Executive Summary / Key Takeaways

• Merit Medical Systems is executing a strategy focused on profitable growth through operational efficiency, targeted M&A, and innovation in interventional and diagnostic devices, building on the success of its "Foundations for Growth" program.
• The company's core differentiated technology and strategic focus on specific clinical areas, particularly with new products like WRAPSODY and the acquired Cook lead management and EGS GERD portfolios, are key drivers of its competitive positioning and future growth potential.
• Recent financial performance, including strong Q1 2025 results with 10.9% constant currency revenue growth and a record 19.3% non-GAAP operating margin, demonstrates solid execution and momentum despite a challenging global macroeconomic environment.
• Updated FY 2025 guidance reflects confidence in continued revenue growth (8.7%-10.2% constant currency) and free cash flow generation (at least $150 million), though non-GAAP EPS expectations are tempered by an estimated $26.3 million headwind from new tariffs, primarily related to U.S. exports to China.
• Key factors for investors to monitor include the successful integration and commercialization of recent acquisitions, the regulatory and reimbursement pathway for WRAPSODY in the U.S., the impact and mitigation of evolving trade policies, and the company's progress towards its CGI program targets (minimum 5% organic constant currency growth, 20% operating margins, $400M+ free cash flow by 2026).

Merit Medical Systems: Building Momentum Through Strategic Execution

Merit Medical Systems, Inc., founded in 1987, has evolved into a leading manufacturer and marketer of proprietary medical devices used across a spectrum of interventional, diagnostic, and therapeutic procedures. The company operates primarily through two segments: Cardiovascular and Endoscopy, serving critical areas such as cardiology, radiology, oncology, critical care, and gastroenterology. Merit's strategic journey has been marked by a commitment to operational excellence and targeted expansion, notably through its recently completed "Foundations for Growth" program and the ongoing "Continued Growth Initiatives" (CGI). These programs have aimed to enhance profitability and efficiency, laying the groundwork for sustainable growth.

The company's core strength lies in its proprietary technology and manufacturing capabilities, enabling the development of differentiated single-use devices and procedural solutions. This technological edge often translates into products designed for efficiency and cost-effectiveness in clinical settings. For instance, Merit's focus on developing specialized procedural kits and accessories provides tangible benefits to healthcare providers by streamlining workflows and potentially reducing overall procedure costs. While precise, directly comparable performance metrics against all niche competitors are not publicly detailed, the company's ability to maintain and grow its market position in specific product categories suggests its offerings are valued by customers.

A significant area of technological innovation and strategic focus is the WRAPSODY Cell-Impermeable Endoprosthesis. This device is designed to address critical challenges faced by dialysis patients, specifically stenosis and occlusions in the dialysis outflow circuit. The technology aims to extend vessel patency and reduce the need for repeated interventions, offering a potential improvement over existing treatment options like percutaneous transluminal angioplasty (PTA). Clinical data from the WRAPSODY WAVE pivotal trial has shown promising results, with the six-month AV fistula arm demonstrating 89.8% primary patency compared to 62.8% for PTA. More recent data released in May 2025 showed 60.2% target lesion primary patency at 12 months in the AVG cohort. The strategic "so what" for investors is that successful regulatory approval and commercialization of WRAPSODY in the U.S., supported by positive clinical data and potential favorable reimbursement pathways (NTAP and TPT), could open up a significant market opportunity and contribute meaningfully to future revenue growth and profitability.

Merit operates within a competitive medical instruments and supplies industry, facing established players like Boston Scientific (BSX), ICU Medical (ICUI), Stryker (SYK), and Medtronic (MDT). While larger competitors like BSX and MDT often possess greater scale, broader portfolios, and higher R&D budgets, potentially leading to faster innovation cycles or superior margins (BSX operating margins around 15-20%, MDT 20-25%), Merit carves out its position through specialization, cost efficiency, and strong customer relationships, particularly in niche procedural markets. Merit's operating margins (TTM 11.55%) are currently lower than these larger rivals, reflecting differences in scale and product mix. However, Merit's strategic focus on high-margin areas and operational improvements under CGI aims to close this gap, targeting minimum 20% operating margins by 2026. Merit's ability to develop cost-effective, reliable products, as highlighted in its OEM business which values quality and fair pricing, provides a competitive lever, particularly in price-sensitive segments or against competitors like ICUI (operating margins around 10-12%) where reliability is paramount. The company's targeted acquisitions also enhance its competitive standing by adding differentiated technologies and expanding its footprint in attractive, growing markets like GERD treatment and cardiac lead management, leveraging its existing sales channels.

Performance and Strategic Expansion

Merit's recent financial performance underscores the momentum in its business. In the first quarter of 2025, the company reported total revenue of $355.4 million, representing a 9.8% increase on a GAAP basis and a robust 10.9% growth on a constant currency basis compared to the prior year period. This performance exceeded the high end of the company's guidance range, driven by strong organic constant currency growth of 6%. Profitability also saw significant improvement, with the non-GAAP operating margin expanding by nearly 230 basis points year-over-year to a first-quarter record of 19.3%. This margin expansion was primarily attributed to increased sales volume, a favorable product and geographic mix, and improvements in pricing and distribution costs, although partially offset by higher intangible amortization from recent acquisitions. Non-GAAP diluted earnings per share grew by 15% to $0.86, also surpassing expectations.

The Cardiovascular segment, Merit's largest, saw sales increase by 8.1% (9% constant currency) in Q1 2025, exceeding expectations. This growth was fueled by strong performance in Peripheral Intervention (up 5.5%), Cardiac Intervention (up 10.6%, benefiting from the Cook acquisition), and notably, OEM products (up 20.5%), which significantly outpaced prior guidance assumptions due to strong U.S. demand. The Endoscopy segment experienced substantial growth of 64.2% (64% constant currency), primarily driven by the inclusion of sales from the acquired EGS EsophyX Z device, while organic growth in the segment was essentially flat.

Merit's strategic expansion through targeted acquisitions has been a key theme. The acquisition of EndoGastric Solutions (EGS) in July 2024 added the EsophyX Z device, providing an innovative solution for chronic GERD and expanding Merit's presence in the large gastrointestinal market. This deal is expected to be accretive to gross and operating margins, net income, and EPS in its first full year post-closing. The subsequent acquisition of Cook Medical's lead management business in November 2024 further strengthened Merit's position in the cardiac intervention market, particularly in the high-growth EP/CRM space and in Europe. This acquisition is also expected to be accretive to gross and operating margins in the first full year post-closing and to net income and EPS in the second full year. These acquisitions, along with smaller deals like the SSI asset purchase and the recent Biolife acquisition, are strategically chosen to leverage Merit's existing infrastructure and deepen its product offerings in core clinical areas.

Liquidity remains solid, with cash and cash equivalents of $397.6 million as of March 31, 2025. The company generated $19.5 million in free cash flow in Q1 2025, impacted by increased capital expenditures for a new distribution facility and investments in inventory aimed at maintaining high customer service levels and building bridge inventory. The company's debt structure includes $747.5 million in Convertible Notes, with significant available borrowing capacity under its credit facility, providing financial flexibility for future strategic initiatives.

Outlook and Risks

Looking ahead, Merit Medical has reaffirmed its full-year 2025 GAAP net revenue guidance of 8% to 10% growth, translating to 8.7% to 10.2% growth on a constant currency basis. This outlook assumes continued strong performance in the U.S. (11% constant currency growth at the midpoint) and international markets (7% constant currency growth), with specific segment expectations of 7%-9% growth in Cardiovascular and 34%-37% in Endoscopy. The guidance includes an estimated $45 million to $46 million in inorganic revenue contribution from the EGS and Cook acquisitions, implying organic constant currency growth of approximately 5% to 7%. The company also maintains its expectation for U.S. WRAPSODY CIE revenue between $7 million and $9 million in 2025, with a larger weighting anticipated in the second half of the year.

However, the company has revised its non-GAAP diluted EPS guidance downwards to a range of $3.29 to $3.42, primarily due to the estimated impact of new tariffs and trade policies. Management quantifies this impact as an incremental $26.3 million in tariff-related manufacturing costs in 2025, with roughly 94% related to the China business, largely from retaliatory tariffs on U.S. exports. This tariff headwind is also reflected in the updated non-GAAP operating margin guidance of 17.6% to 18%. While this presents a challenge, Merit is actively pursuing mitigation strategies, leveraging its CGI initiatives, which are expected to offset up to 45% of the annualized tariff impact, though these benefits are largely anticipated in 2026.

Key risks to the outlook include the volatility and uncertainty surrounding global trade policies and tariffs, which could change the anticipated financial impact. The ongoing SEC inquiry regarding the China subsidiary's business activities also presents an unresolved risk with a potentially material adverse outcome. Macroeconomic conditions, geopolitical instability, supply chain disruptions, and intense competition from larger, more diversified players remain persistent challenges. Successful integration of recent acquisitions and the timely regulatory approval and market adoption of new technologies like WRAPSODY are critical for achieving the company's growth and profitability targets.

Conclusion

Merit Medical Systems is demonstrating strong operational execution and strategic momentum, evidenced by its solid Q1 2025 performance and continued progress on its CGI program. The company's focus on developing proprietary technology, expanding its portfolio through targeted, accretive acquisitions, and driving efficiency is positioning it for continued profitable growth. While facing headwinds from evolving trade policies, particularly tariffs impacting costs, Merit is leveraging its operational initiatives to mitigate these challenges. The successful commercialization of innovative products like WRAPSODY, coupled with the integration of acquired assets, represents significant opportunities for future expansion. Investors should weigh the company's track record of execution and its clear strategic roadmap against the potential impacts of macroeconomic volatility and tariff-related costs, monitoring progress towards the CGI targets and key product milestones as indicators of long-term value creation.