Merit Medical Systems Inc (MMSI) May 12, 2026 Conference Transcript

Travis McDougall. Travis, Martha, thanks for joining us. So to take it off, Martha, you've been in the seat for a couple quarters now. You've talked about transitioning the company from founder-led to founder-inspired at a high level. Can you talk about kind of the changes you've made so far, what you've seen in the business, what is already working better, and maybe where do you see some opportunities to tweak the business to optimize it?

Yeah, thanks, Aiden, and thanks for having us here today. Yeah, I mean, I think, as you said, Merit Medical was run by our founder for 38 years, and so it is a bit of a transition, right, to go from a founder-led to a founder-inspired organization, as we like to call it. So I think the biggest change, really, in terms of that is just thinking about, you know, I think, as you know, what it takes to build a business from startup to $1.5 billion in revenue is different from what it takes to go from $1.5 billion beyond. And so what we're trying to think about is really around sort of the people and the processes that we need to do that to be able to scale. And so we've established eight platform teams, and we're really asking those teams that are cross-functional and cross-geographic to take ownership of kind of each particular platform, sort of like a mini business, and think about all aspects of the pipeline, the go-to-market strategy, you know, what are the international opportunities, what are the M&A opportunities, et cetera. So, again, as we try to scale, you just can't have, you know, so many decisions come up to this chair. And so we're really working, I'd say, on building that out. In addition, we've added a few new resources. We're adding some internal muscle on reimbursement. So we're excited to have build, start to build that capability more in-house. And I also just recently added an executive to work on global enterprise excellence, which, again, is just looking at many of our processes and ensuring that we feel very good about, you know, that foundation and the infrastructure so that we can scale from there. And then I think the only other thing I'd add just at this point is we are undergoing a very robust strategic planning process. So for those of you who follow our story, we're in the third year of what we call CGI or Continued Growth Initiatives, which were a number of financial goals that we had laid out for a three-year period. That ends in the end of 2026. I'm pleased to say we're tracking nicely toward our CGI goals. So while we're staying focused on completing CGI, we're also undergoing a lot of work around our strategy. And so we'll share more of that toward the end of the year or early next year about kind of what's the next chapter of Merit Medical.

Okay. And obviously part of that, those changes you made, you changed the reporting of the business to segments. You changed to, from endoscopy and cardiovascular to foundational and therapeutic. Why do you think that's a better way to frame the business to investors? And maybe when you came in, how did that, how did framing it that way help you learn the business?

Yeah. So, you know, as I came into the business and, you know, about a year ago when I was going through the interviewing process, right? I mean, all I had was the publicly available information to try to understand the company. And frankly, I found it pretty challenging. And so as I got into the company and met, you know, and understood that we had these platforms, and it really makes sense to me because the platforms are really organized around our product groupings, which support particular physician groups, as well as particular procedures. So it's very focused on the customer and thinking about what is the best things, the best products that we can offer each particular customer or procedure in each of these eight different platforms. And so what was happening before is that our financial team would take that information and then have to do a bit of a translation for the external reporting. This way, we have very consistent with how we're reporting externally, is very consistent with how we're viewing and running the business internally.

And when you think about foundational products, at a high level, can you talk about what foundational means to Merit?

Yeah. So what foundational really means are what I generally think of as our enabling products. So and for those, again, who've been following the merit story for a number of years, think about, you know, sort of how merit has grown up, if you will, on syringes and inflation devices and guides and catheters and those sheets, those types of products that are very, very necessary for so many medical procedures that are happening out there. But that's really how we think about our foundational products. And I think it's important to note that over the last three years, the compound annual growth rate of our foundational products has been around a 6% CAGR. So still a very nice and nicely growing set of products and really important for our overall strategy.

I think one of the things investors try to wrap their head around is kind of what drives growth in these two segments now. So when you think about the growth drivers and foundational, what do you describe those And you can talk about some of the procedures that, you know, your products are most used in in that segment.

I mean, again, we are used in so many procedures that, you know, it's hard to bring them all together, right? But, you know, things like, you know, you have electrophysiology procedures, you have TAVR procedures, you have, you know, biopsy procedures. There's a pretty long list, if you will. You know, just think about just about anything that needs access to go perform a procedure. You know, diagnostic procedures, those kinds of things.

So almost a parallel to just general utilization as a whole. And when you think about the margin profile, that segment relative to the corporate average, is there any color you could provide on how investors think about that?

I mean, that's the other nice thing is our foundational products are above our corporate average for gross margin. So another reason we like our foundational products very well.

And when we think about the go forward strategy for that segment in terms of product development, you know, Salesforce, how should we think about that fitting into the overall growth algorithm for the company?

So again, what you really need to do is look at each one of the eight platforms. and and two of those eight platforms are are all foundational products right our access business as well as our procedural solution thank you procedural solutions been a long day procedural solutions business so those two are comprised of solely foundational products and then four of our platforms are solely therapeutic products oncology endoscopy renal therapies group and cardiac therapies and then there's two platforms oem and vascular intervention that have both foundational and therapeutic products within them okay so it's hard to say exactly you really have to look at it as i said by each platform to think about where are we making the investments where do we think the growth is coming from and to our understanding you provided that when you did the ak when you did the resegmentation you gave the the subsegments in there but you're not going to be reporting that on a go forward basis um is there any way how we could think about that intra year yeah so um right so we we provided an 8k in april that shows the eight segments with the eight platforms excuse me with four years of history um and what we will do going forward is call out between foundational and therapeutic again where there are certain highlights etc um you know i think look like like any of these things we we will give this a shot for a while um this is how it makes sense to us this is how we're running the business and thinking about the business if we need to make an adjustment down the road based on feedback we will consider that but that's the way that's the way we're providing the information for now and as i said we will certainly continue to call out various growth highlights quarter by quarter okay very helpful and you know moving on to therapeutic these are kind of your higher price more complicated products and recorded the procedure can you walk us through the key products in that category and the growth drivers there i imagine that's less tacked on to general utilization then yeah right so again you know as we look across the platform so for example in our cardiac therapies platform i'd say you know our lead management business which is primarily lead extraction is a very good is you know it's one of our nice drivers there um in the endoscopy business um you know we added an acquisition at the end of last year, the C2 cryo balloon, which along with our esophics for the CTIF procedure. And now we just launched a new esophageal stent called Resilience in early March, which is off to a very nice start. If we look at our oncology platform, we obviously just, we had one product line there for quite some time, the Scout, which is a wire-free localization product for breast cancer. And we've just added then the OneMark product in the beginning of April. And so we see that as having a great deal of growth in that platform going forward. So again, as you look, and then I think on vascular intervention, you know, Embolics has been a pretty high growth area for us. And we anticipate that continuing as well.

And we'll talk more about this later in the discussion. But, you know, you had Rhapsody in Therapeutics, first PMA product. Can you talk Talk about your innovation strategy inside Therapeutic and how you think about, one, PMA products and then kind of your strategy at high level in terms of entering new markets or expanding your current markets.

I mean, so a couple of comments on Rhapsody, you know, again, for those who've been following the story, right, we did a little bit of a reset on Rhapsody toward the end of last year. We're guiding this year in the U.S. market to be, you know, aimed towards $7 million of U.S. revenue for Rhapsody. We continue to see, you know, we have outstanding clinical evidence for Rhapsody. The customer reaction to Rhapsody has been very, very good. And at the same time, I think it's fair to say we have some formidable competitors in that space. And they're, you know, doing what competitors do when they see a new product come on the market. So we're continuing the good fight there, if you will, and so far are on track for that product for the fiscal year. Now, having said that, again, when you talk about what products will add, you know, to various platforms, I'd say we're looking at it two ways. One, we're really trying to be more proactive in sort of, again, I do a quarterly executive review of each platform and, you know, sitting with the teams and saying, tell me what's on your wish list, so to speak. What other products are you hearing from your customer groups all around the world, not just in the US, but all around the world where they say, I really need this. Or if I had this, it would make the product or the procedure easier or less expensive or less painful for a patient. Those are the kind of inputs we want to hear and then want to try to proactively think about, okay, again, it's a make versus buy. Is that something we feel like we have the technical expertise to go do, do in a timely and cost-effective manner? Or is it something where we know there's some other device out on the market that we should go look at acquiring? So that's really the way we're thinking about it, again, and we really rely on each platform to do that. Now, having said that, we'll still take incoming, you know, we get a lot of incoming ideas and thoughts, people approaching us with, you know, assets that could be actionable. and we'll continue always to take a look at those and evaluate those as they come through.

And you said that foundational had a higher gross margin than the corporate average. Does that mean therapeutic is below corporate average?

No. Other way around.

Yeah.

But they're not as far apart as you would expect.

Sorry, did I misspeak on that? Okay, thank you, Travis. I misspoke.

So foundational is just below the corporate average, but it's not as far there's not as much of a gap I think is what Travis is saying as one would think so yes the therapeutic products are above the corporate average another thing is maybe an underappreciated part of the merit story is to your point earlier your exposure to those higher growth procedures like EP and TAVR it kind of sounds like from the answer to your previous question that the product development strategy is not really new markets but more so adding on to the platforms you already have um is there how far away from your current platform so to speak would you be willing to go in terms of new products or is it kind of strictly tangential to what you already have

yeah i think right now and again you know we're undergoing our strategic planning and strategic review so it's a little premature to say but i can tell you right now um i do not have a big appetite to go beyond the eight platforms it it feels like plenty uh for us and you know there is a sort of complexity factor that comes along with it when you're calling that many different customer groups and, you know, just managing the manufacturing and the quality and all the rest, certainly. So I would say right now, the goal is really to think about within each platform. And I'm pleased to say that, you know, every platform has ideas and wants that they, things they would love to add to their portfolio. So it's not that we lack ideas anywhere. I think it's just about making smart choices that have great strategic rationale as well as, you know, meet the financial metrics that we think are critical.

Got it. And kind of go off a tangent here, you said exposure to EP. So have you seen a large benefit from the rise of PFA in the past couple of years? And then as that market becomes more penetrated, is there any risk that you see less benefit from the increased volume of patients getting to the cath lab?

Yeah, I mean, you know, we have again, we haven't been a major player in PFA. So and this is part of the advantage, frankly, of, you know, being as broad as we are, that there's just there's rarely any one procedure or one product line that's going to that's going to have a significant impact either way. You know, we kind of like to say, you know, we're like an index fund, right? I mean, we're very well diversified. And if one part, you know, dips a little bit, usually we've got another part that's doing better.

Kind of shifting gears here to Q1 and the guide. A strong beat on both top and bottom line in Q1, but didn't pass through the entire beat. You kind of passed through the M&A contribution from viewpoint. Can you talk about what you're seeing on a business and macro level? that drove that decision to not pass through the entire beat well i think that follows in lockstep with how we've guided previously typically we don't really reassess our guide until the second quarter so we know that one quarter does not a year make and so we're not in the habit of doing that mark to marketing every every quarter okay so some prudent especially given the macro environment some prudence there okay um in q1 in q4 you'd flag some one-timers like OEM, China, the new sales meeting, kind of taking the Salesforce out of action for a little bit in the quarter. Can you talk about what you saw in Q1 that maybe outperformed your expectations or underperformed and any kind of residuals from the supply chain dynamics with the production line transfers to Mexico?

Yeah, I mean, a couple of comments on that, I'd say, right, I mean, we've talked about a couple, I mean, endoscopy's been off to a nice start, you know, cardiac therapies is performing very nicely again, you know, those platforms via vascular intervention had a very good, very good first quarter as well. You know, OEM, as you mentioned, right, was softer than we had anticipated. We had anticipated some softness came in, came in a bit worse than that. I think the good news is on the OEM front, we've got very good line of sight into our orders. I mean, I think, as you said, and I'll talk about US OEM, you know, for the US OEM business, you know, there was, we did transfer some product lines from our Utah facility down to Tijuana. So a number of our customers built up a pretty significant safety stock and bridge inventory, and it just didn't, you know, didn't work its way down far enough for them to reorder. We're now seeing those reorders come through. We also, you know, things happen in the OEM business. There was an acquisition of one of our customers from a major strategic, you know, the major strategic sometimes view their inventory management approaches differently from, you know, from the startup they've acquired. So, and we also then, and we don't share about our customers unless they share. So Medtronic did put out a press release about a product of ours. They'll be distributing. So we inked a very nice longer term deal with Medtronic. So those are the things that give us the confidence as we move through the rest of the year that OEM will bounce back. And again, we've guided to mid to high single digits there and still anticipate that's where we'll come in.

And, you know, you talk about confidence in OEM, but in the current environment, there's obviously a lot of worries with the war, inflation, and the general just medtech environment as a whole. What gives you confidence in achieving or exceeding the full year guide given those Yeah, look, I mean, it is.

It's a tough environment out there right now. And there's a lot that is, you know, out of our control. Again, I think I can still say as a newcomer, I give Merit Medical a lot of credit. The company has, you know, gone through lots of things, including COVID and other things, and weathered the storms quite well. So, again, I just, I give our team lots of credit. You know, the day you start to see things, you know, breaking out in the Middle East, for example, you know, our teams are on it. We ordered extra resins to have more supply, as an example. I mean, people are people are thinking about this stuff. So, again, can you can you think about everything? Of course not. Right. I mean, there there could be some unexpected things that we don't know about yet. But overall, given the picture as we see it, you know, we we have confidence we can manage through it.

Well, and then, too, when you normalize Q1 growth for the different elements that we saw, so OEM and our dual cap divestiture, foundational growth was about 5.5%, and you do the same on the therapeutic side, it was about 12%. So for us, going forward, that gives us confidence that growth was pretty healthy when you normalize it for what we view as one-time events.

Okay.

When we think about Q2, the guy came in modestly, but below what the street was expecting. um you know can you walk us through the the drivers of the quarter recorder and year over year step down at the midpoint um and then in the context of that how are you thinking about confidence in achieving the year-end 26 cgi goal yeah so sequentially if you were to look at it um again the tariff there's tariffs that are hung up on our balance sheet so about 70 ish or 75 basis points of tariff hang overhang from sequentially when you look at it that's a part of it there's some timing of some operating expenses um and then uh yeah i think that that

that's kind of that that's the sequential okay view of life and when you think about the bargain guidance um you know how comfortable are you with that if freight resins and tariffs remain where they are today are you assuming any normalization or are you assuming everything stays steady where it is today yeah if we look forward um we our history and guidance is to lay out things that we believe are realistic and achievable so we feel like uh we're in good good shape okay um kind of shifting gears i know we said we're going to talk about rhapsody a bit more um you know it's your first in-house pma product kind of first platform product so to speak um what has rhapsody taught the organization about competing in these more complex categories and kind of the muscles as you need the flags to get that to market.

Yeah. So the answer is a good, a good number of things. And again, this is why I'm so excited about our platform approach. Because when you have a whole team, again, with all the functions sitting around the table, with regulatory, with quality, with reimbursement, you know, with clinical, with operations, sitting there with marketing and R&D. And when you start to think about that next generation of a product or a continuation of a platform, you know, very early on, as you think about what is your, you know, what is the clinical strategy, right? Not only to achieve approval in various countries around the world, but to also, you know, if necessary, you know, do clinical work that will impact reimbursement going forward. So, you know, that is, I think, one of the biggest learnings that we've had. And that's why this focus on these platform groups makes so much sense to me. and, again, to have the inputs from our global colleagues as well so that we're really considering, you know, the most important markets and where we think, you know, this product makes the most sense for us to sell so we make the right investments. So I think, again, and adding sort of in-house reimbursement muscles, really important. As I said, you know, that was someone I added, I think, the first week on the job and will likely be adding, you know, adding to that. But, you know, I think those are some of the lessons on, you know, and I think the other one is, you know, we may or may not talk about all this stuff until we absolutely have to.

I think that's fair. You know, there's been some proposed changes to kind of the FDA CMS approval process that might allow new products to get coverage decisions quicker if they're breakthrough. Anything there that affects your innovation plans?

I mean, again, we'll have to look at those on a case-by-case basis. Many of our products are kind of already, you know what the reimbursement will be. So, again, we'll look at it case-by-case as it comes along.

Okay. In terms of Rhapsody, you did a kind of commercial reset. As you talked about earlier, the clinical data is demonstrably better than the peers. It seems like pricing was the biggest headwind. You know, you did a commercial reset, opened up the doors on pricing a little bit. Can you talk about what you're seeing on the ground today in response to those pricing changes and how that compares to maybe the initial launch?

Yeah, I mean, I think the good news is for the initial launch, right, before the kind of reset, we definitely had reps walking into accounts and the accounts just said, I can't talk to you. You know, your price is just way too high, depending on the site of service, right? I mean, we do have the NTAP for the hospital, and so we've maintained a nice price in the hospital setting. The majority of the procedures are not done in a hospital setting. So that's where the real, if you will, sort of battleground is. So we did open up those pricing corridors much, much wider, which, again, has been a good opportunity for our reps to get in there. We're still at a gross margin that we're comfortable with, given that. So, again, of course, you want to be, you know, smart about pricing decisions. And as I mentioned earlier, we're seeing, I think, a pretty, you know, a competitive response. We've seen some added reps and junior reps be added to, you know, some of our competitors' accounts. You know, they're doing what anyone would do. I think that's a real compliment to our team for how fantastic the product is. So we'll continue battling it out.

Okay, great. Um, kind of shifting gears to something more recent, you acquired viewpoint medical in Um, can you talk about the strategic gap you're trying to fill with that acquisition, um, you know, and how that fits in with your current scout product?

So, um, so this is in our oncology platform and, um, the best way to think about it is each year in the United States, there are 1.6 million biopsies done, um, of, of people who see something, you know, once they see something. on a mammogram that doesn't look good. So of those 1.6 million biopsies that are done, the Scout is really the premium product, which is the product we've had in our portfolio. And so, and first of all, I should just say, all these are done at time of biopsy, which really does mean there's one less step and it's a wireless, both of the technologies are wireless. So it's taking away one additional step, which is a very sort of anxiety inducing step for many women, you know, before they have, before they have their surgery. But if you go to the 1.6 million biopsies, generally about 300,000 of them are cases where the physician is very sure it's a very suspicious looking lesion. That's where they tend to use the Scout, which is the premium product. For the other 1 to 1.3 million biopsies, they, you know, aren't always so sure. And so they don't necessarily want to use the premium product. This is where the one mark will fit in okay um so and the real difference in many cases will come down to physician preference because the scout technology that we've we've had before uses radar tech uses radar and so you listen for the sound um the one mark is uses ultrasound so it's visual so some physicians just prefer one over the other um but it really gives us as i call it sort of the better and the best offerings in this area of wire-free localization. So we're super excited because we're basically expanding the market three to four X. So we're thrilled about it. And our commercial teams are taking a very targeted approach on the accounts where they plan to go pursue the one mark. You know, we get asked a lot, do we think there could be a little cannibalization? We modeled some into our modeling just to make sure. But I've got to tell you, There's so much opportunity for places that aren't using any time of biopsy, wireless technology, wire-free technology. So we feel very good about the opportunity to truly expand this market.

It sounds like it can kind of open up the OUS opportunity as well and sites that are more cost-sensitive.

Absolutely. So, yeah, it's a great product. There have been plenty of markets internationally where they've just said the Scout is a price point that's too high for us. So this will give us that opportunity. We don't yet have CE marks, so we'll start, obviously, in the countries that are more consistent with FDA approvals.

And asking everyone's favorite question on M&A. Obviously, M&A has been a big part of Merit's growth algorithm recently and capital allocation strategy. So going forward, should we look at more deals like Viewpoint where it's kind of adjacent, maybe a tiered product offering with something you already have in your portfolio? or is it something that we could see in earlier acquisition where you have to kind of ramp it a little bit more where they can't just fit right in and plug and play?

Yeah, again, I mean, it'll depend. I mean, we're going to, each platform is a little bit different, but suffice it to say, I mean, in general, we'll continue to look for tuck-ins, you know, again, by platform, could be a foundational product, could be, you know, more on the therapeutic side. We will continue to look at both. But again, just in thinking with each customer group, what are the right procedures? How can we make the procedures better, you know, better for the patient, better outcomes, easier for the physician to perform?

And you've said this multiple times, but nothing transformational. Obviously, you've had a very impressive track record in the past couple of years of margin expansion. To your point earlier, we're kind of hitting the end of CGI, and you're on track for that. You know, when we think about steady state margins for the business, how should we think about that going forward?

Well, again, I mean, we're not, you know, we're not going to jump the gun on post CGI by any means. But I think, look, if you look back in the six years, right, where there's been foundations for growth followed by the CGI programs, you know, that's been some pretty incredible margin expansion. So I think it's unrealistic for people to think we would do a repeat of something, you know, kind of at that rate and with that, you know, level of improvement. Because, you know, again, we want to continue to invest in the business, certainly, and grow the top line. So we'll stay focused on it, but not ready to talk about any details.

I got asked in maybe a different way. When you think about, you know, incremental margin improvement from here, you know, where is that most likely to come from? Are we looking at mix, portfolio actions? I know we've talked about throwing the kitchen sink at gross margins a couple of times. Like, how should we think about where that improvement could come from?

Yeah, I mean, again, we really do. We look at all the opportunities. I mean, you know, I think it's about five years ago, you know, the company added formal pricing, you know, expertise to the company. They've done a lot of great work, and we'll continue to look at that team to do more. You know, we will continue to look at, you know, short-term cost improvement opportunities and operations, as well as, frankly, longer-term footprint. We need to start thinking about, you know, where do we want to be, you know, longer-term? You know, are we looking at mix? Absolutely. Are we looking across the portfolio as part of the strategic plan at potential some additional pruning or, you know, possibly divesting as we did like with the dual cap? You know, there could be other product lines and product families where we just say, this doesn't make sense anymore strategically so yeah we'll continue to look at all those um options i know our time but martha anything you think the street's underappreciating that you want to get out there with the time we have left look i mean look at merit merit medical is a company that hits singles and doubles um right and and i think we are well diversified you know you heard me mention before we're kind of like an index fund that way um you know we're very excited about the future of Merit Medical. It's a very passionate team. And I think the other great thing is, you know, we can see some very nice growth without having to go out and even do any more acquisitions, right? So we will only do ones that we think are really strategic and make financial sense for the company, but we will continue to look at ways to continue to grow our top line in a very profitable way.

Thank you for joining us today and thank everyone in the audience.

Thanks very much.