All right. Good morning, everyone. I'm Jason Bednar. I cover med tech here at Piper. Next fireside chat's with Merit Medical. Very happy to have with us the senior team here, Chairman and CEO Fred Lampropoulos, CFO Raul Parra, and COO and President Joe Wright. Gentlemen, thanks for being here, all three of you. Really appreciate it.
Thank you.
Why don't we get right into Q&A? Fred, I'll start with you. Your stocks enjoyed a great move this year. But before we get into a lot of the questions I have on the business and, of course, WRAPSODY, and I'm sure you'll answer all my WRAPSODY questions, maybe you could just start. What's the feedback you're getting from investors? How are investors viewing your business today, both from those that are involved and those that maybe aren't involved?
I think that a lot of people are complimentary. I think something we've always taken pride in, that's the ability to adapt, to change, to rethink what we've done in the past. I think we've done that over the last three or four years. I think our Foundations for Growth was a very successful focus program in which we could all align both compensation with every single employee in the company. Then I think it was so successful we decided that we wanted to continue that focus. We came out with the CGI, which is Continued Growth Initiatives. The very same things that brought us to the party, price, uptake, SKU rationalization, all of the things that I think were successful. As I said yesterday, having a good board with experience that's been through it has also, I think, been extraordinarily helpful.
Excellent. Why don't we talk about the core business for a second, and feel free to, any of you three, to jump in. Just help with some of the key demand trends at the patient level that you're seeing across some of your key markets, U.S., Europe, and China, and then I think you built some conservatism into the expectations for the fourth quarter to account for hurricanes and the IV fluid shortage that we were hearing about early back in October. Do I have that right, and can you say whether or not these?
Yeah. Let me have the guy that has the only 90-day contract at Merit. You make your quarter or you have a new job. So Joe, you want to pick that one up? And we'll talk about your longevity right after this.
Wow. Thank you. Yeah, demand trends.
No pressure.
Demand trends in general look good. We've got the challenge in China with the VBP, but the procedural growth is still there. So that gives us confidence that once we get through that, then it will reset the business and grow from there. U.S. procedure trends look as expected, nothing too exciting. But I think we've been able to outgrow the market just by taking market share. We have a number of portfolios where we have 10% or less market share. So we're really focused on taking market share there. So we're outgrowing, I think, procedural growth rates in the States. And then Europe is interesting. It's sort of the same, not exciting procedural growth, but also able to take share there. So I think all geographies are operating pretty well.
Raul?
Yeah. No, I think things are progressing, I would say, as expected. In certain cases, maybe a little bit better than anticipated. I think when you look at China, we're dealing with volume-based purchasing. It's as expected, but the volume continues to be better. So we continue to exceed that. OEM has rebounded nicely. First half of the year, it was kind of a demand issue as customers level set their inventories. Second half of the year, we see the demand. We have the orders. We just have to be able to ramp up manufacturing to meet that demand. And so I think things are going well. And we're excited about how the business is doing.
And Jason, if I could just say in closing, I think some of the things that Joe has done with the help of a lot of people, but in terms of the verticals, being able to put together a group like the Renal Therapy Group, because we have such a broad portfolio of products, it's really helpful to be able to take and get these guys to focus. And so being able to take five or six products, put them together, and I think we carved out the AngioDynamics deal. And with the WRAPSODY coming, you have enough for people to make a good living and be focused on eight to 10 products that are all high margin, and all of them are growing. So I think those kinds of things. And you're in-house, Joe, you're in-house.
Yeah.
Do you want to comment on that?
Yeah. We're really focused on making sure our commercial channel is optimized for the environment. As Fred mentioned, we have a broad portfolio. And the challenge there is not getting adequate focus from the sales rep. So over time, what we've done is try to break out targeted selling groups, whether it be our renal therapies group or the newly created Cardiac Therapies Group, which was really spurred by our acquisition of some Cook lead management assets. And to Fred's point, we're building out an inside sales team. So really looking at this omnichannel concept where we can service some of the lower, I guess, lower margin, perhaps less differentiated products through a less expensive sales channel. So that's something we piloted in Europe. It worked well. And we're kind of doubling down on that in the U.S. heading into 2025.
Why don't we zoom out? I'm bringing this up with every company here, so I'll do it now and we'll get it out of the way. There's some pretty jarring policy proposals out there from the incoming administration, TBD, on whether they'll actually be implemented or go into effect. I guess, Fred, we kind of talked about this a little bit yesterday as well, but are there any policy considerations out there that we should have in mind that would impact your business?
Yeah. First of all, you should talk to Mark Leahey at MDMA because he has all the answers. And that's where my source of. Listen, I think our position on this is we've been through it before. And we've been through, I don't know how many presidents and how many administrations and so on and so forth. I think a lot of it is posturing. We'll see when we have the facts and how the company other than that, it's just hypothetical and speculation. And who knows? I mean, nobody knows. But it's there. And we'll deal with it just like we always have.
One other thing I think is important, and that is Merit, because of our international structure, whether it be China or any places that start, we can pivot pretty quickly and take our products and say, "Okay, our focus will be for the next year, 18 months, two years, whatever," in the areas where there's more opportunity. We may say we'll put more investment here in the U.S., either in acquisitions, products, or sales force. So Merit's always had we can pivot with the best of them. I think it's maybe one of the strongholds of Merit's success has been that ability to kind of rethink things and to pivot when necessary.
Of course. And Raul, just on the topic, everyone's asking about tariffs. You have obviously an exposure in China. You've got manufacturing in Mexico. I guess a lot we still don't know, but how are you thinking about it as CFO navigating potential tariffs on some of the markets in which you play in or you manufacture in?
Yeah. I think honestly, right now, I think there's probably more questions than answers. I think we're obviously operating at least in the Americas under the USMCA. How does that play into it? We have maquiladora status in Mexico, which gives us some protection and some benefits. How does that play into it? And I'm not sure how many people know this, but as part of that status, the U.S. retains ownership of that inventory. And we pay a service fee to Mexico. So what does that mean for the tariffs? We send raw materials down there. And then in certain cases, we get a finished good. In certain cases, we get WIP that we finish here in the U.S. So how does that factor into it? So there's honestly a lot of questions.
And until we get the details, it's really hard to quantify what the impact will be or can be. But I think to Fred's point, we're really good at pivoting. Once we know the details, once we know the answers, then we can adjust for it. And we're all marching to that three-year plan for continued growth initiatives. That's where we have our eyes and are focused on. And so we'll adjust and pivot as necessary.
Got it. Joe on China, it sounds like China volumes are maybe a little bit, as Raul, I think, mentioned a little bit better than expected. VBP is still there. That's been a headwind. It's been a headwind for a few years now. But I think maybe in prior conversations, Fred and Raul have signaled that 2025 might be the last big year for VBP. I don't know if we fully go away from it ever. But is that the right way to think about VBP as we look out intermediate term that we've got one more year to really deal with this price down, volume up, and then we kind of normalize from there?
Yeah. In general, I think that's accurate. Although I would note that it's a very dynamic market. Things change pretty quickly. We do expect to have impact into 2025 for sure. To the extent it goes away or the impact is less, then that's more difficult to predict. But some of these VBP tenders will be coming up for, I guess, the second round. And that's when we'll learn really what to expect going forward. I know some other med tech players that were hit earlier on are already seeing that. But it's so variable depending on the segment you play in that it's, I guess, it would be irresponsible to speculate past 2025.
What's the competitive environment like for the channels in which you play in China?
Yeah. The competitive environment is very heavily tilted towards local manufacturers. So we're seeing an explosion of local competition in many of the product categories we play in. What's more difficult to predict is how they can react to awarded volume-based on a tendered price that is very low. So to the extent they can't meet that demand or meet that demand with a quality product, then I think we stand to benefit. So that script is yet to be written. But we feel good about China long-term.
Jason, let me say that we have the ability and all the companies do to say no, so there was a bid that came out. We said, "No. It's not going to meet what we need to have," and so on goes the bid, and next thing you know, they're calling us up saying, "Well, you know what? We've given this a little more thought. And if you guys would like to raise this up a little bit, we would really like you to do that," so these are all the sub stories that are going where they're trying to do things locally, and the other thing I think is important is we don't manufacture in China. Now, for years and years, people say, "You got to be there. You got to do this.
You got to do that," and then you see next door, they're building a business that takes your products and know-how. We chose not to do that, but we haven't given up on China, and as an example, if you take a look at the Cook acquisition, our guys over there are going kind of crazy about the ability to do lead removal, which they don't have a competitor there. So again, going back to pivoting, it's already registered there. There's things that we can do and select and train. We just got back from a trade mission with Merit personnel. I think we sent over five, six, seven, eight, and the issue, and I don't want to go into this in any deal if it's okay with you, but remember the physicians and everybody was terrified and all the corruption, all the things that were going on.
We had 20 or 30 doctors. We were training them, showing the new products. We were well received. They were excited that we were there and we play things straight up. We did everything in the compliance manner, and all our compliance people looked at it, but we're not afraid to go there. We speak the language. We understand the customs. Joe's been responsible for it for almost 20 years, so China's not new to him or any of the APAC stuff. I think those are factors that often aren't considered.
Our investment too, right? I mean, we've been shifting investment away from China or trying to find a more balanced approach. I mean, I think for the last couple of years, Leon who runs the APAC area has heard no more than he has the first 15 years that he's been here. So we're making sure that we're paying attention to that and trying to balance things out.
Okay. All right. Pivot over to WRAPSODY. Are you impressed? We're halfway through, and I haven't asked a WRAPSODY question yet.
I can't answer that question either.
Well.
Listen, I think we said maybe remember we started on the WRAPSODY seven or eight years ago, 10 years ago. It's fully integrated. We make our stents. We make our own PTFE, our ePTFE. We do all of that because we didn't want to be subject to any of these kinds of issues because what we felt would be the potential of opportunity there. We're 20 days away from the 180 days. That's all public knowledge. We've gone through the inspections. We've gone through the audits. We've gone through all those things. We would like you to write the FDA and say, "Please approve Merit's product on the 23rd of December." It would be a wonderful and a very appreciated Christmas present from all of you. Please. I think we're on track. One other thing that I think is overlooked.
We've been selling this for a couple of years in Europe and in South America and in Australia. But maybe more important than all of that, you've got to look at the data. Now, I don't know how much time any of you spend on looking at the data. We're talking about 27 points of difference in the pivotal trial. Not 2.7, 27 points. As one of our physicians said, this needs to be the standard of care. I didn't say it. He said it right at the conference. So that's all public record. It's a great product where you have manufacturing capabilities. We've been gearing up properly. And we're ready to go. So that's the good news. And on this vertical, remember we talked about how we did the Renal Therapy Group with peritoneal and with the Surfacer and the HeRO that group of products.
This fits into that, and we've been investing, building that out, so you're not going to see this in terms of SG&A cost because we have the products that help to pay for the salespeople. We've been doing all the training as part of our expenses now. We didn't want to say, "Everything's going great. Oh, don't pay any attention to this," because we planned for it. We thought it out, and we had the taskmaster here with the WIP saying, "Well, you can't do this, and you can do this." Of course, we always follow whatever Raul says, as you all know.
As you should. That's impressive. That's impressive. I didn't even ask you a question about WRAPSODY.
Did I give you an answer?
You gave a lot of answers. I want to.
I'm going to be quiet now.
No, you're good.
We can do this an extra half an hour and we'll.
I wish we could. You anticipated a lot of what I was going to ask. You had the audits. You've had the inspections. Can you say whether that 180-day clock has stopped at all?
Yeah. It has not stopped.
Hasn't stopped.
It has not stopped.
So they have not come to you with questions that would stop the clock?
They have a lot of questions and follow-ups. And it's not. The clock has not stopped.
Okay. All right. Excellent.
I mean, that's their job is to go through and clarification and this, that, and the other.
Sure. Yeah. Okay. When did you last connect with the agency on WRAPSODY?
None of your damn business.
That's more likely.
We talk to them daily.
Raul, I don't want to. I got a little buffer here. Are you ready to launch WRAPSODY upon approval?
I think that's a better question for Joe. So I'll let him answer. But we've been making the investments. We did the acquisition with Angio. And I'll let kind of Joe kind of speak to the plan that he's created and what we're kind of all gearing up for.
We call him 90-day Joe. That's right.
Yeah. So we're ready. We've been anticipating approval for some time now. We started building out this group last year, accelerated that into this year. I think as we've gotten closer, we've been able to attract some really good talent in that group that has more specialized experience in this space. We've had just as recent as this week, we've had the group in for role-playing, training, all the things you do to prepare for a launch. We've had physician input helping with answer potential objections. So yeah, we're doing all the things that you would expect a sales group to do to prepare. And yeah, we're excited and ready to go.
We're ready.
All right. Raul, this one probably definitely is for you. This is the thing I want to be sensitive about. I know you would want to be sensitive too. You want to make sure expectations on WRAPSODY don't get too far ahead of themselves for 2025 and beyond before you even launch the product, right? I know you want to be sensitive on answering questions here. But if you can answer this one, do you think we need to see reimbursement add-ons take effect before adoption really begins with WRAPSODY?
I think we'll get into all those details post-approval. But look, everybody's seen the launch of these type of therapeutic products. You've got VAC committees you've got to get through. You've got things that you have to do in that initial launch phase. And so reimbursement will play a part of that. You have to hold the pricing until you get confirmation on reimbursement. That's just the nature of the game. I think you guys all know that. But we'll give you guys the ramp rate and what we expect once we go post-launch. So I think I half answered your question.
Okay.
One other part of that. We do have '14 and '16 that nobody else has, so we have something to offer customers in addition to the data and the product and the reliability and things, I think, that we, because we've been doing this for a while. We do have those sizes that make a difference, and they have nothing else to treat it with, so I think that's an important point.
Okay. All right. Fred or Joe, when you launch WRAPSODY, what do you think it does for the rest of your portfolio, and I ask it kind of in the context of those that are really optimistic would say it has a halo effect. It helps build up the rest of the portfolio. The skeptics would say all the focus on WRAPSODY is going to have a detrimental effect on everything else in the portfolio, so I got a feeling. I know how you're going to answer it, but I kind of want to hear how you're thinking about those two factors that are interplaying against each other.
Yeah. Sure. It's an interesting question. I think at a macro level, this being our first PMA device, it enhances the brand equity of Merit. I think it's a signal to all of our call points that we're ready, willing, and capable of playing in a therapeutic space. And what we want to emphasize is this is not sort of a one and done for us. We've got exciting things we're working on that are follow-on products to this. And so I think in general, that's a good message. And that's a positive macro story that customers, physicians, key opinion leaders. It ups our game at conferences and all that. So I think we'll get more attention to the rest of the portfolio.
I guess on a more micro level, given that we've broken out this Renal Therapies Group, I think it will certainly accelerate the adoption of those products in that bag. That was really the intent. I'm not worried about really sort of taking mindshare or anything of that away from our other products because we have that dedicated sales force. I think in general, it's all positive.
Okay. All right. Raul, I'm going to take a stab at a few items here. So I think last year you announced Prelim Financials mid-January. Is it reasonable to expect you'll keep with that pattern again this year?
Look, I think we are obviously going to present at J.P. Morgan. So we'll let you guys know how revenue shook out. So we'll give you that. And then we'll give our guidance for 2025 as we always do in the February meeting. And so I think that's what you should expect.
Okay. All right. That's helpful. So we'll look at CGI right now. I think 5%-7% top line is the target. You're tracking, I think, to the midpoint this year. So that's despite SKU rationalization, despite China headwinds. When I look to next year, I think the street's only modeling 5.5% organic growth, at least when I run the math. Maybe it's a little bit of an extension of the growth profile that we're exiting the year for Q4 a little bit lighter for a few different reasons on how you've guided. But I mean, is that the right level that everyone should be baselined on?
I'm not going to bite on that one, but nice try. Seems like a good number.
Is there a reason the business decelerates next year?
No. Look, I think 5%-7% is something that we set out there that we think is realistic and achievable. Obviously, we were, as you pointed at the beginning of the year, we were kind of on the low end of that. I think we're finishing stronger than we anticipated. I would just generally say that we continue to target that 5%-7% for CGI. We're focused on that.
All right. And then feel free to maybe I'll even poll the three of you. You've got some key metrics within CGI: revenue, margin, cash flow. Which one do you feel most confident in hitting? And I'll let you go first, Fred.
Revenue.
Revenue.
Cash flow, and margin.
Are you saying all three or is it the order?
Yeah. All three of them.
Okay.
I mean, listen, we weigh them. And we are compensated. And everybody in the company is on that same program. So you miss one of them. So we're focused on all of it. That's why we put it out there. And so it's all three. I mean.
Yeah. I mean, you're looking at three guys and three targets, and we don't like to miss.
Okay. I know you don't. You got a good track record, so.
So yeah. I mean, I'd say we're focused on all three. And there's a reason we guide the way we guide. I think we like to set targets that are realistic and achievable. I would kind of maybe go back to your first question that we started with on what we're hearing from investors. And I think what we've seen from investors and what we hear from them is that in the environment that we've been in, especially over the last four years, they like the predictability. They like the performance that Merit has delivered. And so our job is to continue that. And we have discussions every day. And we work towards making sure that we're going to hit those targets that we've outlaid. And that's the focus.
Sometimes every half hour.
Yeah. Yeah.
Well, that's exactly. That's a good summary. And again, the predictability and the execution track record is a big reason why I think your stock has done as well as it's done. So again, my opinion. But again, for whatever it's worth. But we are out of time. Gentlemen, thank you so much for joining us here today. Really appreciate it. Everybody, thank you in the room also.
Thanks, everybody.
Thank you.