Merit Medical Systems (NASDAQ:MMSI) is focused on completing the objectives of its current long-range plan while developing its next strategic framework, Chief Financial Officer and Treasurer Raul Parra said during a Canaccord investor event.
Parra said the company remains “hyper-focused” on executing its current CGI plan and does not want to “drop the football on the one-yard line.” He said the company is working with CEO Martha on the next three-year plan after she spent time visiting company sites and participating in the strategic-planning process.
Portfolio Review Could Lead to Targeted Changes
Merit is reviewing its portfolio platform by platform to determine where it is performing well, where it needs improvement and which assets may not fit the company’s strategic call points, Parra said. He described the process as “strategic and surgical,” rather than one involving large divestitures.
The company has assembled businesses across oncology, endoscopy, renal therapies and access through acquisitions, Parra said. While he characterized the portfolio as being in attractive markets and procedures, he said there could be opportunities to prune smaller assets that sit outside Merit’s primary call points.
Parra cited the company’s divestiture of DualCap as an example of the type of smaller, targeted action management could consider. He said it was too early to determine whether further changes would extend beyond SKU rationalization or involve additional product-line sales.
Margin Efforts Remain Broad-Based
Parra said Merit has delivered 850 basis points of operating-margin improvement and could approach 950 basis points if it reaches the high end of its current-year guidance. He said the company expects further gains to come from continuing to address a broad range of factors, including pricing, sales mix, new product introductions, acquisitions, manufacturing efficiency, automation, lower-cost production transfers, raw materials, scale and logistics.
Rather than relying on a single initiative, Parra said Merit aims to prevent gains in one area from being offset by weaker execution elsewhere. He described the company as being “perpetually” in the seventh inning of margin work: past the heaviest lifting but still able to apply lessons from its prior transformation efforts consistently.
On capital allocation, Parra said Merit remains interested in tuck-in acquisitions across its existing platforms, depending on available opportunities. Share repurchases have also been part of management’s strategic-planning discussions, he said, particularly after medtech stocks experienced pressure earlier in the year.
Management Points to Guidance for Underlying Growth
Merit reported 9% organic growth in the second quarter, its strongest organic-growth result in three years, along with a 22.6% non-GAAP operating margin. Parra said the quarter benefited from an OEM rebound and resolution of a renal recall, but said the result did not surprise management given the underlying performance seen in the first quarter.
The company raised its organic-growth outlook to 6.9% to 7.5% and its adjusted earnings-per-share outlook to $4.25 to $4.35. Parra directed investors to the full-year guidance as the best measure of the company’s expected run rate, while adding that Merit has not seen unusual demand weakness or softness in procedure volumes beyond normal seasonal patterns.
Parra said hospitals could face pressure from broader reimbursement and funding issues, but Merit’s products generally carry a relatively low average selling price and include products such as access, delivery and closure devices that are required in procedures. He said the company’s broad portfolio, vertical integration and product quality help support its value proposition to health systems.
OneMark, Endoscopy and OEM Highlight Growth Areas
Executive Vice President of Corporate Finance and Treasury Travis McDougal said the OneMark acquisition expands Merit’s participation earlier in the patient pathway, including lower-risk biopsies, and increases the company’s addressable market to roughly $1.3 billion. He said OneMark and the SCOUT MD platform can serve as part of a continuum of care, although management has incorporated some potential cannibalization into its guidance.
Parra said the company’s sales force is enthusiastic about having a lower-cost option for cases in which the SCOUT system may not be economically appropriate. He added that the OneMark integration is progressing well.
Merit’s endoscopy business grew 29% year over year. Parra said the company does not promise that growth rate will persist, but management is encouraged by the combination of acquired products and new product introductions. McDougal said the segment’s offerings span a patient pathway that includes GERD treatment, Barrett’s esophagus and Merit’s legacy endoscopy products.
Parra also said second-quarter OEM performance was broad-based, supported by a new customer agreement and product deliveries. Management expects additional deliveries to that customer in the second half and said it remains confident in mid- to high-single-digit growth for the OEM business.
On WRAPSODY, Parra reiterated a $7 million target for the current year. After the CGI period, he said management expects WRAPSODY to be discussed within its platform-level business reporting unless it becomes a material growth driver. He said Merit has additional work underway related to the platform but plans to discuss future products closer to approval, when pricing and other commercial dynamics are clearer.
About Merit Medical Systems (NASDAQ:MMSI)
Merit Medical Systems, Inc is a global manufacturer and marketer of a broad range of medical devices used in diagnostic and interventional procedures. The company’s product portfolio encompasses vascular access, drainage, embolotherapy, and interventional oncology devices, as well as radiofrequency ablation systems and hemostasis solutions. These products serve physicians and hospitals in critical care settings and support minimally invasive treatment options across multiple specialties, including cardiology, radiology, oncology, neurology and endoscopy.
Founded in 1987 by Fred Lampropoulos, Merit Medical Systems has grown through both organic development and targeted acquisitions to expand its technology offerings and geographic reach.
