Merit Medical Systems Q1 2025 Earnings Report

Merit Medical Systems EPS Results

• Actual EPS: $0.86
• Consensus EPS: $0.75
• Beat/Miss: Beat by +$0.11
• One Year Ago EPS: $0.77

Merit Medical Systems Revenue Results

• Actual Revenue: $355.35 million
• Expected Revenue: $352.57 million
• Beat/Miss: Beat by +$2.78 million
• YoY Revenue Growth: +9.80%

Merit Medical Systems Announcement Details

• Quarter: Q1 2025
• Date: 4/24/2025
• Time: After Market Closes
• Conference Call Date: Thursday, April 24, 2025
• Conference Call Time: 5:00PM ET

Merit Medical Systems (NASDAQ:MMSI) is a global manufacturer and marketer of a broad range of medical devices used in diagnostic and interventional procedures. The company’s product portfolio encompasses vascular access, drainage, embolotherapy, and interventional oncology devices, as well as radiofrequency ablation systems and hemostasis solutions. These products serve physicians and hospitals in critical care settings and support minimally invasive treatment options across multiple specialties, including cardiology, radiology, oncology, neurology and endoscopy.

Founded in 1987 by Fred Lampropoulos, Merit Medical Systems has grown through both organic development and targeted acquisitions to expand its technology offerings and geographic reach. Headquartered in South Jordan, Utah, the company operates manufacturing and distribution facilities in North America, Europe and Asia. Merit’s products are sold in over 90 countries worldwide, with regional sales offices in Europe, Latin America and the Asia‐Pacific region to support local clinical training and customer service.

Under the leadership of founder and CEO Fred Lampropoulos, Merit Medical Systems has maintained a focus on innovation, quality and customer education. The company invests in research and development to evolve its product pipeline and partners with healthcare professionals to improve procedural outcomes. Merit’s commitment to minimally invasive care and patient safety has positioned it as a key supplier to hospitals and health systems seeking advanced device solutions for complex diagnostic and therapeutic procedures.

Merit Medical Systems Q1 2025 Earnings Call Transcript

Key Takeaways

• First-quarter revenue totaled $355.4 M, up 9.8% on a GAAP basis and 10.9% on a constant currency basis, modestly exceeding the high end of guidance with 6.2% organic constant currency growth in the cardiovascular segment.
• Non-GAAP operating margin expanded to a first-quarter record of 19.3% (up ~230 bps) and non-GAAP EPS grew 15%, both surpassing expectations due to favorable mix, pricing and operational efficiency.
• 2025 non-GAAP EPS guidance was lowered to $3.29–3.42 (from $3.58–3.70) primarily to reflect an estimated $26.3 M in incremental tariff-related manufacturing costs (≈$0.34/share headwind).
• Free cash flow guidance of at least $150 M for 2025 was reaffirmed despite a 20% Q1 decline, supported by strong net income, working capital management and planned $90–100 M CapEx for a new Utah distribution center.
• U.S. sales rose 14% on a constant currency basis while China revenue declined 10% amid macro and volume-based procurement variability; full-year outlook for China remains unchanged.

Presentation

[Operator]

Welcome to the Merit Medical Systems First Quarter twenty twenty five Earnings Conference Call. At this time, all participants have been placed in a listen only mode. Please note that this conference call is being recorded and that the recording will be available on the company's website for replay purposes shortly. I would now like to turn the call over to mister Fred Lampropoulos, Merit Medical Systems founder, chairman, and chief Please go ahead.

[Fred Lampropoulos, Founder, CEO & Chairman at Merit Medical Systems]

Thank you, and welcome, everyone. I am joined on the call today by Raul Parra, our Chief Financial Officer and Treasurer and Brian Lloyd, our Chief Legal Officer and Corporate Secretary. Brian, would you mind taking us through the Safe Harbor statements, please?

[Brian Lloyd, Chief Legal Officer and Corporate Secretary at Merit Medical Systems]

Thank you, Fred. This presentation contains forward looking statements that receive Safe Harbor protection under federal securities laws. Although we believe these forward looking statements are based upon reasonable assumptions, they are subject to risks and uncertainties. The realization of any of these risks or uncertainties as well as extraordinary events or transactions impacting our company could cause actual results to differ materially from the expectations and projections expressed or implied by our forward looking statements. In addition, any forward looking statements represent our views only as of today, 04/24/2025, and should not be relied upon as representing our views as of any other date.

[Brian Lloyd, Chief Legal Officer and Corporate Secretary at Merit Medical Systems]

We specifically disclaim any obligation to update such statements except as required by applicable law. Please refer to the sections entitled Cautionary Statement Regarding Forward Looking Statements in today's press release and presentation for important information regarding such statements. For a discussion of factors that could cause actual results to differ from these forward looking statements, please also refer to our most recent filings with the SEC, which are available on our website. Our financial statements are prepared in accordance with accounting principles, which are generally accepted in The United States. However, we believe certain non GAAP financial measures provide investors with useful information regarding the underlying business trends and performance of our ongoing operations and can be useful for period over period comparisons of such operations.

[Brian Lloyd, Chief Legal Officer and Corporate Secretary at Merit Medical Systems]

This presentation also contains certain non GAAP financial measures. A reconciliation of non GAAP financial measures to the most directly comparable U. S. GAAP measures is included in today's press release and presentation furnished to the SEC under Form eight ks. Please refer to the sections of our press release and presentation entitled non GAAP financial measures for important information regarding non GAAP financial measures discussed on this call.

[Brian Lloyd, Chief Legal Officer and Corporate Secretary at Merit Medical Systems]

Readers should consider non GAAP financial measures in addition to, not as a substitute for, financial reporting measures prepared in accordance with GAAP. Please note that these calculations may not be comparable with similarly titled measures of other companies. Both today's press release and our presentation are available on the Investors page of our website. I will now turn the call back to Fred.

[Fred Lampropoulos, Founder, CEO & Chairman at Merit Medical Systems]

Thank you, Brian. And let me start with a brief agenda of what we will cover during our prepared remarks. I will start with a summary of our first quarter twenty twenty five results. Then Raul will provide a more in-depth review of our quarterly financial results and our financial guidance for 2025, which we updated in today's press release. Then we will open the call for your questions.

[Fred Lampropoulos, Founder, CEO & Chairman at Merit Medical Systems]

Now beginning with a review of our first quarter results, we reported total revenue of $355,400,000 up 9.8% year over year on a GAAP basis and up 10.9 year over year on a constant currency basis. The constant currency revenue growth we delivered in the first quarter modestly exceeded the high end of the range of growth expectations that we outlined on our Q4 twenty twenty four earnings call. The better than expected constant currency revenue results were driven primarily by a 6% constant currency organic growth, roughly 100 basis points better than the 5% high end of the range we outlined in our first quarter guidance. With respect to our profitability performance in the first quarter, we delivered financial results that significantly exceeded our expectations. We delivered another quarter of significant year over year improvement in our non GAAP operating margin, which increased nearly two thirty basis points year over year to 19.3%, representing a first quarter record for the company.

[Fred Lampropoulos, Founder, CEO & Chairman at Merit Medical Systems]

We also delivered 15% growth in our non GAAP EPS, which exceeded the high end of our expectations as well. This performance was a direct result of our team's continued hard work and commitment to our strategic objectives. We are very proud of the strong execution our team delivered in the first quarter of twenty twenty five. We believe our first quarter results reflect the continued strong momentum in the business and we are confident in our team's ability to deliver the total revenue guidance for 2025 we reaffirmed in today's press release. We have also provided updated non GAAP EPS expectations for 2025, which Raul will review in detail later in the call.

[Fred Lampropoulos, Founder, CEO & Chairman at Merit Medical Systems]

In the interim, the key takeaway is that our updated non GAAP EPS expectations reflect the current estimated impact of tariffs, trade policies and related actions recently implemented by The United States and other countries. Beside these trade related impacts, we have made no material changes to the operating financial assumptions for the balance of fiscal year twenty twenty five versus what our non GAAP EPS guidance range previously assumed. Despite the continued challenges related to the dynamic and uncertain global macro environment, our team is well. We remain focused on delivering continued strong execution, solid constant currency growth and strong free cash flow generation in 2025 as well as continued progress in our continued growth initiatives program and related financial targets for the three year period ending 12/31/2026. Now with that said, let me turn the call over to Raul for an in-depth review of our quarterly financial results and our updated financial guidance for 2025. Raul?

[Raul Parra, CFO & Treasurer at Merit Medical Systems]

Thank you, Fred. I will start with a detailed review of our revenue results in the first quarter, beginning with the sales performance in each of our primary reportable product categories. Note, unless otherwise stated, all growth rates are approximated and presented on both a year over year and constant currency basis. First quarter total revenue growth was driven by 9% growth in our Cardiovascular segment and 64% growth in our Endoscopy segment. Cardiovascular segment sales exceeded the high end of the expectations we outlined on our fourth quarter call.

[Raul Parra, CFO & Treasurer at Merit Medical Systems]

Our total revenue results include approximately $9,200,000 of revenue from our acquisitions of the lead management product portfolio from Cook Medical and approximately 6,600,000 of revenue from our acquisition of the assets of Endogastric Solutions. Excluding sales of acquired products, segment revenue growth on an organic constant currency basis was 6.2% for our Cardiovascular segment, while organic growth in our Endoscopy segment was essentially flat year over year. Turning to a review of our first quarter revenue results by product category. Cardiac intervention product sales increased 12% and represented the largest driver of cardiovascular segment growth in the period. Growth was driven primarily by contributions from our acquisition of Cook Medical Products.

[Raul Parra, CFO & Treasurer at Merit Medical Systems]

Excluding the contributions from the sales of acquired products, cardiac intervention product sales increased approximately 2% on an organic constant currency basis, within the range of organic growth expectations we assumed for Q1. Sales of our OEM products increased 21% in Q1, well ahead of the mid single digit growth our guidance assumed. The stronger than expected OEM performance in Q1 was substantially driven by customer demand in The U. S, offset partially by sales to OEM customers outside The U. S, which continues to see demand trends impacted by the macro environment.

[Raul Parra, CFO & Treasurer at Merit Medical Systems]

Sales of our peripheral intervention, or PI, products increased 6.8%. Growth in the PI product category was driven primarily by sales of our access, embolic therapy, and delivery system products, which increased in the mid teens year over year. Sales of our custom procedure solutions, or CPS, products decreased 0.3%, which was in line with our expectations. Turning to a brief summary of our sales performance on a geographic basis. Our first quarter sales in The U.

[Raul Parra, CFO & Treasurer at Merit Medical Systems]

S. Increased 14% on a constant currency basis and 9% on an organic constant currency basis, exceeding the high end of our expectations by 170 basis points. We were pleased to see continued strong demand from our U. S. Customers in the first quarter.

[Raul Parra, CFO & Treasurer at Merit Medical Systems]

International sales increased 6% year over year and increased 1.9% on an organic constant currency Sales results in the APAC and EMEA regions came in at the high end of our expectations, while sales in the rest of the world region modestly exceeded our expectations. With respect to China specifically, sales decreased 10% compared to a low single digit growth rate assumed in our guidance. We continue to see quarter to quarter variability and growth trends related to volume based procurement programs as we have previously cautioned. In the first quarter, however, VBP was essentially in line, and we would attribute the softer than expected revenue results to the broader macro environment. Turning to a review of our P and L performance.

[Raul Parra, CFO & Treasurer at Merit Medical Systems]

With the avoidance of doubt, unless otherwise noted, my commentary will focus on the company's non GAAP results during the first quarter of twenty twenty five, and all growth rates are approximated and presented on a year over year basis. We have included reconciliations from our GAAP reported results to the related non GAAP items in our press release and the presentation available on our website. Gross profit increased approximately 15% in the first quarter. Our gross margin was 53.4%, up two fifty one basis points. The increase in gross margin year over year was driven by favorable product and geographic revenue mix and improvements in pricing, freight and distribution costs.

[Raul Parra, CFO & Treasurer at Merit Medical Systems]

Operating expenses increased 10.5% year over year. The increase in operating expenses was driven by 11% increase in SG and A expense and an 8% increase in R and D expense compared to the prior year period. Total operating income in the first quarter increased 13,500,000.0 or 25% from the first quarter of twenty twenty four to $68,400,000 Our operating margin was 19.3% compared to seventeen percent in the prior year period, an increase of two twenty nine basis points year over year. First quarter other expense net was $1,700,000 compared to expense of $100,000 last year. The change in other expense net was driven by lower interest income associated with lower cash balances, offset partially by lower interest expense compared to the prior year period.

[Raul Parra, CFO & Treasurer at Merit Medical Systems]

First quarter net income was $52,900,000 or $0.86 per share compared to $44,100,000 or $0.75 per share in the prior year period. We are pleased with our profitability performance in the first quarter, where we leveraged stronger than expected revenue results to drive significant expansion in operating margin and strong growth in non GAAP diluted earnings per share, both of which exceeded the high end of our expectations. Note, our first quarter non GAAP EPS results included incremental dilution related to our convertible debt that represented approximately $02 to Q1 EPS as expected. Turning to a review of our balance sheet and financial condition. We generated $19,500,000 of free cash flow in the first quarter of twenty twenty five, down 20% year over year.

[Raul Parra, CFO & Treasurer at Merit Medical Systems]

The year over year decrease in free cash flow generation was a result of increased capital expenditures compared to the first quarter of twenty twenty four, as expected, and investments in working capital, offset partially by growth in net income and other noncash items. As of 03/31/2025, Merit had cash and cash equivalents of $395,500,000 total debt obligations of $747,500,000 and outstanding letter of credit guarantees of $2,900,000 with additional available borrowing capacity of approximately $697,000,000 compared to cash and cash equivalents of $376,700,000 total debt obligations of $747,500,000 and outstanding letter of credit guarantees of $2,900,000 which with additional available borrowing capacity of approximately $697,000,000 as of 12/31/2024. Our net leverage ratio as of March 31 was 1.8 times on an adjusted basis. Turning to a review of our fiscal year twenty twenty five financial guidance, which we updated in today's press release. For reference, we have included a table in our earnings press release, which details each of our formal financial guidance ranges and how those ranges compared to our initial guidance ranges issued on our fourth quarter call in February.

[Raul Parra, CFO & Treasurer at Merit Medical Systems]

Our 2025 guidance assumes the following: GAAP net revenue growth of eight to 10% year over year, which we expect to result from net revenue growth of approximately 7% to 9% in our cardiovascular segment and net revenue growth of approximately 34% to 37% in our endoscopy segment and a headwind from changes in foreign currency exchange rates of approximately $4,900,000 or approximately 36 basis points to growth year over year. Excluding the impact of changes in foreign currency exchange rates, we expect total net revenue growth on a constant currency basis in a range of 8.7% to 10.2% in 2025. Among other factors to consider when evaluating our projected constant currency revenue growth range for 2025 are the following items. First, the midpoint of our total constant currency growth range now assumes 11% growth in The U. S.

[Raul Parra, CFO & Treasurer at Merit Medical Systems]

And 7% growth outside The U. S. The 7% constant currency growth we expect outside The U. S. Continues to assume low double digit growth in the EMEA, high teens growth in Rest Of World region, and approximately 1% growth in the APAC region.

[Raul Parra, CFO & Treasurer at Merit Medical Systems]

The modest growth we expect in APAC sales is substantially related to China, where we project growth in unit sales on a year over year basis, but we expect total revenue to face continued headwinds related to volume based procurement policies. Second, our total net revenue guidance for fiscal year twenty twenty five also assumes inorganic revenue contributions from the acquisitions of assets from Endogastric Solutions and Cook Medical, which closed on 07/01/2024 and 11/01/2024, respectively, in the range of 45,000,000 to $46,000,000 in the aggregate. Excluding this inorganic revenue, our guidance reflects total net revenue growth on a constant currency organic basis in the range of approximately 5% to 7% year over year. Third, for the full year 2025 period, we continue to forecast U. Revenue from the sales of Rhapsody CIE in the range of $7,000,000 to $9,000,000 Our full year 2025 U.

[Raul Parra, CFO & Treasurer at Merit Medical Systems]

S. Rhapsody CIE revenue range continues to assume a larger weighting of revenue in the second half of twenty twenty five versus the first half and a larger weighting of revenue in the fourth quarter versus the third quarter. With respect to profitability guidance for 2025, we now expect non GAAP diluted earnings per share in the range of 3.29 to $3.42 compared to our prior guidance range of $3.58 to $3.7 The change in our non GAAP EPS expectations for 2025 is primarily a result of the projected impact of tariffs, trade policies, and related actions recently implemented by The U. S. And other countries, which are expected to increase our cost of goods sold, among other consequences.

[Raul Parra, CFO & Treasurer at Merit Medical Systems]

By the way of reminder, our initial 2025 guidance range introduced in February assumed that the 2025 tariff structure will remain substantially unchanged during 2025. While the tariff situation and potential retaliatory measures by other countries remains highly uncertain and dynamic, we elected to estimate the potential impact on our non GAAP EPS results this year in the interest of transparency. To that end, our updated non GAAP EPS expectations now reflect an incremental $26,300,000 of tariff related manufacturing costs in our cost of goods line item. This figure includes tariffs on countries from which we import raw materials and products as well as potential additional tariffs on certain exports from The U. S.

[Raul Parra, CFO & Treasurer at Merit Medical Systems]

Roughly 94% of the total expected increase in our 2025 cost of goods is related to our business in China. The majority of which is related to retaliatory tariffs on goods exported from The U. S. Into China. The remaining 6% of the total expected increase in our 2025 cost of goods is coming from the 10% tariff rate on goods imported into The US from a number of countries around the world.

[Raul Parra, CFO & Treasurer at Merit Medical Systems]

Importantly, the $26,300,000 figure is based on all available information as of 04/24/2025, and does not include any impact from new and or additional tariffs or retaliatory actions or changes to currently announced tariffs, which could change the anticipated impact to our non GAAP EPS in 2025. The ultimate impact from new and or additional tariffs or retaliatory actions or changes to currently announced tariffs on our business will depend on the timing, amount, scope and nature of such tariffs, among other factors, most of which are currently unknown. Our team is working hard on potential mitigation strategies to offset the expected potential impact of these new tariffs. We believe we have a pathway to offsetting up to 45% of the expected annualized tariffs. Although the timing of implementation means these projected benefits are unlikely to be realized in our cost of goods until 2026.

[Raul Parra, CFO & Treasurer at Merit Medical Systems]

We are encouraged by the prospects of leveraging many of our CGI initiatives, specifically in terms of reprioritizing planned efforts to help reduce the costs, improve productivity, and optimize production and logistics. We believe we are well positioned to navigate the anticipated headwinds related to these new tariffs given our multiyear focus on margin and profitability enhancing CGI initiatives. This is a rapidly changing situation, which we are monitoring carefully. Given the frequency of recent changes in our tariff policy, we do not intend to provide interim updates in response to each news item or related rumor. Rather, we will provide updates as we deem appropriate on our quarterly earnings calls or in other public formats as we gain further visibility and clarity regarding the situation.

[Raul Parra, CFO & Treasurer at Merit Medical Systems]

Returning to a discussion of our updated 2025 financial guidance assumptions. For modeling purposes, our fiscal year '20 '20 '5 financial guidance now assumes non GAAP operating margins in the range of approximately 17.6% to 18% compared to 19.4% to 19.7% previously. Note the change in our 2025 non GAAP operating margin expectations is directly attributable to the incremental $26,300,000 of tariffs related to cost of goods. Non GAAP interest and other expense net of approximately $4,800,000 compared to non GAAP income of $1,100,000 last year non GAAP tax rate of approximately 21% and diluted shares outstanding of approximately $61,000,000 compared to approximately $62,000,000 previously. Note, our weighted average share count assumption now reflects incremental dilution of approximately 900,000.0 shares related to our convertible debt facility compared to our prior guidance, which assumed approximately 1,800,000.0 shares.

[Raul Parra, CFO & Treasurer at Merit Medical Systems]

We now estimate incremental share dilution related to our convertible debt facility represents an impact of approximately $05 to our non GAAP EPS in 2025 compared to approximately $0.11 assumed in our prior guidance range. Finally, we continue to expect to generate free cash flow of at least $150,000,000 in 2025, inclusive of the expectation that we invest approximately 90,000,000 to $100,000,000 in capital expenditures this year. The step up in CapEx investment this year is directly related to construction of a new distribution center in South Jordan, Utah. We would also like to provide additional transparency related to our growth and profitability expectations for the second quarter of twenty twenty five. Specifically, we expect our total revenue to increase in the range of approximately 8.6% to 11.1% on a GAAP basis and up approximately 8.7% to 11.2% on a constant currency basis.

[Raul Parra, CFO & Treasurer at Merit Medical Systems]

The midpoint of our second quarter constant currency sales growth expectations assumes approximately 13% growth in The U. S. Six Percent growth in international markets. Note, our second quarter constant currency sales growth expectations include inorganic revenue in the range of $17,000,000 to $18,000,000 Excluding inorganic contributions, our second quarter total revenue is expected to increase in the range of approximately 4% to 6% on an organic constant currency basis. With respect to our profitability expectations for the second quarter of twenty twenty five, we expect non GAAP operating margins in the range of approximately 17% to 18.75% compared to 20.1% last year and non GAAP EPS in the range of $0.8 to $0.90 compared to $0.92 last year.

[Raul Parra, CFO & Treasurer at Merit Medical Systems]

I will now turn the call back to Fred for closing comments.

[Fred Lampropoulos, Founder, CEO & Chairman at Merit Medical Systems]

Raul, well done. That's a lot of information. But before we open the call for questions, I just want to add that the US Rhapsody CIE program is progressing well. We are pleased with the response following the presentation of twelve month AVF data from our Rhapsody Wave trial at the Society of Interventional Radiology on March 30. Adoption and utilization are trending positively, and we continue to forecast U.

[Fred Lampropoulos, Founder, CEO & Chairman at Merit Medical Systems]

S. Revenue from the sales of the Rhapsody CIE in the range of $7,000,000 to $9,000,000 in 2025. Our team continues to execute on our reimbursement strategy, which is focused on securing add on reimbursement payment for both the hospital and office based sites of care. With respect to recent progress and developments on our NTAP submissions specifically on April 11, CMS released proposed fiscal year twenty six payment rates for the hospital inpatient perspective payment system, which include updates on our Rhapsody CIE NTAP submission. We are pleased to see CMS confirm that the Rhapsody CIE meets the cost criterion and that CMS is proposing to approve the Rhapsody CIE for new technology add on payments in fiscal year twenty twenty six.

[Fred Lampropoulos, Founder, CEO & Chairman at Merit Medical Systems]

Importantly, CMS is also proposing that the maximum new technology add on payment for a case involving the use of the Merit Rhapsody CIE would be 3,770 for fiscal year twenty twenty six, which is, if finalized as proposed, would support our anticipated costs to the hospital inclusive of all the components and accessories of $5,800 We continue to anticipate receiving final decisions with respect to NTAP and TPT add on reimbursement status in June 2025. Now that wraps up our prepared remarks. Operator, we would like to now open up the line for questions.

[Operator]

Thank you. Our first question will come from the line of Jason Bednar from Piper Sandler. Your line is open.

[Jason Bednar, Senior Research Analyst at Piper Sandler Companies]

Hey, guys. Good afternoon. Congrats on another nice quarter here. Look, a lot of investor focus and questions on the tariff topic. I'll start there to unpack some of the moving parts.

[Jason Bednar, Senior Research Analyst at Piper Sandler Companies]

And thanks, Rahul, for all the color and quantification in the prepared remarks. Can you give maybe a bit more color on maybe some of the mitigation efforts you have in mind? Are you able to talk about what some of those are? Have you already started down the path of those mitigation efforts? And then just so we can think about this appropriately on an annualized basis after mitigation, I hope I don't lose you on numbers, but is that $26,000,000 closer to 40,000,000 to $50,000,000 on an annualized basis? But you expect to offset 45% of that through mitigation and that those efforts would be felt those mitigation efforts are felt at some point in '26, but probably starting not at the beginning of the year? Sorry, I'm just trying to figure out really how to baseline ourselves when we look at kind of a full year, fully mitigated basis.

[Raul Parra, CFO & Treasurer at Merit Medical Systems]

Yeah, no, it's a lot to unpack there, Jason. I'll try and hit on everything. Yeah, look, our mitigating efforts are really centered around some of the CGI initiatives that we had ongoing. Product line efficiencies, moving items to lower cost areas, a lot of what we've already been doing. I think we're really lucky that we had CGI that was in place, similar to what happened with when COVID happened.

[Raul Parra, CFO & Treasurer at Merit Medical Systems]

I mean, I think we just put our heads down, we kept doing what we knew we had to do from an execution standpoint. That's exactly how we're treating this tariff situation here. We've got a punch list of things that we already had on the board that we needed to do. And so we're just going to continue to do those items and just stay focused on that. A lot of variability as you know in the tariffs and to try and focus on that specifically would be a pretty daunting task.

[Raul Parra, CFO & Treasurer at Merit Medical Systems]

So again, we've got a punch list of CGI items and initiatives that we had on the board. We're going to continue to do those and focus on those. There's things we've already started to do that were quick wins that our operations group did initially. You can redirect shipments from country of origin into the specific country, avoiding some of the tariffs. So there's things like that or building up of inventory from our Mexican facility.

[Raul Parra, CFO & Treasurer at Merit Medical Systems]

You saw some of that buildup in the first quarter, little bit in the you probably didn't notice it as much in the fourth quarter because we did decrease inventory, but there was things we were already working on in the background. And again, I won't get too much into it. I think the math that you did on the annualized amount, I mean, I can't argue against that, right? I mean, it's the math. But again, those mitigating control or cost control items have already started.

[Raul Parra, CFO & Treasurer at Merit Medical Systems]

Some of them just take effort and again, some of them were already on our punch list for CGI initiatives.

[Jason Bednar, Senior Research Analyst at Piper Sandler Companies]

All right. That's really helpful. Thanks for all that. Yeah, no, I appreciate that. It's pretty messy right now and not just for Merit.

[Jason Bednar, Senior Research Analyst at Piper Sandler Companies]

I totally get it. I wanna come back and a follow-up here on the China market specifically. The demand situation there, it seemed maybe a bit weaker than what was originally forecasted. It might be hard to tell from but from where you sit, Fred and Raul, do you think this was all macro related? Was there any demand impact tied to the trade tensions with The U.

[Jason Bednar, Senior Research Analyst at Piper Sandler Companies]

S? And then given where everything stands today, I guess, are you internally thinking about the demand for merit products in China over the balance of this year?

[Raul Parra, CFO & Treasurer at Merit Medical Systems]

Yes. So volume based purchasing, which is one of the ones that we've kind of have to deal with from a quarter to quarter variability was essentially in line with our expectations. The softer than expected kind of revenue results were really more related just to the overall broader macro environment. Nothing to call out specifically, nothing that really would concern us. I would say that really, I'd say they finished the quarter pretty strong, and I would add nothing to it.

[Raul Parra, CFO & Treasurer at Merit Medical Systems]

And we haven't changed the full year outlook for China. I think, we continue to be excited about the market. Clearly, we're paying attention to what the tariff situation is, but we're not making any long term decisions based on what's going on with these tariffs.

[Fred Lampropoulos, Founder, CEO & Chairman at Merit Medical Systems]

And yeah, we we are a global company with a long term strategy. We've been through whether it be COVID or financial crisis and whatever the issues have come in the past, and, we'll look at all the issues and measure them as they come along and continue on to what I think has brought us to this point. And you saw that result in the first quarter. So, I mean, it's strong in a lot of areas, and I think we're hitting the right things. But we're paying a lot of attention to this.

[Fred Lampropoulos, Founder, CEO & Chairman at Merit Medical Systems]

But as you know, it changes. I mean, you know, we're our biggest concern was just overnight. What changes in terms of what we worked on versus what happens, you know, when we talk right now in this? It's a moving target. And but the strategy is what import what's important.

[Jason Bednar, Senior Research Analyst at Piper Sandler Companies]

Excellent. Well said. Thanks, guys.

[Operator]

Thank you. One moment for our next question. Our next question will come from the line of Larry Biegelsen from Wells Fargo. Your line is open.

[Simran Modi, Vice President at Wells Fargo]

Hey, guys. This is Simran on for Larry. Thanks for taking the questions. Maybe just to follow-up on Jason's second question around China. What are some of the items that I guess are underlying the softer demand that you're seeing in China?

[Simran Modi, Vice President at Wells Fargo]

And do you think that can get worse given sort of the escalating geopolitical tensions that you're seeing in the region? And how should we think about sort of the recovery of China throughout the year?

[Raul Parra, CFO & Treasurer at Merit Medical Systems]

Yeah, well, we don't get into kind of country specific as far as how we guide and the monthly cadence or quarterly cadence. But just in general, OEM was a little bit soft. Again, we see variability in OEM from time to time. As you saw, OEM was really strong overall, like over 20% growth. So there was a little bit of softness in China related to it.

[Raul Parra, CFO & Treasurer at Merit Medical Systems]

Nothing that, again, we would specifically call out. And again, I'll just highlight that we haven't changed our guidance for China for the full year.

[Simran Modi, Vice President at Wells Fargo]

Got it. That's helpful. And maybe just a follow-up on the tariff color. Appreciate all the color that you guys have given. Just to dig in on the impact in China, Are you willing to disclose like what percentage of sales in China are manufactured in The U.

[Simran Modi, Vice President at Wells Fargo]

S? And maybe just more broadly speaking, which manufacturing plants service China? And how have you guys shifted manufacturing in the interim to sort of help mitigate some of that impact?

[Raul Parra, CFO & Treasurer at Merit Medical Systems]

Again, I think we provided a lot of information already. So I don't know that we're going to provide anything else other than to say, of the 26,300,000, that's impacting this this year related to the tariffs, roughly 94% of that is China, right? And the majority of that is inventory that we're importing into China, right? So again, I think that really gives you kind of what need. And, yeah, that's all we have.

[Simran Modi, Vice President at Wells Fargo]

Okay. Great. Thanks.

[Operator]

Yep. Thank you. One moment for our next question. Question comes from the line of Steve Lichtman from Oppenheimer. Your line is open.

[Steve Lichtman, Managing Director, Senior Research Analyst at Oppenheimer & Co. Inc.]

Thanks. Hi, guys. I guess first question just on the quarter. Last couple of quarters, this one, gross margin coming in well ahead. Obviously, great to see heading into this tariff period.

[Steve Lichtman, Managing Director, Senior Research Analyst at Oppenheimer & Co. Inc.]

Can you talk a little bit more Raul about what you're seeing is the underlying driver there?

[Raul Parra, CFO & Treasurer at Merit Medical Systems]

Steve, I think I owe you lunch for that question. Dinner. Yes, dinner. No, look, thank you for the question. Honestly, we're super excited about the performance of the company.

[Raul Parra, CFO & Treasurer at Merit Medical Systems]

And I'll call it kind of pre tariffs, right? I mean, the business is doing really well as you saw. Q1 was an outstanding quarter. I thought it was a great start to the year and set us up well for the rest of the year. The underlying business is doing great.

[Raul Parra, CFO & Treasurer at Merit Medical Systems]

Gross margin, as you mentioned, came in very strong. And it's really a combination of everything we're doing, whether it's our sales force, focusing on the acquisitions that we have, that integrated, the product mix, the focus on higher gross margin products and pricing. And then our operations group, trying to fight through all the different battles that they have to fight through, from an operational kind of efficiency standpoint in product line movement. So all parts of things that we've done, and our punch list of CGI items that we have. So again, it's a group effort.

[Raul Parra, CFO & Treasurer at Merit Medical Systems]

It requires everybody to kind of be marching to the same target. And we've been doing that now for quite a bit of time. And, it's really nice to see that gross margin kind of be where it's at. We're super excited about how it came out. As you guys know, we were expecting a lower gross margin for the quarter.

[Raul Parra, CFO & Treasurer at Merit Medical Systems]

And the way it came in, I thought was a really good start to the year.

[Steve Lichtman, Managing Director, Senior Research Analyst at Oppenheimer & Co. Inc.]

Thanks, Raul. I wanted to ask on the cadence of tariff impact because this goes to the annualization. I've been doing the numbers, apologies if I got this wrong, but it seems like the second quarter impact is not too far off from 3Q and 4Q. Am right on that? If that's the case, then that annualization number would be actually be lower than sort of what gives you the numbers because

[Raul Parra, CFO & Treasurer at Merit Medical Systems]

I think that's a fair question to kind of, I think you should kind of think about it, obviously, in way our inventory turns, right? And obviously, you're not going to know that, but our inventory turns over five months. And so that 26,000,000 as you can expect is has been turned through those inventories. As far as the 2025 total impact, roughly 83% of it would be in the second half, assuming things stay as they are today, right? And then about 17% of that would be in Q2.

[Steve Lichtman, Managing Director, Senior Research Analyst at Oppenheimer & Co. Inc.]

Okay. Okay. That helps. Thanks, Raul.

[Operator]

Thank you. One moment for our next question. Our next question comes from the line of Robbie Marcus from JPMorgan. Your line is open.

[Robbie Marcus, Analyst at JPMorgan Chase]

Oh, great. Thanks for taking my questions. Two for me. First one, another tariff question, one not tariff related. That's related.

[Robbie Marcus, Analyst at JPMorgan Chase]

You said earlier in the call, you've left your underlying operational expense assumptions alone in the rest of the guide. And I wonder how much opportunity is there to pull back on planned spending or not invest in certain projects to help minimize the EPS impact this year? And then I have a follow-up.

[Raul Parra, CFO & Treasurer at Merit Medical Systems]

Yeah, I think that's a great question, Robbie. Look, I'll just say that we were off to a really good start in Q1, right? Performed really well. We left our guidance unchanged, that underlying guidance as of now. Again, think we've got a lot of things that we're throwing at kind of the tariff situation.

[Raul Parra, CFO & Treasurer at Merit Medical Systems]

Obviously, we had a really good game plan that started, essentially, I'd say a year and a quarter ago, but it's really a combination of the last six and a half years with foundations for growth and continued growth initiatives. So, there's things we can do. I don't wanna get into kind of the whole, detailing out of what we're gonna do or not do. But I can tell you that we do have a game plan of CGI is a big component of that. That we had that program in place.

[Raul Parra, CFO & Treasurer at Merit Medical Systems]

And again, we're just gonna keep our heads down and just keep marching.

[Fred Lampropoulos, Founder, CEO & Chairman at Merit Medical Systems]

Raul, I think you said something earlier on, but we had a plan already in place and much like foundations for growth, Robbie, we kinda hit the road running. We were already running when this started with a plan that when you have situations like this, it fits perfectly because we get a little bit of a jump on it. And all the things that you need to do, we're working on in one way or the other as we speak.

[Robbie Marcus, Analyst at JPMorgan Chase]

Great. And maybe as a follow-up, reiterated your free cash flow guidance of at least $150,000,000 in 2025, which to me is kind of impressive given the EPS headwind from tariffs. Maybe speak to that, how you're able to do that, where it's coming from and how you're able to offset the tariff impact on free cash flow? Thanks.

[Raul Parra, CFO & Treasurer at Merit Medical Systems]

Yes. Look, I mean, thought we got off to a good start in Q1, right? $20,000,000 probably doesn't sound impressive to you guys. To us, in the first quarter when we're paying out bonuses, we're rebuilding inventory from the shutdown in the fourth quarter. Sales meetings?

[Raul Parra, CFO & Treasurer at Merit Medical Systems]

Yes, sales meetings. There's a lot of things that hit us. And so I thought, again, we were pretty happy with that number. And I'm staring at the eyes of our operation, COO here right now. And he's looking at the inventory numbers as we speak right now and finding ways to offset some of the headwinds.

[Raul Parra, CFO & Treasurer at Merit Medical Systems]

Of the things that we're gonna do, Robbie, there's things that we can do from manufacturing standpoint where China has a certain amount of inventory that we can kind of burn through, so we don't have to build certain amounts of inventory. There's all sorts of little things that we can do to help mitigate, some of the, working capital issues that the tariffs bring on, which we think are again completely manageable. That's why we held the $150,000,000, in free cash flow. And then there's other things that we're just gonna be, trying to trying to look at from an offsetting standpoint.

[Robbie Marcus, Analyst at JPMorgan Chase]

Great. Thanks a lot.

[Raul Parra, CFO & Treasurer at Merit Medical Systems]

Yes. Thank you. Good to have you on the calls.

[Operator]

One moment for our next question. Next question will come from the line of Craig Bijou from Bank of America Securities. Your line is open.

[Craig Bijou, Equity Research Analyst at Bank of America Securities]

Good afternoon, guys. Thanks for taking the questions. I wanted to start with a follow-up on China. And I guess the question is, given the underperformance in Q1, but as you said, Raul, the guidance for the year hasn't changed. I guess, maybe just what's your confidence that it was either something that specifically happened in Q1 and you can recover some of those sales in the subsequent quarters?

[Craig Bijou, Equity Research Analyst at Bank of America Securities]

Or is a market issue that may get better throughout the year? Just maybe a little bit more color understanding on what happened there.

[Raul Parra, CFO & Treasurer at Merit Medical Systems]

Yeah, no, again, I'll just kind of repeat what I said, right? I mean, the underlying fundamentals of the demand in China were great, right? I mean, they were as expected, guess I should say, the only item that stood out was the OEM dynamic. And again, we see variability in OEM from time to time, that's country region specific. It's nothing new to us.

[Raul Parra, CFO & Treasurer at Merit Medical Systems]

We've been in the OEM business for, the greater part of Merit's history. And so we're used to it. So for us, it's really nothing to see. And probably the most important thing is we haven't changed our full year outlook for China.

[Fred Lampropoulos, Founder, CEO & Chairman at Merit Medical Systems]

And, Raul, if you look at last year and look at the OEM business minus five, plus five, plus 10, plus 20 Yeah. And we can go through history, and you'll see the same type. It's all about timing. Yeah. Not about demand.

[Craig Bijou, Equity Research Analyst at Bank of America Securities]

Got it. It's helpful. And actually, pretty good segue into my second question, which is on the OEM business and the strength that I think you called out in U. S. Particularly, but 20 plus percent growth the last two quarters.

[Craig Bijou, Equity Research Analyst at Bank of America Securities]

I guess what's driving that growth and maybe more specifically in that question is have you seen some inventory pull forward or build out from some customers ahead of some of the tariffs? Is that something that may be driving some of that underlying growth?

[Fred Lampropoulos, Founder, CEO & Chairman at Merit Medical Systems]

I don't think so, Ron. The reason I say that, we did see some of that maybe in certain areas. But on the OEM side, remember, it's gonna get into inventory. By the time we send something OEM, it's gonna have to go through their system and probably gonna get hit with it anyway. So as a practical matter, it's new accounts.

[Fred Lampropoulos, Founder, CEO & Chairman at Merit Medical Systems]

It's, accounts again building on what we've been doing for years and years, and that's the quality, the reliability. That that's always what drives Merit's business in OEM and the breadth of market. It's the same story and fair pricing. It's a good business, but it's again, I we don't wanna make small of this, but it's what we've been doing for a long time. And then you'll see these variations from time to time.

[Fred Lampropoulos, Founder, CEO & Chairman at Merit Medical Systems]

But I don't think that there's any out there building inventory now so they can pay a tear upon it. I don't see that at all. In fact, just the opposite. I mean, think Well, and being responsible in the purchasing.

[Raul Parra, CFO & Treasurer at Merit Medical Systems]

Yeah. And and you remember, mean, we cited and signed that, you know, that Arcadia deal, you know, with with Medtronic last year and, you know, we're seeing some of that demand too. So, again, OEM is is always been a high single digit grower for us. That's the expectation this year. Nothing's changed.

[Craig Bijou, Equity Research Analyst at Bank of America Securities]

Got it. Thanks, guys.

[Operator]

Yep. Thank you. One moment for our next question. Our next question will come from the line of David Reescott from Baird. Your line is open.

[David Rescott, Senior Research Analyst at Baird]

Great. Thanks. Can I have you heard?

[Fred Lampropoulos, Founder, CEO & Chairman at Merit Medical Systems]

Yes, we've got you, Craig.

[David Rescott, Senior Research Analyst at Baird]

Yes. Great.

[Raul Parra, CFO & Treasurer at Merit Medical Systems]

David, I'm sorry. Question, David?

[David Rescott, Senior Research Analyst at Baird]

Yes. Another one on the tariff kind of commentary here. You called out that 45% number as the potential estimate that you could be able to offset with some shifting around or some investments that you have. Two part question. One, I guess, is the 45% related to whatever that $23,600,000 annualized number looks like, Is the majority of that, again, coming from China?

[David Rescott, Senior Research Analyst at Baird]

Or is there some pieces in Mexico and elsewhere? And when you think about like the internal decisions around how you make those investments, I mean, you could come in tomorrow and the expected tariffs could be half of what they are today. So how do you internally make the decisions around what the go forward timing is on when those investments are made to attempt to offset some of these tariff headwinds?

[Raul Parra, CFO & Treasurer at Merit Medical Systems]

I think that's where we're really lucky, David, to be honest with you. Again, we had a punch list of items that we were gonna do as part of continued growth initiatives. And so for us, it's just keep our heads down. Let's not react to all the tweets and news headlines that are happening on an hourly basis. So we've got our punch list, let's just stay focused on that.

[Raul Parra, CFO & Treasurer at Merit Medical Systems]

Let's make sure we're focused on the performance of the business, which I hope you guys are appreciating what we did in Q1. But we've got things that we were already working on. We'll continue to work on those. We're not making any long term decisions based on these tariffs. You know, I mean, I think it's just way too volatile to try and, you know, change the direction of the company or try and do something that's, you know, that's gonna be essentially, you know, wrong in twenty four hours, you know, if something changes. So, Fred, do you have anything?

[Fred Lampropoulos, Founder, CEO & Chairman at Merit Medical Systems]

Well, listen. I I think we're confident in our plan. Yeah. We've been through this before. Everybody remember, our compensation is aligned.

[Fred Lampropoulos, Founder, CEO & Chairman at Merit Medical Systems]

Everything is aligned, and and they're not new to us. I mean, we are battle worn troops. I mean, I don't I can't speak to others. I can just tell you this is a fighting group that goes and gets refreshed and comes back and continues the mission. So that's where we are.

[Fred Lampropoulos, Founder, CEO & Chairman at Merit Medical Systems]

We're confident in our targets. We're confident in, the long term plan. And we look at the day to day. Does this change anything? Should we consider this?

[Fred Lampropoulos, Founder, CEO & Chairman at Merit Medical Systems]

We meet almost every day to talk about this. Not almost every day. Is there anything here that would that we need to think about or adjust and adapt? And we go through those things every day. But it's the long term plan that really essentially covers all this stuff anyway, that you would do, in your planning.

[Fred Lampropoulos, Founder, CEO & Chairman at Merit Medical Systems]

So it's it's I hate to say this, but I no. I don't, actually. It's business as usual. It's what we're used to. It's what you've been seeing for a number of years now, and it's why we're confident.

[Fred Lampropoulos, Founder, CEO & Chairman at Merit Medical Systems]

And when we throw out a number, we mean it. And I think, hopefully, we build enough confidence amongst the investing community and our analysts that, if we say it, that's what we're gonna do. Okay.

[David Rescott, Senior Research Analyst at Baird]

Great. Maybe on on gross margins. Again, I know it's already been called out, but the the gross margins this quarter were obviously significantly ahead of what our Street expectations, where I think maybe this is the second quarter where you've had really a pretty significant benefit. Really, I think you said you threw the kitchen sink at it last quarter, and that was what drove the upside. Curious for the second part of this year, how you're thinking about that underlying first quarter performance translating to what the otherwise unaffected gross margins by tariffs could have been, meaning that is what you saw or the trends you saw in Q3 and Q1 of just this pretty significant gross margin upside kind of where the business was tracking to ahead of this tariff headwind? Thank you.

[Raul Parra, CFO & Treasurer at Merit Medical Systems]

Yes, look, I'm going to keep talking about CGI. So hopefully you guys are getting the hint here that we're focused on CGI and the initiatives that we outlet, that we drew up last year, and it's just a compounding effect of what we're doing. We're working hard at it, and I I think, know, we we keep throwing the kitchen sink at the gross margin. That's our approach. I mean, if you wanna know what we're doing, we're doing everything we can.

[Raul Parra, CFO & Treasurer at Merit Medical Systems]

You know, we just need to find more things to throw in the kitchen sink, guess, but we're we're doing everything we can. And, you know, it's it's it's it's working. I think it's very motivating to us, because I don't think people understand how hard it is to move that gross margin and we've been, we've been fighting that fight for, you know, as long as I've been here I've been here fifteen years. In the last seven years, it's been really fun to see that gross margin start to get where we think it should be and there's a lot more to be had there.

[Operator]

Alright. Thank you. One moment for our next question. Our next question will come from the line of Michael Petusky from Barrington Research. Your line is open.

[Michael Petusky, Managing Director at Barrington Research Associates]

Hey. Good evening, guys.

[Michael Petusky, Managing Director at Barrington Research Associates]

So I guess, I would have expected, and I'm not going to pretend I know more about China ordering patterns than I do, but I guess I would have expected some stocking type orders either late in the quarter or possibly right after the quarter ended in very early April. Did you guys see any evidence of that kind of ordering out of any of the customers in China?

[Raul Parra, CFO & Treasurer at Merit Medical Systems]

Well, I think Fred hinted at it a little bit, right? And in one of his comments saying that we did see a little bit of that in certain markets. And I think that was pretty standard, I would say for most, I mean, we did something similar, we built up inventory in Mexico in anticipation, brought it over to The US. So yeah, I wouldn't say that it was anything material that I would call out or we were concerned that we all of a sudden fall off a cliff.

[Michael Petusky, Managing Director at Barrington Research Associates]

Did it hit Q1 or was it more or very, very early Q2?

[Raul Parra, CFO & Treasurer at Merit Medical Systems]

Yes, I mean, I'm not going to get into Q2. I'll just say that it was towards the tail end the first quarter. I'm really good at dancing, Mike. Yes, you are. The

[Michael Petusky, Managing Director at Barrington Research Associates]

boxing footwork. Okay. So I did want to also ask about endoscopy. I'm just curious, sometimes you do M and A, meaning the generic, you do M and A and there's some customer loss for whatever reason. I'm just curious, the guide down, is that associated with customer attrition?

[Michael Petusky, Managing Director at Barrington Research Associates]

Or what what what's going on there? If you can speak to that.

[Fred Lampropoulos, Founder, CEO & Chairman at Merit Medical Systems]

No. No. I don't think so. I think the plan was is we'd start integrating the sales forces at the end of the year, and then it would come over. Then, again, with all the things that were going on, I don't think it's a significant issue at all.

[Fred Lampropoulos, Founder, CEO & Chairman at Merit Medical Systems]

And in fact, if anything, we're you know, our sales forces, in terms of the two groups now selling the same product is, moving along better, you know, because we had planned it that way. We didn't wanna stuff it down somebody's throat, you know, for the last half. We wanted to stabilize it. All of the product in is being built here. We wanted to make sure we could respond to that in terms of making sure that we had inventories, and we were producing at which we are.

[Fred Lampropoulos, Founder, CEO & Chairman at Merit Medical Systems]

So I think it's just, yeah, it's part of what the plan.

[Raul Parra, CFO & Treasurer at Merit Medical Systems]

Yeah. I mean, and you're not privy to obviously our quarterly cadence, Mike, but, we anticipated that the second half of the year would be stronger than the first half. And that's just, again, as Fred mentioned, you've got two sales forces that are coming together. They've got to kind of, even though they've been training on the products for half of the year last year, it just takes a little bit time and we've been through this before. We understand that there's always a little bit of disruption.

[Raul Parra, CFO & Treasurer at Merit Medical Systems]

And it's just one of those lessons learned. And, I think we planned it that way. It wasn't a surprise to us.

[Michael Petusky, Managing Director at Barrington Research Associates]

Okay. And then let me sneak one last one in. In terms of, OEM, and I know you're sort of downplaying it and hey, this is sort of what we do and there is some lumpiness to it. But at the same time, it's been really positive lumpiness here the last couple, two, three quarters. And I'm just curious, is there sort of with the new accounts you guys sort of alluded to maybe a new normal for the nearer term in terms of sort of growth expectations around that business?

[Michael Petusky, Managing Director at Barrington Research Associates]

I mean, mid single digit growth no longer really the right way to model that at least over the next several quarters?

[Raul Parra, CFO & Treasurer at Merit Medical Systems]

I mean, we're expecting high single digit growth for the year. So I guess, yeah, that would be the wrong way to model it. Well, mean, was 21%

[Michael Petusky, Managing Director at Barrington Research Associates]

in Q1 though. If you're saying high single digit growth, you probably are assuming roughly mid single digit growth the rest of the way.

[Raul Parra, CFO & Treasurer at Merit Medical Systems]

Yeah. I mean, the figure is unchanged from prior guidance. Again, we continue to be excited about the opportunity that OEM has. It's one of those things that maybe we don't talk enough about, but every time we launch a product, right, that as long as that product is not competing directly with our sales force, our OEM group has an opportunity to go out and get new business. And I think we're vertically integrated in everything we do.

[Raul Parra, CFO & Treasurer at Merit Medical Systems]

We build high quality products. And I think that word gets out and there's certain things that other people don't wanna do and we're more than willing to do them.

[Michael Petusky, Managing Director at Barrington Research Associates]

Last part of that. Have the brand new accounts that you guys have signed, have they had an outsized impact on the recent success in that business?

[Raul Parra, CFO & Treasurer at Merit Medical Systems]

Not going to get into the customer, but I'll just say we're excited about all the businesses coming our way.

[Michael Petusky, Managing Director at Barrington Research Associates]

Fair enough. Thanks.

[Operator]

One moment for our next question. Our next question comes from the line of Jim Sidoti from Sidoti and Company. Your line is open.

[Jim Sidoti, Analyst at Sidoti & Company]

Hi, good afternoon. Thanks for taking the questions. So a part of your growth strategy has always been the inorganic growth through acquisitions and your targets are just like you, they're subject to these tariffs. Has the number of targets increased, or are people more willing to make deals as a result of this?

[Fred Lampropoulos, Founder, CEO & Chairman at Merit Medical Systems]

Yeah. Jim, listen. There's a lot of activity in the marketplace. I know that if you talk to the bigger firms, and I've heard you all, you know, the m and a activity is down. There there's a lot of stuff out there, and we're engaged in looking as we always have been.

[Fred Lampropoulos, Founder, CEO & Chairman at Merit Medical Systems]

But it we're busy looking at things. So, yep, there's a lot of stuff out there. People remodeling their portfolios and this and that. So we're busy looking at things.

[Jim Sidoti, Analyst at Sidoti & Company]

And with regard to the two deals you did in the second half of last year, do you do you think that integration is, complete at this point? Are you happy with the way things are working out there, or do you think there's still more work to do?

[Fred Lampropoulos, Founder, CEO & Chairman at Merit Medical Systems]

Well, there's always more work to do. You know, part of it is remember the TSA and the Cook deal. It's gonna take more time, but that was all planned. So it's not a surprise. And you just integrated the Salesforce where they're all now selling the same bag on the, the EGS.

[Fred Lampropoulos, Founder, CEO & Chairman at Merit Medical Systems]

And, you know, they then you had all the sales meetings and things like that. So I think we are on plan and executing that plan as we've been talking through this entire meeting is that Merit is focused. We're on plan. We, you know, we in terms of our CGI, we've reconfirmed, you know, our numbers for the CGI program, through its life. And and and it's a actually, in many ways, Jim, chaos and and all this other stuff that's going on in the marketplace plays to merit advantage because we're kinda steady Eddie.

[Fred Lampropoulos, Founder, CEO & Chairman at Merit Medical Systems]

I mean, people can rely on us, and I think that's important. So, I think you can I hope you can sense the enthusiasm for the business, and what we're working on? We have plans. We are not a ship that's adrift.

[Jim Sidoti, Analyst at Sidoti & Company]

Got it. Thank you.

[Operator]

One moment for our next question. Our next question will come from the line of John Young from Canaccord. Your line is open.

[Jon Young, Director at Canaccord Genuity Group]

Hey, Fred and Raul. Thanks for fitting me in. I want to touch on CGI. I know a pillar of it has been the SKU rationalization and also the raising prices. So how should we think about your ability to raise prices in this macro environment?

[Jon Young, Director at Canaccord Genuity Group]

And how much of that is factored into the guidance? And also, you just talk about what percentage of The U. S. Business is sold to GPOs? And are those contracts generally made on a January 1 annual basis? Thanks.

[Raul Parra, CFO & Treasurer at Merit Medical Systems]

Great question, John. Look, think CGI obviously does include pricing as you guys know, under foundations for growth, we've made a significant investment in a pricing department. And I think they continue to do an excellent job, at helping our sales team and the management team, with the visibility and contract management and contract compliance. Contracts are a big part of our business. I'm not going to get into the percentages or details of those.

[Raul Parra, CFO & Treasurer at Merit Medical Systems]

I think probably the underlying question you're trying to get at is, hey, can you raise prices to cover the tariffs? And I'm not going to get into that either other than to say pricing is one of the levers that we have in our bag as part of continued growth initiatives. And again, we're not going to do anything that is going to be a detriment to our customers when there's very little visibility as to the length, or amount or lack of amount, I guess, on these tariffs. Right? So we're not gonna upset our customers, when this thing is changing, you know, every day.

[Fred Lampropoulos, Founder, CEO & Chairman at Merit Medical Systems]

Well, and Raul, you had a very good point. If you go out and then jerk your customers around, you're gonna break up everything we've spent all these years building

[Raul Parra, CFO & Treasurer at Merit Medical Systems]

Yeah.

[Fred Lampropoulos, Founder, CEO & Chairman at Merit Medical Systems]

In confidence. So you have to be wise. You have to be measured. But at the same time, you have to be able to pass on what you can and be wise about how you approach it. And I think that's what we've done.

[Fred Lampropoulos, Founder, CEO & Chairman at Merit Medical Systems]

And it's not just the pricing part, but the contract management that Raul mentioned. There's a lot to this. I think it's one of the things that's been a big factor in both foundations for growth and CGI.

[Jon Young, Director at Canaccord Genuity Group]

Okay, great. And then if I could sneak just one more in here too. Just any commentary on U. S. For APPCI performance this quarter?

[Jon Young, Director at Canaccord Genuity Group]

I understand that we're waiting for reimbursement, but the device had a strong showing at SIR. I know it is commercially available. So just any commentary on performance.

[Fred Lampropoulos, Founder, CEO & Chairman at Merit Medical Systems]

We continue to be excited about that this product, the Rhapsody. We're we're it's it's also, I think, very pleasing to see it come in the cadence and the various things that are happening like the add ons and and the trials and the information, the one year data, I think we're hitting on all the cylinders. So the best way to say this, we continue to be very enthused and excited about that product and what it means for the future of the company.

[Jon Young, Director at Canaccord Genuity Group]

Great. Thanks again.

[Operator]

One moment for our for our next question. Next question will come from the line of Mike Matson from Needham. Your line is open.

[Michael Matson, Senior Analyst at Needham & Company]

Yeah. Thanks. So just one more on on China and the tariff situation. So I think you know, I don't know if you've broken out the percentage of your sales from China lately, but I think it's sort of around 10% and it looks like you're you're taking your your EPS guidance down by about 80%. And that's probably fully for kind of a three quarter impact.

[Michael Matson, Senior Analyst at Needham & Company]

So, I mean, is it safe to assume at least with these as long as these tariffs remain in place that you're kind of not really profitable in China sort of breakeven maybe at best with your Chinese business?

[Raul Parra, CFO & Treasurer at Merit Medical Systems]

Again, we're not gonna get into all those details. Mike, again, the 26.3 is a gross number. We think we can impact that with some of our CGI initiatives and roughly of that 26000094% of it's related to China and a big chunk of that is the imports going into there. So other than those details, we're paying attention to what's happening and we'll make adjustments as we deem necessary. But we've got a good game plan, as you can see by the results of the first quarter.

[Michael Matson, Senior Analyst at Needham & Company]

Okay. All right. And then just one on Rhapsody. So good to hear the news on NTAP. But on the TPT, would that would there be should there be something on TPT in the OPPS outpatient proposal when that is published later this year?

[Fred Lampropoulos, Founder, CEO & Chairman at Merit Medical Systems]

Yeah, our best estimate of timing and everything is that we'll have all this information hopefully by June, is kind of what our general thinking is. It's out for comment now, but the recommendation has been made. We satisfied the criteria. I think that's the science. The data speaks for itself.

[Fred Lampropoulos, Founder, CEO & Chairman at Merit Medical Systems]

And, you know, there weren't that many companies that got these things. And Merit is one of them. It's breakthrough, as you know. The data has been outstanding, and I think will benefit both the physician and the patient. So as I mentioned previously, Mike, it's on schedule and meeting all of our expectations.

[Michael Matson, Senior Analyst at Needham & Company]

Okay. And then just the inpatient versus outpatient mix for Rhapsody. Do you have any feel for that? Is it skew one way or the other?

[Raul Parra, CFO & Treasurer at Merit Medical Systems]

I mean, we do have a, but we're not gonna disclose it. I think we continue to be happy. We're not gonna provide, interim revenue updates on Rhapsody. We continue to expect the 7,000,000 to $9,000,000 and are excited about the news that we got.

[Michael Matson, Senior Analyst at Needham & Company]

No, I understand. I guess what I was getting at is just is it which setting is it used more in or I mean, I guess you're not willing to understand but

[Fred Lampropoulos, Founder, CEO & Chairman at Merit Medical Systems]

Yeah. I mean, I you know, the that you it depends on who you talk to, Mike. You know, some people will tell you sixty forty, 50 50. You know, it just depends. But, again, other than just saying those are the the kind of things that you hear other people talk about, we we don't we don't talk on it because we'll we'll wait until the data not the data, but until we get this thing done and and get the word from CMS, and then we'll pass that on as as Okay.

[Raul Parra, CFO & Treasurer at Merit Medical Systems]

Yeah. Alright. Got it. Thanks.

[Operator]

Okay. Thank you. Thank you. One moment for our next question. Next question will come from the line of Jason Bedford from Raymond James. Your line is open.

[Jayson Bedford, Managing Director, Equity Research at Raymond James Financial]

Good afternoon, guys. Thanks for squeezing me in just a few. Just to be clear on the mitigation, are there new initiatives that you're putting in place or just accelerating existing efforts?

[Raul Parra, CFO & Treasurer at Merit Medical Systems]

I don't know that we're accelerating anything. We had initiatives that were on the list and we're just attacking that list. I mean, that's what we've been doing for the last six plus years and we're just gonna continue that. There's things that we did change, that were short in nature as I mentioned earlier, redirecting shipments, and that was helpful holding off on sending more inventory to specific locations, since they had plenty of finished goods. So there's things that we acted on that were very quick.

[Raul Parra, CFO & Treasurer at Merit Medical Systems]

But all the other stuff that time that the things that kind of take time, those are just on the on the list, Jason. And and again, as as we've mentioned before, plenty of times, we throw the kitchen sink at at at these things.

[Raul Parra, CFO & Treasurer at Merit Medical Systems]

And so it's just it's just part of the process.

[Fred Lampropoulos, Founder, CEO & Chairman at Merit Medical Systems]

And can I just add, Jason, that another part of this is our counterparts in China? I mean, we listen to what our management team on the ground that are fighting the fight. I mean, we have our view here, but we also, I think, you know, keep people engaged and don't don't ever try to think we're the only ones that know anything. In fact, quite to the opposite, our team, which is plentiful and, and well versed and experienced, you know, we get them involved in all these conversations as well to develop a mutual strategy that becomes a single strategy for a company.

[Raul Parra, CFO & Treasurer at Merit Medical Systems]

Yeah. I mean, we're we're a team. Right? I mean, I you know, whatever the poll political fight that's gone going, we have a team in China that we hold in high regards, and they're doing everything they can, to make sure that, you know, we we can pull through this.

[Fred Lampropoulos, Founder, CEO & Chairman at Merit Medical Systems]

They may have a suggestion or an idea, and we welcome all of those and Yeah. And and talk about them quite often.

[Jayson Bedford, Managing Director, Equity Research at Raymond James Financial]

Okay. Just on on the underlying gross margin, you know, two straight quarters of 53% plus gross margin makes it a trend until tariffs, I guess, but the improvement is notable. Is there anything that kind of hit or inflected here in the last couple of quarters to drive that what is legitimately a step up in underlying gross margin?

[Raul Parra, CFO & Treasurer at Merit Medical Systems]

No, I mean, look, again, I think it's just a compounding efforts of everything we've done. Whether it's the acquisitions, it's the efficiencies and operations, the sales focus on mix and pricing. Again, it's just it just feels really good to see that gross margin come up.

[Fred Lampropoulos, Founder, CEO & Chairman at Merit Medical Systems]

And, Jason, I've got my my chief operating officer and my head sales and marketing guy sitting in the room. I mean, a lot of the credit goes to them and the things that they're doing and their execution and our plans. You know, this is not a surprise to us. We had hoped, but, you know, it has to come along and and, execution is the the key. And that's what we've been doing.

[Fred Lampropoulos, Founder, CEO & Chairman at Merit Medical Systems]

And there's as I think Raul said earlier, there's more to come.

[Raul Parra, CFO & Treasurer at Merit Medical Systems]

Yeah. And and, again, I I I can't emphasize enough that, you know, the the core business we've left guidance essentially the same, right? Other than the tariffs, but that underlying business is doing great and we're super excited about how we started the Q1. So, more to come.

[Jayson Bedford, Managing Director, Equity Research at Raymond James Financial]

Just just last one. I realize we're getting on here. Rhapsody, you with The US launch? Are you seeing any impact internationally, meaning a bit of a halo or anything like that?

[Fred Lampropoulos, Founder, CEO & Chairman at Merit Medical Systems]

Well, I'll just simply say that, having the data out there and having one year data is always helpful. So that helps to, overcome either objections or compares you with other people who've been on the market before. So having data out there affects every every location. Yes.

[Jayson Bedford, Managing Director, Equity Research at Raymond James Financial]

K. Thank you.

[Operator]

Thank you. One moment for our next question. The next question comes from the line of Jason Bednar from Piper Sandler. Your line is open.

[Jason Bednar, Senior Research Analyst at Piper Sandler Companies]

Hey, guys. Thanks for taking the follow-up. And, yes, again, sorry for for making this even longer. Just, Raul, real quick on maybe helping us out with the EPS bridge here for the full year guide. So where I'm I feel like I'm missing something.

[Jason Bednar, Senior Research Analyst at Piper Sandler Companies]

So you had the tariff impact was about $0.33 0 3 4 dollars of a headwind. You took the guide down $0.28 0 2 9 dollars something like that. It seems like that $06 delta is you're picking up in the convert dilution is being less now versus where it was three months ago. But you just beat by 12¢. And so I guess I'm I'm wondering where that's coming where where that's shaking out.

[Jason Bednar, Senior Research Analyst at Piper Sandler Companies]

And then Yeah. Also, I I feel like currency is probably a a tailwind as well. So it it I guess help me out on what am I missing in the guide.

[Raul Parra, CFO & Treasurer at Merit Medical Systems]

Yeah, you're not missing anything. Again, Jason, know how we guide, right? I mean, Q1 regardless, let's just ignore the tariffs here for a minute. Coming out of Q1, we wouldn't have changed anything. That's just our standard practice.

[Raul Parra, CFO & Treasurer at Merit Medical Systems]

We've never really changed guidance. Coming out of the first quarter, typically we give it some thought in the second quarter, and we'll see how things are shaking out. But typically we will adjust guidance in the third quarter, sometimes in the second, but not very frequently, and hardly ever in the first quarter. So I think your math is right. We've got the 5 to 6¢ that's related to the dilution or the convert I should call it.

[Raul Parra, CFO & Treasurer at Merit Medical Systems]

And then you've got 34¢ for the tariffs, and then everything else again, we left our guidance as is. So anything that you're missing is probably just related to that.

[Jason Bednar, Senior Research Analyst at Piper Sandler Companies]

Right. So operational and currency are both upside from where we're where we're sitting here today?

[Raul Parra, CFO & Treasurer at Merit Medical Systems]

That's correct.

[Jason Bednar, Senior Research Analyst at Piper Sandler Companies]

Okay. Perfect. Thanks, guys.

[Raul Parra, CFO & Treasurer at Merit Medical Systems]

Yeah.

[Operator]

Thank you. I'm not showing any further questions. I would now like to turn it back over to Fred for closing remarks.

[Fred Lampropoulos, Founder, CEO & Chairman at Merit Medical Systems]

Well, listen. Thank you very much for your comments, Raul. Actually, Raul, I've gotta go to a I won't be at these, meetings falling because I have to go to a business dinner. So I'm And

[Raul Parra, CFO & Treasurer at Merit Medical Systems]

then jump on a plane. Yeah.

[Fred Lampropoulos, Founder, CEO & Chairman at Merit Medical Systems]

Yeah. And then I've gotta jump on a plane and head down to the Heart Rhythm Show down in San Diego at 11:00 tonight. So but all that being said, I want to congratulate this team. They've worked hard. We have a cumulative effect of in compounding, if you will, of the efforts of these programs.

[Fred Lampropoulos, Founder, CEO & Chairman at Merit Medical Systems]

We our R and D, our efforts, our pricing, our inventories, our bills. I could go on and on. There are all the things that you would be working on with various adjustments and and things. We're excited about the business. We'd be we're continuing to be excited about both the the marketplace and the opportunities there as well as our internal efforts, in r and d and other projects, which we won't talk about other than letting you know we're just excited about it.

[Fred Lampropoulos, Founder, CEO & Chairman at Merit Medical Systems]

So it's been a long day. We appreciate you taking the time and your interest, and we'll look forward to hearing from you again soon. Best wishes and signing off from Salt Lake City. Have a very good evening. Thank you.

[Operator]

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone, have a great day.

Participants

Executives

• Fred Lampropoulos, Founder, CEO & Chairman
• Brian Lloyd, Chief Legal Officer and Corporate Secretary
• Raul Parra, CFO & Treasurer

Analysts

• Jason Bednar, Senior Research Analyst at Piper Sandler Companies
• Simran Modi, Vice President at Wells Fargo
• Steve Lichtman, Managing Director, Senior Research Analyst at Oppenheimer & Co. Inc.
• Robbie Marcus, Analyst at JPMorgan Chase
• Craig Bijou, Equity Research Analyst at Bank of America Securities
• David Rescott, Senior Research Analyst at Baird
• Michael Petusky, Managing Director at Barrington Research Associates
• Jim Sidoti, Analyst at Sidoti & Company
• Jon Young, Director at Canaccord Genuity Group
• Michael Matson, Senior Analyst at Needham & Company
• Jayson Bedford, Managing Director, Equity Research at Raymond James Financial