Merit Medical Systems (NASDAQ:MMSI) is preparing its next long-range plan as the medical-device company works through a leadership transition, updates its reporting structure and seeks to build on recent revenue and margin momentum.
Speaking at Bank of America’s virtual SMID Cap event, Chief Financial Officer and Treasurer Raul Parra said Merit operates primarily across interventional radiology, cardiac, endoscopy and breast oncology. He described the company’s differentiators as customer focus, product development, acquisitions, vertical integration, global reach and product quality.
“Now that we have Martha here, we’ve dove into the platforms,” Parra said. “Really that’s how we’re going to start running the business.”
New Reporting Structure and Long-Range Plan
Merit recently reorganized its external reporting into Foundational and Therapeutic product categories. Parra said the change was intended to better align external disclosures with how the company operates internally and to help investors understand the procedures, call points and sources of growth across the business.
The Foundational business, which represents about two-thirds of company revenue, includes therapeutic-enabling products such as access, delivery and closure devices. Therapeutics has been growing faster, according to Parra, but the two portfolios remain complementary rather than competing priorities for investment.
- Therapeutics posted a three-year compound annual growth rate of about 10%, according to Parra.
- Foundational products grew at roughly 6% over the same period.
- Parra said both segments have stronger gross-margin characteristics than investors may expect, with Therapeutics retaining the higher gross margin.
The company is conducting a deep review of its operations as it develops its next long-range plan, which Parra said could be announced with the fourth-quarter earnings call or potentially earlier. Management is evaluating whether to present the plan through an earnings call or a separate investor event, potentially in Utah or New York.
Merit has focused its prior plans on revenue growth, operating-margin expansion and free cash flow. Parra said operating margin expanded about 850 basis points from December 2019 through December 2025, and could reach roughly 950 basis points if the company achieves the high end of its current CGI goals by the end of 2026.
While Parra said the company sees further opportunity for margin improvement, he cautioned that management does not expect to repeat the scale of expansion delivered over the past several years.
Second-Quarter Momentum and Margin Drivers
Parra said Merit’s second-quarter organic growth was supported by a rebound in its OEM business, resolution of a recall-related issue and continued strength in the underlying business. The company found an alternative product for certain customers affected by the recall, he said.
Merit raised its organic constant-currency revenue outlook, with Parra describing the midpoint as roughly 7% to 7.5% for the year. He said the company was not seeing a slowdown in procedures, although it continues to account for normal third-quarter seasonality and summer vacation patterns.
“The business feels good,” Parra said. “We’re not seeing any slowdown in procedures.”
On profitability, Parra said second-quarter gross-margin expansion reflected product mix, pricing discipline, acquisition performance and operational efficiency. He said acquisitions have generally exceeded expectations on gross margin and have met or surpassed revenue expectations. Merit also has shifted more product transportation from air freight to ocean freight where possible.
Parra said a tariff refund benefited the quarter, though the company used a portion of that benefit to reinvest in initiatives that had been pulled back when tariffs initially affected the business.
M&A Strategy Focused on Existing Platforms
Merit intends to continue pursuing acquisitions that deepen its existing positions rather than broadly expanding into new markets, Parra said. Recent deals have supported areas including Oncology, Endoscopy, Cardiac Intervention and Access. He cited the StatSeal acquisition as a Foundational product that can support multiple platforms, while the View Point Medical acquisition added to the Oncology portfolio.
The company sees substantial M&A activity in medical technology, according to Parra, as smaller companies face financing and sales-force-building challenges, European businesses navigate Medical Device Regulation requirements, larger companies seek to streamline operations, and private-equity firms look to sell portfolio companies.
Merit’s acquisition strategy is centered on tuck-in transactions, and Parra said the company would likely seek to keep leverage below three times in the current interest-rate environment. Deal size is less important than whether an asset fills a portfolio need and can be integrated without compromising long-range operating-margin objectives, he said.
Parra said capital allocation, including the relative roles of acquisitions and share repurchases, is part of the company’s strategic-planning process. He also said Merit will evaluate its 2029 convertible debt closer to maturity, potentially considering another convertible issuance or other financing alternatives.
“There’s nobody at Merit thinking that, ‘Hey, we’re done,’” Parra said regarding margin expansion and growth opportunities. “The question right now is how much more.”
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.
