Martha Aronson: and there was tremendous energy around this work. We also recommitted ourselves to ensuring that our infrastructure is solid so that we can continue to scale our business globally. As I've said before, we will do that with both organic product development alongside disciplined tuck-in acquisitions focused on our strategic platforms. Finally, as I've continued my global travels and spend time with customers, investors, and employees, I continue to be inspired and excited about the future of Merit Medical. Operator, we would now like to open the line for questions.
Operator: Thank you. If you'd like to ask a question, please signal by pressing star 1-1 on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. We do ask that you limit yourself to one question and one follow-up. If you would like to ask additional questions, we invite you to add yourself to the queue again by pressing star 1-1. And our first question will come from Michael Petusky of Barrington Research. Your line is open.
Michael Petusky: Good evening. Nice result. So I guess... There wasn't much in the way other than, I guess, the reaffirmed guide on Rhapsody. Martha, are there any updates you want to share there, whether it's anecdotal or more quantitative, just on early days progress? Thanks.
Martha Aronson: Yeah, thanks very much, Mike. Just to clarify, you're asking about Rhapsody?
Michael Petusky: Yes.
Martha Aronson: Yes. Yeah. No, we're real pleased with how Rhapsody is going. Again, just to remind folks, you know, we did a bit of a reset, if you will, on how we're approaching our go-to-market strategy with Rhapsody. We really instituted that toward the end of last year. And I'd say at this point, we're very pleased with how we're doing. We've given, I think, our previous guidance or our revised guidance in 2026 of $7 million for Rhapsody for the fiscal year, and we're tracking right on that.
Michael Petusky: Okay, great. And then I'm not sure who this is for, but I'm just curious about, are you guys, like, is there a formal process? Are you guys seeking refunds in terms of the tariffs that you had to pay last year and the first part of this year? And if so, how does that process work? Thanks.
Raul Lopez: Yeah, maybe I'll just kind of give a guidance overview, if you don't mind, Mike, because there's a lot of moving parts to this. But just as a reminder, for our 2026 guidance, we have left it unchanged, essentially, from what we did in the first quarter, which is we've got $15 million that's baked into our guidance for 2026 versus the $9 million that we had in 2025. That's unchanged, you know, since the U.S. Supreme Court decision. I think there's still, you know, a potential for the administration to challenge that, I believe, through May. And so I think, you know, we'll reevaluate that as part of our second quarter kind of reevaluation. And we'll discuss, you know, that further, I think, you know, after the second quarter once we kind of get a little, you know, I guess on firmer ground, right? It's a moving target, but. There's also the Section 232 stuff that's hanging out there. Have you guys wanted to clear that out?
Michael Petusky: I'm sorry. Okay. Go ahead. I was just going to say, have you guys filed it? Is there paperwork to file to seek refunds at this point for you guys or no?
Raul Lopez: Yes. So we have started the process of reimbursement. Like I said, though, I think the challenge is that the administration can still challenge the reimbursement through May. And so I think from our perspective, we've started the process of filing and have essentially filed for the majority of that. And I think we'll have an update hopefully on our second quarter call as to how that shakes out. But feeling optimistic, I would say if things stay as they are today, I definitely think the $15 million would come down.
Mike Mattson: Okay, very good. Thanks, guys.
Operator: Thank you.
Operator: And our next question comes from Jason Bednar of Piper Sandler. Your line is open.
Jason Bednar: Hey, good afternoon, everyone. Thanks for taking the questions, and nice start to the year here. I wanted to start first on Viewpoint, the recent deal. It's a pretty sizable revenue contribution step up from this year to next. If you could help us out with how you see this coming together, what's supporting that growth ramp going from $2 to $4 million in revenue this year up to $14 to $16 million next year? And then should we think about that 20% growth rate you referenced starting in 2028, building on that $14 to $16 million? And then, I guess, looped in here, just any considerations around synergies that could be realized with respect to that Scout platform?
Martha Aronson: Yeah, thanks, Jason. Appreciate the question. A couple comments on that, if you will. I mean, first of all, I mean, I'm just going to kind of take a step back, if you will, on oncology, right? It's about a $100 million platform for us. And, you know, it's been growing very nicely. And yet, it's been a one product, pretty much a one product platform. So we have been looking for a while at ways to try to add to that platform because we have an outstanding field organization. And We wanted to get some additional products in their hands. And if you think about the breast cancer market, right, and particularly you have to go to the biopsy phase, right, in terms of the whole phase, right? Somebody has a mammogram or something seen. And so in the U.S. alone, there's 1.6 million breast biopsies that are done each year. And for Scout, the product that we've had for a period of time now The applicable market's been about 300,000 of those procedures each year. So with the addition of one mark, you actually expand the market three to four times because now that other 1.3 million breath biopsies that are done tend to be done for lower risk patients. The Scout tends to be used for higher risk patients. So we're really just seeing a terrific market expansion opportunity here. And it really then just comes down to a physician choice about whether they'd rather use radar technology or ultrasound technology. So we're super excited about that. And I'll just say, I think the other really important thing about this is that both of these approaches happen at the time of biopsy, whereas many of the other, you know, if you don't do something at a time of biopsy, a patient may have to go through an additional process localization procedure before their surgery. So we're really excited about what it means for patients. And, you know, I think again, you know, breast cancer grows about 4% a year and actually the wire-free localization market where we play is growing at about 13% a year. So I think when you ask about our confidence in the future growth rates, we feel good about that.
Raul Lopez: Yeah, I'll add, Jason, you know, at the midpoint of our 27 guide, you know, which was around $15 million, you can definitely tack on the 20%, you know, that we called out. You know, and on the synergies, just as, you know, just to be clear, you know, in the guide for 2027, on a full year basis, it is accretive, you know, both on the top line and the bottom line, with nice, strong gross margins at 70%. So we're really excited about it.
Jason Bednar: Okay. Thank you for all that. That was super helpful and very in-depth. Got a good asset on your hands. I want to pivot to the OEM part of the business. I appreciate all the extra color in the prepared remarks, Raul. I heard you on the 1Q performance and the normalized growth profile for OEM, but I guess kind of the genesis of the question here is can you say that the worst is behind you for OEM? Does that performance get sequentially better in 2Q? Does growth return in the second part of this year, second half of this year? And bigger picture on OEM, Martha, we've obviously seen you take some actions on portfolio management at Merit. How do you think about the value OEM provides to Merit versus maybe what you could potentially realize through strategic moves like some of the actions we've seen across other MedTech OEM players here the last several months?
Raul Lopez: I'll take the last part of the question first, Jason, if you don't mind. I think just to kind of level set people on what our OEM business is. You know, we essentially sell capacity, right? So I would say that we're different than other OEM, you know, companies out there. You know, we're not a contract manufacturer. We are selling our own products. And so divesting of that just doesn't really work, right? We'd end up with a bunch of extra capacity. Having said that, you know, we love our OEM business. It's a great asset. You know, our OEM business, you know, remains healthy. despite the quarter-to-quarter fluctuations. I know you guys find that frustrating, but I think, you know, as we see the visibility, specifically, you know, we're getting excited about what we can do there. We continue to believe, you know, the appropriate kind of normalized growth profile is in the mid to high single digits. And I think, you know, We're starting to see orders for Q2. That gives us a lot of confidence that I think, you know, we are going to be in that mid, you know, at the very least, I always kind of like to point to the low end. You guys know how I work. But, you know, we should be at the very least at that mid, you know, single digits, you know, growth profile that I just talked about. So excited about, you know, to see how the quarter goes. But early start is looking really good.
Jason Bednar: Sorry, just to clarify, you're saying mid-singles is how you're seeing 2Q come together, mid-single digit growth for OEM? That's right. Okay, perfect. Thanks so much.
Operator: Thank you.
Operator: And our next question comes from Sam Elber of BTIG. Your line is open.
Jason Bednar: Hey, good afternoon. Thanks for taking the questions here. Maybe I can follow up on some of the supply dynamics in the cardiac business that was called out in the prior quarter. Just curious to get an update on how that's shaking out here, and then I'll have a quick follow-up.
Raul Lopez: Yeah, I mean, I think, you know, we continue to, you know, be on track. I think, you know, maybe to kind of walk, you know, through that issue, right, when we initially had our first quarter, or sorry, fourth quarter call, It was a supply chain issue that unfortunately did turn into a recall. And I'm sure a lot of you guys saw the notice go out. And so, again, from a financial perspective, it's immaterial to our 2026 financial results. We continue to be on track to have this product back on the market. And, you know, it's unfortunate, you know, that, you know, that this, you know, came to this, but just to kind of highlight it, you know, it's a class one recall, but we haven't had any of those, you know, since 2017. And just to clarify, you know, this was in renal, right? Just, you know, just for clarity, Sam.
Jason Bednar: Okay. Okay. That's helpful. Uh, and maybe just a quick follow up on, um, you know, some of the geopolitical issues we're seeing out of the middle East, just wondering if, um, you're able to help, I guess, quantify or think through, you know, any kind of impact, um, on the revenue line and then to input costs, whether it's, um, freight oil, um, you know, how should we be thinking about that over the course, uh, over the rest of the year? Thanks for taking the questions.
Raul Lopez: Yeah, I mean, on the positive side, I mean, we have yet to receive any price increases from our vendors. We are seeing fuel surcharges. I think those are pretty typical. We, you know, we usually see those at least once a year, you know, as gas prices fluctuate. So that's nothing that, you know, that we're used to dealing with that. I, you know, so I would say that, you know, right now, I think, you know, what we're seeing, everything's manageable. You know, I guess if the issue continues, I think we'll have to reevaluate that. But as of now, you know, we feel like we can overcome whatever is coming our way. The other thing, too, that I'll call out is, you know, on the sales side, right, you know, we continue to get orders, you know, from the Middle East, you know, region. We did leave about a million and a half dollars of revenue on the table from shippers that just weren't able to come and pick the product up and deliver it. You know, we are seeing an impact. I would say that it's very manageable. And, you know, again, we continue to feel really optimistic about the guidance that we put out there for 2026.
Operator: Thank you.
Operator: And our next question comes from David Rescott of RW Baird. Your line is open.
David Rescott: Great. Thanks for taking the questions. Two from us, and I'll ask them both up front. I heard some of the commentary around OEM as it relates to the quarter and Q2 and the guide for the year. I recall that there is some Asia path impact in there in general. So curious on if you could provide any color just around, you know, what the assumptions are for China and Asia-Pac at this point and more broad strokes on how that is shaking out versus, you know, contributions in that region. in the prior year at least. And then thinking more on the operating margin side, I believe the results that you put up were a little bit better than we had expected on the operating margin front, lower OPEX growth, it seemed to be the case, better gross margin. So can maybe you help us think about how you're thinking about some of the controls on the OPEX side through the rest of the year. I believe you commented on gross margins already, but would be curious around any of the underlying assumptions you have for better than expected operating margins through the year. Thank you.
Raul Lopez: Yeah, so maybe I'll just hit on the APAC region, right? I mean, I think on the OEM side, that's where you started, you know, specific to kind of the APAC region. You know, that was essentially in line with our expectations. APAC as a whole, you know, was, you know, up 1% on a constant currency in Q1, which was, you know, a beat, you know, for us, you know, it was, you know, versus the high end of our guidance. You know, China sales increased by about 2% year over year on a constant currency in Q1, essentially in line with our expectations. BBP impact was, you know, I would say modestly better than expected. And as far as China, you know, I think we continue to expect, I would say, low single digits, you know, for 2026, you know, as we continue to deal with volume-based purchasing. Moving on to, you know, kind of the operating expense side of things. Yeah, look, I mean, I think when, you know, obviously we were expecting a lower gross margin. So, you know, we controlled operating expenses and then with the conflict. As that came out, we really kind of, you know, talked to the executive team about, you know, being in control of those operating expenses. And so I think they did a really good job of doing that. And so, you know, we obviously let that flow through to the bottom line with, you know, 11 cent beat and a much better operating margin than we had initially indicated on the fourth quarter call. And, you know, one of the nice things is that we were able to offset the five cent dilution a viewpoint and essentially increased our EPS guide to cover for that. So again, overall, I think the P&L was off to a really good start, strong start for Q1. We beat on the revenue side by over $4 million. Gross margin was better than anticipated. We controlled operating expenses. And so that gives us a lot of confidence, you know, as we head into the rest of the year and really confident in the full year operating margin guide and obviously focused on our CGI targets.
Martha Aronson: And David, I might just throw in one comment if I could. I mean, you know, hats go off to Raul and Travis and our finance team. I think one of the things we've been working on is a number of our processes have across the company and getting our finance partners involved in that earlier in the process. So I just think, you know, we're doing our best to ensure discipline, I'd say, throughout the organization when it comes to spend. So, again, just a hats off to our finance team partnering up with all of our, you know, the engineering staff, our operations team, et cetera.
Operator: Thank you.
Operator: And our next question comes from Aiden Leahy of Bank of America. Your line is open.
Jason Bednar: Hi, thanks for taking the questions. Two for me on one mark. One, when you did the deal, how much were you factoring in it being complimentary versus cannibalistic to Scout? I know you said it's a position preference. So is this a move that can open up broader accounts? Would some accounts have both systems? And do you think there are any impact on scalp sales during the inorganic period that could impact growth?
Martha Aronson: Yeah, thanks for the question. No, we really do think this is a market expansion play, right? I mean, obviously, there could be a handful of accounts. As you said, we could have a situation where some have both. And there could be some where someone does choose one over the other, but there really is an opportunity, frankly, it's a little bit of a, we call it a better and a best offering, if you will. So there's really an opportunity to target the accounts very specifically, which our team has done a great job already in, you know, in being ready to go do that so that we really see it as a total expansion of that time at biopsy, you know, localization market.
Jason Bednar: Got it really helpful. And then I think we saw OneMark was actually running a trial that was head-to-head with Scout. Obviously, now that both products are yours, do the outcomes of that trial change the strategy with Scout, depending on if it goes one way or the other and what are the plans there?
Martha Aronson: No, again, I mean, you know, I just literally got off the phone earlier today with one of the team members from OneMark. I mean, This group is super excited to be part of MERIT. MERIT's super excited to have them as, you know, part of our team. There was actually, there's a major, you know, Congress happening literally starting today, you know, the Society for Breast Surgeons, and there was a training with fellows earlier today, and literally what the team was reporting back to me is how it really is a physician preference kind of a thing. And some people are just more sort of audible, and they like, you know, the radar and hearing it. And then, frankly, others say, you know, being able to see it visually, they prefer that approach. So we're just excited to have, you know, this enhanced product offering across the portfolio. And as we said, just a great add to the Merit Oncology platform.
Jason Bednar: Thank you.
Operator: Thank you. And our next question comes from James Sidoti of Sidoti & Company. Your line is open.
James Sidoti: Hi, good afternoon. Thanks for taking the questions. So if I heard you correctly, with gross margin, we're able to maintain that, keep that basically flat, despite about $5 million of tariff expense. What drove that? Was that a mix issue, or can you give us some more color on that?
Raul Lopez: Yeah, so, you know, I mean, you know, it was essentially 100 basis point, you know, impact, you know, to or 120 basis point impact to our gross margin, you know, the tariffs were. So, you know, again, you know, hats off to our sales force, you know, you know, on focusing on selling the right product at the right price. Obviously, we have some acquisitions too that are, you know, that are helping us. And that's part of that mix, you know, component. We continue to focus on the, you know, throw the kitchen sink approach at the gross margin. And, you know, I think, you know, the conflict in the Middle East is exactly why we do that. You know, there's surcharges that are coming that we were still over to, you know, being able to overcome. You know, our operations group is doing everything they can to try and maintain, you know, or improve costs in a really challenging environment. So, you know, I would say it's a little bit of everything, Jim, but, you know, there is a mixed component that's helping us. Again, I think we've done a really good job over the last, you know, under FFG and CGI on really focusing on the right products. And then, you know, we did divest of the dual cap. You know, that was a very low gross margin product, and that's helping also. So, again, we're hyper-focused on those CGI goals. And, you know, as you guys know, gross margin is an important, you know, contributor to operating margin, which is why we focus on it so much.
James Sidoti: And then inventory was up about $20 million in the quarter. Can you explain that?
Raul Lopez: Yeah, I mean, you know, again, there's, you know, acquisitions that have taken place and we're building out those inventories. I think, you know, there's certain areas that we were a little low in. As you guys recall, over the last year in our endoscopy segment, we dealt with a little bit of, you know, supply chain issues. So getting that, you know, to a healthy, you know, point. Same with our oncology business. And I would say same within our cardiac and renal therapies. You know, those are all areas that, you know, had really strong sales that, you know, we essentially just getting the safety levels, you know, to an area that we feel comfortable with. And, you know, you're also in an environment right now where, you know, you start to kind of look at the supply chain, just making sure that you're covered just given the, you know, the performance of the company that we expect. And so just making sure our safety stocks are at the right level.
James Sidoti: And if I can, I'm going to sneak one more in. Can you just tell us what the distribution looks like for the one mark system prior to the acquisition and how many people will be selling it now that it's a merit product?
Martha Aronson: Well, Jim, we don't share exactly how big our sales organizations are. I mean, Viewpoint was certainly a smaller organization. So again, it'll fold really nicely into our team, as I said, who's really excited to have their Viewpoint colleagues join them. But it's not, I'll say this, it's not a major expansion of our sort of commercial footprint. but I would say the energy behind it will certainly make up for that.
James Sidoti: Okay, so the big jump to revenue in 2027, that's not because of increased distribution. You think that's because of increased product awareness?
Martha Aronson: Correct. It's increased product awareness, and it's being able to have options as you go into each and every account, and it's some really excellent account planning and targeting that our team is undertaking.
James Sidoti: All right, thank you.
Martha Aronson: Thanks, Jim.
Operator: Thank you.
Operator: And our next question comes from John Young of Canaccord. Your line is open.
John Young: Hi, guys. Thanks for taking the question, and congratulations on the quarter. Martha, I just wanted to ask, you know, when you came into the seat, just there was an emphasis on OUS growth of your background. Any updates on the progress or changes that you've made there? I know in the script you spoke about some alignment changes. Has compensation since changed at all for the reps?
Martha Aronson: So, no. As we go into 2026, there have not been any significant comp changes for our reps. I mean, I will say, you know, you've heard Raul talk about our gross margin improvement. I would say over the last several years, this organization has done a really nice job you know, making sure our team knows which products to keep focused on. And we really are pushing a bit more emphasis on some of our higher margin products. So, you know, there's certainly that. And I would just say, you know, in general, right, I mean, we do have about 40% of our revenue is outside the United States. And, again, as you heard, our international teams continue to do a really nice job for us. So, So I'm quite pleased with that.
John Young: Great, thanks. And then just looking perhaps for any additional color on the endoscopy segment and any progress that you guys made in the quarter on the integration and training of that sales force. Thanks again for taking the questions.
Martha Aronson: Yeah. So, you know, we're really excited about the endoscopy platform, right? I mean, so we brought in, you know, the C2 cryo balloon acquisition, which is so far, you know, doing better than our high-end expectations. So we're really pleased about that. And then, as you probably saw, we announced a new product. And we mentioned it in the script, right? The resilience product, which is this through the scope esophageal stent. So this is a really nice market for us. It's sub 100 million, you know, size in terms of market. But again, that's, you know, in the world of merit medical, that's a really nice market sort of space for us. So this is a great stent. And it's actually because physicians get to, you know, put it in through a scope. They feel like they have a lot more control and accurate placement. And most importantly, what the feedback we've gotten initially is that it's not moving once it's there. So migration has really been an issue with the number of the stents that are out there in that market. So again, we're really excited about the opportunity for resilience and frankly, the endoscopy business in general. And in fact, next week, I'll be at Digestive Diseases Week with the team, which is one of their big shows, more on the GERD side of things. But Again, all across endoscopy, we're very pleased.
Raul Lopez: Maybe I'll add a little color. You know, as hopefully you guys saw last year, I think that, you know, our endoscopy team just got better every quarter and, you know, as they integrated and learned how to sell, you know, kind of both bags essentially. You know, Q1 was mid-teen, you know, growth. So, you know, really strong performance by them and You know, they're excited about what they're doing, which makes us excited about, you know, the potential that they have.
John Young: Great. Thank you.
Operator: Thank you.
Operator: And our next question comes from Jason Bedford of Raymond James. Your line is open.
Zach Holdon: Hey, Raul. Hey, Martha. Zach Holdon for Jason Bedford here. Thanks for taking the question. So you guys have talked about being open to deals that are somewhat larger than historical tuck-ins. And, you know, of course, we saw the viewpoint deal. As you look at the pipeline, can you remind us what those key areas are for the next deal? And then kind of in terms of sizing, you know, would you say viewpoint is a good proxy for deal characteristics and size in terms of just helping us level set expectations and acquisitions? Thank you.
Martha Aronson: Yeah, thanks. Appreciate the question. Look, I mean, I think, you know, doing deals is not something where you get to say, I want to do something of exactly this size, you know, at this time to add precisely to this particular platform. That would be great, right? That would be a lovely world in which to live. But unfortunately, you know, that's not reality. So, you know, we're not going to put sort of a number around, you know, size of deal, if you will. As I said, we're looking at a lot of things. This company has grown a lot through acquisition. We plan to continue to do that. Again, I think it's really important to think of it in terms of tuck-ins or bolt-ons, nothing transformational, and every deal has to have a lot of strategic fit. As we're talking about, when we look at these platforms, Part of what's exciting about this platform structure that we're using is I am looking to each platform to have a lot of conviction around any proposed deal, right, because they're going to own it. And that's the way we're building up these various business lines. it's really critical that they believe in it and they have done the work and the analysis. We do a lot of that here kind of at corporate as well, right? But that's the way we're really thinking about acquisitions going forward. So it's got to be strategic, and then it's got to fit certain financial metrics that we've got in place as well. Certainly being margin accretive would be one of them.
Zach Holdon: Okay, that makes sense. Appreciate that color there. And then if I can ask the second one here, just curious on that Medtronic distribution deal you guys did during the quarter, is there any stocking tied to that? Like, yeah, is there stocking tied to that and then, you know, sort of a material impact for you guys on growth that comes from this agreement?
Raul Lopez: There is, you know, obviously, you know, they're going to gear up, you know, and we're not going to give details. I mean, this is, you know, it's not in, you know, our practice to, you know, to talk about our customers, you know, what they're going to do and, you know, how they're going to launch. I would just say that we're really excited for our OEM division. And, you know, I think they've done a good job of working with, you know, with our OEM partners and customers on finding opportunity. And this happens to be one of them. It is built into our into our guidance for the year, which again gives us a high level of confidence in that, you know, mid single digit, you know, growth that we expect at OEM. So, you know, I think, you know, we're excited for them, you know, and I know there's been a lot of comments around OEM. I can tell you that, again, we have a high level of confidence in their performance for the rest of the year.
Martha Aronson: Yeah, and I think this is, I mean, it's actually, it's just a really good example, right? I mean, this is, when we say OEM is lumpy, you know, this is kind of a good example of it, right? I mean, and as you saw, you know, Medtronic put out a press release on it, right? I mean, we have a relationship with them. They've been an OEM customer as they shared in their press release, you know, but these things, you know, they ebb and flow a little bit, right? So I think as Raul said, though, we are, we're very excited and this definitely is a factor in us you know, in our gaining confidence on our OEM platform for this fiscal year.
Zach Holdon: Thanks, guys.
Operator: Thank you.
Operator: And our next question comes from Mike Mattson of Needham & Company. Your line is open.
Mike Mattson: Yeah, thanks. So, I just want to ask one on capital allocation and I mean, I understand you're focused on M&A and that's kind of been the priority, but the stock is pretty beaten up, pretty cheap here. So, you know, would you consider doing a share repurchase at all?
Raul Lopez: Look, I think, you know, obviously that's a board level decision. You know, I don't want to speak on their behalf. You know, I think for now, you know, with our net leverage ratio of 1.6, A lot of opportunity out there from an M&A perspective. We continue to, I think, conserve cash. We continue to generate strong free cash flow, as you guys saw, almost approximately $25 million for the first quarter, which was a really strong increase over prior Q1 of 2025. So for now, we're just focused on CGI. We're focused on our free cash flow goals. And, you know, we are focused on delivering, you know, long-term sustainable growth.
Mike Mattson: Okay. Got it. I'll leave it there. Thanks.
Operator: Thank you. This concludes our question and answer session. I'd like to turn it back to Martha Aronson for closing remarks.
Martha Aronson: Well, look, just want to say thanks, everybody. Appreciate you dialing in today. And as I said, pleased with our strong start to 2026. And as I said, feel good about tracking nicely to our CGI goals. And most importantly, I do want to thank our team who's so committed to helping patients all around the world. So again, thanks, everybody, for joining us today.
Operator: This concludes our conference call for today. Thank you for your participation.
