UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2019
OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	FOR THE TRANSITION PERIOD FROM TO .
	Commission File Number 0-18592

 

MERIT MEDICAL SYSTEMS, INC.

(Exact name of registrant as specified in its charter)

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

 1600 West Merit Parkway, South Jordan, Utah 84095

(Address of principal executive offices, including zip code) 

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

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 such filing requirements for the past 90 days.  Yes x  No o

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 x  No o

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 x Accelerated Filer o Non-Accelerated Filer  o Smaller Reporting Company o Emerging Growth Company o

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. o

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

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

Common Stock	55,004,915
Title or class	Number of Shares Outstanding at April 30, 2019

TABLE OF CONTENTS

PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	3
	Consolidated Balance Sheets as of March 31, 2019 and December 31, 2018	3
	Consolidated Statements of Income for the three months ended March 31, 2019 and 2018	5
	Consolidated Statements of Comprehensive Income for the three months ended March 31, 2019 and 2018	6
	Consolidated Statements of Stockholders' Equity for the three months ended March 31, 2019 and 2018	7
	Consolidated Statements of Cash Flows for the three months ended March 31, 2019 and 2018	8
	Condensed Notes to Consolidated Financial Statements	10
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	28
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	39
Item 4.	Controls and Procedures	42
PART II.	OTHER INFORMATION	43
Item 1.	Legal Proceedings	43
Item 1A.	Risk Factors	43
Item 6.	Exhibits	44
SIGNATURES		45

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS MARCH 31, 2019 AND DECEMBER 31, 2018 (In thousands)
	March 31,			December 31,
	2019			2018
ASSETS	(unaudited)
CURRENT ASSETS:
Cash and cash equivalents	$	49,522		$	67,359
Trade receivables — net of allowance for uncollectible accounts — 2019 — $2,406 and 2018 — $2,355	146,488			137,174
Other receivables	10,694			11,879
Inventories	198,922			197,536
Prepaid expenses and current other assets	11,220			11,326
Prepaid income taxes	3,620			3,627
Income tax refund receivables	1,317			933
Total current assets	421,783			429,834
PROPERTY AND EQUIPMENT:
Land and land improvements	26,764			26,801
Buildings	152,974			151,251
Manufacturing equipment	225,402			221,029
Furniture and fixtures	55,378			54,765
Leasehold improvements	34,221			33,678
Construction-in-progress	61,304			53,491
Total property and equipment	556,043			541,015
Less accumulated depreciation	(215,279		)	(209,563		)
Property and equipment — net	340,764			331,452
OTHER ASSETS:
Intangible assets:
Developed technology — net of accumulated amortization — 2019 — $113,765 and 2018 — $102,357	371,603			383,147
Other — net of accumulated amortization — 2019 — $52,469 and 2018 — $49,136	77,104			79,566
Goodwill	334,951			335,433
Deferred income tax assets	3,083			3,001
Right-of-use operating lease assets	80,453			—
Other assets	60,052			57,579
Total other assets	927,246			858,726
TOTAL	$	1,689,793		$	1,620,012
See condensed notes to consolidated financial statements.				(continued)

3

MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS MARCH 31, 2019 AND DECEMBER 31, 2018 (In thousands)
	March 31,			December 31,
	2019			2018
LIABILITIES AND STOCKHOLDERS’ EQUITY	(unaudited)
CURRENT LIABILITIES:
Trade payables	$	51,680		$	54,024
Accrued expenses	91,310			96,173
Current portion of long-term debt	22,000			22,000
Short-term operating lease liability	11,825			—
Income taxes payable	1,644			3,146
Total current liabilities	178,459			175,343
LONG-TERM DEBT	362,187			373,152
DEFERRED INCOME TAX LIABILITIES	56,324			56,363
LONG-TERM INCOME TAXES PAYABLE	392			392
LIABILITIES RELATED TO UNRECOGNIZED TAX BENEFITS	3,013			3,013
DEFERRED COMPENSATION PAYABLE	12,480			11,219
DEFERRED CREDITS	2,227			2,261
LONG-TERM OPERATING LEASE LIABILITY	72,243			—
OTHER LONG-TERM OBLIGATIONS	62,357			65,494
Total liabilities	749,682			687,237
COMMITMENTS AND CONTINGENCIES (Notes 5, 10, 11, 14 and 15)
STOCKHOLDERS’ EQUITY:
Preferred stock — 5,000 shares authorized as of March 31, 2019 and December 31, 2018; no shares issued	—			—
Common stock, no par value; shares authorized — 2019 and 2018 - 100,000; issued and outstanding as of March 31, 2019 - 54,995 and December 31, 2018 - 54,893	574,946			571,383
Retained earnings	369,713			363,425
Accumulated other comprehensive loss	(4,548		)	(2,033		)
Total stockholders’ equity	940,111			932,775
TOTAL	$	1,689,793		$	1,620,012
See condensed notes to consolidated financial statements.				(concluded)

4

MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED MARCH 31, 2019 AND 2018 (In thousands, except per share amounts - unaudited)
	Three Months Ended March 31,
	2019			2018
NET SALES	$	238,349		$	203,035
COST OF SALES	133,713			114,979
GROSS PROFIT	104,636			88,056
OPERATING EXPENSES:
Selling, general and administrative	78,270			64,913
Research and development	16,043			14,322
Contingent consideration expense	775			40
Acquired in-process research and development	25			—
Total operating expenses	95,113			79,275
INCOME FROM OPERATIONS	9,523			8,781
OTHER INCOME (EXPENSE):
Interest income	357			146
Interest expense	(2,764		)	(2,398		)
Other expense - net	(270		)	(170		)
Total other expense — net	(2,677		)	(2,422		)
INCOME BEFORE INCOME TAXES	6,846			6,359
INCOME TAX EXPENSE	651			1,090
NET INCOME	$	6,195		$	5,269
EARNINGS PER COMMON SHARE:
Basic	$	0.11		$	0.10
Diluted	$	0.11		$	0.10
AVERAGE COMMON SHARES:
Basic	54,917			50,277
Diluted	56,490			51,910
See condensed notes to consolidated financial statements.

5

MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE THREE MONTHS ENDED MARCH 31, 2019 AND 2018 (In thousands - unaudited)
	Three Months Ended March 31,
	2019			2018
Net income	$	6,195		$	5,269
Other comprehensive income (loss):
Cash flow hedges	(2,577		)	1,992
Income tax benefit (expense)	663			(512		)
Foreign currency translation adjustment	(615		)	2,592
Income tax benefit	14			—
Total other comprehensive income (loss)	(2,515		)	4,072
Total comprehensive income	$	3,680		$	9,341
See condensed notes to consolidated financial statements.

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MERIT MEDICAL SYSTEMS, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE THREE MONTHS ENDED MARCH 31, 2019 AND 2018 (In thousands - unaudited)
									Accumulated Other
				Common Stock			Retained		Comprehensive
	Total			Shares	Amount		Earnings		Loss
BALANCE — January 1, 2019	$	932,775		54,893	$	571,383	$	363,425	$	(2,033	)
Net income	6,195						6,195
Reclassify deferred gain on sale-leaseback upon adoption of ASC 842	93						93
Other comprehensive loss	(2,515		)						(2,515		)
Stock-based compensation expense	1,766				1,766
Options exercised	1,365			95	1,365
Issuance of common stock under Employee Stock Purchase Plans	432			7	432
BALANCE — March 31, 2019	$	940,111		54,995	$	574,946	$	369,713	$	(4,548	)
									Accumulated Other
				Common Stock			Retained		Comprehensive
	Total			Shares	Amount		Earnings		Income
BALANCE — January 1, 2018	$	676,334		50,248	$	353,392	$	321,408	$	1,534
Net income	5,269						5,269
Other comprehensive income	4,072								4,072
Stock-based compensation expense	1,256				1,256
Options exercised	1,286			91	1,286
Issuance of common stock under Employee Stock Purchase Plans	294			7	294
BALANCE — March 31, 2018	$	688,511		50,346	$	356,228	$	326,677	$	5,606
See condensed notes to consolidated financial statements.

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MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2019 AND 2018 (In thousands - unaudited)
	Three Months Ended March 31,
	2019			2018
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	6,195		$	5,269
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	22,348			15,284
Loss on sales and/or abandonment of property and equipment	288			351
Amortization of right-of-use operating lease assets	2,964			—
Write-off of patents and intangible assets	—			57
Acquired in-process research and development	25			—
Amortization of deferred credits	(35		)	(36		)
Amortization of long-term debt issuance costs	201			201
Stock-based compensation expense	1,766			1,256
Changes in operating assets and liabilities, net of effects from acquisitions:
Trade receivables	(11,557		)	(13,166		)
Other receivables	1,070			898
Inventories	(1,340		)	(5,388		)
Prepaid expenses and other current assets	19			(1,223		)
Prepaid income taxes	(53		)	(72		)
Income tax refund receivables	(442		)	(205		)
Other assets	(2,092		)	(491		)
Trade payables	(878		)	8,409
Accrued expenses	(3,450		)	(2,395		)
Income taxes payable	(879		)	(480		)
Deferred compensation payable	1,261			3
Operating lease liabilities	(3,054		)	—
Other long-term obligations	1,148			(337		)
Total adjustments	7,310			2,666
Net cash provided by operating activities	13,505			7,935
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for:
Property and equipment	(18,255		)	(16,239		)
Intangible assets	(853		)	(885		)
Proceeds from the sale of property and equipment	3			3
Cash paid in acquisitions, net of cash acquired	(1,942		)	(100,195		)
Net cash used in investing activities	(21,047		)	(117,316		)
See condensed notes to consolidated financial statements.				(continued)

8

MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2019 AND 2018 (In thousands - unaudited)
	Three Months Ended March 31,
	2019			2018
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock	$	1,733		$	1,511
Proceeds from issuance of long-term debt	43,119			256,971
Payments on long-term debt	(54,119		)	(148,971		)
Contingent payments related to acquisitions	(554		)	(15		)
Net cash provided by (used in) financing activities	(9,821		)	109,496
EFFECT OF EXCHANGE RATES ON CASH	(474		)	1,720
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	(17,837		)	1,835
CASH AND CASH EQUIVALENTS:
Beginning of period	67,359			32,336
End of period	$	49,522		$	34,171
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest (net of capitalized interest of $241 and $146, respectively)	$	2,721		$	2,383
Income taxes	$	1,934		$	1,810
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Property and equipment purchases in accounts payable	$	4,588		$	1,752
Right-of-use operating lease assets obtained in exchange for operating lease liabilities	$	1,162		$	—
See condensed notes to consolidated financial statements.				(concluded)

9

MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Basis of Presentation. The interim consolidated financial statements of Merit Medical Systems, Inc. ("Merit," "we" or "us") for the three-month periods ended March 31, 2019 and 2018 are not audited. Our consolidated financial statements are prepared in accordance with the requirements for unaudited interim periods and, consequently, do not include all disclosures required to be made in conformity with accounting principles generally accepted in the United States of America. In the opinion of our management, the accompanying consolidated financial statements contain all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of our financial position as of March 31, 2019 and December 31, 2018, and our results of operations and cash flows for the three-month periods ended March 31, 2019 and 2018. The results of operations for the three-month periods ended March 31, 2019 and 2018 are not necessarily indicative of the results for a full-year period. These interim consolidated financial statements should be read in conjunction with the financial statements included in our Annual Report on Form 10-K (the "2018 Form 10-K") for the year ended December 31, 2018, which was filed with the Securities and Exchange Commission (the "SEC") on March 1, 2019.

2. Inventories. Inventories at March 31, 2019 and December 31, 2018, consisted of the following (in thousands):

	March 31,		December 31,
	2019		2018
Finished goods	$	117,112	$	117,703
Work-in-process	20,192		14,380
Raw materials	61,618		65,453
Total Inventories	$	198,922	$	197,536

3. Stock-Based Compensation Expense. The stock-based compensation expense before income tax expense for the three months ended March 31, 2019 and 2018, consisted of the following (in thousands):

	Three Months Ended March 31,
	2019		2018
Cost of sales	$	252	$	184
Research and development	192		124
Selling, general and administrative	1,322		948
Stock-based compensation expense before taxes	$	1,766	$	1,256

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 March 31, 2019, the total remaining unrecognized compensation cost related to non-vested stock options, net of expected forfeitures, was approximately $32.8 million and was expected to be recognized over a weighted average period of 3.48 years.

During the three-month period ended March 31, 2019, we granted stock-based awards representing 909,603 shares of our common stock. During the three-month period ended March 31, 2018, we granted stock-based awards representing 492,002 shares of our common stock. We use the Black-Scholes methodology to value the stock-based compensation 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:

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	Three Months Ended March 31,
	2019	2018
Risk-free interest rate	2.42% - 2.56%	2.63%
Expected option term	3.0 - 5.0 years	5.0 years
Expected dividend yield	—	—
Expected price volatility	28.93% - 33.69%	34.32%

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 options. 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 options with a vesting period, compensation expense is recognized on a straight-line basis over the service period, which corresponds to the vesting period. 

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

	Net Income		Shares	Per Share Amount
Three-month period ended March 31, 2019:
Basic EPS	$	6,195	54,917	$	0.11
Effect of dilutive stock options			1,573
Diluted EPS	$	6,195	56,490	$	0.11
Stock options excluded from the calculation of common stock equivalents as the impact was anti-dilutive			976
Three-month period ended March 31, 2018:
Basic EPS	$	5,269	50,277	$	0.10
Effect of dilutive stock options			1,633
Diluted EPS	$	5,269	51,910	$	0.10
Stock options excluded from the calculation of common stock equivalents as the impact was anti-dilutive			184

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5. Acquisitions. On March 28, 2019, we paid $2 million to acquire convertible participating preferred shares of Fluidx Medical Technology, LLC ("Fluidx"), owner of certain technology proposed to be used in the development of embolic and adhesive agents for use in arterial, venous, vascular graft and cardiovascular applications inside and outside the heart and related appendages. Our investment in Fluidx has been recorded as an equity investment accounted for at cost and reflected within other assets in the accompanying consolidated balance sheets because we are not able to exercise significant influence over the operations of Fluidx. Our total current investment in Fluidx represents an ownership of approximately 12.7% of the outstanding equity interests of Fluidx.

On December 14, 2018, we consummated an acquisition transaction contemplated by an asset purchase agreement with Vascular Insights, LLC and VI Management, Inc. (combined "Vascular Insights") and acquired Vascular Insight's intellectual property rights, inventory and certain other assets, including, the ClariVein® IC system and the ClariVein OC system. The ClariVein systems are specialty infusion and occlusion catheter systems with rotating wire tips designed for the controlled 360-degree dispersion of physician-specified agents to the targeted treatment area. We accounted for this acquisition as a business combination. The purchase consideration included an upfront payment of $40 million, and we are obligated to pay up to an additional $20 million based on achieving certain revenue milestones specified in the asset purchase agreement. The sales and results of operations related to this acquisition have been included in our cardiovascular segment. During the three-month period ended March 31, 2019, net sales of products acquired from Vascular Insights were approximately $1.5 million. It is not practical to separately report earnings related to the products acquired from Vascular Insights, as we cannot split out sales costs related solely to the products we acquired from Vascular Insights, principally because our sales representatives sell multiple products (including the products we acquired from Vascular Insights) in our cardiovascular business segment. Acquisition-related costs associated with the Vascular Insights acquisition, which were included in selling, general and administrative expenses during the year ended December 31, 2018, were not material. We are in the process of finalizing the net working capital adjustment pursuant to the asset purchase agreement. The purchase price was preliminarily allocated as follows (in thousands):

Inventories	$	1,353
Intangibles
Developed technology	32,750
Customer list	840
Trademarks	1,410
Goodwill	21,847
Total net assets acquired	$	58,200

We are amortizing the developed technology intangible asset acquired from Vascular Insights over 12 years, the related trademarks over nine years and the customer list on an accelerated basis over eight years. The total weighted-average amortization period for these acquired intangible assets is approximately 11.8 years.

On November 13, 2018, we consummated an acquisition transaction contemplated by a merger agreement to acquire Cianna Medical, Inc. ("Cianna Medical"). The purchase consideration consisted of an upfront payment of $135 million plus a final working capital adjustment of approximately $1.2 million in cash, with potential earn-out payments of up to an additional $15 million for achievement of supply chain and scalability metrics and up to an additional $50 million for the achievement of sales milestones. Cianna Medical developed the first non-radioactive, wire-free breast cancer localization system. Its SCOUT® and SAVI® Brachy technologies are FDA-cleared and address unmet needs in the delivery of radiation therapy, tumor localization and surgical guidance. We accounted for this acquisition as a business combination. During the three-month period ended March 31, 2019, net sales of Cianna Medical products were approximately $12.8 million. It is not practical to separately report earnings related to the products acquired from Cianna Medical, as we cannot split out sales costs related solely to the products we acquired from Cianna Medical, principally because our sales representatives sell multiple products (including the products we acquired from Cianna Medical) in our cardiovascular business segment. Acquisition-related costs associated with the Cianna Medical acquisition, which were included in selling, general and administrative expenses during the year ended December 31, 2018, were approximately $3.5 million. The following table summarizes the preliminary purchase price allocated to the net assets acquired from Cianna Medical (in thousands):

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Assets Acquired
Trade receivables	$	6,151
Inventories	5,803
Prepaid expenses and other current assets	315
Property and equipment	1,047
Other long-term assets	14
Intangibles
Developed technology	134,510
Customer lists	3,330
Trademarks	7,080
Goodwill	65,802
Total assets acquired	224,052
Liabilities Assumed
Trade payables	(1,497		)
Accrued expenses	(2,384		)
Other long-term liabilities	(1,527		)
Deferred income tax liabilities	(30,363		)
Total liabilities assumed	(35,771		)
Total net assets acquired	$	188,281

We are amortizing the developed technology intangible assets of Cianna Medical over 11 years, the related trademarks over ten years and the customer lists on an accelerated basis over eight years. The total weighted-average amortization period for these acquired intangible assets is approximately 10.7 years.

On May 23, 2018, we entered into an asset purchase agreement with DirectACCESS Medical, LLC (“DirectACCESS”) to acquire its assets, including, certain product distribution agreements for the FirstChoice™ Ultra High Pressure PTA Balloon Catheter. We accounted for this acquisition as a business combination. The purchase price for the assets was approximately $7.3 million. The sales and results of operations related to the acquisition have been included in our cardiovascular segment since the acquisition date and were not material. Acquisition-related costs associated with the DirectACCESS acquisition, which were included in selling, general and administrative expenses during the year ended December 31, 2018, were not material. The purchase price was preliminarily allocated as follows (in thousands):

Inventories	$	971
Intangibles
Developed technology	4,840
Customer list	120
Trademarks	400
Goodwill	938
Total net assets acquired	$	7,269

We are amortizing the developed technology intangible asset of DirectACCESS over ten years, the related trademarks over ten years and the customer list on an accelerated basis over five years. The total weighted-average amortization period for these acquired intangible assets is approximately 9.9 years.

On February 14, 2018, we acquired certain divested assets from Becton, Dickinson and Company ("BD"), for an aggregate purchase price of $100.3 million. The assets acquired include the soft tissue core needle biopsy products sold under the tradenames of Achieve® Programmable Automatic Biopsy System, Temno® Biopsy System, Tru-Cut® Biopsy Needles as well as Aspira® Pleural Effusion Drainage Kits, and the Aspira® Peritoneal Drainage System. We accounted for this acquisition as a business

13

combination. During the three-month periods ended March 31, 2019 and 2018, our net sales of BD products were approximately $11.6 million and $6.3 million, respectively. It is not practical to separately report earnings related to the products acquired from BD, as we cannot split out sales costs related solely to the products we acquired from BD, principally because our sales representatives sell multiple products (including the products we acquired from BD) in our cardiovascular business segment. Acquisition-related costs associated with the BD acquisition, which were included in selling, general and administrative expenses during the year ended December 31, 2018, were approximately $1.8 million. The following table summarizes the purchase price allocated to the assets acquired from BD (in thousands):

Inventories	$	5,804
Property and equipment	748
Intangibles
Developed technology	74,000
Customer list	4,200
Trademarks	4,900
In-process technology	2,500
Goodwill	9,728
Total net assets acquired	$	101,880

We are amortizing the developed technology intangible assets acquired from BD over eight years, the related trademarks over nine years and the customer lists on an accelerated basis over seven years. The total weighted-average amortization period for these acquired intangible assets is eight years.

The following table summarizes our consolidated results of operations for the three-month period ended March 31, 2018, as well as unaudited pro forma consolidated results of operations as though the acquisition of Cianna Medical and Vascular Insights had occurred on January 1, 2017 (in thousands, except per common share amounts):

	Three Months Ended
	March 31, 2018
	As Reported		Pro Forma
Net sales	$	203,035	$	222,440
Net income	5,269		(2,050		)
Earnings per common share:
Basic	$	0.10	$	(0.04	)
Diluted	$	0.10	$	(0.04	)

* The pro forma results for the three-month period ended March 31, 2019 are not included in the table above because the

operating results for the Cianna Medical and Vascular Insights acquisitions were included in our consolidated statements of income for this period.

The unaudited pro forma information set forth above is for informational purposes only and includes adjustments related to the step-up of acquired inventories, amortization expense of acquired intangible assets and interest expense on long-term debt. The pro forma information should not be considered indicative of actual results that would have been achieved if the acquisition of Cianna Medical and Vascular Insights had occurred on January 1, 2017, or results that may be obtained in any future period. The pro forma consolidated results of operations do not include the acquisition of assets from BD because it was deemed impracticable to obtain information to determine net income associated with the acquired product lines which represent a small product line of a large, consolidated company without standalone financial information. The pro forma consolidated results of operations do not include the DirectACCESS acquisition as we do not deem the pro forma effect of this transaction to be material.

The goodwill arising from the acquisitions discussed above consists largely of the synergies and economies of scale we hope to achieve from combining the acquired assets and operations with our historical operations. The goodwill recognized from certain acquisitions is expected to be deductible for income tax purposes.

6. Revenue from Contracts with Customers.

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In accordance with Accounting Standards Update ("ASU") 2014-09, Revenue from Contracts with Customers (Topic 606) ("ASC 606"), 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.

Disaggregation of Revenue

The disaggregation of revenue is based on type of product and geographical region. For descriptions of our product offerings and segments, see Note 13 in our 2018 Form 10-K.

The following tables present revenue from contracts with customers for the three months ended March 31, 2019 and 2018 (in thousands):

	Three Months Ended March 31, 2019						Three Months Ended March 31, 2018
	United States		International		Total		United States		International		Total
Cardiovascular
Stand-alone devices	$	53,400	$	42,027	$	95,427	$	44,010	$	39,236	$	83,246
Cianna Medical	12,849		—		12,849		—		—		—
Custom kits and procedure trays	22,055		10,888		32,943		22,318		10,954		33,272
Inflation devices	7,972		14,045		22,017		7,668		14,751		22,419
Catheters	19,412		23,627		43,039		15,270		18,595		33,865
Embolization devices	4,706		7,121		11,827		5,033		7,554		12,587
CRM/EP	10,098		2,280		12,378		8,838		1,628		10,466
Total	130,492		99,988		230,480		103,137		92,718		195,855
Endoscopy
Endoscopy devices	7,568		301		7,869		6,918		262		7,180
Total	$	138,060	$	100,289	$	238,349	$	110,055	$	92,980	$	203,035

7. Segment Reporting. We report our operations in two operating segments: cardiovascular and endoscopy. Our cardiovascular segment consists of cardiology and radiology medical device products which assist in diagnosing and treating coronary artery disease, peripheral vascular disease and other non-vascular diseases and includes embolotherapeutic, cardiac rhythm management ("CRM"), electrophysiology ("EP"), critical care, interventional oncology and spine devices, and our Cianna Medical product line. Our endoscopy segment focuses on the gastroenterology, pulmonary and thoracic surgery specialties, with a portfolio consisting primarily of stents, dilation balloons, certain inflation devices, guide wires, and other disposable products, as well as the products related to our distribution agreement with NinePoint Medical Inc. ("NinePoint Medical"). 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-month periods ended March 31, 2019 and 2018, are as follows (in thousands):

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	Three Months Ended March 31,
	2019			2018
Net Sales
Cardiovascular	$	230,480		$	195,855
Endoscopy	7,869			7,180
Total net sales	$	238,349		$	203,035
Operating Income
Cardiovascular	7,619			6,397
Endoscopy	1,904			2,384
Total operating income	9,523			8,781
Total other expense - net	(2,677		)	(2,422		)
Income tax expense	651			1,090
Net income	$	6,195		$	5,269

8. Recently Issued Financial Accounting Standards.

Recently Adopted

In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-02, Leases (Topic 842) ("ASC 842"), which requires lessees to recognize right-of-use ("ROU") assets and related lease liabilities on the balance sheet for all leases greater than one year in duration. We adopted ASC 842 on January 1, 2019 using a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach did not require any transition accounting for leases that expired before the earliest comparative period presented. The adoption of this standard resulted in the recording of ROU assets and lease liabilities for all of our lease agreements with original terms of greater than one year. The adoption of ASC 842 did not have a significant impact on our consolidated statements of operations or cash flows. See Note 14 for the required disclosures relating to our lease agreements.

In June 2018, the FASB issued ASU 2018-07, Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, which simplifies the accounting for nonemployee share-based payment transactions by expanding the scope of ASC Topic 718, Compensation - Stock Compensation, to include share-based payment transactions for acquiring goods and services from nonemployees. Under the new standard, most of the guidance on stock compensation payments to nonemployees would be aligned with the requirements for share-based payments granted to employees. This standard became effective for us on January 1, 2019. The adoption of this standard did not have a material impact on our consolidated financial statements.

In February 2018, the FASB issued ASU 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from U.S. federal tax legislation commonly referred to as the Tax Cuts and Jobs Act, which was enacted in December 2017 (the "2017 Tax Act"). ASU 2018-02 became effective for us on January 1, 2019. The adoption of this standard did not have a material impact on our consolidated financial statements.

In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, which expands and refines hedge accounting for both financial and non-financial risk components, aligns the recognition and presentation of the effects of hedging instruments and hedge items in the financial statements, and includes certain targeted improvements to ease the application of current guidance related to the assessment of hedge effectiveness. ASU 2017-12 became effective for us on January 1, 2019. The adoption of this standard did not have a material impact on our consolidated financial statements.

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We do not believe any other issued and not yet effective accounting standards will be relevant to our consolidated financial statements.

9. Income Taxes. Our provision for income taxes for the three months ended March 31, 2019 and 2018 was a tax expense of approximately $651,000 and $1.1 million, respectively, which resulted in an effective tax rate of 9.5% and 17.1%, respectively. The decrease in the income tax expense and effective income tax rate for the first quarter of 2019 as compared to the first quarter of 2018 was primarily due to an increase in the discrete tax benefit related to share-based payment awards.

10. Revolving Credit Facility and Long-Term Debt. Principal balances outstanding under our long-term debt obligations as of March 31, 2019 and December 31, 2018, consisted of the following (in thousands):

	March 31, 2019			December 31, 2018
2016 Term loan	$	68,750		$	72,500
2016 Revolving credit loans	308,750			316,000
Collateralized debt facility	7,000			7,000
Less unamortized debt issuance costs	(313		)	(348		)
Total long-term debt	384,187			395,152
Less current portion	22,000			22,000
Long-term portion	$	362,187		$	373,152

2016 Term Loan and Revolving Credit Loans

On July 6, 2016, we entered into a Second Amended and Restated Credit Agreement (as amended to date, the “Second Amended Credit Agreement”), with Wells Fargo Bank, National Association, as administrative agent, swingline lender and a lender, and Wells Fargo Securities, LLC, as sole lead arranger and sole bookrunner. In addition to Wells Fargo Bank, National Association, Bank of America, N.A., U.S. Bank, National Association, and HSBC Bank USA, National Association, are parties to the Second Amended Credit Agreement as lenders. The Second Amended Credit Agreement amends and restates in its entirety our previously outstanding Amended and Restated Credit Agreement and all amendments thereto. The Second Amended Credit Agreement was amended on September 28, 2016 to allow for a new revolving credit loan to our wholly-owned subsidiary, on March 20, 2017 to allow flexibility in how we apply net proceeds received from equity issuances to prepay outstanding indebtedness, on December 13, 2017 to increase the revolving credit commitment by $100 million to $375 million, and on March 28, 2018 to amend certain debt covenants.

The Second Amended Credit Agreement provides for a term loan of $150 million and a revolving credit commitment up to an aggregate amount of $375 million, which includes a reserve of $25 million to make swingline loans from time to time. The term loan is payable in quarterly installments in the amounts provided in the Second Amended Credit Agreement until the maturity date of July 6, 2021, at which time the term and revolving credit loans, together with accrued interest thereon, will be due and payable. At any time prior to the maturity date, we may repay any amounts owing under all revolving credit loans, term loans, and all swingline loans in whole or in part, subject to certain minimum thresholds, without premium or penalty, other than breakage costs.

Revolving credit loans denominated in dollars and term loans made under the Second Amended Credit Agreement bear interest, at our election, at either a Base Rate or Eurocurrency Base Rate (as such terms are defined in the Second Amended Credit Agreement) plus the applicable margin, which increases as our Consolidated Total Leverage Ratio (as defined in the Second Amended Credit Agreement) increases. Revolving credit loans denominated in an Alternative Currency (as defined in the Second 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. Upon an event of default, the interest rate may be increased by 2.0%. The revolving credit commitment also carries a commitment fee of 0.15% to 0.40% per annum on the unused portion.

The Second Amended Credit Agreement is collateralized by substantially all our assets. The Second Amended Credit Agreement contains covenants, representations and warranties, and other terms customary for loans of this nature. The Second Amended Credit Agreement requires that we maintain certain financial covenants, as follows:

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		Covenant Requirement
Consolidated Total Leverage Ratio (1)
	January 1, 2018 and thereafter	3.5 to 1.0
Consolidated EBITDA (2)		1.25 to 1.0
Consolidated Net Income (3)		$0
Facility Capital Expenditures (4)		$30 million
(1)	Maximum Consolidated Total Leverage Ratio (as defined in the Second Amended Credit Agreement) as of any fiscal quarter end.
(2)	Minimum ratio of Consolidated EBITDA (as defined in the Second Amended Credit Agreement and adjusted for certain expenditures) to Consolidated Fixed Charges (as defined in the Second Amended Credit Agreement) for any period of four consecutive fiscal quarters.
(3)	Minimum level of Consolidated Net Income (as defined in the Second Amended Credit Agreement) for certain periods, and subject to certain adjustments.
(4)	Maximum level of the aggregate amount of all Facility Capital Expenditures (as defined in the Second Amended Credit Agreement) in any fiscal year.

Additionally, the Second Amended Credit Agreement contains customary events of default and affirmative and negative covenants for transactions of this type. As of March 31, 2019, we believe we were in compliance with all covenants set forth in the Second Amended Credit Agreement.

As of March 31, 2019, we had outstanding borrowings of approximately $377.5 million under the Second Amended Credit Agreement, with additional available borrowings of approximately $65.5 million, based on the leverage ratio required pursuant to the Second Amended Credit Agreement. Our interest rate as of March 31, 2019 was a fixed rate of 2.62% on $175 million as a result an interest rate swap (see Note 11) and a variable floating rate of 4.00% on $202.5 million. Our interest rate as of December 31, 2018 was a fixed rate of 2.12% on $175 million as a result of an interest rate swap and a variable floating rate of 3.52% on $213.5 million.

Collateralized Debt Facility

On January 11, 2019, we renewed our loan agreement with HSBC Bank USA, National Association ("HSBC Bank") whereby HSBC Bank agreed to provide us with a loan in the amount of $7.0 million. The loan matured and was settled on April 10, 2019. The loan agreement bore interest at the three-month London Inter-Bank Offered Rate (“LIBOR”) plus 1.0%, which reset quarterly. The loan was secured by assets having a value not less than the outstanding loan balance. The loan contained covenants, representations and warranties and other terms customary for loans of this nature. As of March 31, 2019