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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 30, 2021

OR

    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

Graphic

MERIT MEDICAL SYSTEMS, INC.

(Exact name of registrant as specified in its charter)

Utah

    

87-0447695

(State or other jurisdiction of incorporation or organization)

(IRS Employer Identification No.)

1600 West Merit Parkway, South Jordan, Utah 84095

(Address of principal executive offices, including zip code)

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

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

Title of each class

Trading Symbol

Name of exchange on which registered

Common Stock, no par

MMSI

NASDAQ Global Select Market

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

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

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

Large Accelerated Filer 

Accelerated Filer 

Non-Accelerated Filer 

Smaller Reporting Company 

Emerging Growth Company 

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

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

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

Common Stock

    

56,270,524

Title or class

Number of Shares
Outstanding at August 3, 2021

TABLE OF CONTENTS

PART I.

   

FINANCIAL INFORMATION

3

Item 1.

Financial Statements (Unaudited)

3

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

3

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

5

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

6

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

7

Consolidated Statements of Cash Flows for the six months ended June 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

38

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

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, 

ASSETS

    

2021

    

2020

(unaudited)

Current assets:

 

  

 

  

Cash and cash equivalents

$

69,672

$

56,916

Trade receivables — net of allowance for credit losses — 2021 — $5,652 and 2020 — $5,313

 

153,443

 

146,641

Other receivables

 

8,376

 

7,774

Inventories

 

194,524

 

198,019

Prepaid expenses and other current assets

 

16,541

 

13,120

Prepaid income taxes

 

3,683

 

3,688

Income tax refund receivables

 

3,543

 

3,549

Total current assets

 

449,782

 

429,707

Property and equipment:

 

  

 

  

Land and land improvements

 

28,180

 

28,400

Buildings

 

188,089

 

188,878

Manufacturing equipment

 

272,084

 

268,894

Furniture and fixtures

 

62,142

 

61,586

Leasehold improvements

 

47,217

 

48,800

Construction-in-progress

 

48,608

 

46,889

Total property and equipment

 

646,320

 

643,447

Less accumulated depreciation

 

(272,519)

 

(260,719)

Property and equipment — net

 

373,801

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

Goodwill

 

362,810

 

363,533

Deferred income tax assets

 

4,614

 

4,597

Right-of-use operating lease assets

70,767

78,240

Other assets

 

37,827

 

37,676

Total other assets

 

818,810

 

851,961

Total assets

$

1,642,393

$

1,664,396

See condensed notes to consolidated financial statements.

(continued)

3

MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

JUNE 30, 2021 AND DECEMBER 31, 2020

(In thousands)

    

June 30, 

    

December 31, 

LIABILITIES AND STOCKHOLDERS’ EQUITY

    

2021

    

2020

(unaudited)

Current liabilities:

 

  

  

Trade payables

$

53,809

$

49,837

Accrued expenses

 

135,013

 

111,944

Current portion of long-term debt

 

7,500

 

7,500

Short-term operating lease liabilities

11,721

12,903

Income taxes payable

 

2,561

 

2,820

Total current liabilities

 

210,604

 

185,004

Long-term debt

 

284,900

 

343,722

Deferred income tax liabilities

 

33,271

 

33,312

Long-term income taxes payable

 

347

 

347

Liabilities related to unrecognized tax benefits

 

1,016

 

1,016

Deferred compensation payable

 

17,055

 

16,808

Deferred credits

 

1,869

 

1,923

Long-term operating lease liabilities

65,841

 

70,941

Other long-term obligations

 

35,056

 

52,748

Total liabilities

 

649,959

 

705,821

Commitments and contingencies

 

  

 

  

Stockholders' equity:

 

  

 

  

Preferred stock — 5,000 shares authorized as of June 30, 2021 and December 31, 2020; no shares issued

 

 

Common stock, no par value; shares authorized — 2021 and 2020 - 100,000; issued and outstanding as of June 30, 2021 - 56,224 and December 31, 2020 - 55,623

 

623,591

 

606,224

Retained earnings

 

373,677

 

357,803

Accumulated other comprehensive loss

 

(4,834)

 

(5,452)

Total stockholders’ equity

 

992,434

 

958,575

Total liabilities and stockholders’ equity

$

1,642,393

$

1,664,396

See condensed notes to consolidated financial statements.

(concluded)

4

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

See condensed notes to consolidated financial statements.

5

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

June 30, 

June 30, 

    

2021

    

2020

    

2021

    

2020

Net income (loss)

$

4,916

$

(19,058)

$

15,874

$

(22,212)

Other comprehensive income (loss):

 

  

 

  

 

  

 

  

Cash flow hedges

 

999

 

(101)

 

3,920

 

(7,283)

Income tax benefit (expense)

 

(248)

 

26

 

(972)

 

1,875

Foreign currency translation adjustment

 

1,800

 

2,524

 

(2,662)

 

(1,601)

Income tax benefit (expense)

 

(203)

 

(3)

 

332

 

(10)

Total other comprehensive income (loss)

 

2,348

 

2,446

 

618

 

(7,019)

Total comprehensive income (loss)

$

7,264

$

(16,612)

$

16,492

$

(29,231)

See condensed notes to consolidated financial statements.

6

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)

See condensed notes to consolidated financial statements.

(continued)

7

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)

See condensed notes to consolidated financial statements.

(concluded)

8

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)

See condensed notes to consolidated financial statements.

(continued)

9

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

See condensed notes to consolidated financial statements.

(concluded)

10

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 ended June 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 30, 2021 and December 31, 2020, and our results of operations and cash flows for the three and six-month periods ended June 30, 2021 and 2020. The results of operations for the three and six-month periods ended June 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 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 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 two operating segments: cardiovascular and endoscopy. Our cardiovascular segment consists of four 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.

11

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

Three Months Ended

Three Months Ended

June 30, 2021

June 30, 2020

    

United States

    

International

    

Total

    

United States

    

International

    

Total

Cardiovascular

 

  

 

 

  

 

  

 

  

 

  

Peripheral Intervention

$

63,235

$

42,365

$

105,600

$

42,614

$

30,021

$

72,635

Cardiac Intervention

 

33,217

52,436

 

85,653

 

22,698

43,307

 

66,005

Custom Procedural Solutions

 

27,392

21,244

 

48,636

 

23,383

21,936

 

45,319

OEM

 

27,420

4,983

 

32,403

 

23,607

4,611

 

28,218

Total

 

151,264

121,028

 

272,292

 

112,302

 

99,875

 

212,177