Merit Medical's Q3 2025 Earnings Call: Contradictions Emerge on WRAPSODY Reimbursement Strategy, Tariff Impact, and Cardiac Intervention Growth

Date of Call: October 30, 2025

Financials Results

• Revenue: $384.2M, up 13% YOY on a GAAP basis and up 12.5% YOY on a constant currency basis
• EPS: $0.92 per diluted share, compared to $0.86 in the prior-year quarter
• Gross Margin: 53.6%, up 267 basis points year-over-year (company record)
• Operating Margin: 19.7%, compared to 19.2% in the prior year (up 51 basis points YOY)

Guidance:

• FY2025 GAAP net revenue growth expected 11% to 12% YOY.
• FY2025 constant-currency revenue growth expected ~10.3% to 11.2% (organic ~5.9% to 6.8%).
• Inorganic revenue expected ~$59.9M–$60.5M (includes recent acquisitions).
• WRAPSODY CIE U.S. revenue expected $2M–$4M for 2025 (initial hospital ramp/NTAP).
• FY2025 non-GAAP EPS $3.66–$3.79 and non-GAAP operating margin ~19.7%–25%.
• FY2025 free cash flow at least $175M; Q4 revenue growth GAAP ~7%–10.6%, Q4 non-GAAP EPS $0.87–$1.01.

Business Commentary:

• Revenue Growth and Organic Performance:
• Merit Medical Systems reported total revenue of $384.2 million for Q3 2025, up 13% year-over-year on a GAAP basis and 12.5% on a constant currency basis.
• The better-than-expected constant currency revenue results were driven by 7.8% constant currency organic growth, exceeding the 6% high end of the range outlined on the second quarter call.

• The growth was supported by strong sales in Peripheral Intervention, Cardiac Intervention, and other product categories.

• Profitability and Gross Margin Improvement:

• The company reported a significant year-over-year improvement in non-GAAP operating margin, increasing to 19.7% for Q3 2025.
• The gross margin was 53.6%, up 267 basis points year-over-year, representing the highest gross margin in the company's history.

• This improvement was driven by mix by product and geography, pricing improvements, and better control over freight and distribution expenses.

• Product Innovations and Market Expansion:

• Merit innovated the Prelude Wave hydrophilic sheath introducer, which offers twice the lubricity and resistance to buckling and kinking, enhancing radio procedures.
• The Embosphere Microspheres received CE Mark for genicular artery embolization, expanding treatment options for knee osteoarthritis.

• These product introductions and innovations have contributed to the company's growth and market penetration.

• Regulatory and Reimbursement Strategies:

• Merit secured a new technology add-on payment (NTAP) for WRAPSODY CIE, leading to increased adoption and utilization in the hospital inpatient setting.
• The company is preparing for potential incremental payment for procedures in the outpatient and ASC settings, with an anticipated effective date of January 1, 2026.
• These regulatory and reimbursement strategies have driven access, adoption, and utilization of WRAPSODY CIE, contributing to revenue growth.

Sentiment Analysis:

Overall Tone: Positive

• Management highlighted Q3 revenue of $384.2M (+13% YOY), record gross margin of 53.6% (+267 bps YOY), non-GAAP operating margin of 19.7% (+51 bps YOY), Q3 free cash flow of $52.5M (+38% YOY) and raised FY non-GAAP EPS guidance to $3.66–$3.79 while forecasting ≥$175M FCF for 2025 — signals beat-and-raise execution.

Q&A:

• Question from Jason Bednar (Piper Sandler & Co., Research Division): You said you're pleased with the response so far on the inpatient side for WRAPSODY; can you give more color on tracking in the inpatient setting and comment on clearing criteria into secure TPT, particularly the cost criteria vs the ASP used previously?
  Response: Initial inpatient uptake is strong—robust access, adoption and utilization driven by training (200 physician advocates, >500 physicians trained); management says they believe WRAPSODY meets TPT cost criteria and included an $8,000 list price in the TPT application.

• Question from Jason Bednar (Piper Sandler & Co., Research Division): You beat gross margin materially—can you unpack the source of the upside, durability, and whether there's further gross-margin headroom vs SG&A leverage?
  Response: Q3 margin upside was driven by product/geographic mix, pricing improvements and freight/distribution savings (despite ~90 bps tariff headwind); sustainability depends on continuing CGI initiatives focused on gross-margin expansion with selective OpEx investment.

• Question from Lilia-Celine Lozada (JPMorgan Chase & Co, Research Division): High-level thoughts on 2026—qualitative headwinds/tailwinds and how you are thinking about next year?
  Response: No 2026 numeric outlook yet; near-term focus is executing CGI through 2026 and closing a strong 2025 before formally defining post‑CGI strategic goals.

• Question from Lilia-Celine Lozada (JPMorgan Chase & Co, Research Division): Thoughts on M&A and capital allocation—should we expect the current cadence of small tuck-ins and any areas of focus?
  Response: Capital strategy remains mixed organic/inorganic; management expects to continue opportunistic tuck-ins and R&D investment, supported by strong free cash flow (~$142M YTD).

• Question from Jayson Bedford (Raymond James & Associates, Inc., Research Division): Cardiac Intervention accelerated—are you riding a faster market or capturing share?
  Response: Acceleration reflects focused sales teams and successful integration of Cook assets enabling cross‑selling of both acquired and Merit products, not solely market tailwinds.

• Question from Jayson Bedford (Raymond James & Associates, Inc., Research Division): SG&A was higher than model—what drove it (new reps, integration, or reinvestment due to stronger gross margin)?
  Response: Incremental SG&A was primarily variable/one‑time items—higher commissions/bonus accruals tied to stronger sales and an early distributor buyout in Europe—plus selective reinvestment aligned with performance.

• Question from Michael Matson (Needham & Company, LLC, Research Division): Are you seeing benefits from WRAPSODY to the rest of the dialysis portfolio (halo/cross‑sell)?
  Response: Yes—early signs of cross‑sell as more focused sales organizations leverage WRAPSODY commercialization to drive adoption of complementary dialysis products.

• Question from Michael Matson (Needham & Company, LLC, Research Division): On the C2 CryoBalloon (Pentax) — how big is the market/TAM and how does the product fit the endoscopy bag?
  Response: C2 is a complementary cryo‑ablation device for Barrett's esophagus and GAVE that broadens the endoscopy portfolio and was requested by the sales force; management will provide TAM details later.

• Question from John Young (Canaccord Genuity Corp., Research Division): What have you identified so far as company excellence versus areas for improvement?
  Response: Strengths are culture, employee dedication and existing operating performance; primary improvement area is tightening cross‑functional and cross‑geographic collaboration as the company scales.

• Question from John Young (Canaccord Genuity Corp., Research Division): Endoscopy softness in Q3—was that seasonality or another factor?
  Response: Softness was driven by salesforce integration after acquisitions—expected and improving month-to-month as reps learn combined portfolios.

• Question from David Rescott (Robert W. Baird & Co. Incorporated, Research Division): On China—what dynamics caused softer-than-expected performance and how do you view the next 12–18 months? Also, what are the next steps on WRAPSODY reimbursement once you hear the TPT decision?
  Response: China softness is mainly OEM demand weakness amid broader macro factors while core volumes and VBP were solid; for WRAPSODY, management is confident they meet TPT cost criteria (used $8,000 list price) and expect preliminary notice in December with earliest effective date Jan 1, 2026, subject to rule‑making timing.

• Question from Michael Petusky (Barrington Research Associates, Inc., Research Division): Any key customer losses in Endoscopy or China over the last 6–12 months?
  Response: No material customer losses; endoscopy trends reflect integration timing and OEM in China shows normal variability, with OEM up ~9% YTD—no red flags.

• Question from Michael Petusky (Barrington Research Associates, Inc., Research Division): How will Fred be used during the ~60-day Executive Chair period versus next year?
  Response: Fred will be leveraged primarily for technology insight, adviser on organic/inorganic opportunities and customer/physician relationships during the transition.

• Question from James Sidoti (Sidoti & Company, LLC): How does the Pentax C2 CryoBalloon differ from the EndoGastric Solutions product—same treatment or complementary—and is it approved in Europe as well as the U.S.?
  Response: C2 is a different, complementary cryo‑ablation device (targets soft tissue via freezing) within the same endoscopy call point, is sold overseas (not material today), and management views it as additive to the sales force's portfolio.

• Question from James Sidoti (Sidoti & Company, LLC): Will you expand the C2 internationally or focus on the U.S., and what about MDR expense and FCF use—any light at the end of the tunnel or plans for cash?
  Response: Management intends to pursue international expansion where sensible (regulatory-dependent); MDR burdens may ease but remain uncertain; free cash flow will be retained to fund acquisitions and internal investments (targeting ≥$175M FCF for 2025).

Contradiction Point 1

WRAPSODY Reimbursement Strategy

It involves a change in the reimbursement strategy for WRAPSODY, which is crucial for the company's financial performance and market expectations.

What is the initial market response for WRAPSODY in the inpatient setting? Do you meet the required cost criteria for TPT considering ASP point concerns? - Jason Bednar (Piper Sandler & Co.)

2025Q3: Pleasantly pleased with the initial market response for WRAPSODY CIE, with 200 trained physician advocates. TPT application included a list price of $8,000, ensuring we meet the required cost criteria. - Martha Aronson(CEO)

Can you clarify the recent update to WRAPSODY's reimbursement strategy and the likelihood of receiving TPT by the new December timeline? - Jason M. Bednar (Piper Sandler & Co.)

2025Q2: The U.S. reimbursement strategy was focused on securing add-on payment for procedures outside the hospital inpatient setting, but the application submitted was for APC assignment, not TPT. - Fred P. Lampropoulos

Contradiction Point 2

Tariff Impact on Financial Performance

It involves the company's financial guidance and expectations regarding the impact of tariffs on its financial performance, which is crucial for investor expectations.

What drove the gross margin upside and is there room for further margin expansion? - Jason Bednar (Piper Sandler & Co.)

2025Q3: Gross margin improvement driven by sales force focus on product and geographic mix, along with better pricing and freight distribution. Tariffs were an incremental impact, but we overcame them. - Raul Parra(CFO)

Why are you optimistic about securing a TPT despite being rejected for an APC? - Jayson Tyler Bedford (Raymond James)

2025Q2: The $26.3 million figure represents the potential maximum tariff impact, which was not fully realized in Q2. - Raul Parra(CFO)

Contradiction Point 3

Cardiac Intervention Product Growth

It involves the company's growth strategy and expectations for the Cardiac Intervention segment, which is critical for revenue projections.

What's driving Cardiac Intervention's acceleration, and is it due to share capture or end market growth? - Jayson Bedford (Raymond James & Associates)

2025Q3: Growth driven by focused sales groups and integration of acquired products from Cook. Cardiac Therapies group is performing well, contributing to overall growth. - Raul Parra(CFO)

What factors are driving growth in cardiac intervention products? - David Rescott (Robert W. Baird & Co.)

2025Q2: The growth is attributed to internal product development and quality products that are in high demand, particularly in cardiac procedures. - Fred P. Lampropoulos