss in the corresponding period of 2020 of approximately ($~~20.5)~~1.7) million. The increase in cardiovascular operating income during the three-month period ended ~~June~~September 30, 2021 compared to the corresponding period of 2020 was primarily a result of higher sales ($~~272.3~~259.7 million compared to ~~$212.2~~$236.4 million), higher gross margin and decreased impairment expense (none in the three-month period ended September 30, 2021 compared to $20.6 million in the three-month period ended September 30, 2020), partially offset by increased SG&A and R&D expenses and higher contingent consideration expense.

Our cardiovascular operating income for the nine-month period ended September 30, 2021 was approximately $33.4 million, compared to cardiovascular operating loss in the corresponding period of 2020 of approximately ($20.7) million. The increase in cardiovascular operating income during the nine-month period ended September 30, 2021 compared to the corresponding period of 2020 was primarily a result of higher sales ($773.0 million compared to $684.1 million), higher gross margin, lower impairment expense ($4.3 million for the nine-month period ended September 30, 2021 compared to $27.9 million for the nine-month period ended September 30, 2020) 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 expense.

Our cardiovascular operating income for the six-month period ended June 30, 2021 was approximately $19.0 million, compared to cardiovascular operating loss in the corresponding period of 2020 of approximately ($19.0) million. The 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 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 t~~he $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.~~

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

Our endoscopy operating income for the ~~six-month~~nine-month period ended ~~June~~September 30, 2021 was approximately ~~$4.1~~$5.6 million, compared to endoscopy operating income of approximately ~~$1.3~~$3.1 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), and decreased impairment expense (none in the ~~six-month~~nine-month period ended ~~June~~September 30, 2021 compared to approximately $0.4 million in the ~~six-month~~nine-month period ended ~~June~~September 30, 2020) ~~and decreased operating expenses (primarily related to travel and advertising)~~.

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Other Expense

Our other expense for the three-month periods ended ~~June~~September 30, 2021 and 2020 was approximately ($~~2.0)~~1.8) million and ($~~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)~~2.2) 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 and 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.

Our other expense for the nine-month periods ended September 30, 2021 and 2020 was approximately ($5.3) million and ($8.9) million, respectively. The change in other expense was primarily related to decreased interest expense as ~~well as~~a result of a lower effective interest rate and a lower average debt balance, an increase in interest income due to partial recoveries of loan interest from NinePoint which had previously been written ~~off.~~off, and 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.

Effective Tax Rate

Our provision for income taxes for the three-month periods ended ~~June~~September 30, 2021 and 2020 was a tax expense of approximately $2.2 million and $0.8 million, respectively, which resulted in an effective tax rate of 15.6% and (37.7)%, respectively. Our provision for income taxes for the nine-month periods ended September 30, 2021 and 2020 was a tax expense (benefit) of approximately ~~$1.9~~$5.9 million and ($~~3.2)~~1.3) million, respectively, which resulted in an effective tax rate of ~~28.4%~~17.5% and 14.5%, respectively. Our provision for income taxes for the six-month periods ended June 30, 2021 and 2020 was a tax expense (benefit) of approximately $3.7 million and ($2.1) million, respectively, which resulted in an effective tax rate of 18.8% and 8.6%4.7%, respectively. The increase in the income tax expense and the corresponding change in the effective income tax rate for the three and ~~six-month~~nine-month periods ended ~~June~~September 30, 2021, when compared to the prior-year 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 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).

Net Income (Loss)

Our net income (loss) for the three-month periods ended ~~June~~September 30, 2021 and 2020 was approximately ~~$4.9~~$12.0 million and ($~~19.1)~~3.0) million, respectively. ~~This~~The increase in our net income for the three-month period ended ~~June~~September 30, 2021 was the result of several factors, including increased sales and improved gross margins, ~~the $18.2 million legal settlement related to the DOJ inquiry recorded~~lower impairment expense (none in the ~~prior-year~~three-month period ended September 30, 2021 compared to $20.6 million in the three-month period ended September 30, 2020), and lower interest expense, partially offset by increased SG&A expenses, ~~which included $6.1 million of contract termination costs,~~ increased R&D expenses and higher contingent consideration expense ($~~1.8~~1.1 million expense in the three-month period ended September 30, 2021 compared to ~~$0.3 million)~~($4.4) million benefit in the three-month period ended September 30, 2020).

Our net income (loss) for the ~~six-month~~nine-month periods ended ~~June~~September 30, 2021 and 2020 was approximately ~~$15.9~~$27.8 million and ($~~22.2)~~25.2) million, respectively. This increase in our net income for the ~~six-month~~nine-month period ended ~~June~~September 30, 2021 was the result of several factors, including increased sales and improved gross margins, the $18.2 million legal settlement related to the DOJ inquiry recorded in the prior-year period, lower impairment expense ($4.3 million in the nine-month period ended September 30, 2021 compared to ~~$7.7 million), lower contingent consideration expense ($2.2~~$28.3 million ~~compared to $5.2 million)~~in the nine-month period ended September 30, 2020), and lower interest expense, partially offset by increased SG&A expenses, which included ~~$6.1~~approximately $6 million of contract termination costs, higher contingent consideration expense ($3.3 million in the nine-month period ended September 30, 2021 compared to $0.9 million in the nine-month period ended September 30, 2020) and increased R&D expenses.

LIQUIDITY AND CAPITAL RESOURCES

Capital Commitments, Contractual Obligations and Cash Flows

At ~~June~~September 30, 2021 and December 31, 2020, our current assets exceeded current liabilities by ~~$239.2~~$250.0 million and $244.7 million, respectively, and we had cash and cash equivalents of approximately ~~$69.7~~$68.9 million and $56.9 million, respectively, of which approximately ~~$64.2~~$63.7 million and $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

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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 ~~June~~September 30, 2021, and December 31, 2020, we had cash and cash equivalents of approximately ~~$34.9~~$33.6 million and $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 ~~$76.4~~$101.4 million and ~~$73.2~~$128.4 million during the ~~six-month~~nine-month periods ended ~~June~~September 30, 2021 and 2020, respectively. Net cash provided by operating activities ~~increased~~decreased approximately ~~$3.2~~$26.9 million for the ~~six-month~~nine-month period ended ~~June~~September 30, 2021 compared to the ~~six-month~~nine-month period ended ~~June~~September 30, 2020. Significant factors affecting operating cash flows during these periods included:

●

Net income (loss) was approximately ~~$15.9~~$27.8 million and ($~~22.2)~~25.2) million for the ~~six-month~~nine-month periods ended ~~June~~September 30, 2021 and 2020, respectively. This improvement in earnings was offset by a decrease in the non-cash adjustment for the write-off of certain intangible and other long-term assets within the statement of cash flows of $4.4 million and $28.4 million for the nine-month periods ended September 30, 2021 and 2020, respectively.

●

Cash provided by (used for) accounts receivable was approximately ($~~7.8)~~6.2) million and ~~$15.3~~$13.0 million for the ~~six-month~~nine-month periods ended ~~June~~September 30, 2021 and 2020, respectively, due primarily to increased sales volume during the ~~six-month~~nine-month period ended ~~June~~September 30, 2021 compared to the corresponding period of 2020.

●

Cash provided by ~~accrued expenses~~(used for) inventories was approximately ~~$9.2~~($11.2) million and ~~$19.7~~$15.7 million for the ~~six-month~~nine-month periods ended ~~June~~September 30, 2021 and 2020, ~~respectively. Cash provided by accrued expenses in 2021 was~~respectively, due primarily to ~~an increase~~efforts to manage inventory levels to support the growth in ~~compensation-related accruals~~sales and ~~an increase~~reduced production in ~~accrued incentives from improved sales levels~~the prior-year period during the ~~six-month period ended June 30, 2021, and in 2020 was due primarily~~economic downturn related to ~~accruals associated with~~ the ~~DOJ legal settlement of $18.2 million.~~COVID-19 pandemic.

Cash flows used in investing activities. We used cash in investing activities of approximately ~~$15.3~~$22.6 million and ~~$27.4~~$36.8 million for the ~~six-month~~nine-month periods ended ~~June~~September 30, 2021 and 2020, respectively. We used cash for capital expenditures of property and equipment of approximately ~~$12.8~~$19.6 million and ~~$25.8~~$35.6 million in the ~~six-month~~nine-month periods ended ~~June~~September 30, 2021 and 2020, respectively. Capital expenditures in each period were primarily related to investment in facilities and property and equipment to support development and production of our products, and in 2020, these investments 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 $30 to $40 million in 2021 for buildings, property and equipment.

Cash outflows invested in acquisitions for the ~~six-month~~nine-month periods ended September 30, 2021 and 2020 were approximately $1.9 million and $0.3 million, respectively. Cash paid for acquisitions for the nine-month period ended ~~June~~September 30, 2021 ~~were approximately $1.8 million and~~ were primarily related to our settlement of the first deferred payment for our acquisition of KA Medical completed in November 2020.

Cash flows used in financing activities. Cash used in financing activities for the ~~six-month~~nine-month periods ended ~~June~~September 30, 2021 and 2020 was approximately ~~$48.1~~$66.0 million and ~~$39.2~~$91.2 million, respectively. We decreased our net borrowings by approximately ~~$58.9~~$72.6 and ~~$29.1~~$82.3 million for the ~~six-month~~nine-month periods ended ~~June~~September 30, 2021 and ~~2021,~~2020, respectively, by paying down our debt. ~~In 2020, we~~We completed payment of contingent consideration of ~~$12.9~~$10.6 million and $13.0 million for the nine-month periods ended September 30, 2021 and 2020, respectively, which is classified as a financing activity, principally related to our ~~acquisition~~acquisitions of Vascular Insights and Cianna Medical, ~~Inc.~~Inc, respectively.

As of ~~June~~September 30, 2021, we had outstanding borrowings of approximately ~~$293~~$279 million under the Third Amended Credit Agreement, with additional available borrowings of approximately ~~$444~~$456 million, based on the maximum net leverage ratio and the aggregate revolving credit commitment pursuant to the Third Amended Credit Agreement. Our interest rate as of ~~June~~September 30, 2021 was a fixed rate of ~~2.12%~~2.71% on ~~$175~~$75 million as a result of an interest rate swap and a variable floating rate of ~~1.15%~~1.08% on ~~$117.7~~$204.0 million. After the expiration of our August 5, 2016 interest rate swap on July 6, 2021, 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 a variable floating rate of 1.40% on $176.6 million.

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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.

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Off-Balance Sheet Arrangements

Off-balance sheet arrangements are reported in Part II, Item 7 "Management’s Discussion and Analysis of Financial Condition and Results of Operations." of the 2020 Annual Report on Form 10-K. In the three and ~~six-month~~nine-month periods ended ~~June~~September 30, 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 accounting policies and methods. In the three and ~~six-month~~nine-month periods ended ~~June~~September 30, 2021, there were no changes to the application of critical accounting policies previously disclosed in Part II, Item 7 of the 2020 Annual Report on Form 10-K.

CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS

This report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements in this report, other than statements of historical fact, are “forward-looking statements” for purposes of these provisions, including, 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.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Quantitative and qualitative disclosures about exchange rate risk are included in Part II, Item 7A "Quantitative and Qualitative Disclosures About Market Risk" of the 2020 Annual Report on Form 10-K. In the three and ~~six-month~~nine-month periods ended ~~June~~September 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 ~~June~~September 30, 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.

Changes in Internal Control Over Financial Reporting

During the three-month period ended ~~June~~September 30, 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.

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ITEM 6. EXHIBITS

Exhibit No.		Description
3.1		Second Amended and Restated Articles of Incorporation*
3.2		Third Amended and Restated 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 ~~June~~September 30, 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).

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

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