Thank you for joining us today. My name is Harry Pearson. I'm a member of J.P. Morgan's Healthcare Investment Banking team. I'm pleased to be with Fred Lampropoulos and Raul Parra, Merit's CEO and Chairman and CFO. They're going to give a short presentation, followed by Q&A. Fred, do you want to take it away?
Thank you. I'm going to step up here.
That's great.
Okay. If I can get out here. Okay, good afternoon, everybody, and thank you for having us. We're delighted to be here. This is going to be the shortest presentation of the day because kickoff is in five minutes. So, I'm going to whip through this pretty quickly and answer whatever questions that you might have briefly. So... Okay, well, there we are. That's 30 years ago when we were younger, and let's just talk about our business. Merit is a diverse global company with really literally thousands of SKUs that cover the endoscopy business, but primarily interventional cardiology and peripheral medicine. We also have an OEM division, which is about $150 million. We reported this morning our fourth quarter, which I think beat the street estimates by approximately $10 million.
You can do the math and take the third quarter, and you can look at where the numbers are. The first thing I'd like to say is that we have, I think, just finished our Foundations for Growth program, which was a three-year program for corporate improvement and profitability. I think we did an extraordinary job. We hit all the goals, essentially, that we set out to do, which were revenues, operating profit, and free cash flow. And we were able to do that despite the challenges that we all saw, of course, with supply, what we saw with COVID. All the things that went on, we were able to hit the bottom end.
We did guide initially to the bottom end of our guidance and said it would have to be priced for perfection, and I think it's fair to say that there was no perfection over the last three years, except I think Merit did an extraordinary job of building the business. I'll let you peruse these categories, and I'll move on. Merit is located in Salt Lake City. We have global manufacturing in Ireland, Singapore, France, the Netherlands, Mexico. Merit operates their business through a direct sales force, so we have some 500 or 600 people in various aspects of our business throughout the world, in which we sell products. We do use some distribution, mostly in Eastern Europe, and we have modified direct models, throughout places particularly in Asia.
But the important thing is, we're very, very close to our customers. I started the company, and I think it's worth saying, in 1987. I always like to say that our initial public offering was about $2.4 million. That's what we started with, and I think that is an extraordinary accomplishment to get where the business is today, and I think we've also had 8 or 9 splits along the way. So I think we have done extraordinary work over the years of building out products, almost somewhere around 800 patents. So it's been a lot of fun. So that I won't forget to say this, we've recently announced a succession plan. I have 2 years remaining on a contract with Merit, the first contract I've ever had.
We've been meeting with investors all day long. We have made some statements recently about the process that we're involved in and what we're going through and how we're going to do it. It was brief, but we have advisors. We have people on our board with experience in terms of these things in large companies, particularly Lonny Carpenter, who was with Stryker. And we have, I think, an extraordinary board. Now, I know probably everybody says that. These guys are tough. These women are tough. This is a good, functional board and one that I'm very proud of, in all their work. We have a number of products. I think innovation has always been Merit's key point. Our ability to come up with at least 10 new products every year internally, and then finding the right type of bolt-on acquisitions.
I'll talk a little bit in a minute about one of those acquisitions, which was our most recent, to give you a little color on that. If on our OEM business, which is about $150 million, that particular business includes almost all the companies that are here at this conference today. So all the device companies, you know who they are, they're all here, they're all of our customers. And what we do there is sell capacity because these are things that we've been building for years. As I mentioned, we're in Salt Lake, but we're well automated.
We do our own molding, we do our own braiding, and I think that was particularly helpful during the last 3 or 4 years when there were all the supply chain issues, and we had the opportunity, to really take advantage and to build upon our, reliability with our customers, in building our business. And as many of you know, who have looked, our OEM business, I think, in the last quarter is around 13%, but it ran as high as 18% last year. So we had a pretty big. Well, I think it proves what we're saying about reliability. People needed to know they could get products, and that's something that, we do very, very well. We have done a lot of acquisitions.
I'm happy to say that in the back of the room, I have two members of my staff, my chief commercial officer and my head of my business development. We've been able to move, and as an example, the Bard transaction, Becton Dickinson transaction, sold their soft tissue biopsy. It was in three countries, in six different sites. We had to relocate it to our facility in Mexico. We did so on time and on budget, an extraordinary effort without missing a single order to a customer. And again, this is. I'm sure this is not correct, but as correct as I can say, without missing a single order to a customer. There may have been one for a day or this or that, but it was done to almost perfection.
Again, in terms of the things that we look for, they're consistent with our sales force, with our products, our technology, but we're not on expeditions. We're not looking for some way just to create revenues. As you all know, Merit, this last year has been, I think we guided from $93 million to $96 million or something like that. Raul, you wanted to speak to that quickly?
Yeah, 8% to 9% growth, and we'll show you the results.
Okay, you might need to hit that.
I think it's on.
Okay.
Just get a little closer.
Okay. So yeah, we got it to 8% to 9% reported growth. You'll see the results here in a minute, but just to highlight, you know, we hit 9.93 to 9.6.
Okay, this talks a little bit about the various acquisitions, but I could go on to Cianna, which is in our women's health. We could talk again, and I'll talk in a moment, about the AngioDynamics. In fact, I think it's probably a good time to talk about it right now. With the AngioDynamics deal, it was a deal in which we'd identified an area, in a product area that fit into our strategy that has to do with Wrapsody. I'll come back to Wrapsody. What it included was our peritoneal dialysis, acute dialysis, chronic dialysis, Surfacer, the HeRO. These are all products that are treating end-stage renal disease. And then we have a new product, which we, have been selling in Europe for the last couple of years. We launched it right in the middle of COVID, in which we have fully enrolled our study.
In about 30 days or less, we will have the data in. We will review it, organize it properly. We've already submitted to the FDA on a modular basis. This is a big deal. It was all developed, conceived, and built, including PTFE. And again, back with our OEM strategy, we build all the componentry, we build our own stents, we build our own catheters, and again, something that I'm very, very proud of in our business. It's operating and has been transferred by Mr. Fredi, and is currently residing in our facility in Mexico, and meeting or exceeding our expectations. I'm not gonna spend a whole lot of time here. Recent performance, Raul, I'm gonna let you do this.
Sure. Yeah, as I highlighted earlier, you know, through Q3 year to date, we grew at 9.6% on an organic, constant currency basis. I think we were probably one of the few companies that had gross margin expansion at almost 190 basis points. This is, as Fred mentioned earlier, the last year of our Foundations for Growth program, which called for 5% to 7% CAGR on revenue, 18% to 21% operating margins, and a minimum of $300 million in free cash flow. So a really nice, strong finish to that program. Operating margin expanding at almost 140 basis points.
And then also, you know, having that flow to earnings with, you know, net income or earnings per share growing at almost 15%. Guidance, I talked a little bit about this, just real brief. 8% to 9%, you know, growth, is what we had projected. This morning, we pre-released our earnings. Fred, if you wanna take me to the next. And we ended up doing 9% to 9.4%, the range that we guided to. Constant currency revenue was 9.6% to 9.9%. So really, really strong finish to the year, and outstanding growth, which is, you know, something that we're known for.
And Raul, let me just say that it was not our earnings, it was our revenues, and we will report the earnings as well as our new three-year plan on March the twenty-eighth. So we'll give the final audited numbers, and then we'll report out to shareholders our new growth program for the next three years. So we have been, I think, successful. All of our employees are engaged. They're all incentivized, every single employee by our program. And I think the thing we've learned that we actually already know in this room, everybody knows that if you align those incentives and people feel like they're part of the process, they'll, they're going to perform.
We know that to be a fact because that's exactly what we did, and we have every single employee, from production all the way up to our offices, in which everybody's incentivized and knows how the company's performing. We do quarterly and sometimes monthly company meetings globally to let people know how we're doing, and we have found that that communication, which we enjoy doing, has really been helpful to let people be engaged in the business. Let's see here. Summary. Okay, well, listen, you already know about our top-line growth, and we have a very good track record. We've made a few mistakes over the years, a few, but as I think the song goes, too few, many to mention. That's not always true with shareholders. We had a couple of things. We stubbed our toe in 2019.
We recovered everything within 2 quarters, and we haven't missed anything since. And then we put our Foundations for Growth. Incidentally, before we announced that, the year before, we already had our own growth program that Raul and I developed. And I have to give Raul a lot of credit. He's the kind of CFO that everybody wants to have. He drives me nuts. He drives me crazy. He gives me data. He says, "Would you think about this? Would you think about that? Why aren't you doing this, this, and that?" And I think we have that kind of relationship that we can bounce things off. He's not always right. He's not always wrong. And so I think we have that kind of rub, and we. What's the thing? We try to yell at each other at least 3 times a day.
Three, three fights a day, or we're not doing our job, so-
Yeah.
So far, we've met that every day.
We're being a little facetious, of course, but there's a lot of truth to what we're saying, too. Listen, the rest of it is just numbers, and you guys,
That's all.
know how to read all this stuff. Do you wanna comment on any of this?
No. It's all the legal requirements, so, you know, you can read those on your own time.
Okay. We've got a lot of time left. I said I'd get you the football game, but we can take a couple of questions, and we'll be on our way.
Definitely. Definitely. Thank you. So we'll open this up now to questions from the audience, and if there's any, don't be shy.
Yeah, I forgot to say that they can't-
Yeah
Leave until they ask questions. We have a rule in the company. You have to ask at least three questions before the meeting is over. So who's gonna be the first? Sir.
There we go.
Wonderful presentation. Thank you.
Yeah, it was a great one, wasn't it?
If you'd like, there's a microphone here, if you'd like.
Oh, thanks. Does Merit have an embolic program? Do you make embolic things?
Yeah, it's a good question. The question is, do we have an embolic program? Actually, for bland and loadable, embolics, Merit's actually the market leader. We also have PVA, we also have gel foam, we have other types of, products that we'll talk about in our, February meeting, that fit this. So we have a lot of products, and it's, an area that not only, you have to have the embolic, but we have all the delivery systems, the micro catheters, the guide wires, all of those things to deliver those products, and a number of programs, development and studies, and those sorts of things that are underway as well. Thank you for your question, sir. Okay, two to go. Let's go. Come on, chop, chop.
Here, Fred, I can tee one up for you.
Oh.
It seems like you have been very diligent about how you've grown your portfolio, even though it has an impressive amount of growth. What are some of the guiding principles for you all as you've developed and as a leader in the interventional space, and it seems like you really know the wheelhouse you play in and where it's a field that's just not appropriate for you?
Yeah, let me go back to the beginning. The question is, is about products and the ones we've developed and what's the formula. Really interesting. We're the market leader in inflation devices, so if you're delivering a stent or you're blowing up balloon, Merit's the market leader, and we're competing against Boston, Medtronics, Cook, Abbott, and we're the market leader. How have we done that? And the answer is, look, you look in a parking lot, you see really nice cars, you see trucks, you see crossovers. We've segmented the market, and we have digital, we have analog, and we come out with a new product, you know, every two or three years in that particular area. But the one that really... We were the first to do digital. One that's kind of an interesting product.
We have a little syringe. We call it the Medallion Syringe, and it comes anywhere from 0.5 ml all the way up to 60 ml. I remember going to my marketer, they were marketer at the time. There were only four of us in the business, and I said: "You know, we've had such success with our control syringe. What do you think about having this particular product?" And they would build it. We'd make this available. "What do you think?" And they came back in a couple of weeks later. By the way, a great marketer, and I mean this sincerely, she was really good.
She just retired last week, and she said, "Fred, I don't know why someone would pay, and my research tells me that no one's gonna pay $2 to $3 for a syringe when they can buy a BD or somebody else's syringe for $0.25 made out of propylene." And I didn't believe her. We built the tools. We took the risk. I think we're gonna sell a few of them this year, about 30 million. So I think it's really understanding the market, and I think it's being in the lab. You know, just like anything, it's I always say, if a CEO is not at the trade show and he doesn't know what's going on, or she doesn't know what's going on in the business, you've got to be out on the fire line. I'm an infantry officer. I've been shot at.
I have to be up front. I have to understand the battlefield. I understand my customers, I understand their needs by simply observing, discussing, and then doing things that others don't see. We connect the dots. But we've done it across the board for 35... It wasn't like one and done. We've done hundreds of these kinds of products, in which we find things that people have a need for, that are unmet, that, the bigger companies don't care about, so it doesn't move the dial, but it does for us. Raul, quick comment.
Yeah, I mean, I think, it's a really, you know, well-thought-of portfolio. You know, you go from your head to your toe, from access to delivery, you know, to patching you up. If you need to deliver a therapeutic device, there's a good chance you're gonna have to use one of our products.
In almost every single case, there's a Merit product on the table, either from an OEM customer or our product, head to toe. I like to call it stick to stitch. You can be delivering all kinds of products, but you gotta get in there, and you gotta get out, and that's an area that no one has much interest in. Merit's become a market leader in that area just because we cared, and we built products to meet customer needs. Last question of the day. Should we make it these guys?
We should. Anyone else?
Come on. Lock the doors, please.
... Who you got, Washington or Michigan?
You know, I am going to go for Michigan. Although I went to see the boys in the boat and saw that Washington rowing team, and I do have some sympathetic leanings towards Washington. That doesn't count as a question. Nice try.
If no others from the audience or online, I think one interesting thing to hear would be, as you think about capital deployment in 2024, what are some of your priorities?
Well, the first thing we did, as you know, we just finished, and J.P. Morgan led a convertible. You know, Raul and I talk about this. We've probably thrown 50 people out of our office over the last 20 years, wanting to show us. But what we're able to do is take those wonderful booklets that they bring, and they make wonderful ways for us to heat our homes in Utah in the wintertime. And, so listen, we had some debt that was, six percent margin to seven. We have a revolver and a term loan. We paid most of that off. We have to unwind a hedge, but the, in essence, we paid off that debt.
And then we just simply said: Look, there'll be opportunities and as we know, and I think you as well, probably better than us, that you always look for money when you don't need it, because when you do, it's a little difficult to get it. So we, I think, have dry powder. We have opportunities, and with all the various things that are going on on the other accesses to capital from companies, we thought this would be a good time. We met in the hallway, and we said: "I want to talk to you about something." We sat down within 10 minutes, and then 10 minutes after that, we called J.P. Morgan. We'd never done... Well, actually, you guys have been on the sell side.
We've bought a couple of things, Cianna, BioSphere, but I think this was the first transaction we did, and they did an extraordinary job, I should say. Okay, anything else? Ladies and gentlemen, enjoy the ballgame. Be careful. And by the way, I'm a Red Sox guy. They will win the World Series this next year. Thank you very much.