Merit Medical at Needham Conference: Strategic Growth Focus

On Tuesday, 08 April 2025, Merit Medical Systems Inc. (NASDAQ: MMSI) presented at the 24th Annual Needham Virtual Healthcare Conference. The discussion, led by CFO Raul Perra, highlighted the company's strategic growth initiatives, focusing on product updates and international expansion. While Merit Medical expressed optimism about its Rhapsody product and international growth, it also acknowledged challenges such as tariffs impacting operations in China.

Key Takeaways

• Merit Medical targets $7 to $9 million in Rhapsody revenue, with a strong focus on Q4.
• The company is redirecting investments to mitigate the impact of tariffs in China.
• Gross margin improvements are expected to drive operating margin expansion.
• Merit continues to explore M&A opportunities to enhance its product portfolio.
• The company is optimistic about its international growth, particularly in EMEA and other regions.

Financial Results

• Rhapsody Revenue: Merit Medical aims for $7 to $9 million in revenue, with a high level of confidence in reaching $7 million. Revenue is expected to be weighted towards the second half of the year, especially Q4.
• Gross Margin: Improvements in gross margin are anticipated to bolster operating margin expansion throughout the year.

Operational Updates

• Rhapsody: The product received FDA approval in December, with promising 12-month data presented at SIR. Doctors have shown enthusiasm for its ease of use and delivery mechanism.
• Salesforce: Plans to expand the salesforce within budget constraints are underway.
• China Tariffs: Merit Medical is focusing on its diversified manufacturing footprint to mitigate the impact of tariffs, which apply only to products exported from the US.
• Scout Radar Localization System: New devices and a monitoring system are in development.
• Cook Medical Acquisition: Integration is progressing well, though regulatory hurdles are expected to delay the manufacturing component.

Future Outlook

• Rhapsody: Updates on NTAP and TPT submissions are expected in June, with potential impacts in Q3. The goal is to redefine the standard of care, expanding market opportunities.
• International Growth: Merit forecasts a 7.5% growth in international markets for 2025, with EMEA experiencing low double-digit growth and other regions seeing high teens growth.
• Genicular Artery Embolization: Study results are anticipated next year, potentially expanding treatment options for knee pain.
• M&A Activity: Continued mergers and acquisitions are planned to enhance the product lineup and deepen market penetration.

Q&A Highlights

• Rhapsody Market: The potential market includes 95,000 stent procedures within 654,000 endovascular dialysis maintenance procedures. Reimbursement is not essential due to the product's technology.
• China Tariffs: The global manufacturing strategy helps mitigate the impact of tariffs, which will not influence long-term decisions.

Readers are encouraged to refer to the full transcript for a detailed understanding of Merit Medical's strategic initiatives and financial outlook.

Full transcript - 24th Annual Needham Virtual Healthcare Conference:

Mike Matson, Lead Med Tech and Diagnostics Equity Research Team, Needham and Company: Good afternoon. Thanks for joining us at the twenty fourth Annual Needham Healthcare Conference. I'm Mike Matson, and I lead the med tech and diagnostics equity research team at Needham and Company. I'm pleased to introduce Merit Medical's CFO, Raul Perra. Instead of a standard presentation, we are gonna do a q and a session.

If you do have questions you would like to ask, you can submit them electronically through the Needham conference website, or you can email them to me at mmatson@Needhamco.com, and I'll do my best to fit them in. So with that, we're gonna go straight into the questions. So, Raul, just wanted to thank you for coming to the conference. And I wanna start with Rhapsody, which is probably your your favorite topic to discuss these days. So so let's see.

With Rhapsody, so it was approved by the FDA in December. Can you just start out by giving us a quick overview of the product and where it's used for maybe people that aren't as familiar with it?

Raul Perra, CFO, Merit Medical: Yeah. Look. I I think, you know, first of all, thanks for having us, Mike. You know, excited to be here, and and thanks for everybody listening in. You know, look, I I think, you know, Rhapsody for us is is is our first, PMA approved, you know, product, Susan dialysis, you know, AVG and AVF, you know, procedures.

We're we're we're really excited, about, you know, the launch of this product. The reception here in The US has been has been great. As you pointed out the data, you know, to support the the Rhapsody, and FDA breakthrough device has been has been great. The six month data came out, you know, earlier this year or last year, and then, you know, we were that was well received. And now we just, you know, released the twelve month data at the SIR.

Again, the the data continues to be, you know, good and that and in our favor. And I think, you know, ultimately, I think, you know, we're getting not only is there good data behind it, you know, but but the reception, you know, from doctors, you know, is is is a lot of positive feedback. And maybe one thing we haven't really talked about quite frankly is the is the delivery, you know, mechanism. And, you know, a lot of doctors are excited about the the the ease of placement with this product and and the delivery of of of the product is is easier than other devices on the market. They it allows for more accuracy.

So, not only do we have a a solid, you know, you know, product, but we also have a product that that that can be delivered, you know, easily and and and make, you know, the doctor's efforts a lot better.

Mike Matson, Lead Med Tech and Diagnostics Equity Research Team, Needham and Company: Okay. And then, you know, just remind us again what the kind of market opportunity is either, you know, in terms of procedures, patients, dollars, whatever you're able to kind of talk about here.

Raul Perra, CFO, Merit Medical: Yeah. I mean, we described, I guess, the market for us is really the dialysis access maintenance, you know, product. I I think when when we when we look at that, you know, we're we're looking, at the, you know, Clarivate, you know, data, for the current market. That's that's where we feel we believe provides a good data set for us to kind of look at it. And they reported about six hundred and fifty four thousand endovascular dialysis maintenance procedures in 2023.

But more importantly, within that report, they reported 95,000 stents units were implanted in dialysis access maintenance in 2023. And we think, you know, for Merit, that's initially the addressable market that we're going to go after. In in terms of, you know, kind of market growth, you know, they reported total stent, you know, somewhere in the low single digits. But obviously, we're looking at not only at market growth, but also, you know, taking up market share. So again, we think it's a solid market.

It's an area that we think we can compete well in and have been. So, you know, we'll see how it all shakes out.

Mike Matson, Lead Med Tech and Diagnostics Equity Research Team, Needham and Company: Okay. And, you know, covered stents as a category have been around for a while, and there are a number of competitors out there. But I think Rhapsody has kinda proven itself to to be different. It was designed differently, and the data has been really good. But maybe you could just talk a little bit more about, you know, the design and why it seems to have much better results than some of the other products that are out there.

Raul Perra, CFO, Merit Medical: Yeah. Well, look. You know, I I think we we throw around the word stent a lot. Right? And I and if I had my marketing group in here, my clinicians, you know, they'd be poking me and prodding me with, you know, whatever they could throw at me, you know, or or poke me with.

You know? I I think for us, as you know, this is an FDA breakthrough device, and, you know, part of that is is is is really related to the impermeable endo prosthesis, you know, aspect of it. So we think we have a layer that that, you know, that that that that works a lot better than than stent. So it's not just a covered stent. You know, we actually, you know, you know, call it, you know, we don't call it a stent.

We call it, you know, the rhapsody cell and permeability endo prosthesis, for a reason. And we did get FDA breakthrough on the device. So clearly, any technology that's out there, you know, or was out there, you know, was not on par with with what the Rhapsody is.

Mike Matson, Lead Med Tech and Diagnostics Equity Research Team, Needham and Company: Okay. And then I think in terms, you know, from a reimbursement perspective, you're seeking both a transitional pass through or TPT payment for outpatient use as well as a new technology add on payment or NTAP payment for inpatient use. So can you just give us an update there in terms of the process and timing of when you could potentially hear something there when the reimbursement might go into effect?

Raul Perra, CFO, Merit Medical: Yeah. Look. We we submitted for both NTAP and TPT. As you as as you said, Mike, we we we submitted those all within the required time frames. You know, the next update from us will really come sometime in June when we find out, you know, for both, whether whether we got them or not.

And you know, if we did, you know, that that would take effect sometime in the third quarter. You know, obviously this is an FDA breakthrough device. You know, have a high level of conference. You know, but at the end of the day, we've done everything we can, in our control to submit, you know, our best foot forward and now we've got to go through the process and see where it shakes out. But yeah, we're excited.

I think at the end of the day, regardless of what happens, we feel like we have a very competitive product that can can do well with or without, you know, reimbursement. But, obviously, clearly, we hope we get reimbursement.

Mike Matson, Lead Med Tech and Diagnostics Equity Research Team, Needham and Company: Yeah. Okay. And I I mean, I I know you have been kinda wary of disclosing the reimbursement or sorry, the the pricing, so I'm not gonna ask what the pricing is. But, I guess, did you have you kinda priced it with the expectation that you're going to be getting these add on payments? And, you know, does that sort of mean that it's kind of this there's gonna be a little bit of reimbursement headwinds, you know, in the first half of the year until or I guess maybe even through, like, the third quarter until these sort of go into effect.

And then at that point, maybe we can see sort of more of an inflection point where it starts to really take off once the assuming you get these extra reimbursement payments in place.

Raul Perra, CFO, Merit Medical: Yeah. So so, you know, in our Rhapsody call, we did call out what our targeted, you know, reimbursement was, you know, ASP was around $5,800. You know, I I I think, you know, there's obviously the the the reimbursement, you know, aspect of it. But, again, I think given the technology that we have, we have a high level of confidence in the pricing target that we're going after. I think the biggest hurdle for us really is kind of getting through all the back committees, right?

Because that just takes time. So far, we've been pretty successful with that. Think the second quarter is really kind of where that starts to pick up as far as kind of getting through those committees. You know, and hopefully by the end of the, you know, know, sometime in June, we we get some good news, right, for for reimbursement. But as we look at, you know, kind of maybe stepping back and we look at our guidance, you know, we're we're we're shooting from some, you know, anywhere between 7 and $9,000,000.

You know, that 7 and $9,000,000, as you can imagine, has all sorts of variables, but I I can say that we have a high level of confidence in the seven regardless of kind of the outcome. And as you look at and and think about that guidance, it is definitely weighted towards the back half of the year. And when you look at the back half of the year, it's definitely more weighted towards the fourth, you know, quarter than it is the third. So there's just a process you have to go through and it's time consuming and you just have to kinda get through it. But Yeah.

You know, so far positive feedback from from the Salesforce and docs, and we haven't had any issues with with VAT committees.

Mike Matson, Lead Med Tech and Diagnostics Equity Research Team, Needham and Company: Okay. And then, you know, so you mentioned those numbers earlier on. It was ninety five thousand, you know, stent procedures out of the I forget the exact number. Six hundred six hundred seven hundred thousand total fistulas getting treated. AV fistulas getting treated or AV access maybe is broader term.

But, you know, it's only ninety five thousand out of that, and I imagine it's because maybe stents aren't necessarily like a first line treatment for these patients. So is there a potential for Rhapsody to maybe expand that ninety five thousand to a greater portion of the total number of these procedures that are being done, maybe even become like a first line treatment? And what, you know, that's the first part of the question. I guess the second part would be, you know, what sort of would need to be done to achieve that? Do you need, you know, more clinical data or guidelines or something else to change, or do you think the doctors might just start doing it on their own if they have good results with the product?

Raul Perra, CFO, Merit Medical: Yeah. Well, look, we we know that, you know, obviously, we're we're when we talk, we talk on label use. Right? But, you know, the reality is that, you know, doctors use it, you know, the product off label. I mean, we have a registry out there.

We get to see where how they use it. Look, I I think, you know, you know, we're we're we're focused on the 95,000, you know, stents. I mean, I think if, you know, if we took those, I think everybody would be happy. You know, there would be no no no, no disappointed people out there. And so, I, you know, I I think, that's the primary focus, right now.

You know, and and, you know, obviously, the the the the end goal would be kind of to change the standard of care, you know, for our product. And obviously, that expands the the market opportunity for us. But also highlight, you know, our RTG group, you know, who sells the Rhapsody, you know, has a whole, you know, bag full of products that help in the dialysis access maintenance. And so, you know, we think we have the broadest portfolio, out there and one of the best setup portfolios. And it was done in a thoughtful process, you know, with a direct sales force that could be funded by these products.

We've seen a positive uptick in the sale of those products and strong demand. So again, I think we have a strong belief that we provide all the products that are needed within that procedure. And then obviously Rhapsody is that takes hold, we'll be able to take additional shares in other areas. But that's down the road. Right now we're just primarily focused on the 95,000 stents.

Mike Matson, Lead Med Tech and Diagnostics Equity Research Team, Needham and Company: Okay. And then, you know, with that, you know, dialysis business that you have that includes Rhapsody and these other things you just mentioned. So how I don't know if you're willing to dis willing or able to disclose the size of that Salesforce, but I guess that'd be my first question. The second question would be, even if you can't just tell us the size, you know, is it safe to assume that you're, you know, adding people this year with Rhapsody the Rhapsody launch?

Raul Perra, CFO, Merit Medical: Yeah. Look. We we added, you know, the and and I won't disclose, you know, for competitive reasons, you know, the the the size of the sales force, we we do feel like we have, the right number of heads. We are gonna add a few, you know, this year, and have started to do that all within the budgets, know, that we've outlaid in the fork and then the guidance that we've given. But I I I look, I I I think we we're we're we're attacking all the all the major markets.

And, you know, I I I think we've got the right, you know, amount of salespeople, and we'll we'll use kind of a pull method, you know, as opposed to kind of, you know, preloading any salespeople. We we just think that's a much better, more efficient way to do it. And, you know, clearly, again, I think in June, we'll have more information as to, you know, how how fast we pick up the cadence on some of these things, but, you know, we're we're we're making good headway so far.

Mike Matson, Lead Med Tech and Diagnostics Equity Research Team, Needham and Company: Alright. So I wanna move on to the international business, and, you know, I'll start with with China, which I know is another one of your favorite topics to talk about. But so I guess, you know, first, you know, I have to ask about the tariff situation. I mean, I I don't I wanna get into kind of the bar tariff impact on Verint later. But just specifically with regard to China, you know, they're they're putting tariffs, I guess, on US products now coming into China.

So but I don't know if that would include health care or medical devices. So, you know, just what if you heard there? Do you think your products will get tariffed when you're selling them into China? And, you know, what if any kind of impact do you expect that to have on that that business?

Raul Perra, CFO, Merit Medical: Yeah. Look. I I I think we are expecting the the tariffs to to be applied to to medical devices. You know, I think there's there's no secret to that. I will say that I, you know, we do have a global operations, right?

So our our major manufacturing site, you know, the largest manufacturing site at Merit is is in Mexico. And then, you know, we have obviously international, you know, manufacturing also in Ireland, Singapore, Paris, and and Venlo, you know, with with with obviously some operations in The US. So, you know, these these these tariffs, you know, these counter tariffs really only apply to the the the, you know, the manufacture, know, the products that are coming out of The US. And so, you know, I I think, you know, you know, this this is this is an area that that's been highly volatile, you know, with a lot of moving parts. I mean, just today, I think the president announced that, you know, that China wanted to negotiate.

Right? Where yesterday, he announced he was gonna attack them on with 50% tariffs. Right? So I think it's a it's it's it's a pretty variable kind of situation, and and I think, you know, for investors that are on here and, you know, and and you, Mike, merit is gonna do what what it's always done in in in in in in kind of in in a in a volatile or crisis type environment. Right?

And that's to focus on its business, focus on things that we can affect. And, you know, the the the the tariff situation that's gonna play out, we're not making any long term decisions based on what's going on with the tariffs. I I I just think that's, you know, it's just not somewhere we wanna waste our energy just given the dynamics of it. You know, thirty days ago, we were all worried about Mexico, and and now we're under the USMCA, you know, and, you know, essentially exempt, you know, from from any tariff increases. So, you know, I I I think it's there's a lot of variability to this.

We're gonna we're gonna focus our efforts on making sure that we can deliver the CGI goals, work work on on on things we can affect versus things that are outside of our control. And we did that during COVID, we saw great results, and we're pretty headstrong here thinking that we can just continue to do what we're doing and we'll deal with the tariffs on on a kind of one off situation and and make sure that we disclose the impact so you guys can see how the management team is executing on on the business outside of the tariff impact.

Mike Matson, Lead Med Tech and Diagnostics Equity Research Team, Needham and Company: Yeah. Okay. But you raise an important point there. So, you know, so what you're saying effectively is that a lot of the products that you may be selling into the Chinese market aren't necessarily being manufactured within The US. So they should avoid some of those some or all of the tariffs if if they were made at one of those other plants and shipped directly from those plants and not from The US.

Correct?

Raul Perra, CFO, Merit Medical: That that's correct.

Mike Matson, Lead Med Tech and Diagnostics Equity Research Team, Needham and Company: Okay.

Raul Perra, CFO, Merit Medical: Right. Obviously, there will be an impact as we do you know, it's our The US sites are our second largest manufacturing sites, but I don't, you know, but we do have a balanced kind of, you know, manufacturing footprint. And so that that that that will help with some of the, you know, some of the pain.

Mike Matson, Lead Med Tech and Diagnostics Equity Research Team, Needham and Company: Okay. Got it. And then just the international business more broadly, are there new markets that you could enter? Are there other, you know, emerging markets that that you're not in that maybe would be attractive for Merit?

Raul Perra, CFO, Merit Medical: You know, I I I mean, look. I think over the last, you know, you know, couple years, we've we've redirected investments, you know, to to other APAC, you know, regions with within, you know, outside of China just given the, you know, the the volume based purchasing, you know, that was happening and and just the uncertainty. And, you know, I think we'll continue to do that. I mean, when we look at our, you know, our 2025 international growth, you know, the midpoint of our of our, you know, constant currency growth rates is is seven and a half percent. I think, you know, it's a pretty solid number.

When you start to dig in, you know, within the regions, you know, EMEA is low double digits, you know, high teens growth in the rest of the world regions. And then, you know, about 1% growth in in the APAC region, which is really related to kind of the China, you know, impact, you know, related to the volume based, you know, purchasing headwinds that we continue to get to experience. So I think from a from a volume based purchasing, you know, China will do a little bit better than it did last year, you know, and hopefully, you know, as we get through 2026, you know, know, we start to kind of, you know, climb our way out of it. But, we have been investing in other areas. You know, The US growth rate, I think has been excellent.

You know, you guys can, you know, see that, and, I I think that's some of the redirected of investments, you know, that we're making to to areas that I think, you know, generally, we see them as a little bit more stable. But that's not to say that we don't think China is a great market. You know, I think it's it's it's one of those markets that we we think has a high level of potential. It's got aging population. We continue to, you know, register new products there.

It's a you know, we we continue to focus on the peripheral intervention markets, which are, you know, more fragmented, in an area we feel like we can better compete in. A lot of moving parts, but I think, you know, we've got a general generally, we're making the right investments, I think, the right areas and not necessarily hyper focused on China. And, you know, they've heard no more in the last two years than they ever have, you know, because, you know, given the growth rates that we were experiencing in China, they typically always got what they wanted, but that's just not the it hasn't been the case the last few years.

Mike Matson, Lead Med Tech and Diagnostics Equity Research Team, Needham and Company: You're talking about your leadership in Yeah. The merit. Leadership.

Raul Perra, CFO, Merit Medical: Yeah.

Mike Matson, Lead Med Tech and Diagnostics Equity Research Team, Needham and Company: Yeah. Okay. Alright. And moving on to some of your some of your products. So, you know, a question that I often get from investors is kind of just about, you know, where Merit fits kind of competitively.

I mean, you are competing against some of the biggest companies in med tech, you know, Boston, Medtronic, Torimo, etcetera. So, you know, how are you guys sort of positioned in the market, and how do you compete against these these bigger companies effectively?

Raul Perra, CFO, Merit Medical: Well, look, we also have to remember that there are also our customers on the OEM side. Right? So, yes, we do compete, in certain areas, but they're also our customers and, you know, in our OEM division. So, look, I think, you know, Merit has done an excellent job of just being light on its feet and and going after markets that are underappreciated. And I I do truly feel like as as as these companies get bigger, they do leave things behind that that just don't move the needle for them anymore.

And we're we're really good at, you know, finding those and picking those up and and taking, you know, you know, bringing those on and and and taking on that business. So I look, I think Merit has a I I think it's not just the products. Right? I think it's, it's our Salesforce. We have a global Salesforce.

We have direct Salesforce in all the major markets. We have a global distribution footprint, so our customers can get products easy. We have a global manufacturing footprint that's vertically integrated. And we're strong believers in high quality products, you know, that make a difference in the And I I think when you combine all those things, you know, we've been competing with these guys for a very long time and we continue to deliver high single digit growth.

You know, when you look at it, you know, over, you know, a ten year period, I mean, we're we're doing really well. And quite frankly, the markets that we operate in, you know, grow anywhere from, you know, three to 4%. So we continue to take market share in areas. And, again, I think it's just it's just a combination of everything that we do, Mike, you know, and that that that allows us to to continue to do that.

Mike Matson, Lead Med Tech and Diagnostics Equity Research Team, Needham and Company: Okay. And then, you know, I just wanna touch on a few products. I mean, there there's so many different things that's potentially talking about here, but I picked a few. So, you know, starting with kind of the the scout radar localization system, I know you acquired this a few years ago. Maybe you could just give a quick overview of, you know, for people that aren't as familiar, you know, what the product is and kind of you just give us an update on, you know, where market penetration is in that market versus kind of the legacy buyer approach and, you know, what what you're seeing there in terms of adoption.

Raul Perra, CFO, Merit Medical: Yeah. So I think the best way to kind of, you know, explain what it is, you know, it's it's it's for. You know, when you think of the of the, the current, you know, medical procedures, you know you essentially, you know, put wires in the breast to to localize the tumors right find where they're at and then you can go out and do your biopsies and figure out if it's you know benign or not. Our system is a wire free system, so you place a device within the breast or near the tumor that allows the doctor to more accurately pinpoint where that mass is and then go do the work that they need to do, whether it's a biopsy or extraction, making sure that they get the right margin. So think of think of our devices as a tiny actually, you know what I have it right here, as a tiny little piece of grain of rice.

For those of you that can see it, it's those little two black things that are sitting in there. And those are, you know, included in, you know, around, the mass, you know, by a biopsy device or in it, you know, depending on what the doctor wants to do. And as you can imagine, it's a much better process, you know, for, for patients, you know, because, you know, typically, they insert wires into the breast and then they tape them up. Patient has to wait around. Sometimes they shift and they have to go back in, get them replaced.

Know, with ours, permanent implant if they want them to or they can take be taken out. It's just a much more accurate, you know, process and from a market penetration, we've done really well. I think that the, you know, the the scout system continues to do, you know, as well or better than expected. We have new devices that are, you know, that are coming out for it and a new monitoring system here over the next couple of years that we think will be better technology. And and again, it's it's kind of the merit way.

Right? We're not going to just wait, you know, to run this well dry. You know, we're we're we're bringing on new products to stay ahead of the curve and and making sure that we're staying ahead of our competitors. So, we're excited to see how those, you know, play out, over the next year or so, you'll start to see those, you know, devices, you know, kinda hit or or at least the monitoring system come out and and, you know, hit the market. So we're excited about that.

Mike Matson, Lead Med Tech and Diagnostics Equity Research Team, Needham and Company: Okay. And then, you know, I guess, one of your competitors, Hologic acquired endomagnetics. You know, just curious what you're seeing there. You know, how do you think, you know, rate scout is kind of stacks up against endomagnetics approach?

Raul Perra, CFO, Merit Medical: Know, we yeah. We've been competing against endomagnetics for for quite a long time, and we we we continue to win against them. Obviously, you know, you know, now they have a a higher backing. Right? And we're we're paying attention to it.

But end of the day, you know, we're gonna do what Merit does and that stay focused on our products, making sure that we're staying ahead with the technology. And I think we'll be in a pretty good spot. Again, we continually win against them, you know, from an imaging standpoint. That they know that their system does create a lot of our artifact, you know, that that sometimes doesn't allow, you know, for, you know, enough clarity, you know, to to find out, you know, do what you wanna do. And so our device does not do that, but we consistently win against them.

Mike Matson, Lead Med Tech and Diagnostics Equity Research Team, Needham and Company: Okay. And then, another, product that you acquired was, or company, I guess, was Endogastric Solutions. They have their the TIF procedure. Just wondering if you could give us an update there, kind of

Raul Perra, CFO, Merit Medical: Yeah.

Mike Matson, Lead Med Tech and Diagnostics Equity Research Team, Needham and Company: You know, how it's done since you acquired it. And then I think you recently announced that there were some guideline changes for their procedures. So how meaningful are those guideline changes? Is that something that's going to accelerate adoption of the product or procedure?

Raul Perra, CFO, Merit Medical: I think any any news, like, along those lines, especially when it comes to reimbursement, I think is big news for us. Right? I I think, you know, when you think about the EGS group and our endoscopy group, last year, they were two separate groups. As we brought the acquisition on, we kinda left them alone, let them finish out the year. In the meantime, they were doing training, cross training on their products so that when, when twenty twenty five came around, we would have a combined Salesforce that would sell both portfolios.

Right? And again, we think they're complementary to each other, and I I think it'll make the the Salesforce more efficient. Now we understood that, you know, that, you know, as you bring, you know, two Salesforce's and combine them that there's typically a little bit of disruption. Right? And we've we've accounted for that in our guidance.

So you'll see the growth rate slow down a little bit. I think we've had some questions around that. And it's strictly to give these guys some room to make sure that they have, you know, the the confidence out there to go and, and execute on a combined sales back. But no, think, you know, they were here yesterday doing some training the EGS guys and and and and and the endoscopy guys, you know, so one combined Salesforce cross training on each other's products. They went really well.

Fred and I got to talk to them yesterday. A lot of excitement, you know, on on what they can do. And so, you know, we'll continue to monitor that. But so far, it's fully integrated. We have one Salesforce now.

Things are moving in the right direction.

Mike Matson, Lead Med Tech and Diagnostics Equity Research Team, Needham and Company: Okay. Got it. And then just from in terms of clinical trials, you announced this motion study for genicular artery embolization last year. I think it's, you know, it's a procedure to embolization procedure to treat knee pain. It seems like this could be a pretty big opportunity if it's successful.

Know, when could we see results of that trial? And, you know, what's your take on on the market opportunity there?

Raul Perra, CFO, Merit Medical: Yeah. Look, I I think, you know, there's there's a there's a pretty large market opportunity for it, you know, not only for knees, but, you know, shoulders, you know, anywhere kind of where you, you know, kind of, you know, any any any joint really. And, you know, I don't know about, you know, you, but, you know, both my shoulders are shot, you know, so, you know, any relief I can get there without actually going under the knife, you know, would be would be greatly appreciated. You know, I just think, you know, I I think next year sometime, you know, we we, you know, we'll we'll be, you know, hopefully wrapping up the study, but I think it it it it, you know, that there is a a pretty big potential. This is an area that doctors came to us and said, hey, we really want you guys, you know, involved in this.

We think your products are are, you know, are are best in class and and and could really, you know, you know, help accelerate these procedures. But, you know, we're excited about it. It's just one of many things that we continue to be excited at here at Merit.

Mike Matson, Lead Med Tech and Diagnostics Equity Research Team, Needham and Company: Okay. And then, just moving on to the the Cook Medical acquisition. I think this was your most recent deal. I'm wondering if you could give us a quick update there in terms of Yeah.

Raul Perra, CFO, Merit Medical: How that

Mike Matson, Lead Med Tech and Diagnostics Equity Research Team, Needham and Company: operation is going.

Raul Perra, CFO, Merit Medical: No. That that continues to, you know, to to to go well. You know, I I think, you know, for us, you know, Cook was, you know, over, that lead extraction, you know, team over at Cook was just, you know, quite frankly underappreciated. And, I think, you know, they've had more interactions with the executive team and, you know, myself and Fred here than they ever did at Cook. Right?

I think they they they got to talk to the CEO once when they were there, that's when they were told that they were sold to us. You know, we've we've we've met with them multiple times. We've listened to some of the needs that they need that they want. You know, there was a specific product that had been, you know, that we brought over from cook that had been off the market for, you know, well over a year. We're going to, you know, the the the Salesforce was adamant that they wanted it needed it.

We're going to have it on in the market within within four months, right? And again, that's that's what we do. We listen to our sales force. We listen to the doctors and I think that, you know, they're getting the attention that they need and we have a we have a, you know, obviously, you know, products that we can also feed into their bags. So they're not just selling one, you know, one product.

Now they have a bag of products. And, you know, they're they're excited about what they can do. So integration is going great. Obviously, the manufacturing component of the integration is going to take us a little bit longer. You know, just given the regulatory hurdles that we have to kind of overcome.

And that's just really timing based. It just takes time to get through these regulatory kind of, you know, paths. But everything continues to be on track, if not ahead of pace.

Mike Matson, Lead Med Tech and Diagnostics Equity Research Team, Needham and Company: Okay. All right. And then I want to address the tariff question kind of more broadly now. So we talked about China, but that's more of an issue of tariffs on your products you know, as products going out the door as as opposed to, you know, things coming in the door. So, you know, what you know, how how exposed are you?

You have production in Mexico, but you mentioned some other places in Europe and things like that. So, you know, I'm sure you're not at a point where you're willing or able to quantify this, but maybe just help us think through, you know, how and and, obviously, it could change day to day, but, you know, how how significant of an impact could this be? And Mexico, just as a follow-up, and I think you mentioned you USMCA. You know, we're hearing that from other companies as well at the conference that it does sound like that is going to be protective of of tariffs if you're hearing that. Just wanna confirm that.

Raul Perra, CFO, Merit Medical: Yeah. Yeah. So I'll just address that real quick because I think it's a it's an important, you know, kind of fat pattern. I I think, you know, Mexico is our largest manufacturing site, but we do the majority of our products, fall under the USMCA. There is a a small immaterial kind of, you know, piece that that that that doesn't, but the majority of those products do fall under the USMCA.

So for now, as of today, as of this minute, we're we're protected. But look, you know, Mike, I'll just maybe take a step back, right, just at a high level. I just want to emphasize, you know, kind of, you know, the executive team's approach here at Merit. We do really well when we're focused and when there's a crisis out there. You know, we we kind of, you know, like to, you know, take pride and and, know, when there's a crisis that Merit usually kind of rises up to, you know, to to to to do pretty, you know, pretty pretty well in those situations.

You know, our approach is is that we are gonna focus on the things that we can affect. You know, we're not doing any long term planning based on, you know, what the current, you know, tariff situation is because it is so fluid. And just as an example, you know, thirty days ago, we were all concerned about Mexico. Right? And now, you know, that, you know, at least for now, that seems to be safe, you know, under the USMCA, you know, plan.

And so I think, you know, we're gonna continue to focus on on on making sure that we're delivering on the on the promises of continued growth initiatives. You know, we we feel like we can better affect, you know, our our performance that way. The tariff situation will play out. We'll call that out separately on our calls so that people understand how the management team is executing against its its promises for CGI. And then you can you can weigh the tariffs, you know, as appropriate, you know, on on your side.

But I just think it's a it's a it's it's it's too hard of a task and too dynamic of a task to to chase the tariffs and try and come up with solutions when you're just gonna be end up chasing your tail. Right? Again, I like to give this example. I was at, you know, one of your competitors, you know, investors, you know, conference, you know, a month ago. The the the day that I started the the calls that, you know, the tariffs went into effect.

As you can imagine, everybody was panicking about that and and, you know, and and had a lot of questions about that. I got on the on the phone with Fred and said, hey, you know, we've kicked off some of our contingency plans for that. We should probably meet as an executive team. I'm traveling. I'm not back till Thursday.

You're traveling. You're not back till Thursday either. Why don't we meet Friday? You know, by the time Friday came around, there was already a solution, so we didn't even get to talk about it. Right?

So it's a very dynamic thing. I I think, you know, our our again, our approach will be to focus on the things we can impact, and we do really well when we do that. Clearly, there's gonna be an impact. I'm not gonna, you know, kinda sugarcoat that. But I think to the extent the management team can focus on its efficiency projects, you know, we'll see we'll see how the tariff thing kinda shakes out.

And it's a very dynamic situation, and one that, you know, obviously, it's very frustrating, but we're we're not gonna, you know, we're not gonna lose sleep over it because I I think, you know, the Merit team has a pretty good, plan, robust plan through 2026 for CGI, and our goal is to execute on that. And whatever happens with the tariffs, we'll deal with that on a separate basis.

Mike Matson, Lead Med Tech and Diagnostics Equity Research Team, Needham and Company: Yes. Okay. That all makes sense. And then just moving on to kind of some of the line items in your P and L. So in 2023, '20 '20 '4, you did see pretty significant gross margin improvement both the years.

I think your guidance for this year implies kind of flat, maybe slightly down gross margin. So just curious kind of what's changed there. Not to say you're not delivering you know, operating margin improvement, but it's coming from a different place as opposed to gross margin, it seems like.

Raul Perra, CFO, Merit Medical: Yeah. I I actually don't you know, maybe that's, you know, kind of been, you know, maybe we weren't clear. But look, I I think, know, under CGI, most of our improvements for operating margin, if not all of them, come from gross margin.

Mike Matson, Lead Med Tech and Diagnostics Equity Research Team, Needham and Company: So we

Raul Perra, CFO, Merit Medical: had a great year last year. You know, this year, the it's it's more of the same. Our you know, most of our improvement is coming from gross margin, you know, especially when you look at the low end, you know, it's it's it's all gross margin on on both, you know, the 2025 forecast and also the CGI program, you know, through 2026. So on the high end, you're talking about gross margin improvement and some operating expense leverage. So for us, you know, gross margin will continue to improve this year.

You know, I I I think, you know, we'll we'll we are making some investments in in OpEx. I think we've been very clear, but I think we've got a very balanced approach to how we're doing it. We're still delivering operating margin expansion this year. And as always, we always wait to see if the gross margin is coming in as expected. And if it is, we'll make the investments, you know, we'll balance out the investments that we're making with the profitability we're delivering to, you know, to investors.

But again, we've got a solid game plan this year, gross margin expansion, operating margin expansion, and I think a pretty solid growth, you know, for the year.

Mike Matson, Lead Med Tech and Diagnostics Equity Research Team, Needham and Company: Okay. And then what about, you know, pricing? I know you've made a more of a concerted effort there. I think developed maybe a team to focus on price the pricing opportunities. So is that something that's gonna, you know, putting again, putting aside the tariffs for now, but, you know, in a normal world, is that something that's still gonna be, you know, beneficial to your top line and margins?

Raul Perra, CFO, Merit Medical: Yeah. Yeah. The way we look at it here, we made a significant investment under foundations for growth, and it was, you know, what we thought was a permanent investment that that that would, you know, allow us to to to have pricing be a net positive for merit on a go forward basis. And that's our intent, you know, Mike, is is to make sure that, you know, those investments continue to pay off. We we think we're much better at contract negotiations, you know, contract compliance.

We're much better at the visibility that we get and execution from our sales force on pricing targets. And and that is is is is on purpose. Right? We made those investments to make sure that this is what we were getting, you know, for the long term, and we've been pretty happy with with what's been what's been happening there. And again, we we see it as a net positive on a go forward basis.

Mike Matson, Lead Med Tech and Diagnostics Equity Research Team, Needham and Company: Okay. Somebody did email me a question, so I'm gonna ask it. I don't know if you're able to answer it or willing to answer it. But just Sure. You know, with regard to Mexico, can you can you break out a portion or tell us the percent that that isn't under USMCA that will

Raul Perra, CFO, Merit Medical: be immaterial amount that I mean, it's not enough worrying about. Yeah. The I mean, You know? And I'm throwing out a percentage that don't hold me to it.

Like, 99% of our products are gonna be under the USMCA. Right? But Yeah. Can't say a % because it's not it's not all of it, but it's it's it's an immaterial amount for for whoever asked that question.

Mike Matson, Lead Med Tech and Diagnostics Equity Research Team, Needham and Company: And then finally, just m and a, you know, you've you've been kind of ramped up your m and a efforts again. You know, should we expect to see more over the next twelve to eighteen months? And, you know, does the tariffs come into play here at all in terms of, like, you know, maybe you put things on hold until you know what's gonna happen with tariffs, or does that just not not something you consider?

Raul Perra, CFO, Merit Medical: Yeah. Again, I can't emphasize that we're not gonna do any long term planning based on the tariff situation today. Right? I mean, I just it's

Mike Matson, Lead Med Tech and Diagnostics Equity Research Team, Needham and Company: it's it's it's So it's not gonna stop you from from doing that?

Raul Perra, CFO, Merit Medical: It's not gonna stop us. You know, we we've got a good strategy on on m and a. I think you guys are seeing it play out. We're going into areas that we feel really comfortable with that allows us to break up our sales bag and go deeper into certain areas. You saw it in with the EGS transaction.

You saw it with a Cook transaction for cardiac interventions group. You know, so, again, I think, you know, you saw with the angio deal for, you know, setting up a, you know, an RTG group, you know, that could sell, Rhapsody. And we we're we we really like the way this is playing out. I mean, I think, you know, it allows us our Salesforce to to just be more focused and go deeper in the bag.

Mike Matson, Lead Med Tech and Diagnostics Equity Research Team, Needham and Company: Okay. I think we're gonna have to wrap up there. We're almost out of time. Thanks, Rahul. Thanks for attending our conference.

I hope you have some good good meetings during the event.

Raul Perra, CFO, Merit Medical: Great. Thank you, everybody. Thanks for listening in.

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