Good afternoon, everyone. I'm Robbie Marcus, the MedTech analyst at J.P. Morgan. Really happy to present Merit Medical. We have new CEO, Martha Aronson. Martha is going to give a presentation, then we'll do some Q&A after. Martha?
Great. Well, thanks very much, Robbie, and thank you to J.P. Morgan for the opportunity today to speak to you all. Here's our forward-looking statements, as well as our non-GAAP financial measures. So let me start by just saying that I'm extremely excited to be here today as the new CEO of Merit Medical. I'm joined today also by Raul Parra, our CFO. Raul has been at Merit for about 16 years and has served as our CFO for the last seven and a half years. So for those of you I haven't had the chance to meet, again, my name is Martha Aronson, and I was appointed CEO on October 3, 2025, succeeding our company's founder, Fred Lampropoulos. I've actually been in the industry for several decades now, having worked at Medtronic and Hillrom prior to the Baxter acquisition, as well as the Ecolab healthcare business.
In addition, I served on a number of boards of directors in the last number of years, and as I said, I'm just so excited to be here at Merit Medical, so I'm going to take the time this afternoon to cover a brief company history, a little overview of our business, our key products, our go-to-market strategy, and what I think is our company's very impressive financial performance. I'm also going to share a little bit with you on where I've been focused since stepping into the role, some recent areas of progress for the business, as well as some of the near-term priorities for the organization, so let me start with a quick overview and snapshot of Merit Medical. The company developed its first syringe to inject dye for angiography in 1987.
Since that time, we've grown to be a $1.5 billion revenue company with a market cap of over $5 billion. Currently, we have over 7,500 employees worldwide, and our global employee engagement levels have been rising steadily over the past few years since we began measuring and working with Gallup and doing a lot of work on manager training and employee engagement. We also have a very strong global footprint with vertically integrated manufacturing in Salt Lake City, Tijuana, Mexico, Galway, Ireland, as well as Singapore. The company has invested over $1 billion in capital on mergers and acquisitions since 2016, which is a very important part of the company's growth story. Let me talk a little bit about our business in some more detail. As I said, we're a $1.5 billion revenue company as of 2025.
This revenue is globally diversified, with roughly 40% of our revenue coming from customers outside the U.S. and about 60% from customers within the United States. We currently report our revenue in two segments: cardiovascular and endoscopy. Within each one, we sell a large number of products that address multiple markets, procedure categories, sites of care, and physician customers all around the world. I've already been asked by a number of different stakeholders, so what drives the growth in this business? The simple answer is that Merit is really fortunate in that we have a very broad portfolio of products that contribute to our long-term track record of growth. Over the last three years, our total revenue has increased at a 10% compounded annual growth rate.
So as I was digging into the business and examining this business, I started to think about our portfolio in terms of falling into two primary groups. The first is foundational products, which are a variety of products that are used primarily for access, and I call it enabling, in vascular procedures. The foundational products, as you can see here, comprise about two-thirds of our revenue and are growing nicely and had about a 6% compound annual growth rate over the last three years. The other group is our therapeutic products, which are growing much faster, that had a 19% compound annual growth rate over the last three years and today comprise approximately a third of our global revenues. So I'm going to spend a little time with you reviewing these portfolios with you. And in doing so, also, I want to share two key themes with you.
One is that you will see how with several of our platforms, we combine both foundational products and therapeutic offerings so that we can really be a full-line supplier to our various customer groups. In addition, you'll hear examples of how Merit supplements our internal product development with strategic mergers and acquisitions to improve our competitive position. So diving deeper into our therapeutic portfolios, we think of these areas in our business of addressing two primary platforms: vascular and non-vascular. Within the vascular portfolio, we have three therapeutic platforms. We have cardiac therapies, we have renal therapies, and we have vascular interventional. We offer therapeutic devices and systems that address the oncology and endoscopy markets in our non-vascular platform. You will see that we participate in a wide variety of procedures across specialties in a number of very large markets that have significant growth potential.
So starting with cardiac therapies, it's one of our largest and fastest-growing segments, with mid-teens growth over a three-year CAGR. This growth has been both organic and inorganic and serves as a good example of this approach that I just mentioned. After purchasing the lead extraction technology portfolio from Cook Medical, we are seeing a nice uptake with that product offering and are excited about future new product opportunities that are under development by our team to serve this market. In the vascular and interventional market, we've seen double-digit growth over the last three years, driven by sales of both foundational and therapeutic products. Our embolics portfolio is particularly strong, and we're proud that we have products that touch each part of these important embolization procedures. In addition to the embolics, we offer access products, microcatheters, and closure devices, thus providing a full line of products for these procedures.
Moving on to our non-vascular platform of therapeutic products, we have our endoscopy portfolio where, again, we've been acquisitive and then applied our engineering expertise to improve the products. The esophagus treatment for GERD is a good example of that. In addition, we announced the acquisition of the C2 CryoBalloon in October to expand our footprint in the multi-billion-dollar GERD market with a cryoablation treatment for Barrett's esophagus. On the oncology side, we focus on tumor localization for breast cancer led by our SCOUT system. The SCOUT radar localization technology has demonstrated improved patient outcomes, and SCOUT is proven to improve radiology workflow and significantly reduce operating room delays. Using SCOUT, surgeons can precisely target the affected tissue to pinpoint its location within one millimeter, which enhances the outcome for women undergoing breast cancer surgery. We just released our SCOUT MD device, a next-generation product that has improved markers.
And last fall, we announced that our SCOUT technology has now been used to treat over 750,000 patients around the world, which is a significant milestone for breast cancer treatment. Moving on to our renal therapies portfolio, we have a strong portfolio of dialysis products that address the entire end-stage renal disease continuum of care. This includes our HeRO Graft, our Surfacer Inside-Out Access Catheter System, and our portfolio of acute, chronic, and peritoneal dialysis catheters. We enhanced this offering with the company's first PMA-approved therapeutic product, WRAPSODY. WRAPSODY is a cell-impermeable endoprosthesis that's used to extend vessel patency in dialysis patients who experience venous outflow obstructions such as stenosis and occlusion. WRAPSODY's initial addressable market in the United States is the estimated 95,000 stent units implanted for dialysis access maintenance each year.
The WRAPSODY technology is compelling and has impressive clinical performance that we expect will drive market share gains in the years to come. Specifically, WRAPSODY's TLPP is shown to be superior to PTA at both 12 and 24 months for both AV fistulas and AV grafts. We're really pleased with the global rollout so far and are excited for what this really means for patients' quality of life. It's important to note that this was Merit's first PMA effort and provides us with a platform for additional therapies down the road. As we think about the future pipeline of products, it's important to note that we have a truly global footprint and infrastructure in place to execute on that. As you can see, we are well-positioned with sales, R&D, and manufacturing locations all over the world, and when we go to market, we do it in several ways.
We're primarily direct, but we also leverage distributor partners in certain markets, and we use what we call modified direct in certain international markets such as Japan and China. We also have a very substantial OEM business. Now, to be clear, we are not a contract manufacturer, but rather our OEM business leverages our vertical manufacturing expertise and capacity. Many of the largest medical device companies in the world are our OEM customers. So when you combine our global cross-functional talent with a customer-focused organization, you see this incredibly strong track record of top-line growth. Over the last nine years, the revenue CAGR is 11%. The company has grown every single year since it was founded in 1987, with the exception of 2020, where revenue declined just 3% year over year due to the COVID pandemic.
Importantly, this growth has been driven by continued new product development and contributions from strategic M&A. In addition to the top line, the company has worked hard to improve its profitability and free cash flow. In 2019, the non-GAAP operating margin was in the low double digits, and now it approaches 20%. This significant improvement in the company's profitability profile has resulted in impressive free cash flow generation. We generated nearly $300 million in the three years ending 2023 as a result of the initiatives related to our Foundations for Growth program, and we are targeting cumulative free cash flow generation of more than $400 million in the three years ending in 2026 as a result of our Continued Growth Initiatives program.
So if I can call your attention to the right-hand side of this slide, you will see that the previously stated three-year financial targets that are part of Continued Growth Initiatives. I'm pleased to say that the company is tracking nicely to these goals. Again, these goals from FY23 through 2026 are a compound annual growth rate of 5%-7% in revenue, non-GAAP operating margin in the range of 20%-22%, and cumulative free cash flow generation of more than $400 million. As part of that, we pre-announced last week our preliminary revenue for 2025. Merit Medical delivered another strong quarter on the top line with 8%-10% constant currency growth compared to our guidance of 5.5%-9%. And for the full year, we delivered $1.5 billion in revenues, up 11%. As a reminder, these results complete that second year of our Continued Growth Initiatives program.
I can tell you we remain laser-focused in 2026 to deliver that third year of CGI, so hopefully you can appreciate why I was so excited by the opportunity to lead this great company. Merit is a company in a strong position thanks to the hard work of our global team and the leadership of our founder, Fred Lampropoulos, and we are now transitioning from a founder-led organization to a founder-inspired organization. The company has a solid mission and set of values. This is one of the things that attracted me most to Merit Medical. Our mission is to understand, innovate, deliver, and we're guided by the Merit Way, which Fred established. We express it as heart, health, excellence, agility, responsibility, and teamwork. In July, when the CEO transition was announced, I immediately began spending time with Fred, visiting sites, and getting to know the organization.
I'm still on my listening tour as I'm still just roughly 90 days into the job. But upon my official arrival in October, I did establish a new executive leadership team as well as a global operating committee. And in a few weeks, I'll have the opportunity to meet the rest of our global sales team as we gather all of our global commercial organization for the first time ever at a global sales meeting. As we move into 2026, as I said earlier, we remain laser-focused on achieving our Continued Growth Initiative commitments. At the same time, we will spend time developing our strategy for the period of 2027 through 2030. We will build this out based on the platforms that I shared with you today. We will think about this in terms of how we grow our foundational products as well as our therapeutic products.
As you saw, we have a number of high-growth opportunities within our therapeutic portfolio. We will prioritize our research and development efforts through the lens of our customers, and we will actively engage in potential M&A in a very disciplined manner. We will also work to ensure that our infrastructure remains solid while we continue to look for more efficiencies and productivity gains. This will enable us to scale the business even further all around the world. So let me conclude my prepared remarks with why I believe Merit Medical is a compelling investment opportunity. We're diversified across a number of the high-growth end markets, serving as enablers for these procedures and surgeries. We have a strong research and development team working alongside our business development team as we seek to build out our high-growth platforms. The company has a strong track record of integrating acquisitions quickly and successfully.
We're increasing our mix of therapeutic products and have the commercial teams and global manufacturing footprint to do so. I know I can speak on behalf of our 7,500 employees when I say how grateful we are to Fred Lampropoulos for his vision and leadership over 38 years. The team is ready and excited to build on his legacy. Thanks very much, and Raul and I would be happy to take your questions. Thanks.
Great. Well, Martha, welcome to your first JPMorgan as Merit CEO. Maybe we could start with the fourth quarter pre-announced. $389 million-$395 million, 8%-10% constant currency growth, probably a little wider range than we're used to. What was the reason behind that? And also any color on performance by business line that you're willing to share?
Yeah, look, a slightly wider range than normal. And really, it's a result of our announcement that we made earlier than normal. So we were probably about five days sooner than we would normally announce. We had a press release go out last week and just wanted to make sure that we were able to announce revenue along with it. And so we gave ourselves a little bit of wider range just to make the accounting team a little more comfortable, just given that they had burnt the midnight oil trying to get us the numbers. But really happy with the performance. I think just a couple of highlights. Really happy with the organic growth performed ahead of plan. The inorganic or acquisition revenue came in at the high end of our range, which we're really excited about.
Again, just an overall solid performance, pretty consistent with kind of the rest of the year. So no outliers. I would say that Endotek continued to show improvement from prior quarters, which is what we were expecting. OEM continued to be a little softer. Some of it still has to do with the coatings business in China that has been pretty, has seen a little bit of a slowdown with our OEM business. And also, if you remember, last year, we had a huge fourth quarter for OEM, almost 23%-24% growth rate. And so there is a little bit of a comp issue. Don't really like bringing those comp issues up, but it was a reality in the fourth quarter for our OEM division. Other than that, pretty consistent with the rest of the year.
Great. Along with the pre-announcement came Fred's resignation as chairman of the board, and you had F. Ann Millner, who was on the board already, move into the chairman role. You expecting any change in strategy or any differences from the board now with the new leadership there?
No. So a couple of comments on that. First of all, Ann Millner has been on our board for over 10 years, and Anne has been serving as our lead independent director. So a very natural and smooth move as she slid over to the chair role. I think I don't anticipate seeing any major change in terms of the effort the board is focused on. The board started looking at succession over two years ago. So this has certainly been a process that's been ongoing for quite some time. I think it's fair to say the timing surprised us all a little bit. But at the same time, again, the board has been planning for this. The team internally has been planning for this. And as I said, I think there's a great deal of confidence that the team is ready to take the baton and keep running fast.
Great. We just got fourth quarter 2025. We're all now laser-focused on 2026. I'm sure we'll have to wait for the fourth quarter earnings to get the full guidance. But any early thoughts you're willing to put out there in 2026 and pluses or minuses we should be keeping in mind, whether it's on the top line or down the P&L?
No, I mean, look, I think obviously we'll give our guidance on our fourth quarter call here in about a month or so. Excited to do so. It'll be the last year of our CGI financial or LRP. So excited about that. Really excited about kind of where we're at in year two of that three-year program. Take some puts. Maybe I'll just call out kind of tariffs will be an impact. Somewhere in the $13-$15 million range is what we've said we think will be impacted. We continue to keep an eye on China. I've been dealing with volume-based purchasing. I think it's gotten better every year since 2024. We're looking for it to get a little bit better in 2026, at least as of today. That can change by tomorrow. But yeah, I'd say obviously keeping an eye on the geopolitical environment also.
But other than that, I think the business has a lot of momentum in it and continue to be excited about what we can do for CGI here in the last year.
You think you'll have an analyst day to put out a 2027-2030 long-range plan or just during an earnings call? How are you thinking of communicating the next leg of growth?
We're thinking through that right now. I'm not sure that we're ready to make a commitment. I think, as I have always said, we're laser-focused on CGI. I think the last thing we want to do is drop the football on the one-yard line before we finish. So we're going to finish that up. The lucky thing for us is that we've got Martha in the seat now. We've got our financial and strategic goals for 2026 already outlined. That means that 2026, we can really spend a lot of time strategically planning on what we want to do after CGI.
So, Martha, you said around 90 days, haven't quite hit the 100 milestone yet. But sort of what's been the early learnings? I'm sure you immersed yourself in the company and learnings and the customers. What are some of the things that have really stood out to you on the positive side and some of the things you're looking that maybe needs a little work or effort?
Yeah. I mean, I think one of the things, I mean, as I said, I mean, first of all, what's super exciting is it's a company very grounded in the mission and, as I said, in the values. And that just resonates with me entirely. I think the other thing that you see is that we are very broad. And so we really are quite diversified. And so when you think about all the various procedures that we are enabling, again, I'm kind of talking initially on our foundational product side of things. It's very diverse. It's very attached to significant procedures, as you saw, EP procedures, TAVR, a lot of high-growth procedures. And then at the same time, we're in this process of really kind of building out and growing into thinking about some more therapeutic products that currently have some and thinking about some more down the road.
I think that's what makes this a very exciting place. I think in terms of what needs to happen next, it's just a building story. It's an evolution kind of story. That people know this. What it takes to grow a business from startup to a billion or a billion and a half where we are is a little different from what you have to do to scale the business. The focus is really just on thinking about what it's going to take for us to scale globally, building on the infrastructure that's already in place that's very solid, but making sure that's reinforced, and then we kind of continue to grow up.
From my seat, I would say Merit's really good at listening to your customers, responding quicker than others, innovating faster than others, and supplementing that innovation with outside technology. Do you expect any changes to that strategy? And did I sum that up?
No. Yeah, you summed it up beautifully. I mean, there are no changes in that regard. I mean, we absolutely want to remain one of the most customer-focused organizations out there. And I think, as you said, we'll do it both organically and inorganically, which, again, has been part of the story historically and will continue to be part of the story going forward.
Maybe we could spend a couple of minutes on WRAPSODY. This is a product where, I would say, more the reimbursement side has had a bit of up and down over the course of 2025. You have NTAP approval for inpatient. That's about 20% of the market. 80% is outpatient. You did not get a new tech APC or a TPT transitional pass-through, which would allow payments to help with the higher price versus the reimbursement code. What's the next steps here? And is this a product that you can reapply for a TPT, or has that ship sailed and we're now launching with a lower price point?
Yeah. So we do not intend to pursue a TPT on this product. We did do a little pivot, and we've broadened the pricing corridors for our sales team and have really sort of unleashed them to get out into the US market, into all the various sites of service. So I think, as you said, we have the NTAP on the inpatient hospital side. The team is working that. And of course, there's the ups and downs of getting through VACs and all the rest to do that piece. But then they're also really energized to go pursue hospital outpatient, ASCs, as well as OBLs. That's really the strategy. Obviously, we're not going to talk about specific details of pricing, but we'll just share that we're still pricing at a place that is margin accretive for us.
I think it's more important to look forward versus look back, and we don't have to rehash everything that happened here on the mistakes, but what are some of the learnings you would take from this? Because you're generally less of a big innovative product company. You're a lot more 510(k) type of products, broad portfolio. So what were some of the learnings you took from WRAPSODY and this process that you could apply going forward?
Yeah. I mean, I think there's probably a couple. I mean, one is I will just share that there haven't been a lot of people changes in the organization yet. Again, I'm early, but I can tell you that in week one, we hired a vice president of reimbursement. So that maybe explains a little bit about a learning. Secondly, I think you saw these platforms that we talked about. And when we think about these going forward, one of the things that we've done is organized a bit more around these platforms. And this work, by the way, was started before I got here. But I will tell you, the minute I saw it, I was extremely excited about it. And so we actually have paired up as kind of co-leads on each of these platforms, a research and development leader along with a marketing leader.
And then we're surrounding them with a truly cross-functional team. So as we think about developing, thinking about these customer groups going forward, and of course, therapies will be part of it, but also the foundational products, it's just really all about getting all the parties sort of involved and engaged earlier on so that when we're thinking about the clinical trial, are we thinking about the clinical trial to get approvals around the world, or are we also thinking about it in terms of what else we need to do in terms of health economics or reimbursement? So it's kind of just bringing everything, I'd say, earlier into the process as we think about developing some of these therapies and ensuring that we really have global input. I mean, you heard we're 40% of our revenues are outside the U.S.
And so you want to make sure, again, that the products we're developing or if it's various sizes that we need to think about along the way, we're just very strategic and thoughtful to say, "You know what? If we're thinking about XYZ market, we should go with these three variations first to really capitalize on the opportunity." So those are some of the learnings.
How are you thinking about now with the updated pricing, a total addressable market, and how should we think about the margin benefits of WRAPSODY to Merit Medical?
As I said, I mean, we continue to sell at a gross margin accretive price, so we're pleased about that, and as we said, the market, as we think about it in the U.S., is about 95,000-ish, give or take, stents.
Got it. Maybe if we switch gears, cardiac intervention has accelerated pretty nicely over the past several quarters into the low double digits in second quarter and third quarter. We'll see what fourth quarter brings. But it sounds like it's probably not too different. What do you attribute this strength to? That's generally well above market growth. What's driving it and how sustainable is it?
Yeah. I think it was really kind of a strategic decision. We acquired the Cook lead management system. Along with that came a sales force. We knew we had some of our foundational products, specifically around cardiac intervention and peripheral intervention, products that weren't really getting the focus that they needed to within our vascular bag. So we brought over the sales force that was selling the lead management system that was very well versed in selling these type of products, brought those products into that portfolio, and we've seen a real benefit from it. So a lot of pull-through, and they've got the dedicated sales force that can really focus on those therapeutic devices. I would also say that we also saw a slight benefit in our vascular bag as they were able to focus more with less products in the bag.
Maybe just to pivot, you mentioned the Cook lead management deal. Your business is in a unique position where you don't have a ton of competitors of the same revenue base that you do. You're still small enough that you can be nimble in tucking deals of $10 million, $20 million, $30 million or still something that could impact your revenues and your profits where maybe the larger organizations would overlook them. So how do you think about acquisitions and how much more runway is there to execute on the strategy of small, consistent tuck-ins?
I mean, I'll say a couple of things before we always jump into. I mean, as I said, first of all, acquisitions will continue to be part of the growth story. I would say we're very active. There's a lot that comes at us, which is terrific. So we're happy to take a look at it. At the same time, as we focus in on these various platforms, our goal is to be even more strategic about thinking where do we want to proactively go out and think about acquisitions to fill a particular hole. In addition, we will have a great deal of financial discipline around each one of those. But we absolutely continue to think about that as being a key strategy. The only other thing that I think is important to note is that, obviously, you start to move into the land of larger numbers.
And so when you think about acquisitions, as you said, there's been a history of excellent tuck-in acquisitions. And we joke sometimes, I mean, the amount of work to do a small acquisition versus a larger one, not always so different. And so I think, too, as we think about that, as you continue to just grow your revenue base, we'll continue to think about possibly slightly larger things as well.
And how do you characterize larger? Because I don't want people thinking you're going to go and do some 20%-30% of market cap here unless that is what you're thinking. So maybe you could just put some guardrails around what larger is.
I mean, I would say at this point, I mean, we are not looking for a transformational deal here. Let's be clear about that. So I think I'm not ready to put numbers on the guardrails, but suffice to say, perhaps a little bigger. But again, we're doing evolution here, not revolution.
Yeah.
I was just going to say, I mean, our balance sheet is obviously very strong. We continue to generate free cash flow. That gives us the dry powder that we need to go out and do these deals. From a leverage standpoint, we're sitting in a pretty good spot, just under two times levered. I think in this environment, we can take it up to three and feel comfortable. But we've got the capacity to go out and do deals of various sizes.
Is M&A still the primary use of cash, and how does share repurchase and other uses fit in?
Yeah. I think at this point right now, we're focused on M&A. We'll continue to stockpile cash and have a war chest ready for any acquisitions that may come our way.
You've made good progress on margins. Obviously, tariffs have been a little bit of a headwind here. How are you thinking about you have one year left in your long-range plan. But if you look out just maybe broad strokes, how are you thinking about gross margin versus R&D versus SG&A as key drivers of margin expansion?
I think when you look at our operating margin targets that Martha presented earlier, 20%-22% operating margins is the goal for CGI. I think we've been incredibly lucky and worked really hard to get our operating margins up. We're going to be somewhere close to 20% operating margin coming out of 2025, which puts us in a really good spot as we head into 2026. I think as we look and when we announced CGI, really the primary driver of that operating margin expansion was really focused around gross margin on the low end, and on the high end, maybe a little bit more incremental gross margin and maybe some operating expense leverage, so when we look at it, at least for the next year, really it's a gross margin story.
We'll use a little bit of OpEx to invest in the business to the extent that that gross margin is coming in. I think we do have leverage that we can find within the operating expenses if we need to, but we would also like to just continue to invest in the business. So I think we've got a really good opportunity in front of us. We've got a strong P&L and a lot of flexibility.
Historically, most of the products have been 510(k) products. WRAPSODY was unique in that regard. When you talk about investing in the business, are there any more innovative type of products, maybe PMA type of products, or are you focused primarily on 510(k) and expanding the current portfolio?
So I mean, one of the great problems, if you will, that we're facing is that we have a ton of opportunities. And if you sit down with our R&D team, they will share a very, very, very long list of things they would love to do. And if you sit down with our marketing teams, they'd say there's a very long list. So we're lucky, and that's sort of one of our challenges. So what we'll do in 2026 is really spend our time doing a lot of this deeper dive into this strategic work to really think about where do we really have the right to win, what does it take to win in those particular markets, and then how does that end up splitting out between whether it's PMA products or 510(k)s.
But the answer is there's sort of a long list of things people would love to do in both categories, but we've got to spend some more time and ensure that we're being very strategic about it, and then we'll place the bets.
I think you bring up a good point, right? Because just because you're excellent at what you do today doesn't necessarily mean you'll be excellent at a near adjacent city. So I guess maybe it takes some different people, some different investment to get there on the PMA side of the business. So it'll be interesting to see what you come up with. Maybe just before we wrap, any questions in the room? No? Well, we're just about out of time. I think we could wrap it there. That was a fantastic discussion. Thank you very much, and everyone, thanks for coming, and have a great night.
Thank you.