Merit Medical’s Earnings Call: Growth Amid Challenges

Merit Medical ((MMSI)) has held its Q1 earnings call. Read on for the main highlights of the call.

The recent earnings call of Merit Medical Systems painted a picture of robust revenue growth and improved operating margins, particularly in the U.S. market and the Cardiovascular segment. Despite these positive developments, the company faces significant hurdles due to the impact of tariffs, especially in China, leading to a reduction in EPS guidance for the year. While the company remains optimistic, it is navigating a challenging macroeconomic environment.

Revenue Growth Exceeds Expectations

Merit Medical reported total revenue of $355.4 million for Q1 2025, marking a 9.8% increase year-over-year on a GAAP basis and a 10.9% rise on a constant currency basis. This performance surpassed growth expectations, showcasing the company’s strong market position and effective strategies.

Significant Improvement in Operating Margin

The company achieved a notable improvement in its operating margin, with a non-GAAP increase of nearly 230 basis points year-over-year to 19.3%. This set a new first-quarter record for Merit Medical, reflecting enhanced operational efficiency and cost management.

Strong Growth in Cardiovascular and OEM Segments

The Cardiovascular segment experienced a 9% growth, while OEM product sales surged by 21% in Q1 2025. These segments have been pivotal in driving the company’s overall growth, highlighting their importance in Merit Medical’s portfolio.

Positive U.S. Market Performance

Sales in the U.S. market increased by 14% on a constant currency basis, exceeding expectations by 170 basis points. This growth underscores the company’s strong foothold in the U.S. and its ability to capitalize on market opportunities.

Free Cash Flow Guidance Reaffirmed

Merit Medical reaffirmed its guidance for free cash flow, expecting to generate at least $150 million for the fiscal year 2025. This projection indicates the company’s confidence in its cash-generating capabilities despite external challenges.

Tariff Impact on Earnings

The company projected that tariffs would increase costs by $26.3 million, primarily affecting its business in China. This has been a significant factor in the reduced EPS guidance, highlighting the impact of global trade policies on Merit Medical’s financial performance.

Decline in China Sales

Sales in China decreased by 10%, attributed to the broader macroenvironment. This decline reflects the challenges faced by the company in navigating international markets amid geopolitical tensions.

Lowered Non-GAAP EPS Guidance

Due to the impact of tariffs, Merit Medical lowered its non-GAAP EPS guidance for 2025 from $3.58-$3.70 to $3.29-$3.42. This adjustment underscores the financial pressures exerted by external economic factors.

Challenges in Endoscopy Segment

The Endoscopy segment experienced flat growth year-over-year on an organic basis, indicating challenges in this area. The company may need to reassess its strategies to drive growth in this segment.

Decreased Free Cash Flow in Q1

Free cash flow for Q1 2025 was $19.5 million, a 20% decrease year-over-year, primarily due to increased capital expenditures. This decline highlights the need for careful financial management to sustain cash flow levels.

Forward-Looking Guidance

Looking ahead, Merit Medical provided guidance for fiscal year 2025, anticipating total net revenue growth on a GAAP basis to range from 8% to 10% year-over-year. The Cardiovascular segment is projected to grow by 7% to 9%, and the Endoscopy segment by 34% to 37%. Despite a foreign currency headwind of approximately $4.9 million, the company maintains a strong outlook with expected non-GAAP operating margins of 17.6% to 18% and free cash flow of at least $150 million for the year.

In conclusion, Merit Medical’s earnings call revealed a company experiencing strong growth and improved margins, particularly in the U.S. and Cardiovascular segments. However, challenges such as tariffs and declining China sales have led to a cautious outlook with adjusted EPS guidance. The company remains optimistic about its future performance, focusing on strategic growth and operational efficiency.