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Fair Value Measurements

12 Months Ended

Dec. 31, 2023

Fair Value Disclosures [Abstract]

Fair Value Measurements

15.FAIR VALUE MEASUREMENTS

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

Our financial assets and (liabilities) carried at fair value measured on a recurring basis as of December 31, 2023 and 2022, 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
		December 31, 2023			(Level 1)			(Level 2)			(Level 3)
Marketable securities ⁽¹⁾		$	78		$	78		$	—		$	—
Interest rate contract asset, current ⁽²⁾		$	1,503		$	—		$	1,503		$	—
Foreign currency contract assets, current and long-term ⁽³⁾		$	3,105		$	—		$	3,105		$	—
Foreign currency contract liabilities, current and long-term ⁽⁴⁾		$	(3,860)		$	—		$	(3,860)		$	—
Contingent consideration liabilities		$	(3,447)		$	—		$	—		$	(3,447)


					Fair Value Measurements Using
		Total Fair			Quoted prices in			Significant other			Significant
		Value at			active markets			observable inputs			unobservable inputs
		December 31, 2022			(Level 1)			(Level 2)			(Level 3)
Marketable securities ⁽¹⁾		$	138		$	138		$	—		$	—
Interest rate contract asset, long-term ⁽²⁾		$	3,444		$	—		$	3,444		$	—
Foreign currency contract assets, current and long-term ⁽³⁾		$	4,783		$	—		$	4,783		$	—
Foreign currency contract liabilities, current and long-term ⁽⁴⁾		$	(3,986)		$	—		$	(3,986)		$	—
Contingent consideration liabilities		$	(18,073)		$	—		$	—		$	(18,073)

(1)	Our marketable securities, which consist entirely of available-for-sale equity securities, are valued using market prices in active markets. Level 1 instrument valuations are obtained from real-time quotes for transactions in active exchange markets involving identical assets.

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

(3)

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 and other assets or other long-term assets in the consolidated balance sheets.

(4)

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. Contingent consideration liabilities are re-measured to fair value at each reporting period, with the change in fair value recognized within operating expenses in the accompanying consolidated statements of income. 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 years ended December 31, 2023 and 2022, consisted of the following (in thousands):


		2023			2022
Beginning balance		$	18,073		$	48,234
Contingent consideration expense			1,704			4,610
Contingent payments made			(16,330)			(34,762)
Effect of foreign exchange			—			(9)
Ending balance		$	3,447		$	18,073

As of December 31, 2023, $3.0 million in contingent consideration liability was included in other long-term obligations and $0.4 million in contingent consideration liability was included in accrued expenses in our consolidated balance sheet related to contingent liabilities. As of December 31, 2022, $2.3 million in contingent consideration liability was included in other long-term obligations and $15.8 million in contingent consideration liability was included in accrued expenses in our consolidated balance sheet related to contingent liabilities.

Cash payments related to the settlement of the contingent consideration liability recognized at fair value as of the applicable acquisition date 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 $12.8 million and $1.8 million for the years ended December 31, 2023 and 2022 are reflected as operating cash flows.

The recurring Level 3 measurement of our contingent consideration liabilities includes the following significant unobservable inputs at December 31, 2023 and 2022 (amounts in thousands):


		Fair value at
		December 31,			Valuation						Weighted
Contingent consideration liability		2023			technique		Unobservable inputs		Range		Average⁽¹⁾
Revenue-based royalty payments contingent liability		$	2,945		Discounted cash flow		Discount rate		12.0% - 16.0%		14.6%
							Projected year of payments		2024-2034		2028

Revenue milestones contingent liability		$	93		Monte Carlo simulation		Discount rate		13.0%
							Projected year of payments		2024-2039		2039

Regulatory approval contingent liability		$	409		Scenario-based method		Discount rate		5.5%
							Probability of milestone payment		50.0%
							Projected year of payment		2024-2030		2030

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


		Fair value at
		December 31,			Valuation						Weighted
Contingent consideration liability		2022			technique		Unobservable inputs		Range		Average⁽¹⁾
Revenue-based royalty payments contingent liability		$	2,097		Discounted cash flow		Discount rate		14% - 17%		15.7%
							Projected year of payments		2023-2034		2026

Revenue milestones contingent liability		$	13,064		Monte Carlo simulation		Discount rate		5.1% - 14.0%		5.2%
							Projected year of payments		2023-2033		2023

Regulatory approval contingent liability		$	2,912		Scenario-based method		Discount rate		5.7%
							Probability of milestone payment		90%
							Projected year of payment		2023-2030		2024

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

The contingent consideration liabilities are re-measured to fair value each reporting period using projected revenues, discount rates, probabilities of payment, and projected payment dates. Projected contingent payment amounts are discounted back to the current period using a discounted cash flow model. Projected revenues are based on our most recent internal operational budgets and long-range strategic plans. An increase (decrease) in either the discount rate or the time to payment, in isolation, may result in a significantly lower (higher) fair value measurement. A decrease (increase) in the probability of any milestone payment may result in lower (higher) fair value measurements. Our determination of the fair value of contingent consideration liabilities 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. As a former shareholder of Cianna Medical, a former Merit director was eligible for payments for the achievement of sales milestones specified in our merger agreement with Cianna Medical completed in 2018. 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. During 2023, we made the final contingent payment to Cianna Medical Shareholders, including $0.9 million paid to the former Merit director who is a former Cianna Medical shareholder. During the year ended December 31, 2022, we made contingent payments of approximately $1.6 million to the former director, and no such payments during 2021.

Fair Value of Other Financial Instruments

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 under our Fourth Amended Credit Agreement 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. We believe the fair value our long-term debt under our convertible notes approximates carrying value as the notes were issued in December 2023. 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 are Level 1 inputs.

Impairment Charges

We recognize or disclose the fair value of certain assets, such as non-financial assets, primarily property and equipment, right-of-use operating lease assets, equity investments in privately held companies, intangible assets and goodwill in connection with impairment evaluations. All of our nonrecurring valuations use significant unobservable inputs and therefore fall under Level 3 of the fair value hierarchy.

Intangible Assets. During the years ended December 31, 2023, 2022 and 2021, we had losses of $0.0 million, $1.7 million and $1.6 million, respectively, related to certain acquired intangible assets (see Note 5).

Right of Use Operating Lease Assets. We identified changes in events and circumstances relating to certain right-of-use (“ROU”) operating lease assets. We compared the anticipated undiscounted cash flows generated by a sublease to the carrying value of the ROU operating lease and related long-lived assets and determined that the carrying values were not recoverable. Consequently, we recorded an impairment loss during the year ended December 31, 2021 of $1.4 million, which is equal to the excess of the carrying value of the assets over their estimated fair value. The impairment loss was driven primarily by site consolidation decisions and changes in our projected cash flows for the ROU operating lease asset 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 a lessee, an increase in anticipated lease concessions, and a decrease in the expected lease rates for the property. The ROU operating lease asset impairment losses pertained to our cardiovascular segment. We had no such losses during the years ended December 31, 2023 and 2022.

Property and Equipment. During the year ended December 31, 2021, we had losses of $1.3 million related to the measurement of property and equipment at fair value based on the planned discontinuance of the Advocate™ Peripheral Angioplasty Balloon product line, sold under our license agreements with ArraVasc, which pertained to our cardiovascular segment. We had no such losses during the years ended December 31, 2023 and 2022.

Equity Investments, Purchase Options and Notes Receivable. During the year ended December 31, 2023, we recorded impairment charges of $0.3 million associated with our previously held equity investment in Bluegrass in connection with the Bluegrass asset acquisition completed on May 4, 2023 (see Note 3). During the year ended December 31, 2022, we recognized $0.5 million of impairment expense related to our equity method investment in XableCath, as business ceased operations. We had no such losses during the years ended December 31, 2021. Our equity investments in privately held companies were $19.1 million and $15.6 million at December 21, 2023 and 2022, respectively, which are included within other long-term assets in our consolidated balance sheets. We analyze our investments in privately held companies to determine if they should be accounted for using the equity method based on our ability to exercise significant influence over operating and financial policies of the investment. 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.

Current Expected Credit Losses

Our outstanding long-term notes receivable, including accrued interest and our allowance for current expected credit losses, were $3.2 million and $2.4 million, as of December 31, 2023 and 2022, respectively. As of December 31, 2023 and 2022, we had an allowance for current expected credit losses of $568,000 and $281,000, 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.

The table below presents a rollforward of the allowance for current expected credit losses on our notes receivable for the years ended December 31, 2023 and 2022 (in thousands):


		2023			2022
Beginning balance		$	281		$	199
Provision for credit loss expense			287			82
Ending balance		$	568		$	281

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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