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Table of Contents

d Peripheral Intervention engu%911Y2022

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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 September 30, 2022

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

​

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 October 26, 2022
Common Stock, no par |  | 56,919,405

​

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Table of Contents

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TABLE OF CONTENTS

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PART I. |  | ​ | ​ | FINANCIAL INFORMATION | 3
​ | ​ | ​ | ​ | ​ | ​
Item 1. | ​ | ​ | ​ | Financial Statements (Unaudited) | 3
​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ | Consolidated Balance Sheets | 3
​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ | Consolidated Statements of Income | 5
​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ | Consolidated Statements of Comprehensive Income | 6
​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ | Consolidated Statements of Stockholders’ Equity | 7
​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ | Consolidated Statements of Cash Flows | 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 | 38
​ | ​ | ​ | ​ | ​ | ​
PART II. | ​ | ​ | ​ | OTHER INFORMATION | 38
​ | ​ | ​ | ​ | ​ | ​
Item 1. | ​ | ​ | ​ | Legal Proceedings | 38
​ | ​ | ​ | ​ | ​ | ​
Item 1A. | ​ | ​ | ​ | Risk Factors | 38
​ | ​ | ​ | ​ | ​ | ​
Item 6. | ​ | ​ | ​ | Exhibits | 42
​ | ​ | ​ | ​ | ​ | ​
SIGNATURES | ​ | ​ | ​ | 43

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Table of Contents

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands)

​

​ | ​ | ​ | ​ | ​ | ​ | ​
​ |  | September 30, |  | December 31,
ASSETS |  | 2022 |  | 2021
​ | ​ | ​ | (unaudited) | ​ | ​ | ​
Current assets: |  | ​ |  |  | ​ |
Cash and cash equivalents | ​ | $ | 51,481 | ​ | $ | 67,750
Trade receivables — net of allowance for credit losses — 2022 — $8,018 and 2021 — $6,767 | ​ |  | 155,828 | ​ |  | 152,301
Other receivables | ​ |  | 10,827 | ​ |  | 17,763
Inventories | ​ |  | 246,660 | ​ |  | 221,922
Prepaid expenses and other current assets | ​ |  | 27,388 | ​ |  | 16,149
Prepaid income taxes | ​ |  | 3,515 | ​ |  | 3,550
Income tax refund receivables | ​ |  | 4,164 | ​ |  | 2,777
Total current assets | ​ |  | 499,863 | ​ |  | 482,212
​ | ​ | ​ | ​ | ​ | ​ | ​
Property and equipment: | ​ |  |  | ​ |  |
Land and land improvements | ​ |  | 25,699 | ​ |  | 25,287
Buildings | ​ |  | 186,976 | ​ |  | 190,044
Manufacturing equipment | ​ |  | 290,306 | ​ |  | 277,976
Furniture and fixtures | ​ |  | 63,380 | ​ |  | 61,446
Leasehold improvements | ​ |  | 49,962 | ​ |  | 46,341
Construction-in-progress | ​ |  | 59,783 | ​ |  | 51,182
Total property and equipment | ​ |  | 676,106 | ​ |  | 652,276
Less accumulated depreciation | ​ |  | (299,950) | ​ |  | (280,618)
Property and equipment — net | ​ |  | 376,156 | ​ | ​ | 371,658
​ | ​ | ​ | ​ | ​ | ​ | ​
Other assets: | ​ |  |  | ​ |  |
Intangible assets: | ​ |  |  | ​ |  |
Developed technology — net of accumulated amortization — 2022 — $263,990 and 2021 — $234,016 | ​ |  | 245,282 | ​ |  | 276,833
Other — net of accumulated amortization — 2022 — $68,308 and 2021 — $65,053 | ​ |  | 38,825 | ​ |  | 42,436
Goodwill | ​ |  | 358,056 | ​ |  | 361,741
Deferred income tax assets | ​ |  | 5,467 | ​ |  | 6,080
Right-of-use operating lease assets | ​ | ​ | 64,700 | ​ | ​ | 65,913
Other assets | ​ |  | 44,388 | ​ |  | 41,421
Total other assets | ​ |  | 756,718 | ​ |  | 794,424
​ | ​ | ​ | ​ | ​ | ​ | ​
Total assets | ​ | $ | 1,632,737 | ​ | $ | 1,648,294

​

​ | ​
See condensed notes to consolidated financial statements. | (continued)

​

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3

Table of Contents

MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands)

​

​ | ​ | ​ | ​ | ​ | ​ | ​
​ |  | September 30, |  | December 31,
LIABILITIES AND STOCKHOLDERS’ EQUITY |  | 2022 |  | 2021
​ | ​ | ​ | (unaudited) | ​ | ​ | ​
Current liabilities: |  | ​ |  | ​ | ​ |
Trade payables | ​ | $ | 63,206 | ​ | $ | 55,624
Accrued expenses | ​ |  | 124,504 | ​ |  | 159,014
Current portion of long-term debt | ​ |  | 11,250 | ​ |  | 8,438
Short-term operating lease liabilities | ​ | ​ | 10,310 | ​ | ​ | 10,668
Income taxes payable | ​ |  | 3,765 | ​ |  | 2,536
Total current liabilities | ​ |  | 213,035 | ​ |  | 236,280
​ | ​ | ​ | ​ | ​ | ​ | ​
Long-term debt | ​ |  | 205,412 | ​ |  | 234,397
Deferred income tax liabilities | ​ |  | 31,168 | ​ |  | 31,503
Long-term income taxes payable | ​ |  | 347 | ​ |  | 347
Liabilities related to unrecognized tax benefits | ​ |  | 932 | ​ |  | 932
Deferred compensation payable | ​ |  | 14,786 | ​ |  | 18,111
Deferred credits | ​ |  | 1,735 | ​ |  | 1,815
Long-term operating lease liabilities | ​ | ​ | 59,989 | ​ |  | 61,526
Other long-term obligations | ​ |  | 16,492 | ​ |  | 23,584
Total liabilities | ​ |  | 543,896 | ​ |  | 608,495
​ | ​ | ​ | ​ | ​ | ​ | ​
Commitments and contingencies | ​ |  |  | ​ |  |
​ | ​ | ​ | ​ | ​ | ​ | ​
Stockholders' equity: | ​ |  |  | ​ |  |
Preferred stock — 5,000 shares authorized as of September 30, 2022 and December 31, 2021; no shares issued | ​ |  | — | ​ |  | —
Common stock, no par value; 100,000 shares authorized; issued and outstanding as of September 30, 2022 - 56,918 and December 31, 2021 - 56,570 | ​ |  | 658,198 | ​ |  | 641,533
Retained earnings | ​ |  | 447,372 | ​ |  | 406,257
Accumulated other comprehensive loss | ​ |  | (16,729) | ​ |  | (7,991)
Total stockholders’ equity | ​ |  | 1,088,841 | ​ |  | 1,039,799
​ | ​ | ​ | ​ | ​ | ​ | ​
Total liabilities and stockholders’ equity | ​ | $ | 1,632,737 | ​ | $ | 1,648,294

​

​ | ​
See condensed notes to consolidated financial statements. | (concluded)

​

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4

Table of Contents

MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share amounts - unaudited)

​

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ |  | Three Months Ended |  | Nine Months Ended
​ | ​ | September 30, | ​ | September 30,
​ |  | 2022 |  | 2021 |  | 2022 |  | 2021
Net sales | ​ | $ | 287,175 | ​ | $ | 267,021 | ​ | $ | 857,566 | ​ | $ | 796,259
Cost of sales | ​ |  | 158,602 | ​ |  | 146,527 | ​ |  | 473,019 | ​ |  | 439,732
Gross profit | ​ |  | 128,573 | ​ |  | 120,494 | ​ |  | 384,547 | ​ |  | 356,527
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Operating expenses: | ​ |  |  | ​ |  |  | ​ |  |  | ​ |  |
Selling, general and administrative | ​ |  | 89,780 | ​ |  | 86,474 | ​ |  | 259,282 | ​ |  | 259,061
Research and development | ​ |  | 19,221 | ​ |  | 16,974 | ​ |  | 55,074 | ​ |  | 50,841
Impairment charges | ​ |  | — | ​ |  | — | ​ |  | 1,672 | ​ |  | 4,283
Contingent consideration expense | ​ |  | 915 | ​ |  | 1,115 | ​ |  | 4,702 | ​ |  | 3,322
Acquired in-process research and development | ​ |  | — | ​ |  | — | ​ |  | 6,671 | ​ |  | —
Total operating expenses | ​ |  | 109,916 | ​ |  | 104,563 | ​ |  | 327,401 | ​ |  | 317,507
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Income from operations | ​ |  | 18,657 | ​ |  | 15,931 | ​ |  | 57,146 | ​ |  | 39,020
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Other income (expense): | ​ |  |  | ​ |  |  | ​ |  |  | ​ |  |
Interest income | ​ |  | 116 | ​ |  | 104 | ​ |  | 316 | ​ |  | 668
Interest expense | ​ |  | (1,831) | ​ |  | (1,233) | ​ |  | (4,180) | ​ |  | (4,156)
Other income (expense) — net | ​ |  | 660 | ​ |  | (625) | ​ |  | (808) | ​ |  | (1,796)
Total other expense — net | ​ |  | (1,055) | ​ |  | (1,754) | ​ |  | (4,672) | ​ |  | (5,284)
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Income before income taxes | ​ |  | 17,602 | ​ |  | 14,177 | ​ |  | 52,474 | ​ |  | 33,736
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Income tax expense | ​ |  | 2,330 | ​ |  | 2,210 | ​ |  | 11,359 | ​ |  | 5,895
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Net income | ​ | $ | 15,272 | ​ | $ | 11,967 | ​ | $ | 41,115 | ​ | $ | 27,841
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Earnings per common share | ​ |  |  | ​ |  |  | ​ |  |  | ​ |  |
Basic | ​ | $ | 0.27 | ​ | $ | 0.21 | ​ | $ | 0.73 | ​ | $ | 0.50
Diluted | ​ | $ | 0.27 | ​ | $ | 0.21 | ​ | $ | 0.71 | ​ | $ | 0.49
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Weighted average shares outstanding | ​ |  |  | ​ |  |  | ​ |  |  | ​ |  |
Basic | ​ |  | 56,835 | ​ |  | 56,302 | ​ |  | 56,707 | ​ |  | 56,033
Diluted | ​ |  | 57,586 | ​ |  | 57,549 | ​ |  | 57,573 | ​ |  | 57,274

​

See condensed notes to consolidated financial statements.

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MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands - unaudited)

​

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ |  | Three Months Ended |  | Nine Months Ended
​ | ​ | September 30, | ​ | September 30,
​ |  | 2022 |  | 2021 |  | 2022 |  | 2021
Net income | ​ | $ | 15,272 | ​ | $ | 11,967 | ​ | $ | 41,115 | ​ | $ | 27,841
Other comprehensive income (loss): | ​ |  |  | ​ |  |  | ​ |  |  | ​ |  |
Cash flow hedges | ​ |  | 3,850 | ​ |  | 1,522 | ​ |  | 13,182 | ​ |  | 5,442
Income tax benefit (expense) | ​ |  | (942) | ​ |  | (377) | ​ |  | (3,226) | ​ |  | (1,349)
Foreign currency translation adjustment | ​ |  | (9,003) | ​ |  | (2,873) | ​ |  | (18,775) | ​ |  | (5,535)
Income tax benefit (expense) | ​ |  | 85 | ​ |  | 346 | ​ |  | 81 | ​ |  | 678
Total other comprehensive income (loss) | ​ |  | (6,010) | ​ |  | (1,382) | ​ |  | (8,738) | ​ |  | (764)
Total comprehensive income | ​ | $ | 9,262 | ​ | $ | 10,585 | ​ | $ | 32,377 | ​ | $ | 27,077

​

See condensed notes to consolidated financial statements.

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MERIT MEDICAL SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands - unaudited)

​

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Common Stock | ​ | Retained | ​ | Accumulated Other | ​ | ​ | ​
​ |  | Shares |  | Amount |  | Earnings |  | Comprehensive Income (Loss) |  | Total
Balance — January 1, 2022 |  | 56,570 | ​ | $ | 641,533 | ​ | $ | 406,257 | ​ | $ | (7,991) | ​ | $ | 1,039,799
Net income |  |  | ​ |  |  | ​ |  | 10,545 | ​ |  |  | ​ |  | 10,545
Other comprehensive income |  |  | ​ |  |  | ​ |  |  | ​ |  | 1,338 | ​ |  | 1,338
Stock-based compensation expense |  |  | ​ |  | 4,212 | ​ |  |  | ​ |  |  | ​ |  | 4,212
Options exercised |  | 52 | ​ |  | 1,320 | ​ |  |  | ​ |  |  | ​ |  | 1,320
Issuance of common stock under Employee Stock Purchase Plan |  | 5 | ​ |  | 320 | ​ |  |  | ​ |  |  | ​ |  | 320
Shares issued from time-vested restricted stock units | ​ | 44 | ​ | ​ | — | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | —
Shares surrendered in exchange for payment of payroll tax liabilities |  | (16) | ​ |  | (1,015) | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | (1,015)
Balance — March 31, 2022 |  | 56,655 | ​ | ​ | 646,370 | ​ | ​ | 416,802 | ​ | ​ | (6,653) | ​ | ​ | 1,056,519
Net income |  |  | ​ |  |  | ​ |  | 15,298 | ​ |  |  | ​ |  | 15,298
Other comprehensive loss |  |  | ​ |  |  | ​ |  |  | ​ |  | (4,066) | ​ |  | (4,066)
Stock-based compensation expense |  |  | ​ |  | 3,952 | ​ |  |  | ​ |  |  | ​ |  | 3,952
Options exercised |  | 58 | ​ |  | 1,303 | ​ |  |  | ​ |  |  | ​ |  | 1,303
Issuance of common stock under Employee Stock Purchase Plan |  | 6 | ​ |  | 301 | ​ |  |  | ​ |  |  | ​ |  | 301
Shares issued from time-vested restricted stock units | ​ | 26 | ​ | ​ | — | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | —
Balance — June 30, 2022 |  | 56,745 | ​ | ​ | 651,926 | ​ | ​ | 432,100 | ​ | ​ | (10,719) | ​ | ​ | 1,073,307
Net income |  |  | ​ |  |  | ​ |  | 15,272 | ​ |  |  | ​ |  | 15,272
Other comprehensive loss |  |  | ​ |  |  | ​ |  |  | ​ |  | (6,010) | ​ |  | (6,010)
Stock-based compensation expense |  |  | ​ |  | 3,893 | ​ |  |  | ​ |  |  | ​ |  | 3,893
Options exercised |  | 201 | ​ |  | 4,141 | ​ |  |  | ​ |  |  | ​ |  | 4,141
Issuance of common stock under Employee Stock Purchase Plan |  | 5 | ​ |  | 246 | ​ |  |  | ​ |  |  | ​ |  | 246
Shares surrendered in exchange for payment of payroll tax liabilities | ​ | (18) | ​ | ​ | (1,110) | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | (1,110)
Shares surrendered in exchange for exercise of stock options | ​ | (15) | ​ | ​ | (898) | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | (898)
Balance — September 30, 2022 |  | 56,918 | ​ | $ | 658,198 | ​ | $ | 447,372 | ​ | $ | (16,729) | ​ | $ | 1,088,841

​

​ | ​
See condensed notes to consolidated financial statements. | (continued)

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MERIT MEDICAL SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands - unaudited)

​

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | 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. | (concluded)

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MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands - unaudited)

​

​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Nine Months Ended
​ | ​ | September 30,
​ |  | 2022 |  | 2021
CASH FLOWS FROM OPERATING ACTIVITIES: |  | ​ | ​ | ​
Net income | ​ | $ | 41,115 | ​ | $ | 27,841
Adjustments to reconcile net income to net cash provided by operating activities: | ​ |  |  | ​ |  |
Depreciation and amortization | ​ |  | 61,312 | ​ |  | 63,173
Loss on disposition of business | ​ |  | 1,389 | ​ |  | —
Loss on sale or abandonment of property and equipment | ​ |  | 196 | ​ |  | 630
Write-off of certain intangible assets and other long-term assets | ​ |  | 1,733 | ​ |  | 4,412
Acquired in-process research and development | ​ |  | 6,671 | ​ |  | —
Amortization of right-of-use operating lease assets | ​ | ​ | 7,819 | ​ | ​ | 8,941
Adjustments and payments related to contingent consideration liability | ​ | ​ | 2,888 | ​ | ​ | 3,322
Amortization of deferred credits | ​ |  | (81) | ​ |  | (81)
Amortization of long-term debt issuance costs | ​ |  | 453 | ​ |  | 453
Stock-based compensation expense | ​ |  | 13,691 | ​ |  | 11,589
Changes in operating assets and liabilities, net of acquisitions and divestitures: | ​ |  | ​ | ​ |  | ​
Trade receivables | ​ |  | (9,063) | ​ |  | (6,180)
Other receivables | ​ |  | 5,669 | ​ |  | (3,173)
Inventories | ​ |  | (30,735) | ​ |  | (11,180)
Prepaid expenses and other current assets | ​ |  | (4,186) | ​ |  | (6,251)
Income tax refund receivables | ​ |  | (1,713) | ​ |  | 960
Other assets | ​ |  | 1,848 | ​ |  | (3,638)
Trade payables | ​ |  | 9,752 | ​ |  | 1,181
Accrued expenses | ​ |  | (8,861) | ​ |  | 19,575
Income taxes payable | ​ |  | (1,374) | ​ |  | (1,600)
Deferred compensation payable | ​ |  | (3,325) | ​ |  | 606
Operating lease liabilities | ​ | ​ | (8,406) | ​ | ​ | (9,365)
Other long-term obligations | ​ |  | (509) | ​ |  | 201
Total adjustments | ​ |  | 45,168 | ​ |  | 73,575
Net cash, cash equivalents, and restricted cash provided by operating activities | ​ |  | 86,283 | ​ |  | 101,416
​ | ​ | ​ | ​ | ​ | ​ | ​
CASH FLOWS FROM INVESTING ACTIVITIES: | ​ |  |  | ​ |  |
Capital expenditures for: | ​ |  |  | ​ |  |
Property and equipment | ​ |  | (32,539) | ​ |  | (19,612)
Intangible assets | ​ |  | (1,909) | ​ |  | (2,121)
Proceeds from the sale of property and equipment | ​ |  | 63 | ​ |  | 1,037
Payments from disposition of business | ​ | ​ | (971) | ​ | ​ | —
Cash paid in acquisitions, net of cash acquired | ​ |  | (4,712) | ​ |  | (1,858)
Net cash, cash equivalents, and restricted cash used in investing activities | ​ | $ | (40,068) | ​ | $ | (22,554)

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​ | ​
See condensed notes to consolidated financial statements. | (continued)

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MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands - unaudited)

​

​ | ​ | ​ | ​ | ​ | ​ | ​
​ |  | Nine Months Ended
​ | ​ | September 30,
​ | ​ | 2022 | ​ | 2021
CASH FLOWS FROM FINANCING ACTIVITIES: |  | ​ | ​ | ​
Proceeds from issuance of common stock | ​ | $ | 6,733 | ​ | $ | 17,814
Proceeds from issuance of long-term debt | ​ |  | 172,336 | ​ |  | 73,251
Payments on long-term debt | ​ | ​ | (198,593) | ​ | ​ | (145,876)
Contingent payments related to acquisitions | ​ |  | (32,862) | ​ |  | (10,579)
Payment of taxes related to an exchange of common stock | ​ |  | (2,125) | ​ |  | (576)
Net cash, cash equivalents, and restricted cash used in financing activities | ​ |  | (54,511) | ​ |  | (65,966)
Effect of exchange rates on cash, cash equivalents, and restricted cash | ​ |  | (5,862) | ​ |  | (908)
Net increase (decrease) in cash, cash equivalents and restricted cash | ​ |  | (14,158) | ​ |  | 11,988
​ | ​ | ​ | ​ | ​ | ​ | ​
CASH, CASH EQUIVALENTS AND RESTRICTED CASH: | ​ |  |  | ​ |  |
Beginning of period | ​ |  | 67,750 | ​ |  | 56,916
End of period | ​ | $ | 53,592 | ​ | $ | 68,904
​ | ​ | ​ | ​ | ​ | ​ | ​
RECONCILIATION OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH TO THE CONSOLIDATED BALANCE SHEETS: | ​ | ​ | ​ | ​ | ​ | ​
Cash and cash equivalents | ​ | ​ | 51,481 | ​ | ​ | 68,904
Restricted cash reported in prepaid expenses and other current assets | ​ | ​ | 2,111 | ​ | ​ | —
Total cash, cash equivalents and restricted cash | ​ | $ | 53,592 | ​ | $ | 68,904
​ | ​ | ​ | ​ | ​ | ​ | ​
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION | ​ |  |  | ​ |  |
Cash paid during the period for: | ​ |  |  | ​ |  |
Interest (net of capitalized interest of $565 and $345, respectively) | ​ | $ | 4,087 | ​ | $ | 4,155
Income taxes | ​ | ​ | 14,013 | ​ | ​ | 6,166
​ | ​ | ​ | ​ | ​ | ​ | ​
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES | ​ |  |  | ​ |  |
Property and equipment purchases in accounts payable | ​ | $ | 1,899 | ​ | $ | 2,842
Acquisition purchases in accrued expenses and other long-term obligations | ​ | ​ | (4,526) | ​ | ​ | —
Merit common stock surrendered (15 and 3 shares, respectively) in exchange for exercise of stock options | ​ | ​ | 898 | ​ | ​ | 179
Right-of-use operating lease assets obtained in exchange for operating lease liabilities | ​ | ​ | 8,948 | ​ | ​ | 827

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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 nine-month periods ended September 30, 2022 and 2021 are not audited. Our consolidated financial statements are prepared in accordance with the requirements for unaudited interim periods and, consequently, do not include all disclosures required to be made in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). In the opinion of our management, the accompanying consolidated financial statements contain all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of our financial position as of September 30, 2022 and December 31, 2021, and our results of operations and cash flows for the three and nine-month periods ended September 30, 2022 and 2021. The results of operations for the three and nine-month periods ended September 30, 2022 and 2021 are not necessarily indicative of the results for a full-year period. Amounts presented in this report are rounded, while 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, 2021 (the “2021 Annual Report on Form 10-K”).

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2. Recently Issued Financial Accounting Standards. In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting 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 amended the scope of ASU 2020-04. ASU 2020-04 and ASU 2021-01 became 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 September 30, 2022, we had not modified any contracts as a result of reference rate reform. W e 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.

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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 2021 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.

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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 nine-month periods ended September 30, 2022 and 2021 (in thousands):

​

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Three Months Ended | ​ | Three Months Ended
​ | ​ | September 30, 2022 | ​ | September 30, 2021
​ |  | United States |  | International |  | Total |  | United States |  | International |  | Total
Cardiovascular |  | ​ |  |  | ​ | ​ |  | ​ |  |  | ​ |  |  | ​ |  |  | ​ |
Peripheral Intervention | ​ | $ | 67,200 | ​ | $ | 43,498 | ​ | $ | 110,698 | ​ | $ | 61,282 | ​ | $ | 39,777 | ​ | $ | 101,059
Cardiac Intervention | ​ |  | 33,194 | ​ | ​ | 53,654 | ​ |  | 86,848 | ​ |  | 30,562 | ​ |  | 49,251 | ​ |  | 79,813
Custom Procedural Solutions | ​ |  | 27,078 | ​ | ​ | 18,614 | ​ |  | 45,692 | ​ |  | 27,895 | ​ |  | 21,540 | ​ |  | 49,435
OEM | ​ |  | 29,425 | ​ | ​ | 6,286 | ​ |  | 35,711 | ​ |  | 25,025 | ​ |  | 4,372 | ​ |  | 29,397
Total | ​ |  | 156,897 | ​ | ​ | 122,052 | ​ |  | 278,949 | ​ |  | 144,764 | ​ |  | 114,940 | ​ |  | 259,704
​ | ​ |  | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Endoscopy | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Endoscopy Devices | ​ |  | 7,674 | ​ |  | 552 | ​ |  | 8,226 | ​ |  | 6,741 | ​ |  | 576 | ​ |  | 7,317
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Total | ​ | $ | 164,571 | ​ | $ | 122,604 | ​ | $ | 287,175 | ​ | $ | 151,505 | ​ | $ | 115,516 | ​ | $ | 267,021

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​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Nine Months Ended | ​ | Nine Months Ended
​ | ​ | September 30, 2022 | ​ | September 30, 2021
​ |  | United States |  | International |  | Total |  | United States |  | International |  | Total
Cardiovascular |  | ​ | ​ |  | ​ | ​ |  | ​ |  |  | ​ |  |  | ​ |  |  | ​ |
Peripheral Intervention | ​ | $ | 195,095 | ​ | $ | 132,331 | ​ | $ | 327,426 | ​ | $ | 181,383 | ​ | $ | 118,190 | ​ | $ | 299,573
Cardiac Intervention | ​ |  | 95,652 | ​ | ​ | 162,257 | ​ |  | 257,909 | ​ |  | 93,030 | ​ |  | 147,173 | ​ |  | 240,203
Custom Procedural Solutions | ​ |  | 80,951 | ​ | ​ | 60,096 | ​ |  | 141,047 | ​ |  | 80,179 | ​ |  | 63,313 | ​ |  | 143,492
OEM | ​ |  | 87,269 | ​ | ​ | 18,904 | ​ |  | 106,173 | ​ |  | 75,335 | ​ |  | 14,399 | ​ |  | 89,734
Total | ​ |  | 458,967 | ​ | ​ | 373,588 | ​ |  | 832,555 | ​ |  | 429,927 | ​ |  | 343,075 | ​ |  | 773,002
​ | ​ |  | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Endoscopy | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Endoscopy Devices | ​ |  | 23,270 | ​ |  | 1,741 | ​ |  | 25,011 | ​ |  | 21,721 | ​ |  | 1,536 | ​ |  | 23,257
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Total | ​ | $ | 482,237 | ​ | $ | 375,329 | ​ | $ | 857,566 | ​ | $ | 451,648 | ​ | $ | 344,611 | ​ | $ | 796,259

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4. Acquisitions. On April 30, 2022, we acquired the Restore Endosystems Bifurcated Stent System pursuant to the terms of a unit purchase agreement we executed with the members of Restore Endosystems, LLC (“Restore Endosystems”). Pursuant to the terms and conditions of the unit purchase agreement, we paid $3 million in cash at closing. We also accrued $3.5 million of other long-term obligations, which represents the fair value of two separate $2 million payments which are payable no later than two and four years following the closing of the acquisition, respectively, or earlier upon the achievement of specified milestones. We impute interest on these liabilities with the passage of time. We have accounted for this transaction as an asset purchase and recorded $6.5 million of acquired in-process research and development expense, because the technological feasibility of the underlying research and development project has not yet been reached and such technology had no identified future alternative use as of the date of acquisition.

During April 2022, we paid $1.4 million to acquire shares of series A preferred stock of Fluidx Medical Technology, Inc. ("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. We had previously purchased, and continue to hold, $4.7 million of participating preferred shares of Fluidx. Our investments have been recorded as equity investments 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 17% of its outstanding capital stock.

During the three-month period ended September 30, 2022, we met the criteria requiring the final payment pursuant to our asset purchase agreement with QX Medical, LLC executed on December 15, 2011, for the acquisition of the intellectual property rights to certain support guide catheter technology. As of September 30, 2022, we recorded a liability of $1.0 million within accrued expenses based upon our obligation to pay the sales milestone payment in accordance with the terms of the asset purchase agreement and capitalized a developed technology intangible asset.

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5. Inventories. Inventories at September 30, 2022 and December 31, 2021, consisted of the following (in thousands):

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​ | ​ | ​ | ​ | ​ | ​ | ​
​ |  | September 30, 2022 |  | December 31, 2021
Finished goods | ​ | $ | 134,686 | ​ | $ | 132,403
Work-in-process | ​ |  | 32,470 | ​ |  | 22,160
Raw materials | ​ |  | 79,504 | ​ |  | 67,359
Total inventories | ​ | $ | 246,660 | ​ | $ | 221,922

​

​

6. Goodwill and Intangible Assets. The change in the carrying amount of goodwill for the nine-month period ended September 30, 2022 is detailed as follows (in thousands):

​

​ | ​ | ​ | ​
​ |  | 2022
Goodwill balance at January 1 | ​ | $ | 361,741
Effect of foreign exchange | ​ |  | (3,685)
Goodwill balance at September 30 | ​ | $ | 358,056

​

Total accumulated goodwill impairment losses aggregated $8.3 million as of September 30, 2022 and December 31, 2021. We did not have any goodwill impairments for the nine-month periods ended September 30, 2022 and 2021. The total goodwill balances as of September 30, 2022 and December 31, 2021 were related to our cardiovascular segment.

​

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Other intangible assets at September 30, 2022 and December 31, 2021 consisted of the following (in thousands):

​

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | September 30, 2022
​ | ​ | Gross Carrying | ​ | Accumulated | ​ | Net Carrying
​ |  | Amount |  | Amortization |  | Amount
Patents | ​ | $ | 28,179 | ​ | $ | (9,724) | ​ | $ | 18,455
Distribution agreements | ​ |  | 3,250 | ​ |  | (2,664) | ​ |  | 586
License agreements | ​ |  | 11,029 | ​ |  | (6,967) | ​ |  | 4,062
Trademarks | ​ |  | 30,194 | ​ |  | (17,189) | ​ |  | 13,005
Customer lists | ​ |  | 34,481 | ​ |  | (31,764) | ​ |  | 2,717
Total | ​ | $ | 107,133 | ​ | $ | (68,308) | ​ | $ | 38,825

​

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | December 31, 2021
​ | ​ | Gross Carrying | ​ | Accumulated | ​ | Net Carrying
​ |  | Amount |  | Amortization |  | Amount
Patents | ​ | $ | 26,349 | ​ | $ | (8,315) | ​ | $ | 18,034
Distribution agreements | ​ |  | 3,250 | ​ |  | (2,519) | ​ |  | 731
License agreements | ​ |  | 12,663 | ​ |  | (7,768) | ​ |  | 4,895
Trademarks | ​ |  | 30,242 | ​ |  | (15,256) | ​ |  | 14,986
Customer lists | ​ |  | 34,985 | ​ |  | (31,195) | ​ |  | 3,790
Total | ​ | $ | 107,489 | ​ | $ | (65,053) | ​ | $ | 42,436

​

Aggregate amortization expense for the three and nine-month periods ended September 30, 2022 was $12.1 million and $36.3 million, respectively. Aggregate amortization expense for the three and nine-month periods ended September 30, 2021 was $12.4 million and $37.3 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 nine-month period ended September 30, 2022, we identified indicators of impairment associated with certain acquired intangible assets based on our qualitative assessment, which led us to complete an interim quantitative impairment assessment. The primary indicator of impairment was our divestiture on April 30, 2022 of the STD Pharmaceutical Products Limited (“STD Pharmaceutical”) business acquired in our August 2019 acquisition of Fibrovein Holdings Limited. We recorded an impairment charge for the carrying value of $1.7 million of intangible assets during the nine months ended September 30, 2022, all of which pertained to our cardiovascular segment.

​

During the nine-month period ended September 30, 2021, we identified indicators of impairment associated with certain acquired intangible assets based on our qualitative assessment, which led us to complete an interim quantitative impairment assessment. During the nine-month period ended September 30, 2021, 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 nine-month period ended September 30, 2021, all of which pertained to our cardiovascular segment.

​

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Estimated amortization expense for developed technology and other intangible assets for the next five years consisted of the following as of September 30, 2022 (in thousands):

​

​ | ​ | ​ | ​
Year Ending December 31, |  | Estimated Amortization Expense
Remaining 2022 | ​ | $ | 12,121
2023 | ​ |  | 47,414
2024 | ​ |  | 44,330
2025 | ​ | ​ | 42,434
2026 | ​ |  | 31,860

​

​

7. Income Taxes. Our provision for income taxes for the three-month periods ended September 30, 2022 and 2021 was a tax expense of $2.3 million and $2.2 million, respectively, which resulted in an effective tax rate of 13.2% and 15.6%, respectively. Our provision for income taxes for the nine-month periods ended September 30, 2022 and 2021 was a tax expense of $11.4 million and $5.9 million, respectively, which resulted in an effective tax rate of 21.6% and 17.5%, respectively. The increase in the income tax expense and the corresponding change in the effective income tax rate for the three and nine-month periods ended September 30, 2022, when compared to the prior-year periods, was primarily due to decreased benefit from discrete items such as share-based compensation and deferred compensation. 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).

​

On August 16, 2022, the Inflation Reduction Act of 2022 was signed into law. We currently do not anticipate the recently enacted law, including the corporate alternative minimum tax, one percent excise tax on stock repurchases, or tax incentives to promote clean energy, to have a material impact on our consolidated financial statements.

​

​

8. Revolving Credit Facility and Long-Term Debt. Principal balances outstanding under our long-term debt obligations as of September 30, 2022 and December 31, 2021, consisted of the following (in thousands):

​

​ | ​ | ​ | ​ | ​ | ​ | ​
​ |  | September 30, 2022 |  | December 31, 2021
Term loans | ​ | $ | 127,500 | ​ | $ | 133,125
Revolving credit loans | ​ |  | 89,368 | ​ |  | 110,000
Less unamortized debt issuance costs | ​ |  | (206) | ​ |  | (290)
Total long-term debt | ​ |  | 216,662 | ​ |  | 242,835
Less current portion | ​ |  | 11,250 | ​ |  | 8,438
Long-term portion | ​ | $ | 205,412 | ​ | $ | 234,397

​

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 amended and restated 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 of 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

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

​

The Third Amended Credit Agreement is collateralized by substantially all our assets. The Third Amended Credit Agreement contains affirmative and negative covenants, representations and warranties, events of default and other terms customary for loans of this nature. In particular, the Third Amended Credit Agreement requires that we maintain certain financial covenants, as follows:

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

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

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

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

​

We believe we were in compliance with all covenants set forth in the Third Amended Credit Agreement as of September 30, 2022.

As of September 30, 2022, we had outstanding borrowings of $216.9 million and issued letter of credit guarantees of $1.9 million under the Third Amended Credit Agreement, with additional available borrowings of approximately $509 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 September 30, 2022 was a fixed rate of 2.71% with respect to $75 million of the principal amount, as a result of an interest rate swap (see Note 9), and a variable floating rate of 4.12% with respect to $141.9 million of the principal amount. Our interest rate as of December 31, 2021 was a fixed rate of 2.71% on $75 million as a result of an interest rate swap and a variable floating rate of 1.10% on $168.1 million. The foregoing fixed rates do not reflect potential future changes in the applicable margin.

Future minimum principal payments on our long-term debt, as of September 30, 2022, were as follows (in thousands):

​ | ​ | ​ | ​
Years Ending | ​ | Future Minimum
December 31, |  | Principal Payments
Remaining 2022 |  | $ | 2,812
2023 | ​ | ​ | 11,250
2024 | ​ | ​ | 202,806
Total future minimum principal payments | ​ | $ | 216,868

​

​

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 derivative instruments we use are interest rate swaps and foreign currency forward contracts. We recognize derivative instruments 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 derivative instruments not designated as hedging instruments are recorded in earnings throughout the term of the derivative.

​

Interest Rate Risk. Our debt bears interest at variable interest rates. Therefore, we are subject to variability in the cash payable for interest expense. In order to mitigate a portion of the risk attributable to 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 varies in accordance with changes in the benchmark interest rate.

Derivative Instruments Designated as Cash Flow Hedges

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 on that portion of our borrowings under the Third Amended Credit Agreement 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 reset, the swap is settled with the counterparty, and interest is paid.

On September 30, 2022 and December 31, 2021, our interest rate swap qualified as a cash flow hedge. The fair value of our interest rate swap on September 30, 2022 was an asset of $3.4 million, which was partially offset by ($0.8) million in deferred taxes. The fair value of our interest rate swap on December 31, 2021 was a liability of ($1.4) million, partially offset by $0.4 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 various currencies, with our most significant exposure related to transactions and balances denominated in Chinese Renminbi and Euros, 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 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 100 cash flow foreign currency hedges every month. As of September 30, 2022 and December 31, 2021, we had entered into foreign currency forward contracts, which qualified as cash flow hedges, with aggregate notional amounts of $72.8 million and $123.0 million, respectively.

Derivative Instruments Not Designated as Cash Flow Hedges

​

We forecast our net exposure in various receivables and payables to fluctuations in the value of various currencies, and we enter into foreign currency forward contracts to mitigate that exposure. We enter into approximately 50 foreign currency

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fair value hedges every month. As of September 30, 2022 and December 31, 2021, we had entered into foreign currency forward contracts related to those balance sheet accounts with aggregate notional amounts of $79.3 million and $86.0 million, respectively.

Balance Sheet Presentation of Derivative Instruments. As of September 30, 2022 and December 31, 2021, 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 |  | September 30, 2022 |  | December 31, 2021
Assets |  |  |  | ​ |  |  | ​ |
Interest rate swaps |  | Other assets (long-term) | ​ | $ | 3,439 | ​ | $ | —
Foreign currency forward contracts |  | Prepaid expenses and other assets | ​ | ​ | 5,969 | ​ | ​ | 1,326
Foreign currency forward contracts |  | Other assets (long-term) | ​ | ​ | 695 | ​ |  | 179
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
(Liabilities) |  |  | ​ |  |  | ​ |  |
Interest rate swaps | ​ | Other long-term obligations | ​ | ​ | — | ​ | ​ | (1,447)
Foreign currency forward contracts |  | Accrued expenses | ​ |  | (1,324) | ​ |  | (2,288)
Foreign currency forward contracts |  | Other long-term obligations | ​ |  | (35) | ​ |  | (502)
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Fair Value of Derivative Instruments Not Designated as Hedging Instruments |  | Balance Sheet Location |  | September 30, 2022 |  | December 31, 2021
Assets |  |  | ​ |  |  | ​ |  |
Foreign currency forward contracts |  | Prepaid expenses and other assets | ​ | $ | 3,206 | ​ | $ | 736
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
(Liabilities) |  |  | ​ |  |  | ​ |  |
Foreign currency forward contracts |  | Accrued expenses | ​ |  | (1,474) | ​ |  | (856)

​

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, consolidated statements of comprehensive income and consolidated balance sheets (in thousands):

​

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Amount of Gain/(Loss) | ​ | ​ | ​ | Consolidated Statements | ​ | Amount of Gain/(Loss)
​ | ​ | Recognized in OCI | ​ | ​ | ​ | of Income | ​ | Reclassified from AOCI
​ | ​ | Three Months Ended September 30, |  | ​ |  | Three Months Ended September 30, | ​ | Three Months Ended September 30,
Derivative instrument |  | 2022 |  | 2021 |  | Location in statements of income |  | 2022 |  |  | 2021 |  | 2022 |  |  | 2021
Interest rate swaps | ​ | $ | 1,504 | ​ | $ | (18) | ​ | Interest expense | ​ | $ | (1,831) | ​ | $ | (1,233) | ​ | $ | 94 | ​ | $ | (319)
Foreign currency forward contracts | ​ |  | 3,491 | ​ |  | 33 | ​ | Revenue | ​ |  | 287,175 | ​ |  | 267,021 | ​ |  | 1,491 | ​ |  | (1,500)
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | Cost of sales | ​ |  | (158,602) | ​ |  | (146,527) | ​ |  | (440) | ​ |  | 312

​

​

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​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Amount of Gain/(Loss) | ​ | ​ | Consolidated Statements | ​ | Amount of Gain/(Loss)
​ | ​ | Recognized in OCI | ​ | ​ | of Income | ​ | Reclassified from AOCI
​ | ​ | Nine Months Ended September 30, | ​ | ​ | Nine Months Ended September 30, | ​ | Nine Months Ended September 30,
Derivative instrument |  | 2022 |  | 2021 |  | Location in statements of income |  | 2022 |  | ​ | 2021 |  | 2022 |  |  | 2021
Interest rate swaps | ​ | $ | 4,507 | ​ | $ | 619 | ​ | Interest expense | ​ | $ | (4,180) | ​ | $ | (4,156) | ​ | $ | (379) | ​ | $ | (1,198)
Foreign currency forward contracts | ​ |  | 8,713 | ​ |  | (83) | ​ | Revenue | ​ |  | 857,566 | ​ |  | 796,259 | ​ |  | 1,303 | ​ |  | (4,674)
​ | ​ | ​ | ​ | Cost of sales | ​ |  | (473,019) | ​ |  | (439,732) | ​ |  | (886) | ​ |  | 966

​

As of September 30, 2022, $5.5 million, or $4.2 million after taxes, was expected to be reclassified from AOCI to earnings in revenue and cost of sales over the succeeding twelve months. As of September 30, 2022, $1.9 million, or $1.5 million after taxes, was expected to be reclassified from AOCI 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 for the periods presented (in thousands):

​

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ |  | ​ |  | Three Months Ended September 30, |  | Nine Months Ended September 30,
Derivative Instrument |  | Location in statements of income |  | 2022 |  | 2021 |  | 2022 |  | 2021
Foreign currency forward contracts |  | Other income (expense) — net | ​ | $ | 1,034 | ​ | $ | 39 | ​ | $ | 1,212 | ​ | $ | (709)

​

​

10. Commitments and Contingencies.

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, audits or proceedings, 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 amounts 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, settlement strategies and the potential availability of insurance coverage. 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, 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.

​

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. The parties have negotiated a tentative agreement to settle the dispute; however, that agreement is not final and remains subject to court approval. As currently proposed, the settlement would result in an expense to Merit of $1.0 million. The estimated expense associated with the tentative settlement has been reflected in our financial results reported for the nine-month period ended September 30, 2022. On October 18, 2022, the court entered an order preliminarily approving the settlement and providing for notice to the Company’s shareholders, subject to further consideration at a settlement hearing scheduled for February 16, 2023.

​

SEC Inquiry

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​

We received a request from the Division of Enforcement of the U.S, Securities and Exchange Commission (“SEC”) seeking the voluntary production of information relating to the business activities of Merit’s subsidiary in China, including interactions with hospitals and health care officials in China. We are cooperating with this request and investigating the matter and, at this time, are unable to predict the scope, timing, significance or outcome of this matter.

​

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

​

​

11. Earnings Per Common Share (EPS). The computation of weighted average shares outstanding and the basic and diluted earnings per common share for the three and nine-month periods ended September 30, 2022 and 2021 consisted of the following (in thousands, except per share amounts):

​

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Three Months Ended | ​ | Nine Months Ended
​ | ​ | September 30, | ​ | September 30,
​ | ​ | 2022 | ​ | 2021 | ​ | 2022 | ​ | 2021
Net income | ​ | $ | 15,272 | ​ | $ | 11,967 | ​ | $ | 41,115 | ​ | $ | 27,841
Average common shares outstanding | ​ |  | 56,835 | ​ |  | 56,302 | ​ |  | 56,707 | ​ |  | 56,033
Basic EPS | ​ | $ | 0.27 | ​ | $ | 0.21 | ​ | $ | 0.73 | ​ | $ | 0.50
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Average common shares outstanding | ​ | ​ | 56,835 | ​ | ​ | 56,302 | ​ | ​ | 56,707 | ​ | ​ | 56,033
Effect of dilutive stock awards | ​ | ​ | 751 | ​ | ​ | 1,247 | ​ | ​ | 866 | ​ | ​ | 1,241
Total potential shares outstanding | ​ | ​ | 57,586 | ​ | ​ | 57,549 | ​ | ​ | 57,573 | ​ | ​ | 57,274
Diluted EPS | ​ | $ | 0.27 | ​ | $ | 0.21 | ​ | $ | 0.71 | ​ | $ | 0.49
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Equity awards excluded as the impact was anti-dilutive (1) | ​ | ​ | 1,641 | ​ | ​ | 419 | ​ | ​ | 1,612 | ​ | ​ | 815

(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 for the three and nine-month periods ended September 30, 2022 and 2021 consisted of the following (in thousands):

​

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Three Months Ended | ​ | Nine Months Ended
​ | ​ | September 30, | ​ | September 30,
​ |  | 2022 |  | 2021 |  | 2022 |  | 2021
Cost of sales | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Nonqualified stock options | ​ | $ | 150 | ​ | $ | 383 | ​ | $ | 1,247 | ​ | $ | 1,019
Research and development | ​ |  | ​ | ​ | ​ | ​ | ​ |  | ​ | ​ | ​ | ​
Nonqualified stock options | ​ | ​ | 476 | ​ |  | 355 | ​ | ​ | 1,412 | ​ |  | 910
Selling, general and administrative | ​ |  | ​ | ​ | ​ | ​ | ​ |  | ​ | ​ | ​ | ​
Nonqualified stock options | ​ | ​ | 2,166 | ​ |  | 2,071 | ​ | ​ | 5,297 | ​ |  | 4,512
Performance-based restricted stock units | ​ | ​ | 647 | ​ | ​ | 1,193 | ​ | ​ | 2,719 | ​ | ​ | 2,896
Restricted stock units | ​ | ​ | 454 | ​ | ​ | 409 | ​ | ​ | 1,382 | ​ | ​ | 1,149
Cash-settled performance-based share-based awards ("Liability Awards") | ​ | ​ | 705 | ​ | ​ | 446 | ​ | ​ | 1,634 | ​ | ​ | 1,103
Total selling, general and administrative | ​ | ​ | 3,972 | ​ | ​ | 4,119 | ​ | ​ | 11,032 | ​ | ​ | 9,660
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Stock-based compensation expense before taxes | ​ | $ | 4,598 | ​ | $ | 4,857 | ​ | $ | 13,691 | ​ | $ | 11,589

​

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.

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​

Nonqualified Stock Options

During the nine-month periods ended September 30, 2022 and 2021, we granted stock options representing 203,606 and 656,350 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 methodology to the option grants, the fair value of our stock-based awards granted was estimated using the following assumptions for the periods indicated below:

​

​ | ​ | ​ | ​ | ​
​ | ​ | Nine Months Ended
​ | ​ | September 30,
​ | ​ | 2022 | ​ | 2021
Risk-free interest rate |  | 1.4% - 3.4% |  | 0.5% - 0.7%
Expected option term |  | 4.0 years |  | 4.0 years
Expected dividend yield |  | — |  | —
Expected price volatility |  | 46.2% - 47.4% |  | 46.3% - 46.7%

​

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 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.

​

As of September 30, 2022, the total remaining unrecognized compensation cost related to non-vested stock options was $22.0 million, which was expected to be recognized over a weighted average period of 2.3 years.

​

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

​

During the nine-month periods ended September 30, 2022 and 2021, we granted performance stock units to certain of our executive officers which represent up to 120,710 and 128,883 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:

​

​ | ​ | ​ | ​ | ​
​ | ​ | Nine Months Ended
​ | ​ | September 30,
​ | ​ | 2022 | ​ | 2021
Risk-free interest rate |  | 1.6% - 2.7% |  | 0.1% - 0.3%
Performance period |  | 2.6 - 2.8 years |  | 1.8 - 2.8 years
Expected dividend yield |  | — |  | —
Expected price volatility |  | 38.5% - 46.2% |  | 43.7% - 49.3%

​

The risk-free interest rate of return was determined using the U.S. Treasury rate at the time of grant with a term equal to the expected term of the award. The expected volatility was based on the weighted average volatility of our stock price and the average volatility of our compensation peer group's stock price. 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 adjustments 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

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September 30, 2022, the total remaining unrecognized compensation cost related to stock-settled performance stock units was $6.5 million, which is expected to be recognized over a weighted average period of 1.7 years.

Liability Awards

During the nine-month periods ended September 30, 2022 and 2021, we granted liability awards to our Chief Executive Officer with total target cash incentives, each in the amount of $1.0 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 obligations within our consolidated balance sheet. As of September 30, 2022, the total remaining unrecognized compensation cost related to cash-settled performance-based share-based awards was $2.7 million, which is expected to be recognized over a weighted average period of 1.9 years.

Restricted Stock Units

During the nine-month periods ended September 30, 2022 and 2021, we granted restricted stock units to our non-employee directors representing 30,500 and 26,226 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 September 30, 2022, the total remaining unrecognized compensation cost related to restricted stock units was $1.2 million, which will be recognized over the remaining vesting period.

​

​

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

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Financial information relating to our reportable operating segments and reconciliations to the consolidated totals for the three and nine-month periods ended September 30, 2022 and 2021, were as follows (in thousands):

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ |  | Three Months Ended |  | Nine Months Ended
​ |  | September 30, |  | September 30,
​ |  | 2022 |  | 2021 |  | 2022 |  | 2021
Net sales |  | ​ |  |  | ​ |  |  | ​ |  |  | ​ |
Cardiovascular | ​ | $ | 278,949 | ​ | $ | 259,704 | ​ | $ | 832,555 | ​ | $ | 773,002
Endoscopy | ​ |  | 8,226 | ​ |  | 7,317 | ​ |  | 25,011 | ​ |  | 23,257
Total net sales | ​ |  | 287,175 | ​ |  | 267,021 | ​ |  | 857,566 | ​ |  | 796,259
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Income from operations | ​ |  |  | ​ |  |  | ​ |  |  | ​ |  |
Cardiovascular | ​ |  | 17,435 | ​ |  | 14,411 | ​ |  | 51,836 | ​ |  | 33,389
Endoscopy | ​ |  | 1,222 | ​ |  | 1,520 | ​ |  | 5,310 | ​ |  | 5,631
Total income from operations | ​ |  | 18,657 | ​ |  | 15,931 | ​ |  | 57,146 | ​ |  | 39,020
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Total other expense — net | ​ |  | (1,055) | ​ |  | (1,754) | ​ |  | (4,672) | ​ |  | (5,284)
Income tax expense | ​ |  | 2,330 | ​ |  | 2,210 | ​ |  | 11,359 | ​ |  | 5,895
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Net income | ​ | $ | 15,272 | ​ | $ | 11,967 | ​ | $ | 41,115 | ​ | $ | 27,841

​

​

14. Fair Value Measurements.

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

Our financial assets and (liabilities) carried at fair value and measured on a recurring basis as of September 30, 2022 and December 31, 2021 consisted of the following (in thousands):

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ | ​ | Fair Value Measurements Using
​ | ​ | Total Fair | ​ | Quoted prices in | ​ | Significant other | ​ | Significant
​ | ​ | Value at | ​ | active markets | ​ | observable inputs | ​ | unobservable inputs
​ |  | September 30, 2022 |  | (Level 1) |  | (Level 2) |  | (Level 3)
Interest rate contract asset, long-term (1) | ​ | $ | 3,439 | ​ | $ | — | ​ | $ | 3,439 | ​ | $ | —
Foreign currency contract assets, current and long-term (2) | ​ | $ | 9,870 | ​ | $ | — | ​ | $ | 9,870 | ​ | $ | —
Foreign currency contract liabilities, current and long-term (3) | ​ | $ | (2,833) | ​ | $ | — | ​ | $ | (2,833) | ​ | $ | —
Contingent consideration liabilities | ​ | $ | (18,250) | ​ | $ | — | ​ | $ | — | ​ | $ | (18,250)

​

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ | ​ | Fair Value Measurements Using
​ | ​ | Total Fair | ​ | Quoted prices in | ​ | Significant other | ​ | Significant
​ | ​ | Value at | ​ | active markets | ​ | observable inputs | ​ | unobservable inputs
​ |  | December 31, 2021 |  | (Level 1) |  | (Level 2) |  | (Level 3)
Interest rate contract liability, long-term (1) | ​ | $ | (1,447) | ​ | $ | — | ​ | $ | (1,447) | ​ | $ | —
Foreign currency contract assets, current and long-term (2) | ​ | $ | 2,241 | ​ | $ | — | ​ | $ | 2,241 | ​ | $ | —
Foreign currency contract liabilities, current and long-term (3) | ​ | $ | (3,646) | ​ | $ | — | ​ | $ | (3,646) | ​ | $ | —
Contingent consideration liabilities | ​ | $ | (48,234) | ​ | $ | — | ​ | $ | — | ​ | $ | (48,234)

(1) | The fair value of the interest rate contract is determined using Level 2 fair value inputs and is reported with other long-term assets 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.

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(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 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, 2022 and 2021 consisted of the following (in thousands):

​

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ |  | Three Months Ended |  | Nine Months Ended
​ |  | September 30, |  | September 30,
​ |  | 2022 |  | 2021 |  | 2022 |  | 2021
Beginning balance | ​ | $ | 17,426 | ​ | $ | 57,477 | ​ | $ | 48,234 | ​ | $ | 55,750
Contingent consideration expense | ​ |  | 915 | ​ |  | 1,115 | ​ |  | 4,702 | ​ |  | 3,322
Contingent payments made | ​ |  | (91) | ​ |  | (10,090) | ​ |  | (34,676) | ​ |  | (10,579)
Effect of foreign exchange | ​ | ​ | — | ​ | ​ | (19) | ​ | ​ | (10) | ​ | ​ | (10)
Ending balance | ​ | $ | 18,250 | ​ | $ | 48,483 | ​ | $ | 18,250 | ​ | $ | 48,483

​

As of September 30, 2022, $5.5 million in contingent consideration liability was included in other long-term obligations and $12.8 million in contingent consideration liability was included in accrued expenses in our consolidated balance sheet. As of December 31, 2021, $13.5 million in contingent consideration liability was included in other long-term obligations and $34.7 million in contingent consideration liability was included in accrued expenses in our consolidated balance sheet.

Payments related to the settlement of the contingent consideration liability recognized at fair value as of the applicable acquisition date of $32.9 million and $10.6 million for the nine-month periods ended September 30, 2022 and 2021, respectively, have been reflected as a cash outflow from financing activities in the accompanying consolidated statements of cash flows. Payments related to increases in the contingent consideration liability subsequent to the date of acquisition of $1.8 million for the nine-month period ended September 30, 2022 are reflected as operating cash flows.

The recurring Level 3 measurement of our contingent consideration liabilities included the following significant unobservable inputs at September 30, 2022 and December 31, 2021 (amounts in thousands):

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Fair value at | ​ | ​ | ​ | ​ | ​ | ​ |  | ​
​ | ​ | September 30, | ​ | Valuation | ​ | ​ | ​ | ​ | ​ | Weighted
Contingent consideration liability |  | 2022 |  | technique |  | Unobservable inputs |  | Range | ​ | Average(1)
Revenue-based royalty payments contingent liability | ​ | $ | 2,322 |  | Discounted cash flow |  | Discount rate | ​ | 14% - 17% | ​ | 15.9%
​ | ​ |  |  |  | ​ |  | Projected year of payments | ​ | 2022-2034 | ​ | 2026
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Revenue milestones contingent liability | ​ | $ | 12,551 |  | Monte Carlo simulation |  | Discount rate | ​ | 7.5% - 14% | ​ | 7.6%
​ | ​ |  |  |  | ​ |  | Projected year of payments | ​ | 2022-2032 | ​ | 2023
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Regulatory approval contingent liability | ​ | $ | 3,377 | ​ | Scenario-based method | ​ | Discount rate | ​ | 5.7% | ​ | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | Probability of milestone payment | ​ | 80% | ​ | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | Projected year of payment | ​ | 2024-2025 | ​ | 2025

​

​

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​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Fair value at | ​ | ​ | ​ | ​ | ​ | ​ |  | ​
​ | ​ | December 31, | ​ | Valuation | ​ | ​ | ​ | ​ | ​ | Weighted
Contingent consideration liability |  | 2021 |  | technique |  | Unobservable inputs |  | Range | ​ | Average(1)
Revenue-based royalty payments contingent liability | ​ | $ | 2,870 |  | Discounted cash flow |  | Discount rate | ​ | 13% - 16% | ​ | 14.7%
​ | ​ |  |  |  | ​ |  | Projected year of payments | ​ | 2022-2034 | ​ | 2026
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Revenue milestones contingent liability | ​ | $ | 41,671 |  | Monte Carlo simulation |  | Discount rate | ​ | 7.5% - 12.5% | ​ | 8.2%
​ | ​ |  |  |  | ​ |  | Projected year of payments | ​ | 2022-2031 | ​ | 2022
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Regulatory approval contingent liability | ​ | $ | 3,693 | ​ | Scenario-based method | ​ | Discount rate | ​ | 2.6% | ​ | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | Probability of milestone payment | ​ | 80% | ​ | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | Projected year of payment | ​ | 2024-2025 | ​ | 2025

(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.

​

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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.

Contingent Payments to Related Parties

During the nine-month period ended September 30, 2022, we made contingent payments of $1.6 million to a former director of Merit and former shareholder of Cianna Medical, Inc. (“Cianna Medical”), which we acquired in 2018. We made no such payments during the nine-month period ended 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 former 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.

We analyze our investments in privately-held companies to determine if they should be accounted for using the equity method based on our ability to exercise significant influence over operating and financial policies of the 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.

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. On April 30, 2022, we completed the divestiture of Fibrovein Holdings Limited, which was the owner of all of the capital stock of STD Pharmaceutical Products Limited, in exchange for the termination of our obligations arising from the acquisition transaction in August 2019 and the purchaser’s agreement to make potential future payments upon a qualifying disposition of the STD Pharmaceutical business. During the nine-month period ended September 30, 2022, we had impairment losses related to acquired intangible assets of $1.7 million (see note 6) in connection with this disposition. In addition to the intangible asset impairment, during the three-month period ended June 30, 2022, we recorded a loss within other income (expense) – net of $1.3 million primarily associated with the transfer of net assets of the divested entity including approximately $1.0 million of cash and $1.2 million of inventory, partially offset by a gain of $1.0 million from reclassification of foreign currency translation gains.

During the nine-month period ended September 30, 2021 we had losses related to acquired intangible assets of $1.6 million (see note 6).

Right of Use Operating Lease Assets. During the nine-month period ended September 30, 2021, we identified changes in events and circumstances relating to certain right-of-use (“ROU”) operating lease assets. We compared the anticipated

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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 nine-month period ended September 30, 2021 of approximately $1.4 million, which is equal to the excess of the carrying value of the assets over their estimated fair value. The impairment losses 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 included 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 2021 pertained to our cardiovascular segment. We had no such losses during the three and nine-month periods ended September 30, 2022.

​

Property and Equipment. During the three and nine-month periods ended September 30, 2021, we had losses of $1.3 million related to the measurement of property and equipment at fair value based on the discontinuance of the Advocate™ Peripheral Angioplasty Balloon product line, sold under our license agreements with ArraVasc, which pertained to our cardiovascular segment.

Notes Receivable

Our outstanding long-term notes receivable, including accrued interest and an allowance for current expected credit losses, were $2.4 million and $2.3 million as of September 30, 2022, and December 31, 2021, respectively. As of September 30, 2022 and December 31, 2021, we had an allowance for current expected credit losses of $0.2 million and $0.2 million, respectively, associated with these notes receivable. 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. The table below presents a rollforward of the allowance for current expected credit losses on our notes receivable for the three and nine-month periods ended September 30, 2022 and 2021 (in thousands):

​

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Three Months Ended | ​ | Nine Months Ended
​ | ​ | September 30, | ​ | September 30,
​ | ​ | 2022 |  | 2021 | ​ | 2022 |  | 2021
Beginning balance | ​ | $ | 192 | ​ | $ | 1,107 | ​ | $ | 199 | ​ | $ | 730
Provision for credit loss expense | ​ | ​ | (6) | ​ | ​ | 113 | ​ | ​ | (13) | ​ | ​ | 490
Ending balance | ​ | $ | 186 | ​ | $ | 1,220 | ​ | $ | 186 | ​ | $ | 1,220

​

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15. Accumulated Other Comprehensive Income (Loss). The changes in each component of accumulated other comprehensive income (loss) for the three and nine-month periods ended September 30, 2022 and 2021 were as follows:

​

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | Cash Flow Hedges |  | Foreign Currency Translation |  | Total
Balance as of June 30, 2022 | $ | 4,584 | ​ | $ | (15,303) | ​ | $ | (10,719)
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Other comprehensive income (loss) |  | 4,995 | ​ | ​ | (9,003) | ​ | ​ | (4,008)
Income taxes |  | (942) | ​ | ​ | 85 | ​ | ​ | (857)
Reclassifications to: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Revenue | ​ | (1,491) | ​ | ​ | ​ | ​ | ​ | (1,491)
Cost of sales | ​ | 440 | ​ | ​ | ​ | ​ | ​ | 440
Interest expense | ​ | (94) | ​ | ​ | ​ | ​ | ​ | (94)
Net other comprehensive income (loss) | ​ | 2,908 | ​ | ​ | (8,918) | ​ | ​ | (6,010)
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Balance as of September 30, 2022 | $ | 7,492 | ​ | $ | (24,221) | ​ | $ | (16,729)

​

​

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | Cash Flow Hedges |  | Foreign Currency Translation |  | Total
Balance as of June 30, 2021 | $ | (3,992) | ​ | $ | (842) | ​ | $ | (4,834)
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Other comprehensive income (loss) |  | 15 | ​ | ​ | (2,873) | ​ | ​ | (2,858)
Income taxes |  | (377) | ​ | ​ | 346 | ​ | ​ | (31)
Reclassifications to: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Revenue | ​ | 1,500 | ​ | ​ | ​ | ​ | ​ | 1,500
Cost of sales | ​ | (312) | ​ | ​ | ​ | ​ | ​ | (312)
Interest expense | ​ | 319 | ​ | ​ | ​ | ​ | ​ | 319
Net other comprehensive income (loss) | ​ | 1,145 | ​ | ​ | (2,527) | ​ | ​ | (1,382)
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Balance as of September 30, 2021 | $ | (2,847) | ​ | $ | (3,369) | ​ | $ | (6,216)

​

​

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​

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | Cash Flow Hedges |  | Foreign Currency Translation |  | Total
Balance as of December 31, 2021 | $ | (2,464) | ​ | $ | (5,527) | ​ | $ | (7,991)
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Other comprehensive income (loss) |  | 13,220 | ​ | ​ | (17,739) | ​ | ​ | (4,519)
Income taxes |  | (3,226) | ​ | ​ | 81 | ​ | ​ | (3,145)
Reclassifications to: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Revenue | ​ | (1,303) | ​ | ​ | ​ | ​ | ​ | (1,303)
Cost of sales | ​ | 886 | ​ | ​ | ​ | ​ | ​ | 886
Interest expense | ​ | 379 | ​ | ​ | ​ | ​ | ​ | 379
Other expense — net | ​ | ​ | ​ | ​ | (1,036) | ​ | ​ | (1,036)
Net other comprehensive income (loss) | ​ | 9,956 | ​ | ​ | (18,694) | ​ | ​ | (8,738)
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Balance as of September 30, 2022 | $ | 7,492 | ​ | $ | (24,221) | ​ | $ | (16,729)

​

​

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | Cash Flow Hedges |  | Foreign Currency Translation |  | Total
Balance as of December 31, 2020 | $ | (6,940) | ​ | $ | 1,488 | ​ | $ | (5,452)
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Other comprehensive income (loss) |  | 536 | ​ | ​ | (5,535) | ​ | ​ | (4,999)
Income taxes |  | (1,349) | ​ | ​ | 678 | ​ | ​ | (671)
Reclassifications to: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Revenue | ​ | 4,674 | ​ | ​ | ​ | ​ | ​ | 4,674
Cost of sales | ​ | (966) | ​ | ​ | ​ | ​ | ​ | (966)
Interest expense | ​ | 1,198 | ​ | ​ | ​ | ​ | ​ | 1,198
Net other comprehensive income (loss) | ​ | 4,093 | ​ | ​ | (4,857) | ​ | ​ | (764)
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Balance as of September 30, 2021 | $ | (2,847) | ​ | $ | (3,369) | ​ | $ | (6,216)

​

​

​

16. Subsequent Events. On October 3, 2022, we entered into an asset purchase agreement to acquire substantially all the assets of BioTrace Medical, Inc. (“BioTrace”), developer of the Tempo® Temporary Pacing Lead device. Subject to the terms and conditions of the asset purchase agreement, we paid $2.5 million in cash at closing. Additionally, upon achievement of the first device sold in the United States, we are obligated to pay a total of six annual royalty payments at an amount of up to 10% of net sales. We intend to account for this transaction as an asset purchase and will capitalize the acquired assets, including developed technology, in our consolidated balance sheet.

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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 2021 Annual Report on Form 10-K and in Part II, Item 1A “Risk Factors” in this report.

​

OVERVIEW

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.

​

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

​

For the three-month period ended September 30, 2022, we reported sales of $287.2 million, an increase of $20.2 million or 7.5%, compared to sales for the three-month period ended September 30, 2021 of $267.0 million. For the nine-month period ended September 30, 2022, we reported sales of $857.6 million, an increase of $61.3 million or 7.7% compared to sales for the nine-month period ended September 30, 2021 of $796.3 million. For the three and nine-month periods ended September 30, 2022, foreign currency fluctuations (net of hedging) decreased our net sales by $8.0 million and $15.8 million, respectively, assuming applicable foreign exchange rates in effect during the comparable prior-year periods.

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Gross profit as a percentage of sales was 44.8% for the three-month period ended September 30, 2022, compared to 45.1% for the three-month period ended September 30, 2021. Gross profit as a percentage of sales was 44.8% for the nine-month periods ended September 30, 2022 and 2021.

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Net income for the three-month period ended September 30, 2022 was $15.3 million, or $0.27 per share, compared to net income of $12.0 million, or $0.21 per share, for the three-month period ended September 30, 2021. Net income for the nine-month period ended September 30, 2022 was $41.1 million, or $0.71 per share, compared to net income of $27.8 million, or $0.49 per share, for the nine-month period ended September 30, 2021.

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Recent Developments and Trends

In addition to the trends identified in the 2021 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 2022 has been impacted, and we believe will continue to be impacted, by the following recent developments and trends:

| ● | Our revenue results during the three-month period ended September 30, 2022 were driven primarily by stronger than anticipated demand in the U.S. and more favorable than anticipated international sales trends, particularly in the EMEA and Asia Pacific (“APAC”) regions.

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| ● | During the third quarter of 2022, we launched four new products, including a new version of our Elation Pulmonary Balloon Dilator, our SafeGuard Focus Cool™ Compression Device, our Prelude Roadster™ Guide Sheath, and our TEMNO Elite™ Soft Tissue Biopsy System.

| ● | Our dedication to the Foundations for Growth program has helped offset inflationary cost pressures in certain raw materials, shipping, and freight expenses.

| ● | As of September 30, 2022, we had cash, cash equivalents, and restricted cash of $53.6 million and net available borrowing capacity of approximately $509 million.

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RESULTS OF OPERATIONS

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

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ |  | Three Months Ended | ​ | ​ | Nine Months Ended | ​
​ | ​ | September 30, | ​ | ​ | September 30, | ​
​ |  | 2022 |  | 2021 |  |  | 2022 |  | 2021 |
Net sales |  | 100 | % | 100 | % |  | 100 | % | 100 | %
Gross profit |  | 44.8 |  | 45.1 |  |  | 44.8 | ​ | 44.8 |
Selling, general and administrative expenses |  | 31.3 |  | 32.4 |  |  | 30.2 | ​ | 32.5 |
Research and development expenses |  | 6.7 |  | 6.4 |  |  | 6.4 | ​ | 6.4 |
Impairment charges |  | — |  | — |  |  | 0.2 | ​ | 0.5 |
Contingent consideration expense |  | 0.3 |  | 0.4 |  |  | 0.5 | ​ | 0.4 |
Acquired in-process research and development expense |  | — |  | — | ​ |  | 0.8 | ​ | — |
Income from operations |  | 6.5 |  | 6.0 |  |  | 6.7 | ​ | 4.9 |
Other expense — net |  | (0.4) |  | (0.7) |  |  | (0.5) | ​ | (0.7) |
Income before income taxes |  | 6.1 |  | 5.3 |  |  | 6.1 | ​ | 4.2 |
Net income |  | 5.3 |  | 4.5 |  |  | 4.8 | ​ | 3.5 |

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Sales

Sales for the three-month period ended September 30, 2022 increased by 7.5%, or $20.2 million, compared to the corresponding period in 2021. Sales for the nine-month period ended September 30, 2022 increased by 7.7%, or $61.3 million, compared to the corresponding period in 2021. Listed below are the sales by product category within each of our financial reporting segments for the three and nine-month periods ended September 30, 2022 and 2021 (in thousands, other than percentage changes):

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ |  | ​ | ​ | ​ | Three Months Ended | ​ | ​ | ​ | ​ | Nine Months Ended
​ |  | ​ | ​ | ​ | September 30, | ​ | ​ | ​ | ​ | September 30,
​ |  | % Change |  | ​ | 2022 |  | 2021 |  | % Change |  | ​ | 2022 |  | 2021
Cardiovascular | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Peripheral Intervention |  | 9.5 | % | ​ | $ | 110,698 | ​ | $ | 101,059 | ​ | 9.3 | % | ​ | $ | 327,426 | ​ | $ | 299,573
Cardiac Intervention |  | 8.8 | % | ​ |  | 86,848 | ​ |  | 79,813 |  | 7.4 | % | ​ | ​ | 257,909 | ​ |  | 240,203
Custom Procedural Solutions |  | (7.6) | % | ​ |  | 45,692 | ​ |  | 49,435 |  | (1.7) | % | ​ | ​ | 141,047 | ​ |  | 143,492
OEM |  | 21.5 | % | ​ |  | 35,711 | ​ |  | 29,397 |  | 18.3 | % | ​ | ​ | 106,173 | ​ |  | 89,734
Total |  | 7.4 | % | ​ |  | 278,949 | ​ |  | 259,704 |  | 7.7 | % | ​ | ​ | 832,555 | ​ |  | 773,002
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Endoscopy | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Endoscopy Devices |  | 12.4 | % | ​ |  | 8,226 | ​ |  | 7,317 |  | 7.5 | % | ​ | ​ | 25,011 | ​ |  | 23,257
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Total |  | 7.5 | % | ​ | $ | 287,175 | ​ | $ | 267,021 | ​ | 7.7 | % | ​ | $ | 857,566 | ​ | $ | 796,259

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Cardiovascular Sales. Our cardiovascular sales for the three-month period ended September 30, 2022 were $278.9 million, up 7.4% when compared to the corresponding period of 2021 of $259.7 million. Sales for the three-month period ended September 30, 2022 were favorably affected by increased sales of:

| (a) | Peripheral intervention products, which increased by $9.6 million, or 9.5%, from the corresponding period of 2021. This increase was driven primarily by sales of our access, drainage, embolotherapy and radar localization products, offset partially by decreased sales of our intervention products.

| (b) | Cardiac intervention products, which increased by $7.0 million, or 8.8%, from the corresponding period of 2021. This increase was driven primarily by sales of our intervention and cardiac rhythm management/electrophysiology (“CRM/EP”) products, offset partially by decreased sales of our fluid management products (including our Medallion® Syringes, which saw increased demand in the prior period due to COVID-19 vaccination efforts).

| (c) | OEM products, which increased by $6.3 million, or 21.5%, from the corresponding period of 2021. This increase was driven primarily by sales of our access and fluid management products, and kits.

The foregoing increase in sales for the three-month period ended September 30, 2022 was partially offset by decreased sales of custom procedural solutions products, which decreased by ($3.7) million, or (7.6)%, from the corresponding period of 2021. This decrease was driven primarily by decreased sales of our critical care products and kits, offset partially by increased sales of our trays.

Our cardiovascular sales for the nine-month period ended September 30, 2022 were $832.6 million, up 7.7% when compared to the corresponding period of 2021 of $773.0 million. Sales for the nine-month period ended September 30, 2022 were favorably affected by increased sales of:

| (a) | Peripheral intervention products, which increased by $27.9 million, or 9.3%, from the corresponding period of 2021. This increase was driven primarily by sales of our radar localization, drainage, angiography, access, and embolotherapy products, partially offset by decreased sales of our intervention products.

| (b) | Cardiac intervention products, which increased by $17.7 million, or 7.4%, from the corresponding period of 2021. This increase was driven primarily by sales of our intervention, angiography, and CRM/EP products, offset partially by decreased sales of our fluid management products (including our Medallion® Syringes, which saw increased demand in the prior period due to COVID-19 vaccination efforts).

| (c) | OEM products, which increased by $16.4 million, or 18.3%, from the corresponding period of 2021. This increase was driven primarily by sales of our access, fluid management, intervention, angiography, and coating products, as well as kits, offset partially by decreased sales of our CRM/EP products.

The foregoing increase in sales for the nine-month period ended September 30, 2022 was partially offset by decreased sales of custom procedural solutions products, which decreased by ($2.4) million, or (1.7)%, from the corresponding period of 2021. This decrease was driven primarily by sales of our critical care products, offset partially by increased sales of our trays.

Endoscopy Sales. Our endoscopy sales for the three-month period ended September 30, 2022 were $8.2 million, up 12.4%, when compared to sales in the corresponding period of 2021 of $7.3 million. Our endoscopy sales for the nine-month period ended September 30, 2022 were $25.0 million, up 7.5%, when compared to sales in the corresponding period of 2021 of $23.3 million. Sales for the three and nine-month periods ended September 30, 2022 compared to the corresponding periods in 2021 were favorably affected by increased sales of our Elation Pulmonary Balloon Dilator and EndoMAXX® fully covered esophageal stent products, offset partially by decreased sales of our other stents.

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Geographic Sales

Listed below are sales by geography for the three and nine-month periods ended September 30, 2022 and 2021 (in thousands, other than percentage changes):

​

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ |  | ​ | ​ | ​ | Three Months Ended | ​ | ​ | ​ | ​ | Nine Months Ended
​ |  | ​ | ​ | ​ | September 30, | ​ | ​ | ​ | ​ | September 30,
​ |  | % Change |  | ​ | 2022 |  | 2021 |  | % Change |  | ​ | 2022 |  | 2021
United States | ​ | 8.6 | % | ​ | $ | 164,571 | ​ | $ | 151,505 | ​ | 6.8 | % | ​ | $ | 482,237 | ​ | $ | 451,648
International | ​ | 6.1 | % | ​ | ​ | 122,604 | ​ | ​ | 115,516 | ​ | 8.9 | % | ​ | ​ | 375,329 | ​ | ​ | 344,611
Total |  | 7.5 | % | ​ | $ | 287,175 | ​ | $ | 267,021 | ​ | 7.7 | % | ​ | $ | 857,566 | ​ | $ | 796,259

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United States Sales. U.S. sales for the three-month period ended September 30, 2022 were $164.6 million, or 57.3% of net sales, up 8.6% when compared to the corresponding period of 2021. U.S. sales for the nine-month period ended September 30, 2022 were $482.2 million, or 56.2% of net sales, up 6.8% when compared to the corresponding period of 2021. The increase in our domestic sales was driven primarily by our peripheral intervention and OEM products.

International Sales. International sales for the three-month period ended September 30, 2022 were $122.6 million, or 42.7% of net sales, up 6.1% when compared to the corresponding period of 2021 of $115.5 million. The increase in our international sales for the three-month period ended September 30, 2022, compared to the three-month period ended September 30, 2021, included increased sales in our APAC operations of $3.2 million or 5.7%, in our ROW operations of $1.5 million or 17.4%, and in our EMEA operations of $2.3 million or 4.7%.

International sales for the nine-month period ended September 30, 2022 were $375.3 million, or 43.8% of net sales, up 8.9% when compared to the corresponding period of 2021 of $344.6 million. The increase in our international sales for the nine-month period ended September 30, 2022, compared to the nine-month period ended September 30, 2021, included increased sales in our APAC operations of $13.0 million or 7.7%, in our ROW operations of $9.0 million or 39.3%, and in our EMEA operations of $8.7 million or 5.7%.

Gross Profit

Our gross profit as a percentage of sales decreased to 44.8% for the three-month period ended September 30, 2022, compared to 45.1% for the three-month period ended September 30, 2021. The decrease in gross profit percentage was primarily due to unfavorable variances primarily from the impact of inflationary pressures on material costs, and higher freight costs, offset partially by favorable changes in product mix, lower standard costs from efficiencies gained in our Foundations for Growth program, and lower obsolescence expense as a percentage of sales.

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Our gross profit as a percentage of sales was 44.8% for the nine-month periods ended September 30, 2022 and September 30, 2021. Gross profit percentage increased primarily due to changes in product mix, lower standard costs from efficiencies gained in our Foundations for Growth program and lower intangible amortization expense as a percentage of sales, which was offset by unfavorable variances primarily from the impact of inflationary pressures on material costs and higher freight costs.

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Operating Expenses

Selling, General and Administrative Expense. Selling, general and administrative ("SG&A") expenses increased $3.3 million, or 3.8%, for the three-month period ended September 30, 2022 compared to the corresponding period of 2021. As a percentage of sales, SG&A expenses were 31.3% for the three-month period ended September 30, 2022, compared to 32.4% for the corresponding period of 2021. For the three-month period ended September 30, 2022, SG&A expenses increased compared to the corresponding period of 2021 primarily due to increased labor related costs associated with headcount, increased commissions associated with sales, and increased travel related costs as restrictions continue to lift post pandemic, offset partially by lower due diligence costs associated with acquisitions.

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SG&A expenses increased $0.2 million, or 0.1%, for the nine-month period ended September 30, 2022 compared to the corresponding period of 2021. As a percentage of sales, SG&A expenses were 30.2% for the nine-month period ended September 30, 2022, compared to 32.5% for the corresponding period of 2021. For the nine-month period ended September 30, 2022, SG&A expenses increased compared to the corresponding period of 2021 primarily due to increased labor related costs associated with headcount, increased commissions associated with sales, and increased travel related costs as restrictions continue to lift post pandemic, offset partially by lower due diligence costs associated with acquisitions, and $6.1 million of contract termination costs recorded in SG&A during the prior year 2021 to renegotiate certain terms of an acquisition agreement.

Research and Development Expenses. Research and development (”R&D”) expenses for the three-month period ended September 30, 2022 were $19.2 million, up 13.2%, when compared to R&D expenses in the corresponding period of 2021 of $17.0 million. R&D expenses for the nine-month period ended September 30, 2022 were $55.1 million, up 8.3%, when compared to R&D expenses in the corresponding period of 2021 of $50.8 million. The increases in R&D expenses for the three and nine-month periods ended September 30, 2022 compared to the corresponding periods in 2021 were largely due to higher labor-related costs, increased clinical expenses for certain R&D projects (including clinical trials for our Embosphere® Microspheres and WRAPSODYTM Endoprosthesis) and higher expenses related to implementation of the Medical Device Regulation in the European Union.

Impairment Charges. For the three-month periods ended September 30, 2022 and September 30, 2021, we recorded no impairment charges. For the nine-month period ended September 30, 2022, we recorded impairment charges of $1.7 million of intangible assets due to the divestiture of the STD Pharmaceutical business, which we completed on April 30, 2022. For the nine-month period ended September 30, 2021 we recorded $4.3 million of impairment charges. These impairments included $1.6 million of intangible assets and $1.3 million of property and equipment due to the planned discontinuance of the Advocate™ Peripheral Angioplasty Balloon product line, sold under our license agreements with ArraVasc, and $1.4 million of impairments of certain right-of-use “ROU” operating lease assets due to site consolidation decisions and changes in our projected cash flows for the underlying assets.

Contingent Consideration Expense. For the three and nine-month periods ended September 30, 2022, we recognized contingent consideration expense from changes in the estimated fair value of our contingent consideration obligations stemming from our previously disclosed business acquisitions of $0.9 million and $4.7 million, respectively, compared to contingent consideration expense of $1.1 million and $3.3 million for the three and nine-month periods ended September 30, 2021. Expense in each period related to changes in the probability and timing of achieving certain revenue and operational milestones, as well as expense for the passage of time.

Acquired In-process Research and Development. For the three-month period ended September 30, 2022 we incurred no acquired in-process research and development costs. For the nine-month period ended September 30, 2022, we recognized $6.7 million in acquired in-process research and development costs primarily associated with our acquisition of Restore Endosystems. We did not incur acquired in-process research and development charges during the three and nine-month periods ended September 30, 2021.

Operating Income

The following table sets forth our operating income by financial reporting segment for the three and nine-month periods ended September 30, 2022 and 2021 (in thousands):

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Three Months Ended | ​ | Nine Months Ended
​ | ​ | September 30, | ​ | September 30,
​ |  | 2022 |  | 2021 |  | 2022 |  | 2021
Operating Income | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Cardiovascular | ​ | $ | 17,435 | ​ | $ | 14,411 | ​ | $ | 51,836 | ​ | $ | 33,389
Endoscopy | ​ |  | 1,222 | ​ |  | 1,520 | ​ |  | 5,310 | ​ |  | 5,631
Total operating income | ​ | $ | 18,657 | ​ | $ | 15,931 | ​ | $ | 57,146 | ​ | $ | 39,020

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Cardiovascular Operating Income. Our cardiovascular operating income for the three-month period ended September 30, 2022 was $17.4 million, compared to cardiovascular operating income in the corresponding period of 2021 of $14.4 million. The increase in cardiovascular operating income during the three-month period ended September 30, 2022 compared to the corresponding period of 2021 was primarily a result of higher sales ($278.9 million compared to $259.7 million), partially offset by a decreased gross margin and higher SG&A and R&D expenses.

Our cardiovascular operating income for the nine-month period ended September 30, 2022 was $51.8 million, compared to cardiovascular operating income in the corresponding period of 2021 of $33.4 million. The increase in cardiovascular operating income during the nine-month period ended September 30, 2022 compared to the corresponding period of 2021 was primarily a result of higher sales ($832.6 million compared to $773.0 million), partially offset by higher SG&A, contingent consideration expense and $6.7 million of acquired in-process research and development charges.

Endoscopy Operating Income. Our endoscopy operating income for the three-month period ended September 30, 2022 was $1.2 million, compared to endoscopy operating income of $1.5 million for the corresponding period of 2021. Our endoscopy operating income for the nine-month period ended September 30, 2022 was $5.3 million, compared to endoscopy operating income of $5.6 million for the corresponding period of 2021. The decrease in endoscopy operating income for the three and nine-month periods ended September 30, 2022 compared to the corresponding periods of 2021 was primarily a result of decreased gross margin and higher SG&A expenses.

Other Expense – Net

Our other expense for the three-month periods ended September 30, 2022 and 2021 was $1.1 million and $1.8 million, respectively. The change in other expense was primarily related to decreased expense from realized and unrealized foreign currency losses, partially offset by an increase in interest expense associated with rising interest rates.

Our other expense for the nine-month periods ended September 30, 2022 and 2021 was $4.7 million and $5.3 million, respectively. The change in other expense was primarily related to decreased expense from realized and unrealized foreign currency losses, partially offset by a $1.3 million loss on the divestiture of the STD Pharmaceutical business.

Effective Tax Rate

Our provision for income taxes for the three-month periods ended September 30, 2022 and 2021 was a tax expense of $2.3 million and $2.2 million, respectively, which resulted in an effective tax rate of 13.2% and 15.6%, respectively. Our provision for income taxes for the nine-month periods ended September 30, 2022 and 2021 was a tax expense of $11.4 million and $5.9 million, respectively, which resulted in an effective tax rate of 21.6% and 17.5%, respectively. The increase in the income tax expense and the corresponding change in the effective income tax rate for the three and nine-month periods ended September 30, 2022, when compared to the prior-year periods, was primarily due to decreased benefit from discrete items such as share-based compensation and deferred compensation. 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).

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Net Income

Our net income for the three-month periods ended September 30, 2022 and 2021 was $15.3 million and $12.0 million, respectively. The increase in our net income for the three-month period ended September 30, 2022 was primarily the result higher sales, partially offset by lower gross margins as a percentage of sales, and higher SG&A and R&D expenses.

Our net income for the nine-month periods ended September 30, 2022 and 2021 was $41.1 million and $27.8 million, respectively. The increase in our net income for the nine-month period ended September 30, 2022 was primarily the result of higher sales and lower impairment charges ($1.7 million for the nine-month period ended September 30, 2022 compared to $4.3 million for the corresponding period of 2021), partially offset by higher R&D expenses, higher contingent consideration expense ($4.7 million for the nine-month period ended September 30, 2022 compared to $3.3 million for the corresponding period of 2021), increased acquired in-process research and development charges, and higher income tax expense.

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LIQUIDITY AND CAPITAL RESOURCES

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Capital Commitments, Contractual Obligations and Cash Flows

At September 30, 2022 and December 31, 2021, our current assets exceeded current liabilities by $286.8 million and $245.9 million, respectively, and we had cash, cash equivalents and restricted cash of $53.6 million and $67.8 million, respectively, of which $50.4 million and $55.7 million, respectively, were held by foreign subsidiaries. We currently believe future repatriation of cash and other property held by our foreign subsidiaries will generally not be subject to U.S. federal income tax. As a result, we are not permanently reinvested with respect to our historic unremitted foreign earnings. In addition, cash held by our subsidiary in China is subject to local laws and regulations that require government approval for the transfer of such funds to entities located outside of China. As of September 30, 2022, and December 31, 2021, we had cash, cash equivalents and restricted cash of $26.3 million and $28.5 million, respectively, within our subsidiary in China.

Cash flows provided by operating activities. We generated cash from operating activities of $86.3 million and $101.4 million during the nine-month periods ended September 30, 2022 and 2021, respectively. Net cash provided by operating activities decreased $15.1 million for the nine-month period ended September 30, 2022 compared to the nine-month period ended September 30, 2021. Significant factors affecting operating cash flows during these periods included:

| ● | Net income was approximately $41.1 million and $27.8 million for the nine-month periods ended September 30, 2022 and 2021, respectively.

| ● | Cash used for inventories was ($30.7) million and ($11.2) million for the nine-month periods ended September 30, 2022 and 2021, respectively. The increase in inventory was associated with our strategy to proactively invest in our inventory balances to build the requisite safety stock and encourage high customer service levels.

| ● | Cash provided by (used for) accrued expenses was ($8.9) million and $19.6 million for the nine-month periods ended September 30, 2022 and 2021, respectively, due primarily to the decrease in the current portion of contingent consideration liabilities, payment of approximately $18.25 million into escrow in connection with the settlement of a securities class action lawsuit, and the timing of payment of bonuses, partially offset by the timing and payment of payroll accruals and other accrued liabilities in each period.

| ● | Cash provided by (used for) other receivables was $5.7 million and ($3.2) million for the nine-month periods ended September 30, 2022 and 2021, respectively, due primarily to the collection of approximately $8.2 million of insurance proceeds in connection with the consolidated securities class action lawsuit we settled in April 2022.

Cash flows used in investing activities. We used cash in investing activities of $40.1 million and $22.6 million for the nine-month periods ended September 30, 2022 and 2021, respectively. We used cash for capital expenditures of property and equipment of $32.5 million and $19.6 million in the nine-month periods ended September 30, 2022 and 2021, respectively. Capital expenditures in each period were primarily related to investment in property and equipment to support development and production of our products. Historically, we have incurred significant expenses in connection with facility construction, production automation, product development and the introduction of new products. We anticipate that we will spend approximately $55 to $60 million in 2022 for property and equipment.

Cash outflows invested in acquisitions for the nine-month period ended September 30, 2022 were approximately $4.7 million and were primarily related to our $3.0 million upfront payment in our purchase of Restore Endosystems and our additional equity investment in Fluidx of $1.4 million. Cash outflows invested in acquisitions for the nine-month period ended September 30, 2021 were approximately $1.9 million and were primarily related to our settlement of the first deferred payment for our acquisition of KA Medical, LLC completed in November 2020.

Cash flows used in financing activities. Cash used in financing activities for the nine-month periods ended September 30, 2022 and 2021 was $54.5 million and $66.0 million, respectively. We decreased our net borrowings by

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approximately $26.3 and $72.6 million for the nine-month periods ended September 30, 2022 and 2021, respectively, by paying down our debt. We completed payment of contingent consideration of $32.8 million and $10.6 million for the nine-month periods ended September 31, 2022 and 2021, respectively, principally related to sales milestone payments connected to our acquisitions of Cianna Medical and Vascular Insights, LLC.

As of September 30, 2022, we had outstanding borrowings of $216.9 million and issued letter of credit guarantees of $1.9 million under the Third Amended Credit Agreement, with additional available borrowings of approximately $509 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 September 30, 2022 was a fixed rate of 2.71% with respect to $75 million of the principal amount as a result of an interest rate swap and a variable floating rate of 4.12% with respect to $141.9 million of the principal amount. Our interest rate as of December 31, 2021 was a fixed rate of 2.71% on $75 million as a result of an interest rate swap and a variable floating rate of 1.10% on $168.1 million.

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

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our financial results are affected by the selection and application of accounting policies and methods. In the nine-month period ended September 30, 2022 there were no changes to the application of critical accounting policies previously disclosed in Part II, Item 7 of the 2021 Annual Report on Form 10-K.

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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.

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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 2021 Annual Report on Form 10-K. In the nine-month period ended September 30, 2022, there were no material changes from the information provided therein.

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ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management is responsible for establishing and maintaining adequate disclosure controls and procedures for our company. Consequently, our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 under the Exchange Act as of September 30, 2022. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs. Based on that evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures are designed at a reasonable assurance level and are effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

During the nine-month period ended September 30, 2022, 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 2021 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 2021 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

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affect our business, financial condition and/or operating results. The discussion of the risk factors below updates the corresponding disclosure under the same headings in the 2021 Annual Report on Form 10-K and may contain material changes to the corresponding risk factor discussion in our 2021 Annual Report on Form 10-K.

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Business, Economic, Industry and Operational Risks

Changes in general economic conditions, geopolitical conditions, domestic and foreign trade policies, monetary policies and other factors beyond our control may adversely impact our business and operating results.

Our operations and performance depend significantly on global, regional and U.S. economic and geopolitical conditions. Russia’s invasion and military attacks on Ukraine have triggered significant sanctions from U.S. and European leaders. These events continue to cause increasingly volatile global economic conditions. Resulting changes in U.S. trade policy could trigger retaliatory actions by Russia, its allies and other affected countries, including China, resulting in a “trade war.” On March 8, 2022, President Biden issued an executive order that bans the importation of Russian oil, liquefied natural gas and coal. On April 8, 2022, the President signed into law two bills suspending trade relations with Russia and Belarus and banning the import of Russian energy. These events have resulted in increased costs for raw materials we use in our manufacturing and could result in Russia and other foreign governments imposing tariffs on products that we export outside the U.S. or otherwise limiting our ability to sell our products abroad. These increased costs in our business generally are not a direct result of the conflict in Ukraine or government action, but rather we are affected by the adverse impact this conflict has on global inflationary pressures, energy prices and supply chain operations. Also, in light of these events, we have substantially suspended our operations in Russia. Although our operations in Russia have not historically constituted a material portion of our business, the closure of our operations in Russia, combined with the general economic impact of the conflict, could have a material, adverse effect on our revenues and costs for materials and services. Furthermore, if the conflict between Russia and Ukraine continues for a long period of time, or if other countries, including the U.S., become further involved in the conflict, we could face significant adverse effects to our overall business and financial condition.

The United Kingdom’s (“UK”) departure from the European Union (“EU”) (commonly known as “Brexit”) has created uncertainties affecting business operations in the UK, the EU and a number of other countries, including with respect to compliance with the regulatory regimes regarding the labeling and registration of the products we sell in these markets. While we have taken proactive steps to mitigate possible disruption to our operations, we still could face increased costs, volatility in exchange rates, market instability and other risks, depending on the effects of existing and future agreements between the UK and EU regarding Brexit and the future EU/UK trading relationship.

The above factors, including a number of other economic and geopolitical factors both in the U.S. and abroad, could ultimately have material adverse effects on our business, financial condition, results of operations or cash flows, including the following:

| ● | effects of significant changes in economic, monetary and fiscal policies in the U.S. and abroad including currency fluctuations, inflationary pressures and significant income tax changes;

| ● | a global or regional economic slowdown in any of our market segments;

| ● | changes in government policies and regulations affecting Merit or its significant customers;

| ● | industrial policies in various countries that favor domestic industries over multinationals or that restrict foreign companies altogether;

| ● | new or stricter trade policies and tariffs enacted by countries, such as China, in response to changes in U.S. trade policies and tariffs;

| ● | postponement of spending, in response to tighter credit, financial market volatility and other factors;

| ● | rapid material escalation of the cost of regulatory compliance and litigation;

| ● | difficulties protecting intellectual property;

| ● | longer payment cycles;

| ● | credit risks and other challenges in collecting accounts receivable; and

| ● | the impact of each of the foregoing on outsourcing and procurement arrangements.

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Termination or interruption of our supply relationships and increases in labor costs and the prices of our component parts, finished products, third-party services and raw materials, particularly petroleum-based products, is negatively impacting our business and could have a further adverse effect on our business, operations or financial condition.

We rely on raw materials, component parts, finished products and third-party services in connection with our business. For example, substantially all of our products are sterilized by only a few different entities. If any of these sterilizers goes out of business or fails to comply with quality or regulatory requirements, we may be unable to find a suitable supplier to replace them. This could significantly delay or stop production and cause sales of such products to materially decline. Additionally, many of our products have components that are manufactured using resins, plastics and other petroleum-based materials which are available from a limited number of suppliers. We are experiencing a growing trend among suppliers of polymer resins to refuse to supply resin to medical device manufacturers or to require such manufacturers to assume additional risks due to the potential for product liability claims. Additionally, there is no assurance that crude oil supplies will be uninterrupted or that petroleum-based manufacturing materials will be available for purchase in the future. The actions by the U.S. government in response to the conflict between Russia and Ukraine, among other factors, have had an adverse impact on the cost of the petroleum-based manufacturing materials that we purchase. The military conflict in Ukraine has also had a general, adverse impact on supply chains and further hinders our ability to find the materials we need to make our products. Supply disruptions such as these are making it harder for us to find favorable pricing and reliable sources for the materials we need, putting upward pressure on our costs and increasing the risk that we may be unable to acquire the materials and services we need to continue to make certain products.

The availability and price of these materials, parts, products and services are affected by a variety of factors beyond our control, including the willingness of suppliers to sell into the medical device industry, changes in supply and demand, general economic conditions, labor costs, fuel-related transportation costs, liability concerns, climate change (including new and existing laws and regulations to address climate change), competition, import duties, tariffs, currency exchange rates and political uncertainty around the world. Our suppliers often pass some of their cost increases on to us, and if such increased costs are sustained or increase further, our suppliers may pass further cost increases on to us. In addition to the effect on resin prices, transportation costs have generally increased and may further increase if crude oil prices increase. Our transportation and service providers are typically able to pass any significant increases in oil prices on to us. Our costs may also be impacted by laws to increase minimum wages, including the potential increase to the federal minimum wage in the United States that has been recently proposed by the current administration.

Our ability to recover such increased costs may depend upon our ability to raise prices on our products. Due to the highly competitive nature of the healthcare industry and the cost-containment efforts of our customers and third-party payers, we may be unable to pass along cost increases through higher prices. If we are unable to fully recover these costs through price increases or offset these increases through cost reductions, or we experience terminations or interruption of our relationships with our suppliers, we could experience lower margins and profitability, and our results of operations, financial condition and cash flows could be materially harmed.

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Our international operations make us subject to the U.S. Foreign Corrupt Practices Act and similar anti-bribery laws in non-U.S. jurisdictions, and our failure, or the failure of our distributors and agents, to comply with these laws could subject us to civil and criminal penalties and adversely affect our business.

We currently conduct our business in various foreign countries, and we expect to continue to expand our foreign operations. As a result, we are subject to the U.S. Foreign Corrupt Practices Act (“FCPA”), the U.K. Bribery Act, and similar anti-corruption laws in non-U.S. jurisdictions. These laws generally prohibit companies and their intermediaries from illegally offering things of value to any individual for the purpose of obtaining or retaining business.

Compliance with the FCPA and other anti-bribery laws presents challenges to our operations. Our policies mandate compliance with the FCPA and all other applicable anti-bribery laws. Further, we expect our employees, distributors, agents and others who work for us or on our behalf to comply with these anti-bribery laws. Despite our training and compliance programs, our internal control policies and procedures may not always protect us from reckless or criminal acts committed by our employees, distributors or agents. If our employees, distributors or agents violate the provisions of the FCPA or other anti-bribery laws, or even if there are allegations of such violations, we could be subject to investigations or civil and criminal penalties or other sanctions, which could have a material, adverse effect on our reputation, business, results of operations, financial condition or cash flows.

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As disclosed in Note 10 “Commitments and Contingencies” to our consolidated financial statements, although we are unable to predict the scope, timing, significance or outcome of the SEC inquiry referenced in that note, the inquiry may cause a diversion of our management’s time and attention and could have a material adverse effect on our reputation, business, results of operations, financial condition or cash flows.

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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 | ​ | Indemnification Agreement, dated as of June 17, 2021, between the Company and Stephen C. Evans †
10.2 | ​ | Form of Indemnification Agreement, dated as of May 19, 2022, between the Company and each of Laura Kaiser and Michael McDonnell †
10.3 | ​ | Indemnification Agreement, dated as of October 22, 2022, between the Company and Neil Peterson †
31.1 | ​ | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 | ​ | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1 | ​ | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2 | ​ | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101 | ​ | The following financial information from the quarterly report on Form 10-Q for the quarter ended September 30, 2022, formatted in Inline Extensible Business Reporting Language (iXBRL): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Income (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).

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* 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.

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​ | MERIT MEDICAL SYSTEMS, INC.
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Date: October 28, 2022 | By: | /s/ FRED P. LAMPROPOULOS
​ | ​ | Fred P. Lampropoulos, President and
​ | ​ | Chief Executive Officer
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Date: October 28, 2022 | By: | /s/ RAUL PARRA
​ | ​ | Raul Parra
​ | ​ | Chief Financial Officer and Treasurer
​ | ​ | ​ | ​
​ | ​ | ​ | ​

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