Merit Medical Earnings Call Highlights Profitable Growth

Merit Medical ((MMSI)) has held its Q4 earnings call. Read on for the main highlights of the call.

Merit Medical’s latest earnings call carried a distinctly upbeat tone, as management highlighted double‑digit revenue growth, record margins, and standout free cash flow that all topped prior guidance. Executives balanced this optimism with a frank discussion of tariffs, OEM destocking, and China headwinds, yet framed these as manageable obstacles against a backdrop of disciplined execution and a solid balance sheet.

Revenue Surges Past Expectations in Q4

Merit reported Q4 2025 revenue of $393.9 million, up 11% year over year on a GAAP basis and 10% in constant currency, underscoring resilient demand. Organic constant‑currency growth of 6.6% modestly beat guidance, signaling that core product momentum remains intact despite pockets of softness in OEM and certain international markets.

Margin Expansion Underscores Operating Discipline

Profitability was a standout, with Q4 non‑GAAP operating margin rising 138 basis points to 21.0% and gross margin climbing 103 basis points to 54.5%, the highest in company history. Management attributed this improvement to mix benefits, manufacturing efficiencies, and pricing discipline, partially offsetting cost pressures from tariffs and operational investments.

Earnings and Free Cash Flow Hit Record Levels

Non‑GAAP EPS grew 12% year over year in Q4 and came in above the high end of guidance, reflecting both top‑line strength and tighter cost control. Free cash flow reached a quarterly record of $74 million, up 13%, reinforcing Merit’s ability to self‑fund growth initiatives and selectively pursue M&A while keeping leverage in check.

Full‑Year Results Beat High End of Targets

For 2025, Merit delivered 11% constant‑currency revenue growth and expanded non‑GAAP operating margin to 20.3%, up 131 basis points. Free cash flow of nearly $216 million rose 16% and surpassed the company’s original $150 million target, as management consistently out‑executed its own guidance on growth, profitability, and cash generation.

Cardiovascular and Endoscopy Drive Growth Engine

Product and segment performance was broad‑based, with Cardiovascular revenue up 9% and Endoscopy up 15% in Q4, highlighting durable demand in key therapeutic areas. Within CV, Cardiac Intervention sales jumped 21% (12% organically), while Peripheral Intervention advanced 13%, fueled by radar localization and delivery systems growing more than 25% year over year.

Balance Sheet Strength Supports Strategic Flexibility

As of year‑end 2025, Merit held $446.4 million in cash and equivalents against $747.5 million of total debt, plus roughly $697 million of available borrowing capacity. The adjusted net leverage ratio of 1.6x leaves ample room for continued investment, opportunistic acquisitions, and potential capital allocation options without straining the balance sheet.

Platform Strategy and Leadership Transition on Track

Management emphasized strategic progress, noting that the CEO transition and new operating structure are complete and that products are now aligned under foundational and therapeutic platforms. The company reiterated multi‑year CGI objectives, including 5%–7% organic revenue CAGR, non‑GAAP operating margin of 20%–22%, and cumulative free cash flow above $400 million through 2026.

OEM Weakness and Destocking Weigh on Growth

One key blemish in the quarter was OEM, where sales declined 15% versus expectations for low single‑digit growth, reflecting both U.S. destocking and softer international demand. Management portrayed the issue as largely cyclical and inventory‑related rather than structural, but acknowledged that near‑term OEM trends will remain a drag on reported growth.

DualCap Divestiture Creates Near‑Term Revenue Headwind

Merit’s sale of the DualCap product line for $28 million removes roughly $20 million of 2025 sales from future comparisons, creating a modeling overhang for 2026. The company expects this move to shave about 140 basis points off consolidated constant‑currency growth next year, and about 240 basis points off U.S. growth, even though it views the divestiture as strategically sound.

Tariff Headwinds Add Margin and EPS Uncertainty

Tariffs were a meaningful drag in Q4, contributing roughly 112 basis points of incremental pressure year over year and complicating the margin narrative. For 2026, Merit is assuming a roughly $15 million tariff hit over 12 months plus additional trade‑related EPS drag, injecting an element of uncertainty into otherwise steady margin expansion plans.

Q1 2026 Guidance Signals Softer Start to the Year

Near‑term, management guided Q1 2026 revenue to $375–$380 million, implying 6%–7% GAAP growth but only about 2%–3% organic constant‑currency growth when excluding acquisitions. Non‑GAAP operating margin is expected to slip to 16.7%–18.5% from 19.3% a year ago, as seasonality, tariffs, and timing of expenses compress profitability before recovery later in the year.

China and International Markets Remain Uneven

China revenue declined around 2% in 2025, in line with internal expectations but still a drag, as volume‑based purchasing and macro pressures weighed on demand. These dynamics contributed to mixed performance outside the U.S., and management suggested international volatility could persist even as core franchises continue to grow.

Operational and Cost Pressures Temper Near‑Term Margins

The company noted lingering supply chain challenges and vendor consolidations that caused intermittent disruption and “lumpiness” in deliveries and product availability. Operating expenses also rose 10% in Q4, with SG&A and R&D both up high single to low double digits, reflecting investment in growth but also putting pressure on near‑term operating leverage.

Rhapsody Commercialization Still in Early Stages

Rhapsody, Merit’s U.S. CIE product, is projected to generate about $7 million of revenue in 2026 versus $3 million in 2025, adding roughly 25 basis points to growth. Management characterized the launch as early and modeled the ramp conservatively amid competitive dynamics, suggesting upside is possible but not yet embedded in long‑term expectations.

Guidance Points to Steady 2026 Growth with Higher Margins

For 2026, Merit forecasts GAAP revenue growth of 6%–8%, or 5%–7% in constant currency, including $13–$15 million from recent BioLife and C2 acquisitions and roughly 4.5%–6% organic constant‑currency growth. Non‑GAAP EPS is expected to rise 5%–8% to $4.01–$4.15 with operating margin expanding to about 20.6%–21.0% and free cash flow of at least $200 million, despite assumed tariff and trade headwinds.

Merit Medical’s earnings call painted a picture of a company executing well on its core franchises, widening margins, and generating robust cash even as it navigates OEM softness, tariffs, and China‑related pressures. For investors, the story is one of steady, not spectacular, growth where disciplined operations and a strong balance sheet help bridge near‑term bumps while management pursues platform expansion and measured M&A to support long‑term value creation.