Welcome to the Merit Medical Systems Second Quarter 2025 Earnings Conference Call. Please note that this conference call is being recorded, and the recording will be available on the company's website for replay shortly. I would now like to turn the call over to Mr. Fred Lampropoulos, Merit Medical Systems' Founder, Chairman and Chief Executive Officer. Please go ahead.

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?

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, July 30, 2025, and should not be relied upon as representing our views as of any other date. We specifically disclaim any obligation to update such statements, except as required by applicable law. Please refer to the section 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. 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 8-K. 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. 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.

Thank you, Brian. Let me start with a brief agenda of what we will cover during our prepared remarks. I will start with a summary of our second quarter 2025 financial results. I will then discuss two important strategic announcements we made during the second quarter and will provide an update on our reimbursement strategy for the WRAPSODY CIE. 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. Beginning with the review of our second quarter results, we reported total revenue of $382.5 million, up 13% year-over-year on a GAAP basis, and up 12.5% year-over-year on a constant currency basis. The constant currency revenue growth we delivered in the second quarter exceeded the high end of the range of growth expectations that we outlined on our quarter 1 2025 earnings call. The better-than-expected constant currency revenue results were driven by a 6.7% constant currency organic growth which exceeded the 6% high end of the range we outlined in our second quarter guidance. With respect to our profitability performance in the second quarter, we delivered financial results that significantly exceeded our expectations. We delivered another quarter of notable year-over-year improvement in our non-GAAP operating margin, which increased nearly 109 basis points year-over-year to a 21.2%, representing the highest non-GAAP operating margin performance in any quarter in the company's history as a public company. We also delivered 10% growth in our non-GAAP EPS which exceeded the high end of our expectations, and we generated $70 million of free cash flow, an increase of 20% year-over-year. This performance was a direct result of the team's continued hard work and commitment to our strategic objectives. We're very proud of the strong execution our team delivered in the second quarter of 2025. We believe our second quarter results reflect continued strong momentum in the business, and we are confident in our team's ability to deliver the total revenue guidance for 2025 we updated in today's press release. Despite the continued challenges related to the dynamic and uncertain global macro environment, our team is executing 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 and our continued growth initiative program and related financial targets for the 3-year period ending December 31, 2026. Turning to a discussion on 2 key announcements we made since our last earnings call. On May 20, 2025, we announced the acquisition of Biolife Delaware, L.L.C. for aggregate transaction consideration paid in cash and an assumption of liabilities of $120 million. This strategic acquisition positions Merit to provide clinicians with more products designed to standardize, simplify and minimize post-procedure care and maintenance. Biolife is headquartered in Sarasota, Florida, manufactures unique patented hemostatic devices under the brand name StatSeal and WoundSeal. These products are effective, differentiated hemostatic solutions for percutaneous devices with a broad range of clinical applications, including vascular closure and indwelling catheter bleeding complications. Sales of Biolife products generated approximately $15 million of revenue over the 12-month period ended December 31, 2024, and we believe these products will have a significant potential growth opportunity as they penetrate an estimated $350 million global addressable market. Many Merit products operate through small openings in skin that require efficient solutions to stop bleeding, promote patient recovery and minimize costly complications. In such cases, StatSeal specifically works with the patient's blood to rapidly form a protective seal over the procedure site. Adding StatSeal to Merit's hemostatic portfolio is intended to provide healthcare partners with an additional effective solution that complements a wide range of percutaneous procedures, including interventional radiology and cardiology, dialysis, electrophysiology, biopsy and drainage. On July 7, we announced the appointment of Martha Aronson as Merit's new President and Chief Executive Officer effective October 3, 2025. I'm very excited to welcome Martha to Merit and believe that she is uniquely qualified to lead the company into the future. As discussed on prior calls, the Board executed a thorough search and a selection process as part of our CEO succession strategy. Martha brings extensive expertise and understanding of the industry and more importantly, she was identified as an exceptional fit for the organization, consistent with the Merit way, which we believe makes her the ideal leader for Merit's next stage of growth. I will continue to serve as President and CEO and Chairman of the Board through October 3, 2025. Upon Martha's appointment, I will continue to serve as Chairman of the Board. I would like now to provide an update on our commercial strategy for the WRAPSODY CIE in the United States. As outlined on our investor call in January, our Renal Therapies Group launched the U.S. commercial strategy for WRAPSODY CIE following our PMA approval last December. This strategy is comprehensive and multifaceted, including a marketing plan focused on raising awareness and expanding upon the existing strong physician relationships and clinical partnerships supporting the current RTG portfolio offering. Engaging with new and existing customers to work through the back approval processes as well as working with the largest GPOs and some of the largest IDNs across the country and hosting physician training events at centers of excellence with physician partners who are passionate about the product and educating their peers on the benefits of the WRAPSODY CIE. The RTG team has executed the U.S. commercial strategy for WRAPSODY CIE well during 2025. And more importantly, they have exceeded our expectations with respect to leveraging the new access to customers from the early commercialization of WRAPSODY CIE to identify opportunities to drive adoption and utilization of the rest of our dialysis product portfolio. By way of reminder, our pricing strategy is an important input to our U.S. commercial strategy for WRAPSODY CIE. Specifically, our go-to-market strategy is based on selling the WRAPSODY CIE at a premium price relative to the competitive coverage offered in the U.S. today. We believe the WRAPSODY CIE is a completely new treatment option for patients, as evidenced by our Breakthrough Designation from the FDA. The WRAPSODY CIE is a novel, differentiated product that improved dialysis maintenance procedure outcomes as demonstrated in the compelling body of clinical evidence evaluating safety and efficacy to date, and we offer unique size offerings with our 14 and 16-millimeter diameter devices that represent potential treatment options for clinicians previously not available in the marketplace. The data suggests that the WRAPSODY CIE requires fewer reinterventions to maintain patency at the lesion site and more importantly, that the access circuit remains functional, which is key for any dialysis patient. We believe the WRAPSODY CIE offers a compelling opportunity to not only improve patient outcomes, but also to reduce the cost of treating this patient population. These factors, together with demonstrated clinical outcomes and the fact that the WRAPSODY CIE is the only device that has been designed specifically for dialysis access maintenance supports our belief that the WRAPSODY CIE is a premium product in the market. Our U.S. commercial and pricing strategy was designed to maximize the compelling long-term opportunity for the WRAPSODY CIE in the U.S. market. And importantly, these strategies were aligned with our efforts to secure reimbursement coverage and payment as well. As discussed on prior calls, our reimbursement strategy is focused on securing add-on payment for procedures completed in both inpatient and outpatient sites of care. For the inpatient setting, our efforts to secure add-on payment remain on track. On April 11, CMS released proposed fiscal year '26 payment rates for the hospital inpatient prospective payment system, which included CMS proposal to approve the WRAPSODY CIE for new technology add-on payment, or NTAP, for the fiscal year 2026. CMS proposed that the maximum new technology add-on payment for a case involved in the use of the Merit WRAPSODY CIE would be $3,770 for fiscal year 2026 which, if finalized as proposed, would support our anticipated cost to the hospital, inclusive of all components and accessories of $5,800. We understand that the effective date for this NTAP add-on payment is anticipated to be October 1, 2025, for CMS 2026 inpatient fiscal year. With respect to our progress towards securing add-on payment for procedures in the outpatient setting, candidly, a fulsome update requires additional discussion and clarification. First, and for the avoidance of doubt, our strategy for securing reimbursement for WRAPSODY CIE procedures outside the hospital inpatient setting has not changed. However, we would like to clarify the terminology we have used in the past to describe our strategy for this portion of the market. Our strategy has been focused on the hospital outpatient or HOPD setting instead of the office-based lab or OBL setting as we have previously referenced. The outpatient setting represents a significant portion of the initial addressable market opportunity in the U.S. for the WRAPSODY CIE. According to Clarivate's dialysis access treatment devices, Market Insights U.S. report published in September 2024, there were 95,000 stent units implanted for dialysis access maintenance in 2023, approximately 79% were implanted in nonhospital sites of care, the majority of which were in the outpatient setting. We would also like to clarify a point concerning our application for reimbursement for WRAPSODY CIE in the U.S. HOPD setting. In late February, we submitted an application for new technology, ambulatory payment classification, or APC assignment under the hospital outpatient prospective payment system, or OPPS. This was the first time Merit pursued reimbursement for a PMA product, and we engaged external advisers to assist in that process. Our external advisers filed an application to secure an APC assignment and confirmed filing prior to the deadline. Unfortunately, our team believed that the application filed was for the transitional pass-through or TPT add-on payment. Our internal discussion and references to this portion of our U.S. strategy as well as our public commentary reflected this misunderstanding. WRAPSODY CIE was not awarded a new technology APC assignment as part of the calendar year 2026 OPPS and Ambulatory Surgical Center proposed rule published on July 15, 2025. We are executing on a strategy to respond to CMS' determination on the WRAPSODY CIE APC assignment. We have engaged with CMS in recent weeks to understand why we were not awarded a new APC assignment for 2026. While the review of our application has been completed by CMS, we are utilizing the 60-day comment period to provide further supporting evidence which CMS will review. The deadline for submission of additional information is September 15. We believe we will hear CMS' final decision on this application as part of the calendar year 2026 OPPS and Ambulatory Surgical Center Final Rule, which is expected to be published in November. We appreciate the discussions with CMS in recent weeks, and we believe we have a solid plan for utilizing the comment period to enhance our case that WRAPSODY CIE meets the requirements for an APC assignment. Separately, we are preparing our application for TPT add-on payment under Medicare's OPPS system. We are targeting submission of our allocation by September 1, 2025, deadline and anticipate receiving a decision with respect to the award of TPT add-on payment for procedures in the outpatient setting in December 2025. With all of that said, I want to reiterate that our reimbursement strategy for the outpatient setting has not changed. However, Raul and I are disappointed. Our intention with respect to all of our U.S. WRAPSODY messaging was to be transparent with the investment community regarding the key milestones related to our reimbursement strategy following PMA approval. We did not communicate the strategy effectively. We are correcting our mistake this afternoon, and we are focused on executing the strategy for the significant portion of the U.S. market. Clearly, we all have a better understanding of the process and terminology from this experience. Importantly, we recognize that this represents a 2-quarter delay in expected timing for securing add-on reimbursement in the outpatient setting. We have not changed our expectations for the long-term addressable market in the U.S. for WRAPSODY CIE growth or the potential contributions to our long-term growth profile as we commercialize this technology in years to come. With that said, let me turn the time over to Raul now for an in-depth review of our quarterly financial results and our updated financial guidance for 2025. Raul?

Thank you, Fred. I will begin with a thorough review of our revenue results for the second quarter, starting with the sales performance in our main product categories. All growth rates mentioned are approximations based on year-over-year and constant currency. Total revenue growth for the second quarter was fueled by a 10% increase in our Cardiovascular segment and an impressive 81% growth in our Endoscopy segment. Sales in the Cardiovascular segment surpassed our earlier expectations from the first quarter, and Endoscopy sales met the high end of our projections. Our overall revenue included about $19.6 million from recent acquisitions including the lead management product portfolio from Cook Medical, assets from EndoGastric Solutions, and to a lesser extent, Biolife. Excluding acquired product sales, organic revenue growth in the Cardiovascular segment was 6.8% and 1% for the Endoscopy segment. In terms of product category performance, cardiac intervention product sales rose 23%, driving the most significant growth for the Cardiovascular segment. Excluding contributions from acquired products, organic sales in cardiac intervention grew approximately 10%, exceeding our expectations for Q2. Additionally, sales of peripheral intervention products and Custom Procedure Solutions grew by 6%, meeting and exceeding expectations, respectively. Sales of our OEM products increased by 4% in Q2, slightly below our predictions. This weaker OEM performance was linked entirely to sales outside the U.S., which continue to face challenges from the macroeconomic environment, while sales to U.S. OEM customers grew in the high teens year-over-year. A quick overview of our geographic sales shows that Q2 sales in the U.S. rose by 17% and 10% on an organic constant currency basis, surpassing our organic growth expectations. We are glad to see ongoing strong demand from U.S. customers. International sales saw a 7% year-over-year increase and 2% growth on an organic constant currency basis, with results from the APAC region exceeding our forecasts. While EMEA met expectations, sales from the Rest of the World region were slightly under our guidance for Q2. Sales in China fell by 6%, contrasting with our earlier expectation of low single-digit growth, a situation we attribute to the broader macro environment. Now addressing our P&L performance, I will focus on our non-GAAP results for the second quarter, referencing year-over-year growth rates. We have provided reconciliations from our GAAP figures to non-GAAP items in our press release. Gross profit rose approximately 17%, with a gross margin of 53.2%, up 167 basis points. About half of this gross margin increase can be attributed to lower tariff impacts compared to our guidance, with the rest coming from an improved product and geographic revenue mix along with better pricing. Operating expenses went up by 15%, stemming from a 13% rise in SG&A expenses and a 24% increase in R&D expenses versus the prior year. Total operating income for the second quarter was up $13.1 million or 19% to $80.9 million, leading to an operating margin of 21.2%, compared to 20.1% the previous year. Other expense for the quarter was $2.3 million, down from an income of $1.4 million last year, primarily due to lower interest income from reduced cash balances. Net income for the second quarter reached $61 million or $1.01 per share, compared to $53.8 million or $0.92 per share the previous year. We are satisfied with our profitability performance in Q2, leveraging stronger-than-expected revenue to drive significant improvements in operating margin and strong growth in non-GAAP earnings per share. Our Q2 non-GAAP EPS results included incremental dilution from convertible debt of roughly $0.01. On our balance sheet, we generated $70 million in free cash flow in Q2, a 20% increase year-over-year. As of June 30, we had cash and equivalents of $341.8 million, total debt obligations of $747.5 million, and outstanding letter of credit guarantees of $2.9 million, with an available borrowing capacity of about $697 million. Our net leverage ratio stood at 1.7x. Turning to our financial guidance for fiscal year 2025, as updated in today’s press release, we anticipate GAAP net revenue growth between 10% and 11% year-over-year, primarily from net revenue increases of approximately 9% to 10% in our Cardiovascular segment and 32% to 34% in our Endoscopy segment. The impact of foreign currency exchange is expected to contribute about $6.2 million, or roughly 46 basis points to year-over-year growth. Our total net revenue growth, excluding foreign currency effects, is projected to be around 9.7% to 10.6% in 2025. Key points to evaluate include expected 12% growth in the U.S. and 8% for international markets, with the international forecast including strong growth in the EMEA and the Rest of the World regions. We also estimate contributions from inorganic revenue due to acquisitions will range between $56 million and $58 million, leading to organic net revenue growth expectations of approximately 5.6% to 6.4% year-over-year. For 2025, we forecast U.S. revenue from WRAPSODY CIE between $2 million and $4 million, reflecting changes in the timing for add-on reimbursement. Regarding profitability guidance for 2025, we now anticipate non-GAAP diluted earnings per share between $3.52 and $3.72, up from previous guidance of $3.28 to $3.41. This shift is based on better-than-expected financial performance in the first half of the year. However, we factor in higher interest expenses and tax rate assumptions. We project non-GAAP operating margins of around 19% to 20% in 2025, as opposed to the prior 17.6% to 18%. Non-GAAP interest expense is forecasted at about $8 million, and our non-GAAP tax rate is expected to be approximately 22.5%. Our diluted shares outstanding are estimated at around 61 million, accounting for incremental dilution due to our convertible debt facility. We expect to generate at least $150 million in free cash flow for 2025, anticipating capital expenditures of roughly $90 million to $100 million this year. For Q3 of 2025, we project total revenue growth of about 8.6% to 10.5% on a GAAP basis and 8% to 9.8% on a constant currency basis. The midpoint of our third quarter expectations assumes approximately 7% growth in the U.S. and 11% growth internationally. Excluding inorganic contributions, we expect third quarter revenue to increase around 4% to 5.6% on an organic constant currency basis. For profitability in Q3, we anticipate non-GAAP operating margins between 16.9% and 18.5% versus 19.2% last year, and non-GAAP EPS in the range of $0.76 to $0.85 compared to $0.86 last year. That concludes our prepared remarks. We now welcome questions.

The first question that I have for today will be coming from the line of Jason Bednar of Piper Sandler.

Congratulations on another strong quarter with the P&L. I will start with WRAPSODY and I apologize for any confusion. It’s a busy afternoon and I’m transitioning between calls. I haven’t received TPT information, so I’m wondering if there was a problem with the filing. I’m trying to go through the script and it’s not entirely clear. Did you get feedback from CMS? Could you discuss your engagement with CMS since then? Many investors are trying to assess the chances of receiving TPT under the new timeline in December, so it would be helpful if you could clarify and share what gives you confidence in this new timeline.

Yes, Jason, this is Fred. I'll explain the WRAPSODY situation step-by-step. We provided an update on U.S. reimbursement in outpatient settings. We applied for a new technology APC assignment by the March 1 deadline, but CMS did not grant a new APC assignment in the proposed rule released on July 15. Now that the new APC application is complete, we plan to submit an application for transitional pass-through, or TPT, by the September 1 deadline. If we receive this, it will take effect on January 1, 2026. Our revised revenue expectations for U.S. WRAPSODY account for a six-month delay concerning potential contributions related to the TPT add-on, but we have not altered our long-term expectations for the market in the U.S. for the WRAPSODY CIE or its potential impact on our long-term growth. We clarified our earlier remarks about the reimbursement application in outpatient settings. To be clear, our previous comments regarding the TPT add-on submission by March 1 were incorrect. We are indeed targeting the September 1 submission deadline. I hope this provides clarity and addresses your question. That is a lot of information.

Yes, I find it challenging to navigate reimbursement and the various rules and deadlines. Fred, could you help instill confidence in investors by explaining what gives you assurance in meeting the new deadline, or at least in securing TPT by that deadline? I understand you might not want to go into all the different possibilities, but could you address your commitment to securing TPT even if a more aggressive commercial launch occurs without it, especially if we don't receive it in December? I'm interested in knowing how many times you plan to pursue this, as it seems quite economically appealing, though there are complexities involved. It would be helpful if you could discuss that as well.

Go ahead, Raul.

Yes. Just to clarify, Jason, I think essentially, what we're saying is we were under the assumption that we had filed for TPT, right, but it had not. So it's not like we're refiling. We went for APC. It was clear that that was filed timely, didn't get the outcome that we wanted, just to be clear. We're engaging with CMS and having those discussions and making sure that we're clear. But we are confident that we'll meet the deadline for TPT. I would say that nothing has changed. We continue to like our expectations for meeting all the TPT guidelines. We think we meet them. Obviously, clearly, we have to submit, and then it's the waiting game. But I think we all around here are encouraged just by the fact that we have the best data. We've got a great product and we know we'll do what we thought we were going to do and submit the application by its deadline.

So Jason, this was the first time that Merit pursued reimbursement for a PMA product, and I think you said that it's complicated. And we engaged external advisers to assist. Our external advisers filed an application on the APC assignment and confirmed filing. So unfortunately, our team believed that the application filed for TPT add-on payment was the APC. That's how we understood it, and we own it. Our internal discussion reference to our strategy as well as our public comments reflected this misunderstanding. We expected to receive a response on the application on the proposed rule for 2026 issued on the 15th of July. And as we pointed out, CMS did not award an APC assignment as part of the proposed rule. And now that that application is complete, we intend to submit an application for the TPT, as I mentioned and Raul mentioned on 9/1 which is essentially 30 days from now.

Yes. Okay. And I'll let others hop in here. But just to maybe to put a bow on it, you've high confidence on securing TPT later this year.

We believe in our product, we believe in the data. We believe that it is the product we think it is, and we believe all of those things, and we have high confidence in that product. Yes. And this process, even though we made a mistake, I think we've said that, we own it. Nobody else owns it. We own it. And it's going to delay. But that's, I believe, the only thing it's going to delay.

I think just bottom line, nothing from a long-term perspective has changed from our standpoint strategically for this product. And so the unfortunate part is, obviously, we thought we had filed the TPT. We got the wording wrong. Obviously, we filed for APC. Now we know where we stand on that, and we move on to the next step, which is TPT, have a high level of confidence in the product, Jason.

And our next question will be coming from the line of Jayson Bedford of Raymond James.

Can you hear me, Fred?

We've got you, Jason.

Yes. I wasn't sure who got picked here. So geez, I really want to use a three-letter acronym here, but I'm not going to use it.

Please don't.

Yes. So I think I understand the difference between APC and TPT, I think a lot has to do with the newness of the technology. But I'd love for you to describe maybe why you're optimistic that you may be able to secure a TPT if you got rejected for an APC, right? So I guess my point is, why would they not apply the same logic.

Okay. I'm going to let Raul take it up.

So this is all new to us, right, and we're now get to be expert in it. But APC is essentially around the procedure, Jason. Correct, right? And that's kind of the distinction where TPT is cost based around the product.

Does that help, Jason?

It does. And I assume APC kind of lumps in with everyone else, whereas TPT acknowledges the difference. Is that fair?

I think what Raul mentioned is that it's based on procedure, and they were unable to identify any differences. We believe our procedure is distinct. The CMS thinks there are other similar scenarios that are covered, which explains why we didn't receive it. TPT recognizes the differences in device performance, but it is focused on cost. Does that clarify things?

Yes. We do have a comment period after the APC assignment is complete, allowing us to provide additional information to support our view that it's a different procedure. However, we also understand what the outcome is, which means we have the option to file for TPT.

Okay. Maybe just 2 other quickies. Down 6% in China, not necessarily related to VBP. Is there a specific category? Is it competition? Or would you chalk it up to just general demand?

No. I mean, I think it's just the current environment, the macro environment, Jason. But I think other than that, there's not much else to see. We continue to expect low single-digit growth in APAC for 2025. I don't think that's changed for us. So I'd say it's kind of as expected, quite frankly. That takes and puts, but ultimately, we're kind of where we thought we'd be.

Puts and takes of the whole up and down thing.

And the next question will be coming from the line of Robbie Marcus of JPMorgan.

Great. Congrats on a good quarter. Maybe I could start on margins. Obviously, a really strong margin upside, both on gross and operating margin. Some of it came from less negative tariff impact, but part of it was also underlying. Maybe you could tease out what's what in gross and operating margin and then walk us through the balance of the year on both?

Yes. Look, I mean, I think, obviously, super proud of the team of how we're performing. I think there's 2 things that I'd like to highlight. One is, obviously, our sales force continues to execute at a very high level with another strong quarter. That obviously helped from a leverage standpoint on operating expenses and all the gross margin. Gross margin, it's a lot of everything. I think ops lessons helped us. Pricing helped us. Our mix has helped us. Again, our sales force delivering really good kind of mix and geography mix.

Yes. I think it relates to the foundations for growth and the ongoing growth initiatives. These elements remain central to our strategy for alignment in compensation and how we assess our performance, which is also how our Board evaluates us. Additionally, I believe that increased focus on pricing and product positioning is important.

Really, the only kind of sour spot I would call is the tariffs, which were kind of outside of our control that we had to deal with. So we ended up with about half of what we anticipated in the P&L, but we're able to overcome it with strong sales and obviously, the discipline that we showed on pricing and mix.

And how should we think about the cadence, particularly on gross margin in third quarter, fourth quarter, any upgrade there, what's less negative tariffs and what's underlying?

I was hoping you would overlook that question, Robbie, as we usually don't provide guidance on gross margin. However, if you examine our operating margin expectations, it's clear that we've increased our outlook. We're targeting a range of 19% to 20% for the year. We do expect that gross margin will be a contributor. Overall, we feel very confident about our operating margin guidance. As we approach the end of the second year, I believe we're in a favorable position for CGI and our plans moving forward. If we reach the high end of our guidance, we would already be at the lower end of CGI, which is a very positive situation to be in.

You can't blame me for trying, given all the moving parts.

No, I appreciate it. Yes, yes.

And the next question will be coming from the line of Steve Lichtman of Oppenheimer.

I wanted to start first with the sales beat in the quarter, particularly around cardiac intervention, which saw a nice uplift even ex the acquired products. Can you talk a little bit more about what the drivers of that were? And what kind of sustainability of that growth we could see?

Yes. Let me pick that one up. We generally don't mention names of products, so I won't do that. But I think a lot of this comes out of Merit's products that we have developed internally. I think a lot of it has to do with presence in the lab. And I think the Cook acquisition and the presence in the cardiac area is important. And very candidly, we expect that to continue with the other products and other things that Merit develops internally. So we think it's going to continue to be one of the strong areas in the company that we focused on and it's a lot of things that other people overlook, and we just don't, and we'll focus.

To add a little more color, right? I think Fred mentioned the Cook acquisition, which obviously isn't organic yet. But if you remember, one of the reasons we did that acquisition, the strategy behind that was to get deeper into our cardiac bag and specifically those products. And you see the sales force focused on them. They're excited about that. And so you're seeing a little bit of uptick there too.

There's some pull-through too with the access products that Merit makes and you've got to get in there. And that's kind of our strong suit. So that's another part of it as well.

Great. Just shifting to margin. Obviously, you're benefiting here from your conservatism on the first quarter call regarding tariffs. Raul, you mentioned at that time some work you'd look to do to offset tariffs. How much of that work can still flow through and possibly drive excess margin now even with the hopefully lower tariff impact?

Well, I mean I think we're trying to be nimble on some of those things that we're doing, right? I mean a lot of it was things that we could do easily, right? Redirect shipments, product line transfers that were already on the books. Can we pull those forward? Those are all things that are being worked on. I think the hard part, quite frankly, is that it's a fast-moving target that changes almost on a daily basis, right? I think we had two changes just this week. One was confirmed and one was just a rumor out there that...

And the President can change his mind, they're going to see what he thinks.

So look, I think the nice thing, quite frankly, is just being as transparent as possible on these tariffs. I think our guidance covers a lot, right? I mean I think when you look at the high end, we've got roughly $7 million of impact there. When you look at the low end, we essentially left that an original amount of $26 million that we originally called out in the guidance. So I think we have a good number within the range of our guidance to cover all sorts of changes that may come our way, but it is a moving target. And so I would just say that we're comfortable where we're at. I think our operations group is doing everything they can to try and mitigate the expense, but we're also making sure that they stay focused on what really matters, and that's their CGI targets which is things that they can control.

And getting products to our customers.

Products to our customers.

Got it. And then just my one last question and on WRAPSODY is what's happening or going to be happening on the ground here as sort of reimbursement work is being done. Obviously, you have an approved product, you have great data, what's going on in terms of education, training so that when you hopefully get that reimbursement sorted out, kind of hit the ground running?

Well, listen, I think our updated range assumes that we maintain a premium price. We believe it's a premium product. That has not changed. We do not expect to see a ramp in adoption utilization in the outpatient setting in the second half, but we do expect to gain market share in the hospital setting where we have approval and where we have NTAP. So anyway, we have plenty to do. It gives us more time to train, more time to get ready for other expanding markets from a regulatory point of view. So this was a punch we took, but it didn't hurt very much. I mean it hurts. Don't get me wrong, but...

Our eyes are watering, but we're...

But we're still in the fight. We're still swinging.

And the next question is coming from the line of Jim Sidoti of Sidoti & Company.

Talk a little bit about Biolife and the distribution for StatSeal. Did they have international sales? And is that something you can put through your reps?

Yes. Part of the attractiveness of this whole deal was they had 4 distributors in the United States. I can tell you that we've converted all of those and negotiated through all of those and all of our sales are now coming in direct. So we get orders and we deliver those directly to customers. On the international side, they're approved, but they didn't have any footprint. We do. So that's always been the attractiveness for us is the growth potential of the product with Merit. And this goes back to the cardiac and you'll see that fall into line in that part that we were talking about earlier. So it's something, again, I've been watching for 10 years. It's something that our physicians have encouraged us to look at because they use it, you need to have this. And finally, the right time came up and the way we go. We feel very good about the product but maybe more importantly than us sitting in the room is the sales force. They are the guys that are out there that are fired up about it. And that's what we always want. It's that enthusiasm that drives the revenue.

Right. And with regards to cash flow, it was another good quarter. Are you considering starting to pay down some of the debt going forward, or will you be keeping the cash in the bank for additional deals?

Yes, I will address this question to emphasize our free cash flow, which reached $90 million year-to-date and $70 million in the quarter, which is excellent. For now, Jim, we will continue to conserve our cash. We do have some capital expenditures coming up in the latter half of the year as we begin work on this building. I say begin, but we already have walls up, and progress will come quickly. So, for now...

They are all in our forecast, in our guidance, they're in everything. So...

So we're feeling pretty good about it and continue to deliver strong free cash flow. Again, I'll highlight our operations group, I think, is doing a pretty good job of balancing the inventory, which is the primary driver of our working capital, allowing us to have these strong free cash flow number.

And our next question will be coming from the line of Larry Biegelsen of Wells Fargo.

It's Lei calling in from Larry Biegelsen. My first is just around your guidance update. So you beat Q2 revenue by about $10 million at the midpoint of your guidance raise on a constant currency basis, the increase is less than $10 million. Is that all due to WRAPSODY being moved out 6 months? Or is there anything else that changes about your second half outlook? And I have another question after that.

Sure, sure. I mean there's takes and puts across the board. But I think generally, our practice is to kind of look at the first half beat and obviously, flow some of that through. I think we ended up in a really good spot. Like you said, the midpoint of our updated guidance is about $10 million. I think we all felt pretty good about where we're at. There's a lot of uncertainty out there. I think the business continues to execute at a really high level. But just with all the tariffs and all the noise, there's a lot of things out there that just kind of give you a little bit of pause as well as the business is doing. So I'd say we feel pretty good about the guidance. And I think we have a high level of confidence in it. I'll just say that.

Okay. That's helpful. My second question is about tariffs. In the past, you mentioned that you could offset up to 45% of annualized tariffs for 2026. Is that still accurate? Any insights on how we should view tariffs for next year?

Yes, I would say that was accurate based on our initial evaluation of the situation at that time. We feel quite confident that we can address some of the challenges. I just need to see where we land by the end of the year, understanding what is real versus what is just news. I believe we have a solid plan in place. Nothing has changed from our last update, except things have improved a bit and we have gained some clarity, although there are still many variables at play. Our guidance takes into account everything currently on the table, both on the high and low ends, and we feel good about that. Additionally, we have not altered our CGI targets; we remain committed to them, which is an important point.

And the next question will be coming from the line of Mike Matson of Needham & Company.

Yes. I have one more question regarding WRAPSODY. I hope this wasn't covered earlier, but you mentioned something about OBLs in the prepared remarks. I'm curious if you have any plans to seek additional reimbursement in the OBL setting and how significant that is? Additionally, how many of these procedures have been performed in that setting?

The focus is on outpatient, right? It's the largest area of the market. And so I think that's the biggest percentage and that's where the focus is right now, Mike.

Okay. Got it. And then just one more on the Biolife acquisition. Given the nature of the products, will they be sold in both the peripheral and the cardiac business? I can imagine they could be used in both types of procedures potentially.

Yes, it is used in radio procedures and for PICC lines, ports, or any situation where there is bleeding and they are currently utilizing it.

Yes. It's one of the exciting parts about that business when we acquired it is that it's one of the few products that we've acquired that really fits in just about every bag that we have.

Okay. I think you mentioned that you had a previous hemostatic product you were selling. What were those products, and how do they fit with Biolife and its products?

Well, yes, some of these are things that actually work together. So if you take a look at this patch and stop the bleeding, they'll oftentimes put use a sync and use this, in fact...

Radial compression device...

Yes, radial compression device. So they'll use that and this to get faster hemostasis so that you can get to an ambulatory state and get them out of the hospital. So there are often used. In fact, as I mentioned earlier, Mike, this was something that physicians encouraged us to look at because they used it and say, it would be nice just to buy this from one company and some of that has a full suite of products. And that was something that we said years ago, and we just kept falling along until they finally aligned.

And the next question will be coming from the line of David Rescott of Baird.

Can you guys hear me?

Yes, we got you, David.

Great. I wanted to ask on the guide for the year, particularly on the lower end of this EPS guide since in general, it's probably a good gauge of apples-to-apples from earlier in the year since you have the $26.3 million in there from the tariff perspective. I guess, one, why I guess, keep that headwind at the low end if we're halfway through the year already, and we know that China tariffs are significantly less than what they were a couple of months ago. So is there anything else in the other updated tariffs that are kind of getting you back to that $26.3 million? And then second part to this, I think you beat by $0.15 or so. The lower end went up by $0.24, or so, I think. So there's about a $0.10 delta of the underlying business versus Biolife I think the convert impact is the same. So can you just help us bridge the gap on what was better in the quarter versus second half?

I'll explain the situation. In Q1, we had a beat of about $0.14, which we carried over into Q2. I'm referring to the low end here to avoid confusion. For Q2, we accounted for a $0.21 increase. As you noted, we did not adjust our tariff amounts. However, there was an offset due to an increase in interest expense of $0.04, resulting from our recent acquisition. Additionally, new tax changes that just became law will have a $0.07 impact. This leads us to the $0.24 figure you mentioned. I'm glad you brought this up because it illustrates why we kept the low end as it is, especially since you suggested that the situation in China might improve, which is still just a rumor based on conflicting reports from two days ago. We don't have clarity on that yet. The President suggested it could happen, but from our perspective, there is still a lot of complexity and moving parts. We believe the low end accurately reflects our confidence in our 2025 outlook, especially if there are significant changes to the tariffs, and we felt it was best to keep it as is.

And this is a point of interest. In FT, there's a big article today about the issue of the Chinese Navy and that the increased tensions in South China Sea. Is that going to affect what's going on with tariffs and that dialogue and the answer is absolutely. So again, who knows how that shakes out. So I think we're taking the right approach. I agree with you, Raul. I mean that's what we've talked about for a long time and several times in the last several days.

Okay. And then I might have missed it in the earlier Q&A. I know you set out earlier this year with the 7% to 9% for the contribution from WRAPSODY. I believe at the time that didn't necessarily contemplate any reimbursement kind of uplift, whether it's TPT or NTAP. Have you reiterated that contribution for the full year? And then how are or how is kind of the sale force in your view responding maybe a little bit to this delay in the reimbursement uplift? Does anything change on the commercial front over the next couple of months until you are able to secure that if you are?

We updated our range to $2 million to $4 million, and just to clarify, our guidance originally considered various scenarios and assumptions regarding the adoption and utilization of these additional reimbursement processes. Now that we have more clarity on one aspect, we plan to use the comment period to provide further insight to CMS and will also follow up on the additional reimbursement for the TPT.

David, we're only delayed by six months on that one product. However, regarding the sales force, that RTG group is performing exceptionally well. They have a wide range of products, and we are seeing strong performance across all of them. While it would be great to have everything finalized, they are doing very well and have plenty to offer. I've spoken with several members of the sales team about their enthusiasm for their targets, and they are all aligned and highly motivated. The sales team is really energized because they have unique products to sell.

I mean we were going to hold our premium pricing.

Yes.

I know our competitors are not. And I think they're listening, but...

There's a few of them on the call, four to be exact. I was wondering when you were going to raise that. Okay. I hope that helps. Does that answer your question?

Yes, that's great. And I did miss the 2 to 4 update, so thanks for clarifying that.

The next question will be coming from the line of Michael Petusky of Barrington Research.

I wanted to inquire about the situation in China, as I'm not sure I fully understood the explanation. The language used regarding the performance in China sounds similar to last quarter, indicating a soft macro environment and results below expectations. I'm curious about the two consecutive weak quarters in China that aren't attributed to VBP, as that's not typical for your company. Have you investigated this further, or did I miss a more detailed explanation?

I believe the main point is that we continue to anticipate low single-digit growth in the APAC region for 2025. We've been clear about this throughout the year, with China being a significant factor. While the results came in below expectations, it is important to recognize that the situation in China is challenging due to the tough macroeconomic conditions. There have been quarters where our performance exceeded expectations, but I don't think anyone here is panicking. It's simply the current environment, which is not limited to any specific customer or segment; rather, it's a general trend of softness. Additionally, volume-based purchasing remains a challenge, as we've discussed over the last couple of years.

Okay. I want to ask a quick question about the tariffs in the second quarter. Was any of the $7 million actually affected in Q2? Did the tariffs have any impact?

Yes, we are about $2 million that flow through that's included in the gross margin.

You said $2 million?

Yes, or $1.2 million, sorry, $0.02.

Okay. Got you. Okay. And then just a last question for Fred. Just curious, the balance sheet leverage is despite you guys being fairly active the last couple of years is still pretty low in part due to the good cash flow. Just curious, are there assets out there that are interesting? What are you seeing? What are you seeing in terms of valuation? Anything you can add on that would be great.

I'll just be very broad. There are opportunities. We evaluate them, and if they align with Merit, we'll take action. If not, we'll keep moving forward. We might have to wait a long time for some opportunities, just like we did previously. They exist, but we need to be patient.

Thank you. And this concludes today's Q&A session. I would like to go ahead and turn the call back over to Fred for closing remarks. The floor is yours, sir.

Thank you very much. Ladies and gentlemen, thank you very much for your time on such a busy day. It's an interesting time for me. This will be the last publicly held quarterly report that I will speak to. I'll still be involved in the company. I will be the Executive Chairman after October 3, and I'll still be a member of the Board for a number of years. But I want to thank you for all that you've taught me. I want to thank you for all the scolding you've given me and helped us as a business and brought things to our attention that were necessary. So best wishes to all of you. And again, thank you and signing off now from Salt Lake City, Utah, the home of the 2034 Winter Olympics. Good evening.

This concludes today's presentation. You may all disconnect.