Merit Medical Systems Inc Q4 2024 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Jason Bednar - Piper Sandler Companies - Analyst : Congrats on a nice finish to the year here, guys. Raul, I want to start with the EPS guidance. I've gotten a few questions here. I think it's the one thing that maybe surprised folks just given how strong the business has been because it's a little bit lighter than the Street. It seems like maybe some of that's coming from the accounting on the convertible note. But are there any other factors that you'd identify as maybe influencing the conservative EPS guide or things that we should be thinking about that maybe weren't in Street models before today?

Question: Jason Bednar - Piper Sandler Companies - Analyst : I want to take a stab at something here. I know just if we take a step back and think about the '26 margin targets that you had out there, the business is already looking different today than it did a year ago due to M&A with EGS and Cook. Also, you've got Wrapsody in there. I guess is the 20% to 22% margin target still the right range to use? Or maybe I should ask, do you feel better at the upper end of that range or the midpoint or better of that range in light of the benefits that you're seeing from some of these factors?

Question: Larry Biegelsen - Wells Fargo Securities, LLC - Analyst : Where should I start? On OEM, Fred, really strong 22% in Q4. I imagine these are like long-term contracts, Fred. So how should we think about OEM growth in 2025? Is that a good jumping-off point? In other words, that 22% for the next few quarters until it laps in Q4?

Question: Larry Biegelsen - Wells Fargo Securities, LLC - Analyst : One on Wrapsody, multipart here. So just early feedback, Fred, on Wrapsody. I think, Raul, you said you'd give us sales by quarter. And just lastly, Raul, the -- you said the 5% minimum organic. I seem to recall that doesn't include Wrapsody in the US. So Wrapsody contributes about 60 basis points this year. Is that the right way to think about it? Thanks for taking the question.

Question: Larry Biegelsen - Wells Fargo Securities, LLC - Analyst : Yeah. Any early feedback, Fred? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 25, 2025 / 10:00PM, MMSI.OQ - Q4 2024 Merit Medical Systems Inc Earnings Call

Question: Steven Lichtman - Oppenheimer & Co., Inc. - Analyst : Gross margin was a standout in the quarter. Wondering, Raul, what gross margin is implied in the 2025 operating margin guidance? And if you could talk about some of the drivers you're seeing on the gross margin line?

Question: Steven Lichtman - Oppenheimer & Co., Inc. - Analyst : Unit growth?

Question: Steven Lichtman - Oppenheimer & Co., Inc. - Analyst : And then I guess just building on that for the second question, what are the types of investments that you're making in Wrapsody this year? I know you talked about sort of the training seminars. Can you talk about, I guess, qualitatively, I guess, some of the things that you're doing to lay the groundwork?

Question: David Rescott - Robert W. Baird & Co., Inc. - Analyst : Congrats on the strong finish to the year. Two questions from us, and I'll ask both of them upfront. First, on Wrapsody, I want to make sure I heard it. Clearly, you have the guide for revenue set this year and the -- that you laid out today and the 7% to 9% would be incremental on top of that from Wrapsody. If that is the case, would it be fair to assume that any incremental kind of margin benefit that you could have from that would also be an upside to the EPS guide that you set for the full year? And then on the Endoscopy segment for the guide for the full year, I'd say maybe it was a little a touch lower than what we were kind of assuming. So I'm wondering if there's anything you can talk about on Endoscopy, either as it relates to the underlying business or the EGS deal and how that's being integrated when you thought about setting out the guide for Endoscopy this year? Thank you.

Question: David Rescott - Robert W. Baird & Co., Inc. - Analyst : Yes. Okay. That makes sense. Sorry.

Question: Mike Matson - Needham & Company - Analyst : I guess I want to start with the currency impact you're expecting to revenue this year. I think you said 20 basis points. It seems kind of low relative to some of your peers. I mean I've seen companies talking about 1% to 2% headwinds in '24. Can you maybe talk about -- I don't know if you're doing any kind of hedging on the revenue level or something maybe.

Question: Mike Matson - Needham & Company - Analyst : And then just one on Wrapsody. I know you've given guidance for the US, but -- and I know you're probably not going to give any numbers for OUS. But what I am wondering is, has the data from the pivotal trial in the US helped at all outside the US? And what -- just how well is the product doing in international markets? I know it's kind of a pricey product. I don't know if that's kind of an obstacle in some of those more price-sensitive markets.

Question: Jayson Bedford - Raymond James - Analyst : It's Jayson. A couple of questions here. Was there anything anomalous or one-time in the very strong fourth-quarter gross margin number?

Question: Jayson Bedford - Raymond James - Analyst : What's left to do from an operational standpoint to integrate Cook and EGS, if anything?

Question: Jayson Bedford - Raymond James - Analyst : And just lastly, I know you've called out SKU rationalization, I think, last year. Is there anything notable around SKU rationalization in '25? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 25, 2025 / 10:00PM, MMSI.OQ - Q4 2024 Merit Medical Systems Inc Earnings Call

Question: John Young - Canaccord Genuity - Analyst : Congratulations on a strong end of the year. I just want to first start on Wrapsody. Did you guys get the TPT application in before the March 1 deadline yet?

Question: John Young - Canaccord Genuity - Analyst : And then the supply chain challenge you highlighted on the OEM OUS business, obviously, did not really materialize. Should we still expect any impact going forward in 2025 of any supply chain challenges?

Question: John Young - Canaccord Genuity - Analyst : And then maybe I could just sneak in a third. You were pretty crystal clear on the tariff impacts are not included in the guidance today or you're not really going to quantify anything today. But more high level, just the ability to move manufacturing for you guys from Mexico to other facilities like Ireland or Utah, what is the ability to do that for Merit? And maybe have you taken any near-term mitigation or hedging efforts at this point? Thanks again. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 25, 2025 / 10:00PM, MMSI.OQ - Q4 2024 Merit Medical Systems Inc Earnings Call

Question: Michael Petusky - Barrington Research Associates - Analyst : So Raul, I may have missed this. I was briefly distracted if you've addressed this, forgive me. But the R&D expense, I'm assuming the pop-in that in Q4 had a lot to do with Wrapsody activities. But can you just sort of speak to that and then sort of speak to if this is closer to a new normal or if it's likely to back off as we head into the first half of '25?

Question: Michael Petusky - Barrington Research Associates - Analyst : And then I'm wondering the cadence of CapEx. Obviously, it's going to be a number this year. Do you have any guidance first half, second half? Or just where that's likely to sort of come in because it will really matter in terms of free cash generation. Thanks.

Question: Michael Petusky - Barrington Research Associates - Analyst : Congratulations. It really was a fantastic year and quarter.

Question: Jim Sidoti - Sidoti & Company - Analyst : Just following up on that CapEx question because I think I heard you say CapEx at $90 million to $100 million for the year, which is about double -- a little more than double what you've done in the last couple of years. What do you get from that distribution center? How is that going to help you?

Question: Jim Sidoti - Sidoti & Company - Analyst : It sounds like you're still going to generate some pretty good strong free cash flow even with this increased CapEx.

Question: Jim Sidoti - Sidoti & Company - Analyst : So the last couple of years, a large part of that has gone to debt paydown. Will that be the case again in 2025?